United Press International - December 21, 2006
Steve Mitchell, UPI Senior Medical Correspondent

Panacos shares plunged nearly 31 percent Wednesday due to preliminary results from the trial indicating the plasma concentrations of the drug were lower than expected.

Although the data confirmed the anti-viral activity of bevirimat -- the first in a new class called maturation inhibitors -- only two of 12 HIV patients receiving the drug achieved an undetectable level of virus.

"The market didn't expect this," Dough Chow, an analyst with Caris, told United Press International, adding that the company and analysts were anticipating bevirimat would deliver a greater reduction in viral load than that seen in the phase 2b trial.

However, the lackluster results probably represent only a delay and not the end of the drug, Chow said.

"There may be ways to get around this issue," he said. It may be as simple as coming up with a new formulation of the drug, such as twice-daily dosing or a liquid version, which could mean a delay as short as three months or as long as 12 months.

"Our best guess is probably about a year," Chow said.

Panacos said higher doses of bevirimat may resolve the issue and is requesting permission from the Food and Drug Administration to begin examining that in the phase 2b trial.

"Overall, the data are consistent with the relationship between plasma concentrations and response that we have seen previously, and we believe the results support going to higher doses, potentially with alternative formulations, with the aim of generating greater responses," said Graham Allaway, Panacos' president and chief operating officer.

"We are submitting a proposal to the FDA designed to continue bevirimat dose escalation in Phase 2b as soon as possible while we continue to develop an optimized formulation of bevirimat for commercialization," Allaway added.

Panacos has several compounds in the pre-clinical stage, but it's largely a bevirimat story.

"They're one of those biotech companies where most of the emphasis is really on the lead compound," Chow said, adding that this is the reason these phase 2 results are having such a big effect on their stock. The share price began the week at more than $6 and was at just over $4 in Thursday trading.

Financially, Panacos is stable, with close to $50 million in cash, or a sufficient amount to go for another two years, he said.

Its most promising pipeline candidate is a second-generation version of bevirimat. "We're expecting them to file an IND for that maybe in the next quarter," Chow said.

Jason Kantor, an analyst with RBC Capital Markets, told UPI the phase 2 findings leave a lot of uncertainty about how the company will proceed.

"The results were very disappointing," Kantor said, adding that he's not convinced the company has determined what the problem was.

"My concern is not just the delay, but the added uncertainty that we still don't understand really what went wrong," he said. "They're going to have to do additional work to figure that out," which could lead to a yearlong delay and increased regulatory risk, he said.

Kantor said that while he thinks this is most likely a formulation issue and bevirimat has adequate clinical activity against HIV, the latter can't entirely be ruled out.

"If it turns out it's a problem with the drug itself, that's more problematic," he said.

It's now a wait-and-see situation. Panacos' interaction with the FDA is the next important step because the company can't really move forward without the agency's approval, he said.

"I would also be interested in further data disclosure about the phase 2b results," Kantor said.

However, Ed Nash, an analyst with Stifel Nicolaus, was more positive about Panacos. Nash thought the problems would be easily resolved and reiterated his "buy" rating of the stock.

"We believe the data is strong with regard to viral load reduction and the only issue is a 'fixable' one, which is formulation to achieve normalized, expected plasma concentrations," Nash stated in a research report.

He noted that he anticipated this problem as the company switched from a liquid formulation used in a previous phase 2a study to the tablet formulation used in the phase 2b study because the bioavailability of the tablet is only about 60 percent of the liquid.

Nash reduced his fourth-quarter and full-year earnings-per-share estimates -- from $0.25 to $0.20 and from $0.88 to $0.79, respectively -- but remained confident in the future of Panacos.

"We remain bullish on shares of Panacos and reiterate our 'buy' rating and would be buyers on any weakness," he stated.
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