ARYx still walking a tightrope

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Shares in ARYx Therapeutics have made a remarkable turn around in the last week, almost completely recovering from the news that Procter & Gamble had unexpectedly decided to return the rights to one of its lead programmes, a development which erased more than a third from the US drug developer’s market value last month.

The resurgence is surprising because not much has changed since that fateful announcement at the beginning of July. Second-quarter results last week confirmed that its other two programmes are on track, and that the company has stepped up efforts to find partners for them, in an attempt to avoid asking shareholders for more cash. Growing confidence in the company’s ability to do that may be stoking investor interest, but the group is still treading a fine line in terms of financing.

Shares in the NASDAQ-listed company were trading at $8 before the P&G set back, touched a low of $4.53 in the following weeks, and last Friday closed at $6.36. Second-quarter results were definitely the trigger, although little has changed since the group held a conference call to discuss the P&G situation. (See EP Vantage: ARYx seeking knight in shining armour, July 4, 2008)

All on track

The company confirmed that a phase II/III study of its most valuable project, blood thinner ATI-5923, is on track to report in the second quarter of 2009. It did add that a pilot study had recently completed successfully, giving the group confidence that the bigger trial, in 600 patients, will be successful.

ARYx also said a phase II trial of its second candidate, anti-arrhythmic ATI-2042, is on track to report by the end of the year. With $47m cash in the bank, the group has sufficient funds to last through the second quarter of next year.

The company still believes a deal for ATI-2042 will have to be struck with the full data in hand to extract maximum value, but that with ATI-5923 a partnership ahead of the results might be possible. However, it reiterated that extracting full value from the project is its priority, and that if a suitably priced deal does not emerge, it will raise money to keep going.

Thus the timing of the trial results and its cash runway does not give the company much wriggle room. The shares may have gone up on relief that a fundraising did not accompany the results, but next quarter the situation may be different, if deal talks have not progressed as well as planned. A dilutive financing will probably not be the first option, perhaps some sort of bridging loan first, but shareholders are certainly not out of the woods yet.

Proving a negative

There is also another aspect to consider. ARYx's pipeline is derived from its proprietary RetroMetabolic Drug Design technology, which creates structurally related molecules to drugs already on the market that retain efficacy of the original version, but are metabolised through safer pathways to avoid side effects. ATI-5923 is an oral anti-coagulant based on warfarin and ATI-2042 an oral anti-arrhythmic based on amiodarone.

Central to their value is a claim to be safer, with no safety issues, and proving a negative is much harder than proving a positive, such as an efficacy advantage. This could have both regulatory repercussions, in the sense of gaining approval and what label the FDA will approve, and commercial implications.

If they make it to market, these drugs will not only be up against entrenched competition from the original drug, available generically, but also newer, more novel therapies. For example marketing a “safer version of warfarin”, when drugs such as Boehringer Ingelheim’s Pradaxa is available and offering both improved safety and efficacy, could be a hard sell.

It means the ARYx drug will have to be priced at a discount to newer therapies, a positioning which will appeal to some players, but not all.

Should a partner be signed up, it will be interesting to see what commercial value they see in the products. While many analysts believe both ATI-5923 and ATI-2042 have blockbuster potential, the quality of any partner found in terms of the size of its primary care sales force will be a good indicator of whether the industry agrees.

The potential is clear in ARYx and its pipeline, but it has all the hallmarks of a high risk drug developer: limited cash, all its value in two products, and hugely pivotal events on the horizon. Therefore, the recent volatility in the shares look set to continue over the next 12 months.

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