Whatever the future holds for treatments in severe asthma, Cytos Biotechnology’s CYT003 will not be a part of it. The Swiss group announced the bioengineered vaccine has failed to measure improvement over placebo in asthma control in a phase IIb trial, prompting it to pull the plug on research and look at liquidation.
Shares crashed 95% to SFr0.14, valuing the company at just under SFr4m ($4.5m), a fraction of its SFr31m cash on hand. While management is still reviewing its bankruptcy options, it has begun the process of sacking its 36 employees as it seeks to cut costs.
All about the bonds
While clinical failure is a risk all development stage biotechnology companies must run, the consequences of failure are seldom as stark as those suffered by Cytos. The company had for some time made clear that success of CYT003 in study 12 would be necessary to guarantee its continued solvency, by either driving an increase in valuation to help support future fundraising or by snagging a partner.
The company’s most recent annual report laid this fact out, as did accountants PriceWaterhouseCoopers in their accompanying auditors’ letter.
The problem is SFr22m in convertible debt due to existing shareholders in February. Without positive data in allergic asthma, Cytos cannot expect to raise the funds to pay the debt back nor expect the shareholders to want to convert the debt into more equity.
In a blunt announcement that CYT003 had failed, Christian Itin, chairman and chief executive, said Cytos does not have the money to pay convertible debt held by non-shareholders, nor does it expect to be able to pay a liquidation dividend.
The line in the sand
Study 12 enrolled 365 asthmatics and hoped to demonstrate a significant improvement on patients’ asthma control questionnaire over a year. No such improvement was seen.
CYT003 was not the only vaccine in the asthma pipeline, but was the only one targeting the toll-like receptor-9 pathway, which detects microbial DNA and induces immune response to bacterial infection. CYT003 is a subcutaneously injected biological carrier filled with an antagonist to toll-like receptor-9, and the hope was it could combat this immune response, thereby treating uncontrolled allergic asthma.
Despite the increasing number of effective inhaled drugs likely to become genericised in coming years, severe asthma remains an area of enthusiastic clinical development. Antibodies targeting the interleukin pathway are creeping closer to the market (Roche breathes easier with positive data for severe asthma drug, March 5, 2014); meanwhile, Merck & Co and Alk-Abelló’s Grastek is in a large asthma prevention trial in allergic children.
Like many European biotechs, Cytos has not rocketed in the last two years as part of the biotech bull market, a fact its employees may rue today – a steady increase in valuation might have allowed more fundraisings through share sales. On the other hand, like Norway’s Clavis Pharma before it, drawing a line in the sand on a company’s success or failure seems to be a bit more fashionable in Europe, and investors may be better off for it.