Ventrus Struggles to Reassure Street After Loss of Hemorrhoid Drug

7/3/12Follow @arleneweintraub

When New York-based Ventrus Biosciences went public in December 2010, the promise that the company might have the first FDA-approved prescription drug to treat hemorrhoids sent the stock from $6 to as high as $21 a share, before it settled into a trading range of $10 to $12. So when Ventrus (NASDAQ: VTUS) announced on June 25 that the hemorrhoid drug just didn’t work any better than a placebo did in the pivotal trial necessary for FDA approval, investors bailed out big time—pounding shares from $12.26 to $5.02 in a single day.

Ventrus has two other products in its pipeline, but virtually no one on Wall Street has been paying much attention to them. That’s because hemorrhoids are a rich market opportunity: Since there are no other prescription products on the market, and over-the-counter creams like Preparation H merely mask symptoms, some analysts predicted Ventrus’s drug, called iferanserin, would pull in at least $600 million a year. That opportunity went up in smoke with one sad press release.

With the stock now trading around $4.25 a share, Ventrus CEO Russell Ellison is in the unenviable position of having to persuade analysts of the value in the company’s two remaining drugs. We here at Xconomy initially followed Wall Street’s lead and only focused on the hemorrhoid product when we first profiled Ventrus last summer. So we were eager to hear Ellison’s take on his small company’s harrowing fall. “When we got the data, we were shocked and very disappointed,” he says. “But we’re moving on.”

Ellison is primarily banking on a topical cream, diltiazem, which Ventrus is developing to treat a painful condition called anal fissures. In May, Ventrus announced that the drug performed well against placebo in a late-stage trial. Ellison says the company will soon meet with the FDA to determine whether it can file for approval based on the single study. If the agency is on board with that idea, Ellison says, Ventrus could file for approval in the first quarter of next year and would likely have a verdict in early 2014.

But diltiazem is far from a sure bet. Ellison says the regulatory history for drugs in this class has been “arduous.” So Ventrus will go ahead and start a second study of the drug soon, even if the FDA says the first study is enough. That way, if the agency comes back and asks for more data after it reviews that first trial, the company will be ready, Ellison says. “Ideally we’ll have no more than a half-year delay if the FDA needs to see another study,” he says.

Still, the market opportunity for diltiazem pales in comparison to that of the hemorrhoid treatment. Jason Gerberry, an analyst for Leerink Swann, estimates the drug could be bringing in only about $42 million in annual sales by 2019. That’s why Gerberry dropped his price target on the stock from $24 to $9 in a June 25 report.

One thing Ventrus has going for it is a strong cash position. The company raised $17 million in its IPO, and another $45 million in a secondary offering. “Unlike most situations where the lead program blows up, we have enough cash to take [diltiazem] all the way through approval,” Ellison says. “That’s true even if we don’t file until the second study is completed.”

Ventrus, however, does not have sufficient cash to fully develop its other product, a gel called phenylephrine to treat fecal incontinence associated with certain surgical procedures. The company is in mid-stage trials of the initial formulation, Ellison says, but its scientists are trying to develop a second formulation that would not only improve the dosing, but would also extend the product’s patent beyond its current 2017 expiration date. “That work is very inexpensive,” Ellison says, “but we don’t have the money to launch a clinical trial program.” He says Ventrus will continue to work on improving the drug, and then determine the best path forward for it.

As for the hemorrhoid product, Ellison says Ventrus is doing a lot of analysis to try to figure out why it performed well in mid-stage trials but failed the all-important pivotal study. That work will include parsing out the specific characteristics of the patients to see if there is some sub-set of people who might do well on the drug. “There may be something there, if not for us, than for others” who may want to consider further development, Ellison says.

Investors hoping for a sign that they should get back into Ventrus’s stock will have to wait a few months. Ellison says he’ll be ready to talk about the company’s meeting with the FDA in late September or early October. Only then will it become clear whether Ventrus’s No. 2 drug candidate will be enough to at least partly make up for what might have been. “There were a lot of investors that were in our stock because they were looking at the hemorrhoid opportunity,” Ellison says. “Their reaction to this is understandable.”

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