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With Second Eye Drug Flop, Eleven Heads Back to Drawing Board

Xconomy Boston — 

Eleven Biotherapeutics started out with a plan to make a portfolio of custom-designed protein drugs for a range of diseases before it changed course and started focusing exclusively on eye drugs. The strategy initially paid off, too: The Cambridge, MA-based company went public in February 2014 on the strength of some early data for a prospective eye drug.

Since then, however, the narrative has changed. After the markets closed late Friday afternoon, Eleven (NASDAQ: EBIO) disclosed that that drug, known as isunakinra (formerly EBI-005), failed its second Phase 3 trial in seven months. In May, isunakinra failed a test in dry eye. This time around, it missed its mark in a study of patients with a moderate to severe form of conjunctivitis—itchiness and discomfort commonly called pink eye—caused by allergies, rather than viruses or bacteria.

As was the case in a prior late-stage trial in severe dry eye disease, isunakinra wasn’t any better than a placebo. It didn’t beat a placebo at reducing itching in the eye, the study’s primary goal, or have a statistically significant impact on any secondary goals, like tearing and redness.

Shares of Eleven opened up at just $0.83 apiece on Tuesday, down more than 64 percent from a $2.34 close on Friday afternoon, just before the release went out. The company went public at $10 per share in February 2014.

Eleven would have run a second Phase 3 trial in pink eye had it seen positive signs in this trial. Instead, the company sees “no immediate path forward” in the disease, and is shelving isunakinra altogether, according to a statement. As a result, the firm has now essentially reverted to being a preclinical company. It’s putting its cash behind a drug, EBI-031 for diabetic macular edema, that hasn’t begun its first trial yet.

An Eleven spokesperson said Tuesday morning that the company isn’t conducting any interviews, but is considering “various business development and financing approaches” going forward.

Isunakinra is a protein drug formulated as an eye drop that is designed to block two types of interleukin-1 (IL-1) receptors thought to cause problems in diseases associated with the surface of the eye. EBI-031 is supposed to block another protein, IL-6, which has been linked to inflammation and retinal damage in diabetic macular edema, a common cause of vision loss in the U.S. (Eleven also aims to test the drug in uveitis, or inflammation in a part of the eye called the uvea).

Both isunakinra and EBI-031 were created by Eleven, which started out in 2010 aiming to develop a portfolio of custom-designed protein drugs for a broad range of diseases. The company shifted gears in 2011 when CEO Abbie Celniker came aboard, instead using its platform to develop eye drugs. Isunakinra, for instance, was designed to challenge Allergan’s blockbuster dry eye drug, an eye drop form of the antibiotic cyclosporine (Restasis), by affecting not just the inflammation of the eye, but the pain that comes with it.

Investors were lukewarm on the concept. Eleven completed an IPO in September 2014 and raised $50 million, but priced its shares below its projected range. Now that isunakinra has failed two Phase 3 trials and EBI-031, according to Leerink Partners analyst Jason Gerberry, has “no clinical data or catalysts in an investable timeframe,” Gerberry downgraded the stock and expected it to trade at or below cash levels of $1.09 a share.

Eleven had $36.1 million in cash as of Dec. 31, and said in the statement that it currently has enough to get it to the fourth quarter—presumably enough time to get EBI-031 into its first clinical test. Will that be enough to keep Eleven afloat? The company said that it will provide an update on its corporate strategy when it holds a conference call for its next quarterly results in March.

The company’s struggles are a blow for two of the Boston area’s best known biotech startup creators. Third Rock Ventures and Flagship Ventures, Eleven’s founding investors, have seen a number of their portfolio companies go public with big valuations, and have used those successes to raise new funds. Third Rock was a key investor in Bluebird Bio (NASDSAQ: BLUE) and Agios Pharmaceuticals (NASDAQ: AGIO) for instance; even after a down year, both still trade far above their IPO prices. Flagship started Seres Therapeutics (NASDAQ: MCRB), which is worth close to double its IPO price. And both helped start Editas Medicine, which could soon be the first company based on CRISPR-Cas9 gene editing to go public when it holds its much-anticipated IPO.

Third Rock held 25 percent of Eleven’s shares according to a May 7 SEC filing—before the dry eye data. Flagship owned 17.4 percent of the company on that date. Both were by far its most significant shareholders at the time.