Menlo shares dive after itch drug fails in atopic dermatitis

CEO Steve Basta. (Image: Menlo Therapeutics)

It’s a case of “two out of three ain’t bad” for Menlo Therapeutics, which says it isn’t letting a failed trial in atopic dermatitis derail its plans for main drug candidate serlopitant.

The potential implications of the failure weighed heavily on investors, however, and shares in the California biotech slumped more than 50% in premarket trading, likely on concerns that the setback could have an impact on other indications such as psoriasis and cough.

The NK-1 receptor antagonist, a once-daily drug intended as a treatment for pruritus (itch), was unable to meet any of its primary or secondary endpoints in the phase 2 MTI-103 atopic dermatitis trial, although Menlo says there was a trend towards improvement “above the placebo group at every timepoint”.

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Steve Basta, the company’s CEO, said on a conference call that the result should be put in the context of two prior positive phase 2 trials in chronic pruritus and prurigo nodularis that given the high statistical significance “couldn’t have happened by accident.”

He added that Menlo will proceed as planned with two phase 3 trials of serlopitant in that indication later this quarter, eyeing an FDA filing in 2020. In the meantime, the biotech is waiting on read-outs from phase 2 trials in refractory cough and pruritus associated with psoriasis, due in the fourth quarter and late-2018/early-2019, respectively.

“While the treatment effect was smaller [in atopic dermatitis], we are confident serlopitant has a clear benefit on pruritus”, said Basta, who thinks the company remains on track to be ready for filings in all three remaining indications in 2020.

Paul Kwon M.D., Menlo’s chief medical officer, added that both atopic dermatitis and psoriasis are inflammatory dermatoses but have different underlying biological characteristics, so it would be premature to draw any conclusions about the psoriasis program’s prospects.

The failed trial in such a large potential indication for serlopitant is nevertheless a blow to Menlo, and Piper Jaffray analyst David Amsellem said it was a “big disappointment” even if it does not by itself “call into question the overall viability of serlopitant as an anti-pruritic agent.” Meanwhile, analysts at Jefferies downgraded Menlo to ‘hold’ from ‘buy’ after the news broke.

Fresh from its $98 million IPO, Menlo does at least have the cash it needs to continue to bring the program forward. Basta said the biotech currently has more than $175m in cash, which is enough for around two years of operations and should be sufficient to complete the phase 3 prurigo nodularis trials and phase 2 refractory cough and psoriasis studies.

Menlo licensed the NK1 antagonist from Merck & Co in 2012.

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