UPDATED: Insmed faces another setback as lead therapy flunks PhII lung study

Insmed is once again hustling to put the best spin possible on a clinical study of its only therapy. 

The Monmouth Junction, NJ-based biotech ($INSM) acknowledged that its Phase II study of the inhaled antibiotic Arikayce for nontuberculous mycobacterial (NTM) lung infections failed the primary endpoint--a reduction in bacterial density used as a measure of infection. But the company immediately switched gears, saying that it plans to ask the FDA for the agency's breakthrough drug designation after recording positive secondary data. 

Insmed's stock immediately plunged 26% in premarket trading, but analysts close to the company quickly issued some upbeat assessments which helped pull back the losses to a mere 5%.

Investigators say that 11 of the 44 patients in the Arikayce arm of the NTM study posted negative cultures, compared to three of the 45 patients in the placebo arm. That was a "clinically relevant" result that warranted the BTD, according to Insmed.

Last summer the biotech's share price was hammered after it posted head-to-head Phase III results for Arikayce against Tobi, a twice-daily antibiotic from Novartis ($NVS) used to prevent lung infections in high-risk CF patients. Tobi actually did a little better than Arikayce but the experimental therapy with the easier dosing schedule was statistically noninferior. Investors blew right past the company's optimism and the stock price was battered.

Joseph Schwartz at Leerink, which has been a book-runner for the company, was ready with a prepared note this morning praising the biotech for the results and pumping its prospects,

"Although Arikayce did not show significance on the primary endpoint of bacterial reduction, we believe this is a less validated and sensitive measure and that success on the more stringent secondary endpoint of culture conversion to negative derisks the program significantly," wrote the Leerink analyst. "We have previously assumed a 60% probability of accelerated approval, 20% probability of approval after another Phase III trial, and a 20% probability of outright failure. The latter downside scenario has been removed, in our view. We believe that accelerated approval is still possible, and a Phase III program has been de-risked so the stock should still trade up on these results."

"While ARIKAYCE did not achieve statistical significance on the primary endpoint of bacterial density reduction, we are very pleased by the greater number of culture conversions among patients receiving ARIKAYCE," Insmed CEO Will Lewis said in a statement on Wednesday. "We now look forward to the regulatory discussions in the US and Europe that will guide our path forward."

- here's the press release