Genfit's NASH drug flunks Phase II, but management sees a silver lining

Genfit's in-development drug for a pervasive liver disease failed to beat placebo in a midstage trial, but the company, undaunted, is setting sights on late-stage studies with eyes on what could be a blockbuster market.

The drug, GFT505, is an oral treatment for nonalcoholic steatohepatitis (NASH), which is a liver-scarring disease that affects as many as 5% of Americans but has no approved therapies. In a one-year study on 274 patients, GFT505 failed to chart a statistically significant improvement in NASH symptoms--measured by liver fat reduction and fibrosis stabilization--compared with placebo.

However, take out data from patients with early forms of the disease and the trial is a success, Genfit said, chalking up the overall failure to an enrollment error and the use of too many study sites. And management believes it has found a blueprint for further study, planning to design Phase III trials that focus on more severe NASH patients. Genfit says it plans to submit the Phase II data to global regulatory authorities in hopes of getting a late-stage program started as soon as possible.

Investors seemed less optimistic, sending the biotech's shares down more than 30% on the Paris exchange.

Genfit's most advanced competitor in NASH is Intercept Pharmaceuticals ($ICPT), whose obeticholic acid is on its way into Phase III after posting some promising midstage efficacy data, picking up the FDA's coveted breakthrough therapy designation. The news of GFT505's failure sent Intercept's shares up about 9%.

The Phase II setback might throw some cold water on market chatter that Genfit was in line for a buyout, rumors that surfaced earlier this month when Bloomberg reported that Sanofi ($SNY), Novartis ($NVS) and Shire ($SHPG) were taking a look at the company.

Elsewhere in NASH, Gilead Sciences ($GILD) splashed into the field this year with a $470 million deal to get its hands on a Phase II treatment for the disease, and the hepatitis C experts at Enanta Pharmaceuticals ($ENTA) are entering the space as well. Shire's $260 million acquisition of Lumena Pharmaceuticals gave it a Phase I NASH treatment, and Conatus Pharmaceuticals is plotting a Phase III effort for its emricasan.

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