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I don’t follow Corcept (NASDAQ:CORT), and I hadn’t heard of Corlux until I’d read the linked press release. On the other hand, I have heard of (and prescribed) the active ingredient in Corlux, mifepristone (aka RU-486).

Most people are familiar with this drug as an abortifacient, but clinical endocrinologists know it primarily as a treatment for Cushing Syndrome (i.e. cortisol excess syndrome). Mifepristone is an antagonist of glucocorticoid receptors and the structurally progesterone receptor (thus its abortifiacient utility). In any case, Corcept apparently has some methods of use patent(s) protecting use of the drug in certain types of depression and other conditions. The Phase 3 program is for psychotic major depression, and they have three studies underway. They reported on one study Friday, which was negative (i.e. placebo and Corlux apparently equally and rather dramatically efficacious) and which sent the stock to an all-time low (market cap just $35M), dropping 56% on the day.

So, just another startup specialty pharma fizzing out. No surprises there…right? Well, not exactly. You see, without knowing the specifics of the Phase 3 studies (which have not been made public) there is no way to determine with reliability whether Corcept and its first product are going to make it to market. What we do know is that the Phase 3 studies are similarly designed and are also similar in design to the successful Phase 2 study.

Psychiatry is the “squirreliest” of therapeutic areas. Many of the drugs that are now mainstays of treatment for depression and anxiety, reaping their manufacturers billions of dollars a year, had a failed study in Phase 3 that looked not altogether disimilar from the failed study Corcept just reported. Sure, it’s not looking so great for Corcept at this point and the market is reflecting that reality, but I think that the market might be overreacting a bit too. Part of the lack of confidence might be wariness of the management team. The CEO, a former academic and founder of the company, doesn’t exactly instill confidence to investors that he knows what he’s doing (check out the conference call by going to the Corcept homepage and see if you agree). But if you’re thinking of taking a shot at this one, look beyond the novice CEO and you’ll see some pretty impressive scientific minds on the ad. board, and this is a company whose success to the market depends almost solely on good science.

Source: Corcept's Crash Not Necessarily What it Seems