On November 15, shares of Tranzyme Inc. (TZYM) plummeted about 75 percent from $3.97 to 95 cents after the company announced its diabetic gastroparesis treatment TZP-102 failed in a phase 2 clinical trial. After being downgraded by a number of analysts, the stock fell again on November 16 to an all time low of 80 cents.
Trading was fast and furious. While only 1,300 Tranzyme shares changed hands on November 13, news of the failed trial saw share volume increase to 5,324,600 shares changing hands on November 15, and an additional 1,605,200 shares being traded on November 16.
The Triangle Business Journal reported that Tranzyme's four largest institutional investors lost over $40 million on paper when the market closed on Friday, November 16 with Tranzyme stock trading at 80 cents. Tranzyme's largest institutional investor, Baker Brothers Advisors, suffered the greatest loss at $13.8 million on paper. On Monday, November 19, it looked like the worst may be over when the stock experienced a slight bump. On Tuesday, the stock sunk down over 12% to close at 73 cents.
On November 16, Canaccord Genuity downgraded Tranzyme from Buy to Hold and cut their price target to $1.50 per share from $7 per share. JMP Securities downgraded shares of Tranzyme from an outperform rating to a market perform rating. Stifel Nicolaus downgraded shares of Tranzyme from a buy rating to a hold rating.BMO Capital Markets downgraded shares of Tranzyme from an outperform rating to a market perform rating, and reduced their price target to $1.00 from $6.00.
"We are understandably disappointed with the results of this trial; however, our second Phase 2b trial known as DIGEST is ongoing. In DIGEST, we are evaluating a 10 mg dose of TZP-102 administered three times daily before meals, rather than once daily as in the trial just completed. We anticipate announcing top line results for DIGEST in the first half of 2013," Vipin K. Garg, Ph.D, Tranzyme's President and Chief Executive Officer stated.
But shareholders have heard that story before. This is the second time this year that Tranzyme's chief investigational drug has failed in clinical trials. In March, Tranzyme and independent drug maker Norgine of the Netherlands announced bowel cancer drug candidate ulimorelin failed to meet its primary and secondary efficacy endpoints in the first of two Phase 3 clinical trials. The news saw Tranzyme's shares plummet nearly 70% to $1.55. Prior to this fall in stock price in March 2012, the company had a market capitalization of just over $125 million.On November 17, 2012, Tranzyme had a market cap of $20.03 million.
"These results are surprising and disappointing. While we are still planning to analyze the data from the second Phase III trial ULISES 008, which we expect by the end of the second quarter, we are stopping all other NDA [New Drug Application] activities for ulimorelin," said Garg.
More bad news came in May when Tranzyme and Norgine announced disappointing top-line results from the second of two Phase 3 clinical trials evaluating ulimorelin in postoperative ileus. As was the case with the data released in March, ulimorelin did not meet the study's primary or secondary endpoints, and there was no statistical difference between the ulimorelin and placebo groups. The two trials were identical in design and population.
TZP-102 is extremely important to Tranzyme because it is the only drug that the company has left in a clinical study. Tranzyme's other two another drugs are in the preclinical stage. Tranzyme is also developing a motilin antagonist, TZP-201, for the treatment of various forms of moderate-to-severe diarrhea, and a ghrelin antagonist, and TZP-301, for the treatment of obesity and other metabolic diseases
Tranzyme promoted TZP-102 as an orally-administered ghrelin agonist with highly-differentiated "first-in-class" potential for the treatment of chronic gastrointestinal dysmotility disorders such as gastroparesis, functional dyspepsia and refractory gastroesophageal reflux disease (GERD). Ghrelin is a hormone produced mainly by cells of the stomach which has a highly potent and direct role in stimulating gastrointestinal motility. TZP-102, discovered by Tranzyme using its proprietary macrocyclic chemistry technology (MATCH), targets the same receptor as the ghrelin hormone. Tranzyme is currently evaluating the safety and efficacy of TZP-102 in diabetic patients with gastroparesis.
Gastroparesis is a debilitating, chronic condition that has a significant impact on patients' lives and for which there are limited treatment options Gastroparesis is experienced by approximately 4% of the general population and up to 12% of patients with diabetes. It is a progressive disorder characterized by persistent nausea, vomiting, dehydration and difficulty digesting. Gastroparesis results in complications with diabetic medicine, making it difficult for patients to control nutritional and blood glucose levels. Currently, there are no safe and effective treatments for gastroparesis. Earlier prescription medications for this indication were withdrawn from the market or must carry a "black box" warning due to serious side effects.
It hasn't been a good month for Tranzyme. On November 8, the company reported that total revenue for the third quarter of 2012 was $1.8 million compared to $2.6 million in the same period last year. The decrease in revenue was primarily due to changes in the amortization period for deferred revenue from the upfront licensing fee received from Tranzyme's collaboration with Bristol-Myers Squibb (NYSE:BMY). Research and development expenses were $3.8 million in the third quarter 2012 as compared to $7.0 million for the same period in 2011. The decrease was primarily due to a decrease in expenses incurred for Phase 3 clinical trials and registration efforts for ulimorelin. General and administrative expenses were $1.6 million in the third quarter of 2012 versus $1.7 million in the same period last year, reflecting decreased expenses relating to pre-commercialization market research activities.
The Company reported a consolidated net loss of $4.0 million in the third quarter of 2012 compared to a net loss of $6.4 million in the same period of 2011. Cash and cash equivalents at September 30, 2012 were approximately $40.8 million. .
Needless to say, Tranzyme has a lot riding on TZP-102. The company's second Phase 2b trial known as DIGEST is ongoing. In DIGEST, Tranzyme is evaluating a 10 mg dose of TZP-102 administered three times daily before meals, rather than once daily as in the trial just completed. The company anticipates announcing top line results for DIGEST in the first half of 2013.
The FDA has been granted TZP-102 a fast track designation because this drug candidate treats a serious or life-threatening condition and addresses an unmet medical need. In their approval letter, the FDA noted there are limited treatment options for diabetic gastroparesis and the agents currently available have serious side effects. If TZP-102 can succeed in the second clinical trials, it has the potential to be a blockbuster drug.
Gastroparesis is estimated to affect up to five million people in the United States. Diabetes is the second leading cause of gastroparesis, affecting 29 percent of patients with gastroparesis or 1.45 million people in the country.
Business intelligence provider GlobalData has found that there is a high level of unmet need in the diabetic gastroparesis therapeutics market, which can only be fulfilled by new drugs , such as TZP-102, which may offer a better efficacy and safety profile,
GlobalData reports that the market is currently served by metoclopramide, including the generic version and the oral disintegrating tablet (ODT) formulation of metoclopramide (Metozolv ODT), and other off-label therapies such as erythromycin, Botox and cisapride. Metoclopramide carries a black box warning due to serious adverse drug reaction (tardive dyskinesia), while off-label drugs such as cisapride are no longer available in the US because of associated safety concerns.
GlobalData concludes that the diabetic gastroparesis pipeline is weak, consisting of only five molecules in total and all of them in the early stages of either Phase I or 2 clinical development. These pipeline molecules are therefore unlikely to impact the future market until at least the next decade.
TZP-102 is the furthest along of all these clinical prospects, If TZP-102 succeeds in the next clinical trial, Tranzyme could be a big winner. If you are brave enough to bet on them, you could make a lot of money too.
A Note of Caution
Before Tranzyme's November 15, 2012 announcement of the clinical trial failure, the stock never sold under $2.50. If Tranzyme cannot get its stock price above $1, the company is in danger of being delisted off NASDAQ (National Association of Securities Dealers Automated Quotations). All investments involve risk, but investing in microcap companies and penny stocks is especially risky. These stocks are often extremely volatile, may be illiquid, and are subject to manipulation. The United States Security and Exchange Commission (SEC) has a significant amount of information about the dangers of investing in micro cap companies and penny stocks. You can find it here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.