Tranzyme Investors: Why Shares Just Got Halved

The excrement has hit the oscillating device for Tranzyme Pharma (NAS: TZYM) , with the biotech cut in half today after ulimorelin didn't pass its phase 3 clinical trial. The problem may have stemmed from said excrement coming sooner than expected from the placebo group.

Tranzyme and partner Norgine were trying to show that ulimorelin could decrease the time to GI2, defined as the latter of first bowel movement or tolerance of solid food. Unfortunately, both doses given produced about the same results as a placebo, with which it took 80 hours to achieve GI2. Ulimorelin now joins Progenics Pharmaceuticals' (NAS: PGNX) Relistor in the post-operative constipation-reliever graveyard. Relistor was able to gain approval as a treatment for constipation caused by opioid pain relievers, but because of different mechanisms, that isn't an option for ulimorelin.

Tranzyme had been expecting about 96 hours until GI2 for the placebo, suggesting that the norm has come down considerably since the company started the trial in 2010. Building off a shorter base makes it harder to show an effect.

The failure might seem like good news for Cubist Pharmaceuticals (NAS: CBST) , which recently acquired Adolor Pharmaceuticals and its post-operative gastrointestinal recovery drug, Entereg, but the acquisition was more for Adolor's pipeline than for Entereg, which has never been a very big seller. In fact, GlaxoSmithKline (NYS: GSK) had partnered with Adolor, but handed back the rights to the drug, presumably because $25 million in annual sales wasn't worth the big pharma's time.

Tranzyme and Norgine still have one more phase 3 trial for ulimorelin that will read out by the end of June, but all a positive trial will do is put the companies in a pickle: One positive trial wouldn't be enough to gain FDA approval, and there's no guarantee that a third trial would come out positive. Unless the companies can find something that clearly explains a difference, I'd expect them to drop development of ulimorelin even if the second trial comes up positive.

That leaves Tranzyme focused on TZP-102, which you can guess by the code name isn't very far along in the clinic. The biotech hopes to read out a trial testing TZP-102 in diabetic gastroparesis by the end of the year. Let's just hope the placebo effect doesn't devour TZP-102 and digest it too quickly.

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