Massive Meltdown for This Biotech

In case you don't remember how risky biotech can be, you can refresh your memory by taking a look at Tranzyme (NAS: TZYM) . Shares fell more than 70% in early trading today after the company announced very disappointing news about a phase 2b study of its experimental drug TZP-102.

What happened
The goal for TZP-102 is to treat patients with gastroparesis, a disease where the muscles in the stomach don't move food along into the digestive tract. Gastroparesis is sometimes associated with diabetes.

Tranzyme's clinical study compared three groups of diabetic patients with gastroparesis. One group was given a 10 mg dosage of TZP-102 daily. The second group was given a 20 mg dosage. The control group was given placebo. Tranzyme hoped to show meaningful improvement for patients taking TZP-102 in a score that measures the severity of several symptoms of the disease.

The bad news for Tranzyme was that the patients taking TZP-102 didn't show statistically significant improvement compared to the patients taking placebo after 12 weeks of study.

What it means
A plummeting stock tells much of the story about what these results mean for Tranzyme. When a biotech's shares fall more than 70% on bad news about a study for a drug, that shows how important the drug is to the company.

TZP-102 is the Tranzyme's only drug currently in a clinical study. The company does have two other drugs in its pipeline, but neither has advanced to phase 1 yet.

In May, Tranzyme announced the failure of its drug ulimorelin to achieve significant improvement in a phase 3 study for patients with postoperative ileus. That bad news followed similar results for the drug in another phase 3 study earlier in the year.

Looking ahead
The reality is that Tranzyme is now zero-for-three with its clinical studies. There really seems to be only two glimmers of hope at this point.

The first is that there is a second phase 2b study of TZP-102 under way. This study involves patients taking three doses of the drug rather than just one dose. Tranzyme expects to announce results from the study in the first half of 2013.

If TZP-102 can be shown to work effectively, the market potential should be large. The National Institutes of Health estimates that 5 million Americans suffer from gastroparesis. Drugs such as Pfizer's (NYS: PFE) Ativan and Reglan, which is available as a generic from Teva Pharmaceuticals (NYS: TEVA) and others, can be used for symptoms, but there still is no safe and effective treatment for gastroparesis.

What's the other glimmer? Tranzyme partners with Bristol-Myers Squibb (NYS: BMY) . The partnership began in 2009 and has been extended several times. Perhaps Bristol will continue to see enough potential in Tranzyme's technology to help it move forward or even buy the company.

Only time will tell if either of these glimmers fades away into darkness. For now, at least, this reminder from Tranzyme about the risks of biotech shines more brightly than anything else.

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