Swiss Firm Halts Plans for 2 Drugs Failed Late-Stage Tests Hurt Serono’s Outlook

Serono, the largest European biotechnology company, said Wednesday that it had discontinued testing on a psoriasis drug after a patient died and that it had scaled back plans for a cancer treatment that failed to prove effective on late-stage sufferers.

The news was a blow to Serono, which was relying on those two drugs to raise earnings and has few others in development, analysts said. Serono’s setback follows a string of failures in developing cancer treatments. Roche Holding and Genentech, the makers of Avastin, a popular colon cancer drug, should benefit, analysts said, because the companies will have more time to apply for permission to use their drug for other kinds of cancer.

Shares of Serono, which is based in Geneva, fell 3 Swiss francs to close at 864 francs, or $718, on the decision to stop the tests, which was made after recommendations by two independent monitoring boards, Serono said.

During late-stage testing of the psoriasis drug, known as Onercept, two patients fell ill with sepsis, one of whom later died, Serono said. Sepsis, a blood infection, is a known risk of some treatments for psoriasis, which is caused by malfunctioning of the immune system and results in skin disease. Serono said it would stop development of the drug, which failed to halt the spread of psoriasis any better than available treatments in the 2,650 patients taking part in the global tests.

“In the interest of safety we believe this is the best course of action,” Franck Latrille, Serono’s senior vice president for product development, said.

Tests of Canvaxin, a drug that Serono licensed from CancerVax of California in December, failed to work any better than placebos on patients with highly developed forms of melanoma, a type of skin cancer. But Serono said it would continue tests on patients suffering from earlier stages of melanoma, and it expects final results in mid-2006. Serono paid $37 million to CancerVax for the drug, but it could pay up to $290 million if it meets research and commercial targets.

Serono’s problems with the tests leave it vulnerable, analysts said.

“This confirms the bad feeling we had about Serono’s pipeline,” said Pascal Franc, an analyst with Pictet, a Geneva bank.

Failure to get new drugs to market makes Serono dependent on a handful of successful drugs, like Gonal-F, an infertility treatment which last year accounted for a quarter of Serono’s $2.46 billion in sales, and the multiple sclerosis drug Rebif. That could leave Serono open to competition from generic-drug makers, who will gain rights to copy its products as patents elapse, Franc said. Serono shares had benefited from the withdrawal this year of Tysabri, a competitor to Rebif made by Elan and Biogen Idec. The drug was found to cause a nerve disorder.

Serono will continue to develop drugs, including MT201, an antibody used to treat sufferers of breast cancer, which it has tested since last year with the German firm Micromet, Latrille said.

Last month, Novartis and Schering announced a delay in filing for approval for their colon cancer drug PTK/ZK after disappointing test results.