Lipocine Inc (NASDAQ:LPCN) just picked up a complete response letter (CRL) from the FDA, concerning its oral testosterone candidate, LPCN 1021. The company is down over 50% at time of writing, and a flurry of legal firm led investigations have sprung up to question whether or not he company misled investors. A CRL is never a good thing for a biotech company, especially one in the position of Lipocine, whereby pretty much its entire open market valuation relies upon the drug in question. They can often elicit an over zealous market response, however. All CRLs are different, and while many are a death knell for the drugs and treatments they address, others can simply mean a delayed development schedule. Let’s take a look at the Lipocine situation in an attempt to figure out which of these two holds true for the company.

First, let’s have a look at the drug in question. As we’ve said, it’s a testosterone replacement therapy called LPCN 1021. The drug targets an indication called hypogonadism. It’s a diminished function in the gonads (testes) in males, and the ovaries in females, and leads to delayed onset puberty. LPCN 1021 is an oral administration treatment, with a couple of key differences compared to the current SOC in the space. Current SOC is subcutaneous injection administration, and short acting. Most of the SOCs associated with testosterone replacement also carry warnings, primarily revolving around the inadvertent transfer of testosterone from the patient to another individual.

By making the drug an oral administration, Lipocine is hoping to extend the pharmacodynamics profile of the drug (and in turn, make it extended release when compared to SOC) as well as also overcome the box label. Tick these two boxes, and the potential market is very large.

So what went wrong?

Well, the CRL stated that the issues lie in what’s called titration. Titration is an often misunderstood concept in biotech, but its not really all that complicated. The confusion lies in the difference between titration in chemistry, which is a method used to determine the concentration of an unknown substance, and pharmaceuticals, where it simply refers to a type of dosing regimen. Phase III titration trials (like the one on which the LPCN 1021 NDA was based) drip feed a patient increased doses of a drug until a limiting dose is reached – be that through the peaking of efficacy or the reaching of some limiting level of tolerability.

The CRL stated that the FDA had concerns over differences between the titration scheme proposed in the NDA as forming the basis of real world administration and the titration scheme used in the pivotal trial. Specifically, the agency reported that the two schemes were ‘significantly different’ and that this difference would lead ‘to discordance in titration decisions between the Phase 3 trial and real-world clinical practice.’

So what does this mean in layman terms? Well, the phase III data on which the NDA is based kicked off at a 225mg dose, and titrated up to 300mg or down to 150mg based on a measurement of what’s called serum T at weeks 3 and 7. We don’t have the titration levels that the company included in the NDA as the levels recommended for real world administration, but can conclude that they differ from the 225/300/150 used in the trial. This is massively important, as it essentially renders the NDA unusable. Why? Because the drug could have a completely different effect on patients at the proposed titrations than it did in the trial, and the FDA has no data to go on that suggests what this effect might be.

There’s only one real outcome, therefore, and that’s a phase III do-over. We know that Lipocine intends to talk to the FDA regarding the next step across the next few weeks, and we should get some official word on what the company needs to do at that point, but given the situation, there’s no other real option available. This is a problem for Lipocine, as it’s not particularly cash rich right now.

The phase III submitted as the NDA data started in Feb 2014 and completed around twelve months later. During this time, Lipocine spent around $12.5 million (based on Dec 14 – Dec 15 numbers) on research and development. It’s reasonable to assume that the majority of these costs went towards the completing of the LPCN 1021 phase III. Let’s say the trial cost $10 million, which is on the low side. At last count (March 31) Lipocine had $14.1 million cash on hand – barely enough to cover the costs of a redo over the phase III; a redo that the FDA will in all likelihood require to support the suggested titration scheme in the NDA.

There’s a chance, of course, that Lipocine will be able to alter the suggested scheme in the NDA to fall in line with the already established data. This will be less costly, but still drawn out. The takeaway here is that this does look like a delay based CRL rather than a complete write off, but whatever happens it’s going to be a drawn out solution, and at worst it could clean out the company’s current entire cash holding.