A number of small cap biotech companies took a hit on their market capitalization on Thursday, but none more sharply than Aradigm Corporation (NASDAQ:ARDM). The company put out some data relating to its lead investigational asset, Pulmaquin, and while the data was mixed in inference, markets have interpreted as profoundly negative in implication.

So, what happened, and what’s next? Let’s take a look.

Pulmaquin is designed to treat chronic lung infections, specifically, patients with non-cystic fibrosis bronchiectasis with chronic lung infections with Pseudomonas aeruginosa. The name of this indication sounds pretty complicated, but it’s basically a type of lung infection (as brought on by the Pseudomonas aeruginosa, which is a type of bacteria). The bronchiectasis part refers to the thickening and inflammation of the bronchial wall, which comes about as a result of scarring (in this instance) from something like tissue trauma or previous infection. In CF patients, it’s the CF that causes the inflammation. The inflammation and scarring lead to a bacteria friendly environment, and the infections, such as the PA infection targeted here, become frequent and unrelenting.

Pulmaqin is an inhalable version of a currently widely available antibiotic called ciprofloxacin. The data in question derives from two phase III studies, ORBIT 3 and ORBIT 4. Both studies shared the same primary and secondary endpoints, with the primary being an increase in the median time to first mild, moderate or severe pulmonary exacerbation and the secondary being the frequency of PE’s over the 48-week double-blind treatment period. Apart from a pharmacokinetic study conducted in one and not the other, the two trials were identical in setup, with a slight difference in total sample – 278 in ORBIT-3 and 304 in ORBIT-4. They were double blind, evaluating active versus control, across a 48-week period.

In terms of setup, then, pretty standard. So what happened?

Well, the data showed that in both studies, time to the first PE was longer in the active arm than the control, suggesting some degree of clinical benefit. However, the p values for each arm came in as non stat sig, meaning there can be no certainty that the effect was not just down to chance, as opposed to the therapy. Safety and efficacy data came out fine, with no discernable difference between the active and control arms in either trial.

So the results hinted at benefit, but not statistically significant (and in fact, quite a long way off it). However, the company looks as though it is still going to seek approval for the drug.

Based on what?

The data collected was done so by way of a stratification of the patients in the trial. Basically, they were broken down by gender, pre-trial frequency of exacerbations and smoking status, before dosing kicked off. This was as per protocol, but Aradigm believes it may have made the data unreliable from the point of view of calculating significance. This is rooted in some of the stratas having few or no patients in their groups. There is some validity in this suggestion. Smaller sample groups can create outliers, and this can skew the statistical interpretation.

What’s next?

Well, the company is going to sit down with the FDA and discuss the next steps towards filing a marketing authorization. There’s a carcinogenic study in rats that just concluded favorably (basically showing that the drug doesn’t have any increased risk of tumor development versus currently available inhalable therapies) and this could play into the outcome. It’s an Orphan Designation, so if the FDA believes that it’s not going to have any negative effects on the patient it targets (and the safety data suggests it won’t) then it may be swayed towards giving it the thumbs up. These patients have very few to no other options, and it’s a tough infection to live with, so the clinical benefit (albeit non stat sig) might be enough.

If not, Aradigm is going to have to conduct another study, presumably without stratification. That, or retroactively analyze the data as a complete sample, not separated into stratas.

We should know more over the coming quarter. We think, as a preliminary analysis, that this is a pretty tough response to the release, and may be an oversell given the number of potential routes to getting the program back on track.