GlaxoSmithKline (GSK) recently suffered a pipeline setback, when its Crohn’s disease candidate, vercirnon, failed to meet both the primary and the key secondary endpoint in the SHIELD-1 phase III study (first of four phase III studies). Glaxo was evaluating the use of vercirnon in adults suffering from moderately-to-severely active Crohn’s disease.

The randomized, double-blind, placebo-controlled, 12-week, SHIELD-1 study evaluated vercirnon in two doses (500 mg once daily and 500 mg twice daily) versus placebo in Crohn’s disease patients. Not only did vercirnon fail to show significant clinical response and clinical remission (reduction or disappearance of symptoms) at 12 weeks, a direct correlation was found between dosage strength of vercirnon and overall adverse event rates. Adverse events and withdrawals in patients receiving vercirnon were similar to that in the placebo arm.

Glaxo has stopped recruiting new patients and dosing in the ongoing phase III development program for vercirnon until data from SHIELD-1 study has been reviewed in depth. The phase III development program includes four studies (SHIELD-1, SHIELD-2, SHIELD-3 and SHIELD-4), aimed to evaluated the safety and efficacy of vercirnon in more than 2,500 moderately-to-severely active Crohn’s disease patients.

We are disappointed with the pipeline setback at Glaxo. The biggest near-term challenge for Glaxo will be to replace the revenues that will be lost to generic competition. Products like Paxil, Lamictal, Combivir and Epivir are already facing declining sales due to intense generic competition. Going forward, a major part of Glaxo’s revenues will be exposed to generic competition as products like Pandemrix and Prepandrix are all scheduled to lose exclusivity in the next few quarters.

We believe that positive data from the program would have supported regulatory filings and increased Glaxo’s chances of gaining marketing approval for vercirnon and provided a much needed boost to Glaxo's revenues.

We note that in Jan 2010, Glaxo licensed vercirnon from ChemoCentryx, Inc. (CCXI). ChemoCentryx’ share price fell approximately 29% on the news.

Glaxo currently holds a Zacks Rank #3 (Hold). Companies that look attractive at present include Gilead Sciences Inc. (GILD) with a Zacks Rank #1 (Strong Buy) and Johnson & Johnson (JNJ) and ChemoCentryx with a Zacks Rank #2 (Buy).

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