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Rough week puts biotech boom in perspective

Doug Pagani in the lab at Shire, an Irish company run from Lexington.
Doug Pagani in the lab at Shire, an Irish company run from Lexington. Suzanne Kreiter/Globe Staff

In the booming biotech world, it’s easy to forget that there are speed bumps.

But three companies with Boston-area operations, and their investors, were dealt somber reminders of that fact in recent weeks.

On Friday, Shire PLC said it was notified that the Food and Drug Administration was seeking more clinical data on the company’s experimental treatment, called Lifitegrast, for dry-eye disease. That means there will be at least a one-year delay before the FDA rules on the drug candidate.

FDA regulators last week ordered a partial hold on a clinical trial run by Zafgen Inc. after the Boston company said a patient taking its experimental obesity drug in the trial had died. Its stock has since tumbled 46.5 percent. Needham’s Verastem Inc., meanwhile, laid off half its 40-person staff earlier this month after its cancer drug candidate failed in another trial.

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Representatives of Shire, Zafgen, and Verastem all declined to discuss their companies’ next steps.

“You’re going to see more of these setbacks,” said former venture capitalist Jonathan J. Fleming, president of the Network for Excellence in Health Innovation, a Cambridge health policy institute. “We’ve had an investment boom since 2013 that has seen 138 new biotech companies going public. Just the law of averages tells you that all their drugs can’t work.”

Fleming said companies with a stockpile of cash and a pipeline of multiple drugs are better able to withstand setbacks because they have more experience dealing with the FDA and are able to underwrite additional clinical studies to meet the demands of regulators.

“This is how it works,” he said. "The good drugs get approved, and the ones that can’t meet the bar are discontinued.”

Jason Gerberry, pharmaceuticals analyst for Boston health care investment bank Leerink Partners, said, “Companies have gotten better in [drug] discovery and development, and the market has gotten more bullish on the ability of companies to improve their odds.”

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At the same time, he said, drug makers must confront the “FDA unknowables,” such as the criteria regulators will use in assessing new drug applications, and a range of research risks.

Executives and analysts like Gerberry say last week’s setback could prove temporary for Shire, an Irish company run from Lexington that has mounted an unsolicited takeover bid for newly independent biopharma Baxalta Inc. Shire, which had hoped for early approval of its drug this month, recently completed a late-stage clinical study. If results are positive, it will form the basis of a resubmitted drug application that could still enable the launch of Lifitegrast late next year.

The company’s stock, which initially dipped on news of the delay, later recovered in part on market speculation that Shire itself could be a takeover target. Pharmaceutical giants Pfizer Inc. and Allergan PLC were rumored to be potential bidders. But shares of Shire lost nearly 2.2 percent in Tuesday trading on the Nasdaq exchange, falling $4.66 to $209.73.

If investors get rattled over a delay in marketing a drug viewed as important to Shire’s future, the company could find it more difficult to finance its own $34 billion all-stock bid for Baxalta, a transaction that would catapult it into the top ranks of biopharma companies.

Baxalta’s board rejected Shire’s bid in August, calling it “wholly inadequate” to engage Baxalta, the former biopharma division of health care conglomerate Baxter International Inc.

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Whether the bid can be sweetened will depend partly on the clinical data Shire reports early next year from its late-stage trial of Lifitegrast, according to analysts.

That data will be “the major catalyst for the stock in the next few months,” Gerberry said. “If the data is positive and the stock goes up, they’ll be able to go back to Baxalta with another offer. If Shire wants to remain an independent company, they want to keep their stock up and do a transaction that puts them at a size where another company can’t afford them.”

Shire last year agreed to a $54 billion offer to be purchased by AbbVie Inc. of North Chicago, Ill., which wanted to acquire Shire’s tax-friendly domicile in Dublin. That deal collapsed after the Treasury Department imposed new tax rules to discourage US companies from moving their headquarters to lower-tax countries. Since then, Shire has been seeking to expand.

Ken Cacciatore, pharmaceuticals analyst for New York investment bank Cowen and Co., said he remains confident Lifitegrast eventually will be approved and will join Shire’s existing portfolio of drugs to treat rare diseases such as enzyme deficiencies. In a note to investors, he wrote, “Shire’s current portfolio — without Baxalta or Lifitegrast — remains compelling.”


Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.