Menlo’s IPO hangover begins with a failed PhII for an old Merck castoff

Steva Basta

Just a little more than two months after Menlo Therapeutics went public $MNLO, raising $119 million from a successful IPO in the midst of a rollicking good time on Wall Street for high risk offerings, their one and only drug in the clinic just decisively failed a Phase II trial.

Investigators say that serlopitant failed to distinguish itself from a placebo in a pruritus study with 484 patients, flunking the primary and key secondary endpoints. Execs for the company, though, are vowing to hang on, noting some earlier positive mid-stage data as well as a Phase III that is about to launch.

Many of the investors, though, won’t be staying for the next chapter. The biotech’s stock dropped more than 70% this morning as a savage post-IPO hangover set in.

Menlo got the NK-1 receptor antagonist from Merck back in 2012 for only $1 million upfront, an early example of a developer that bagged a drug from Big Pharma’s back shelves cheap. In this case the team felt that the drug could be repurposed for itch associated with dermatologic conditions such as atopic dermatitis, psoriasis and prurigo nodularis. At Merck this drug was known as MK0594, which was put through a couple of trials for alcohol dependence (terminated) and overactive bladder.

Menlo based its IPO on two Phase II studies that were reported out last September. Investigators reported a borderline success (p<0.05) on the reduction from baseline VAS pruritus score and a change from baseline in average-itch VAS score at 8 weeks (p<0.001).

Menlo went public right alongside Solid Bio, which has seen its shares crash in the wake of an FDA hold on its Duchenne muscular dystrophy therapy. The big question is how many nasty setbacks like this will have to occur to newly public companies before investors lose their appetite for high risk. And after the Axovant implosion on Alzheimer’s with a cheap drug bagged from GlaxoSmithKline, others may be questioning the Big Pharma bargain basement strategy.

Vivo Capital owned the biggest chunk of shares ahead of the IPO, with 17.3% of the equity, followed by Remeditiex and Presidio. Merck owned 5.8% as part of its deal with the biotech, with venBio and F-Prime in on the syndicate.

“Reduction of pruritus has been demonstrated in two prior Phase II studies, one trial in patients with chronic pruritus and one trial in patients with prurigo nodularis,” said Menlo CEO Steve Basta in a statement. “We are initiating Phase III studies in prurigo nodularis this quarter, and we are looking forward to the Phase II results in refractory chronic cough in the fourth quarter of this year, and the Phase II results in pruritus associated with psoriasis by late 2018 or early 2019.”

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