UPDATE 2-Lexicon's experimental arthritis drug disappoints

Tue Dec 14, 2010 11:42am EST

* Co says drug generally safe and well tolerated

* Plans to start talks with potential partners

* Shares down as much as 14 pct (Recasts, adds details, analyst comments, updates stock movement)

Dec 14 (Reuters) - Lexicon Pharmaceuticals Inc's (LXRX.O) experimental arthritis drug failed to show a significant improvement in a mid-stage trial, sending its shares down as much as 14 percent.

Results from the 12-week study showed patients treated with 70 mg or 110 mg of the drug LX2931 had a response rate of 44 percent and 41 percent, respectively, compared to 49 percent for those treated with a dummy drug.

J.P Morgan analyst Cory Kasimov said the trial's failure could be because of the low dose of the drug and an unusually high placebo response.

"While we were disappointed by the unusually high placebo effect in this trial, we are encouraged by the excellent overall safety profile observed in the first test of this new mechanism of action in patients with rheumatoid arthritis," Chief Executive Arthur Sands said in a statement.

However, at a higher dose of 150 mg, the drug improved the scores of a standard measure ACR 20, which indicates the severity of the disease, with a response rate of 60 percent.

Mild-to-moderate adverse events were seen for all three dose groups, with frequencies similar to the dummy drug.

The company said it plans to start discussions with potential partners for further development of the drug.

"Further study of LX2931 may well involve higher doses of the drug given the relatively benign safety profile observed to date. However, we continue to be skeptical of this program's future, absent the deep pockets of a partner," analyst Kasimov said in a note.

Current rheumatoid arthritis drugs in the market include Humira from Abbott Laboratories (ABT.N) and Amgen Inc's (AMGN.O) Enbrel.

Woodlands, Texas-based Lexicon's shares, which have risen 31 percent in the last six months, were trading down 9 percent at $1.50 on Tuesday on Nasdaq. They touched a low of $1.42 earlier in the session. (Reporting by Shravya Jain and Krishnakali Sengupta in Bangalore; Editing by S. John Tilak, Roshni Menon)

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