UPDATE 2-CombinatoRx knee-pain drug fails trial; shares tank

(Recasts; adds company and analysts' comments; updates stock movement)

By Esha Dey

BANGALORE, Oct 6 (Reuters) - CombinatoRx Inc's (CRXX.O) drug candidate, Synavive, to treat knee osteoarthritis failed to meet the main goal of a mid-stage trial, sending the biopharmaceutical company's shares crashing 81 percent to a lifetime low.

The main goal of the trial was to test the efficacy of the company's lead drug candidate, also called CRx-102, in reducing pain while walking on a flat surface, compared with a dummy drug.

"I hope they stop development on this themselves... maybe they can find a partner who is willing to take the risk and try it for a different indication," Ladenburg Thalmann analyst Jeff Nelson said.

CombinatoRx spokeswoman Gina Nugent said, "Our strategy all along has been to partner this product before going into phase III, because osteoarthritis is a large indication and certainly more than a little company like CombinatoRx could manage on its own."

Ladenburg's Nelson said the company will have to look at smaller or specialty pharmaceutical companies for partnering the product.

CombinatoRx Chief Executive Alexis Borisy said the company plans to complete additional analysis of data from the mid-stage trial to further understand Synavive's biology and determine appropriate next steps.

Synavive was generally well tolerated and there were no serious adverse events reported, the company said in a statement.

Cowen and Co analyst Eric Schmidt said, "We expect CombinatoRx to halt development on Synavive, reduce spending, and focus on earlier-stage pipeline candidates."

CombinatoRx currently has two dermatology products and one diabetes drug in early and mid-stage trials, according to the company's website. It also has several products in preclinical development.

The company has enough cash to get it through into the second half of 2010, Ladenburg's Nelson, who downgraded the company's stock to "neutral" from "buy," and cut his price target to $2.75 from $6.25, said.

Shares of the Cambridge, Massachusetts-based company were down $2.21 at 79 cents Monday afternoon on Nasdaq. They touched a low of 56 cents earlier. (Editing by Deepak Kannan, Pratish Narayanan)