The Rumors Were True: Chiron Says Sepsis Drug Doesn't Work

Confirming two weeks of rumors, biopharmaceutical firm Chiron (CHIR Quote - Cramer on CHIR - Stock Picks) said Wednesday that its experimental drug for sepsis doesn't work.

A late-stage test of the drug, dubbed TFPI, failed to meet its goal of reducing patient deaths after 28 days, the company said.

Chiron shares have been on a bumpy ride since the middle of November as rumors spread about the drug's failure. On Monday, Credit Suisse First Boston analyst Meirav Chovav issued a cautious research note on TFPI, stating the chances for bad news on the drug were high.

Shares of Chiron fell to $44.95 in Wednesday premarket trading, after closing Tuesday at $50.09.

Sepsis is a serious disease caused by infections in the blood that is fatal about 30% to 50% of the time. Eli Lilly(LLY Quote - Cramer on LLY - Stock Picks) is developing its own sepsis drug, which recently was granted tentative approval by the Food and Drug Administration.

"We have always recognized the challenges of developing a therapeutic for severe sepsis," said Chiron CEO Sean Lance, in a statement. "We will be undertaking a full review of the data from the Phase III trial, and we will make future development decisions about tifacogin after we have completed the analysis of the data."

Wall Street has been paying close attention to Chiron's efforts to develop TFPI, also known as tifacogin, because it represents one of the few drug candidates in the company's near-term pipeline.

With TFPI out of the picture, Chiron's next big growth bet is NAT, a super-sensitive blood test to screen donated blood for hepatitis and HIV. The company is currently awaiting FDA approval for the test.

But even if NAT is approved, Chiron executives now will be under even more pressure to somehow ramp up the company's long-term growth prospects. The company does have well over $1 billion in cash to fund acquisitions or product licensing deals. Biotech observers have long identified Chiron as a company that desperately needs to get the deal machine rolling. The failure of TFPI may now provide the incentive to spur the company to action.