CV Therapeutics

(CVTX)

, once considered almost a sure shot for getting a major new angina drug on the market, suddenly isn't looking so sure anymore.

Downer
CV's selloff

The Palo Alto, Calif., biotech company said Friday it would have to test its lead drug in development, Ranolazine, on many more patients to prove that it works. The additional tests, the company says, could set back the drug development program back by six months.

CV shares plummeted as much as 44% in morning trading and were recently trading down $20.18, or 33%, to $40.68.

CV has enjoyed strong support from analysts and investors in recent years, pushing its shares up to an all-time high of $93 two months ago. Investors say Ranolazine could be a major new treatment for angina, a serious heart condition that afflicts some 7 million Americans. Some say the drug, which would likely sell for $2 to $5 a day to patients, could grow the current $1.5 billion market for angina treatments to $4 billion.

CV was expected to seek approval for Ranolazine sometime next year. Analysts say the drug could generate anywhere from $300 million to $1 billion in peak annual sales, even though it would be a more expensive branded alternative to widely used cheap generics like beta-blockers or calcium channel blockers.

Initial reactions were mixed to CV's statement, with sell-side bulls like

Merrill Lynch

saying it was misinterpreted and bears at

Josephthal

calling it a serious setback. Some investors say the statement raised sufficient doubt about the drug to sell the stock. Others bought at today's discounts, driving the stock off its lows.

Rumbling Higher
CV's rally before today

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"What worries us is that this trial was considered pretty much of a slam dunk," says Jim Fiore, president of

Life Sciences Group

, a biotech fund in Greenwich, Conn., that holds some CV shares.

Bigger Is Better

CV says it conducted an initial analysis of one of two main clinical trials, but concluded that the trial wasn't large enough to prove that the drug works. Earlier trials of the drug were positive.

Louis Lange, CEO, says the decision to add 186 patients to the 462-patient trial didn't reflect either negatively or positively on the drug. The trial data, he says, is "blinded," meaning the company didn't have access to data on how well the drug actually worked in the trial.

Lange says it was "totally wrong" to conclude that the early data from the trial failed to demonstrate the statistical significance needed for approval. "This is totally kosher, and the

FDA

Food and Drug Administration is on board," says Lange. "It's a typical thing."

Others weren't so sure. One New York area hedge fund manager says alterations in a clinical trial that's already under way can indicate that the trial sponsors don't think the drug will pass muster. Because investors typically aren't privy to raw trial data, the risk of holding the stock becomes higher, particularly because there are myriad ways companies and analysts can "spin" data to look favorable and keep shares healthy.

"CVTX is a major problem," says one fund manager who previously had CV as one of his main holdings. "Here we have a fundamental event that potentially calls into question how good the drug is."

But supporters say that the company already has a good chance of gaining FDA approval, anyway, because an earlier Phase 3 trial, called Marisa, suggested the drug showed significant benefit compared to placebo in endurance tests on the treadmill. The latest trial, called Carisa, is testing Ranolazine in combination with standard treatments for angina.

"Marisa was great and probably all that is needed for approval," says one New York hedge fund manager who says he is adding to his holdings at the lower price levels. "There's been a major misinterpretation of this statement."

The CV statement comes after disclosures that insiders like Lange have sold a substantial number of shares in the past year, a move that also raises doubts in the minds of investors. Lange, for instance, generated an estimated $14.4 million last year by selling shares, according to regulatory filings.

Lange defended the share sales, saying he retains substantial holdings in the company and that the share sales represented "purely a diversification strategy" for his investments.

"It does not have anything to say about the drug or the company," Lange says.