Northfield Laboratories

(NFLD)

executives remain optimistic, but they also admit it could take a long time and a lot of money before the company's experimental blood substitute is ready to refile its application for approval with U.S. drug regulators.

Shares of Northfield Laboratories sank $3.19, or 24.1%, to $10.06 in late Tuesday trading after the company said late yesterday that the Food and Drug Administration

refused to accept its approval filing for PolyHeme. Northfield filed with the FDA on Aug. 28.

But Northfield executives are downplaying the setback, insisting that the issues and questions raised about PolyHeme by the FDA could be addressed in the next few months. CEO Richard DeWoskin tells

TheStreet.com

that the FDA wants Northfield to clarify issues pertaining to its manufacturing process and the scientific design of the clinical trials for PolyHeme.

"I've only had a day and a half to work on this, but at this time, we feel like we have good answers to

the FDA questions," says DeWoskin. "We don't agree with every issue they've raised, but we feel encouraged and are looking forward to our discussion with the FDA."

While questions about manufacturing might be easily answered, problems with the design of clinical trials are typically not handled with such alacrity.

DeWoskin acknowledges that the major area of dispute between the company and the FDA revolves around the design of the PolyHeme trial. NorthField hopes to convince FDA regulators that its trial is robust enough for consideration, DeWoskin says. But he also acknowledges that these negotiations may fall short.

"We think we have a strong position and have done what we need, but another trial is a possibility," he says.

Conducting another clinical trial would be a lengthy and expensive process for Northfield, which may not have the cash on hand to handle the job. As of Aug. 31, the company had $4.5 million in cash and another $21.6 million in marketable securities in its corporate coffers.

A Life Saver

The Evanston, Ill.-based company is developing PolyHeme for use in patients in trauma situations where large quantities of blood have been lost. Simply put, patients with life-threatening blood loss, stuck in situations where blood is not available, are given PolyHeme instead in an attempt to save them.

The company's reported test results: PolyHeme patients in this critical situation survive 75% of the time, compared with just 20% of patients who didn't get the blood substitute.

Sounds impressive, but there's a catch. Northfield didn't actually compare patients given PolyHeme with patients given a placebo, or nothing at all. In other words, the company didn't conduct the kind of blinded, randomized and controlled trial that the FDA likes to see when evaluating the approvability of a product.

Instead, the company simply compared PolyHeme patients with historical controls, or an estimate of survival rates of patients in similar situations, based on a review of medical literature.

Now, there's nothing wrong with this approach. In fact, drug companies do this all the time to gauge the early effectiveness of an experimental drug. But this is rarely enough to pass muster with the FDA. This is the crux of the dispute between Northfield and the regulatory agency, DeWoskin says.

During a 1999 conference on blood substitutes sponsored by the U.S. Department of Health and Human Services and other government agencies, Northfield President Steven Gould was quizzed repeatedly about PolyHeme's trial design. Doctors and health officials in attendance at the meeting raised doubts about Northfield's ability to provide enough statistical proof of PolyHeme's efficacy and safety, given the lack of a controlled study.

But DeWoskin says Northfield had little choice, because placing some gravely ill patients in a control group where all they get is a placebo such as saline solution would almost certainly lead to their deaths.

"This poses big ethical and regulatory questions. There are very thorny issues that are unique to our product," he says, especially because the company is seeking to get PolyHeme approved for trauma cases as opposed to less critical situations such as elective surgery.

Northfield and the FDA have talked about this issue before, but judging by Monday's rejection, regulators remain unconvinced. DeWoskin says the company's efforts over the next several months will be focused on changing their minds.

"We have these discussions with FDA officials before, now we're going to have them at a higher level," he says.