Sonus Pharmaceuticals

(SNUS)

might be taking the blockbuster cancer drug Taxol where it's never gone before.

The small, Seattle-based biotech firm uses a proprietary drug-delivery technology to reformulate Taxol. The goal: make the cancer-fighting drug more effective, easier to use and safer for patients. Now sold as a generic, Taxol is the one of the most successful cancer drugs ever, and it routinely brought in more than $1 billion yearly for

Bristol-Myers Squibb

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.

Wednesday, Sonus took the wraps off midstage test results suggesting that Tocosol paclitaxel (the name of Sonus' drug) is making good progress toward that goal. The drug showed positive activity in four cancers, including two cancers -- colon and bladder -- in which ordinary Taxol doesn't work. And Tocosol paclitaxel was given at higher doses than regular Taxol, yet with fewer side effects.

After the news was released this morning, Sonus shares leapt about 34%. The stock then drifted down somewhat, closing up 22 cents, or 11%, to $2.23. Sonus is one of those cheap, sleeper stocks -- its market value is a mere $32 million -- that only gets attention once it starts to prove itself. Wednesday's data release should get the company noticed, observers say.

"This data will really help boost Sonus' credibility because to this point, people have been fairly dismissive of the whole Taxol reformulation game," says one hedge fund manager who's been long Sonus. "What this shows is that maybe you just need the right form of Taxol."

Cell Therapeutics

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has grabbed most of the attention in this game so far, but its Taxol derivative, Xyotax, has not lived up to early hype. Xyotax is currently in phase III testing, so it's ahead of Tocosol paclitaxel, but Xyotax came up rather

lame at last spring's meeting of the American Society of Clinical Oncology, dragging down its expectations and putting heavy pressure on Cell Therapeutics' stock.

The primary goal of Sonus' phase II study results released Wednesday was to determine the optimum dose of Tocosol paclitaxel, but as an added bonus, the drug showed good antitumor response rates from 37% to 89% in patients suffering from four cancers, and at all dose levels studied.

In 18 patients with non-small-cell lung cancer, the disease control rate was 78%, which includes 22% partial responses (tumors shrank by more than 50%) and 56% stable disease (tumors stopped growing). All these patients had failed prior chemotherapy.

By comparison, about 6% of nonsmall cell lung cancer patients who take ordinary Taxol as a second-line treatment show a partial response to the treatment, according to medical literature.

Taxol doesn't work in patients with bladder cancer, but Sonus reported that its drug was able to produce an 89% disease control rate in 18 patients (17% partial responses and 72% stable disease).

Nineteen patients with ovarian cancer produced a disease control rate of 37%, while 18 patients with colon cancer showed a 39% disease control rate.

"The two most impressive results in my view were in lung and bladder cancers," says Matt Kaplan, biotech analyst at Punk, Ziegel & Co. "The lung and bladder data are outstanding -- all these patients had already failed first-line chemotherapy, and for bladder, well, it's just not a cancer where ordinary Taxol is active." Kaplan rates Sonus buy, and his firm has done banking for the company.

The dose levels of Tocosol paclitaxel given to patients in the study were all higher than the equivalent doses of Taxol normally used, but side effects were lower, the company said.

The data presented today, however, are preliminary and subject to change as the study is completed, cautions another hedge fund manager, now retired, who at one time was long Sonus but now has no position. Specifically, he questions whether the lung and colon cancer results were as good as Sonus executives had originally hoped for. Sonus executives did not return phone calls seeking comment.

This phase II study also is being conducted in Eastern Europe, mainly Russia, so the Food and Drug Administration will likely require a confirmatory study in the U.S., he adds.

Sonus said it plans to enroll more patients in the phase II study to confirm these preliminary results. If Wednesday's results hold true, the company could push Tocosol paclitaxel into phase III testing by the middle of next year, says Kaplan, who also believes that the lung cancer data could be good enough to enable Sonus to speed up its time line. Sonus is also planning to use its drug-delivery technology to reformulate other cancer drugs as well.

"Sonus is one of the few companies in the sector that has set and met each of its milestones in the last year. It's a refreshing bit of fresh air," he says.