Pharmaxis shares are in free-fall after a German pharmaceutical giant declined to take one of its drugs forward after finding it had a bad interaction with another drug.

Boehringer Ingelheim has decided not to develop a drug it bought from Pharmaxis (ASX:PXS) in 2015, BI 1467335 for NASH (non‐ alcoholic steatohepatitis).

Pharmaxis shares opened down 35 per cent at 16.5c and rapidly fell to a low of 15c, before recovering slightly.

The German company is still committed to continuing a Phase 2a study on the same drug for diabetic retinopathy.

Nonalcoholic fatty liver disease is a condition in which fat builds up in your liver. Nonalcoholic steatohepatitis (NASH) is a type of NAFLD. If you have NASH, you have inflammation and liver cell damage, along with fat in your liver.

Boehringer Ingelheim decided not to take BI 1467335 further for NASH because of interactions with another drug, a class of medications called MOA-B, based on an assessment of the Phase 1 study.

However, the most recent Phase 2a study not only found the drug worked, meeting targets for inhibition of plasma amine oxidase copper‐containing 3 (AOC3)1 activity compared to placebo as well as clinically relevant changes in NASH biomarkers, but was also safe.

Pharmaxis CEO Garry Phillips said on a conference call today that Boehringer Ingelheim said it would have taken the drug further had the drug interaction not been a factor.

NASH is a disease without current treatments. Just yesterday a Phase 2 trial for a NASH drug by pharmaceutical major Gilead failed, showing how difficult it is to treat.

What’s next

Pharmaxis telegraphed earlier this week that a decision had been made in Germany on the treatment, but a trading halt on Monday rather than a positive announcement suggested bad news was in the wings.

Last month Phillips told Stockhead he was expecting a decision to come before the end of the year, and he was very confident it would be in the company’s favour.

“We are planning for success,” he said. “It’s Boehringer, the only thing that matters is whether they want to go through to (a phase) 2b or not.”

Today he was at pains to assure investors that NASH isn’t the only drug in their portfolio.

“I want to take this opportunity to underline that this is not the only shot in Pharmaxis’ pipeline,” he said.

Financially, the next milestone payment for NASH would have been in 2022 when a Phase 3 study started.

A Phase 2a study for diabetic retinopathy, however, is due to report in the second half of next year. If that goes well a Phase 3 study is on track to start around the same time, when a $60m milestone payment would kick in.

Phillips says they aren’t allowed to shop BI 1467335 around to other companies unless Boehringer Ingelheim released it for diabetic retinopathy as well.

Also in the pipeline is the anti fibrotic LOXL2 inhibitor program and the clinical proof of concept studies in bone marrow cancer myelofibrosis.