Last year, BioSante Pharmaceuticals' (NAS: BPAX) LibiGel failed two clinical trials. But failing to show an effect is different from proving that a drug doesn't work. Taken on its own, the female sexual-dysfunction treatment performed as expected; LibiGel increased testosterone levels and increased satisfying sexual events.

The problems come when you compare the data with placebo, which performed equally as well. Determined to prove that the drug is working and the effect was just masked by the placebo, management plans to run two more clinical trials to test the efficacy of LibiGel.

Good luck with that. It isn't going to be fast or cheap.


BioSante plans to meet with the Food and Drug Administration to get the agency to sign off on a Special Protocol Assessment in the third quarter, which would allow the biotech to start the trials late this year or early next. It'll take six to nine months to enroll patients in the trial and then six to eight additional months to run the trial, so we're looking at data in early to mid-2014.

The cost for both trials is expected to come in at around $30 million to $36 million. And the company is burning about $2.5 million per month, which includes the cost of a safety study. All told, it'll need at least $75 million to get to the data, probably more.

BioSante had less than $50 million in the bank at the end of the first quarter. A dilutive financing is inevitable, perhaps after data from the safety study is released later this year, which might add a little value. Of course, being safe isn't all that useful if the drug doesn't do anything.

Is it worth it? If LibiGel was guaranteed to pass the new set of clinical trials, I'd say yes. Even if the opportunity isn't as large as the multibillion-dollar marker that Pfizer's (NYS: PFE) Viagra, Eli Lilly's (NYS: LLY) Cialis, and the other erectile-dysfunction drugs treat, there's enough of an opportunity on the female side to justify development.

But placebo effect isn't something that's easy to make go away, much to the chagrin of drugmakers that have to count on patient-reported outcomes to determine whether their drugs work. Chelsea Therapeutics (NAS: CHTP) saw 56% of rheumatoid arthritis patients reach their treatment goal in the control arm of its trial, for instance. Ditto for Lexicon Pharmaceuticals (NAS: LXRX) , where 49% of patients responded to treatment with placebo.

BioSante plans to make some changes to discourage patients from thinking about their problem -- switching from daily diary entries to weekly ones, for example -- which experts say should help decrease the placebo effect, but there's no guarantee that it'll work.

And of course, there's the possibility that most of the effect in the LibiGel treated arm was just a placebo effect, so if BioSante succeeds in removing some of the placebo effect, it'll decrease the treatment arm by a similar level.

This is a big gamble, and I'd suggest most investors would be better off letting someone else foot the bill for the trials and revisit the drugmaker in 18 months.

The female sexual-dysfunction market may be large, but Fool analysts have found a larger one. Find out what it is and how to profit from it in our free report, "The Next Trillion-Dollar Revolution." Get your free copy.

At the time this article was published Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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