The failure of its lead product candidate, Riquent, may be the end of the road for tiny biotech La Jolla Pharmaceutical Co. (LJPC) and may leave recent partner BioMarin Pharmaceutical Inc. (BMRN) with a hole in its late-stage pipeline.

Many viewed the San Diego-based La Jolla as high risk, given Riquent's previous failures and targeted use in lupus, a notoriously difficult to treat disease. But its failure leaves the company with little cash and few products in its pipeline to develop.

"As Riquent is LJPC's only product, we anticipate LJPC is likely to end operations," said analyst Liana Moussatos with Pacific Growth Equities

Shares of La Jolla recently traded down $2.03, or 88%, to 28 cents, cutting its market capitalization from $128 million to just $14 million. BioMarin shares dropped 43 cents, or 2.2%, to $19.

Though BioMarin only recently signed on with La Jolla, it was smart to incorporate the historical risk of the program into their agreement and walked away only mildly bruised.

La Jolla officials weren't immediately available for comment, but an early Thursday press release stated that it would provide more guidance on its strategic options in the future. Moussato estimates the company has only enough cash to last until May.

The study of Riquent came to an end after an independent data monitoring board conducted an interim analysis and determined that continuing the study was futile. La Jolla is evaluating the results from the completed portion.

The news marks another bump in the road for Riquent. In 2004, the Food and Drug Administration indicated the drug was approvable after its previous late-stage trial failure, but needed an additional study to reach the market.

Riquent reduces antibodies associated with lupus, which should make patients less likely to experience "flares" of kidney-related inflammation.

Analyst Terence Flynn from Lazard Capital Markets believes the mechanism of Riquent could simply be aiming for the wrong target in treating the disease.

"This news is disappointing, but in no way surprising as Riquent has failed two prior Phase III trials," said Cowen & Co. analyst Phil Nadeau.

Shrewd Strategy

The failure comes just five weeks after BioMarin paid $15 million to La Jolla in order to develop and market Riquent worldwide. Though it lost that money, BioMarin should have no further obligations and may have been wise to structure a deal that was so dependent on Riquent's success in later stages of development.

If the study had continued and failed on the final analysis, BioMarin would have had already paid La Jolla $52.5 million, notes Leerink Swann analyst Joseph Swartz. BioMarin had $563 million in cash and securities as of Sept. 30.

"While some may question the rigor of management's extensive due diligence that led to the collaboration just a month ago, we applaud their shrewd use of real options to limit financial exposure," he said.

Though its exposure was limited in the Riquent failure, the loss leaves BioMarin with a hole in its pipeline for drugs in late-stage development. The company will likely need to cut additional deals in order to fill that hope and reassure investors of its future prospects.

BioMarin will make "investments in future growth and continue to look for attractive late-stage in-licensing or acquisition opportunities," said Chief Executive Jean-Jacques Bienaime in a statement.

BioMarin had third-quarter revenue of $72.6 million. It's products are Aldurazyme, marketed by Genzyme Corp. (GENZ), to treat a fatal genetic disorder, Naglazyme, which treats a similar disorder, and Kuvan, for phenylketonuria, another genetic disorder treatment that is sold with Merck KGaA (MRK.XE).

The company's bet on lupus was largely seen as a long shot to get into a lucrative market, because of the drug's previous failures and the difficulty in developing treatments for the disease.

There are currently few options for patients with lupus, a chronic autoimmune disease in which the body attacks itself, causing inflammation and tissue damage virtually anywhere in the body.

The condition can still be difficult to diagnose, which has made the design of clinical trials historically difficult.

Current treatments include anti-inflammatory drugs, steroids, anti-malarials and immunosuppressants. Those routes can lead to serious side effects, but no new drugs have been approved to treat lupus for decades.

Last year, Rituxan, sold by Genentech Inc. (DNA) and Biogen Idec Inc. (BIIB), failed in a late-stage trial in treating lupus.

Later this year, Human Genome Sciences Inc. (HGSI) is expected to have late-stage data of its LymphoStat-B in treating lupus.

-By Thomas Gryta, Dow Jones Newswires; 201-938-2053; thomas.gryta@dowjones.com