If The Mamas & the Papas' classic "California Dreaming" was an anthem for many disaffected '60s hipsters, it's unlikely the words carry much traction for 2009's Golden State-based biotechs. "California Nightmare" is more like it.

San Diego-based Akesis Pharmaceuticals has abandoned its only clinical development program and announced plans to file for bankruptcy and several other biotechs in the state are facing their own struggles.

To be sure, small and mid-cap biotechs throughout the United States, Canada and Europe are struggling to raise funds and identify small- and large-molecule candidates with the best chances of clinical success. But the declining fortune of many California biotechs - all four companies profiled in our latest installment of "Troubled Biotechs" are based in that state, as were five of the eight highlighted in first two editions (¹ Also see "Troubled Biotechs: Adventrx, EntreMed, Peregrine, Anesiva" - Pink Sheet, 6 January, 2009.) - is a trend that is hard to ignore.

Akesis: Less than three months after positioning itself as an "emerging metabolic disease company" and announcing a pipeline-expansion strategy, this biotech has discontinued its only clinical development program - type 2 diabetes compound AKP-020 - and said it will file a voluntary Chapter 7 bankruptcy petition. Under Chapter 7, all non-exempt property is turned over to a trustee for liquidation, which distributes the cash proceeds to creditors.

When it announced its in-licensing plans Nov. 6, Akesis claimed to hold a pipeline of "innovative oral product candidates" for diabetes. It raised $3.51 million in a 2006 PIPE financing, primarily from previous investor Avalon Ventures, to move another compound AKP-101, into clinical development for diabetes (² [See Deal]). As of Jan. 22, Akesis' Web site offered no pipeline information and mentioned no programs other than AKP-020.

The biotech in-licensed '020 - a vanadium compound said to have a better pharmacological profile than others in its class - in 2007 from the University of British Columbia. Last June, Akesis reported the compound produced statistically significant reduction from baseline in fasting plasma glucose levels in a Phase IIa trial.

A decision in September to expand a one-month preclinical safety study of '020 to three months delayed clinical advancement of the drug until at least second-half 2009. The safety data showed kidney changes that make the compound non-viable in a chronic disease setting, Akesis said.

The termination of the program, combined with Akesis' cash position - roughly $780,000 in cash and equivalents at the end of third-quarter 2008 - and the current economic climate left the company to conclude "we can no longer operate as a business enterprise," CEO Carl LeBel said Jan. 21. In an indication the company may have known trouble was ahead, LeBel replaced Jay Lichter as Akesis' president and CEO on Nov. 5, one day before the firm announced its in-licensing strategy.

Metabasis: Also based in San Diego and focused on diabetes and other metabolic diseases, Metabasis undertook its second workforce reduction in three months on Jan. 20, reflecting its recent loss of market cap and a difficult cash position. In its Jan. 20 Biotech Balance Sheet Report, Rodman & Renshaw noted Metabasis had lost 69 percent of its market cap in the past quarter, falling to just $12.3 million, and estimated it had cash sufficient for about eight months of operations.

When it announced a $9.8 million third-quarter loss with cash and equivalents of $32.78 million Nov. 12, Metabasis cut its workforce by 35 employees, about 30 percent of its headcount, and closed a facility in Michigan. This week, it trimmed its workforce by another 38 employees, a 43 percent reduction.

CEO Mark Erion, promoted after predecessor Paul Laikind's resignation Dec. 15, said Metabasis will focus on two Phase II candidates, MB07803 for type 2 diabetes and MB07811 for hyperlipidemia, as well as a preclinical glucagon antagonist program expected to produce a clinical compound for diabetes soon.

The biotech expects the glucagon antagonist program to "result in a significant collaboration," he said. Metabasis also will seek a partner for '07803, an oral fructose-1, 6-biphosphatase inhibitor, after reviewing data from a recently completed Phase II clinical trial, Erion said. Meanwhile, '07811, a thyroid receptor beta agonist which produced positive safety and efficacy data in Phase Ib, has been slated to enter a Phase IIa study this quarter.

Erion said Metabasis also hopes to earn near-term milestones from its diabetes/hyperlipidemia collaboration with Merck and its recent HepDirect platform licensing deal with Roche, which brought in $10 million upfront along with the potential for $193 million in milestones, plus royalties, in hepatitis C candidate research (³ [See Deal]).

Xoma: The Berkeley, Calif.-based antibody company has had a busy January, cutting its workforce 42 percent on Jan. 15, updating its 2008 revenue guidance to between $65 million and $70 million on Jan. 20, and then earning a $500,000 milestone from Pfizer related to a license deal forXoma's bacterial cell expression platform on Jan. 22.

At the end of third-quarter 2008, Xoma said it had $24.4 million in cash and equivalents, but $13.9 million of that was restricted cash reserves tied to outstanding loans. Meanwhile, its expected cash burn for the fourth quarter ranged between $15 million and $20 million (⁴ Also see "Xoma Restructures, Focuses On Diabetes Trials" - Pink Sheet, 14 November, 2008.).

Despite corporate tie-ups with Pfizer, Merck, Takeda and others, and royalties due from Genentech for psoriasis drug Raptiva and macular degeneration drug Lucentis , Xoma's stock was selling at $0.66 on Jan. 22.

The biotech's primary focus now is advancing type II diabetes candidate XOMA 052, an interleukin 1b inhibitor, into Phase II studies by mid-2009, which would put the company in a better partnering position (⁵ Also see "Xoma Seals Botulism Deal, Airs Good Results In Diabetes" - Pink Sheet, 9 September, 2008.).

Xoma has stopped development of the rest of its pipeline and down-sized its manufacturing capabilities based on forecasts of reduced future demand. The biotech already has produced sufficient clinical supplies of '052 to conduct clinical trials.

In November, Xoma restructured its oncology collaboration with Novartis, relinquishing a 30 percent stake in lymphoma/multiple myeloma candidate HCD122, in exchange for $7.5 million and up to $14 million in milestones (⁶ Also see "Deals Of The Week: Affymetrix/Panomics, Eisai/TorreyPines, Daiichi/ArQule" - Pink Sheet, 17 November, 2008., p. 12).

Neurobiological Technologies: Based in Emeryville, Calif., this firm ceased development Jan. 13 of Viprinex (ancrod), which had reached Phase III in acute ischemic stroke, after analysis showed the drug did not improve patient outcomes.

Neurobiological had hoped to improve on the current standard of care by producing a therapy that could be used up to six hours after incidence of stroke (⁷ Also see "Neurobiological Tech Consolidates Phase III Trials To Hasten Viprinex Findings" - Pink Sheet, 13 October, 2008.). The current standard, recombinant tissue plasminogen activator, must be administered within three hours of incidence.

The company also announced it would cut its workforce by 75 percent by the end of March. "We have taken steps to reduce costs to preserve the company's remaining cash and to reduce personnel to the level necessary to preserve the company's other assets," Chairman Abraham Cohen said in a release. The company still has early-stage programs in Alzheimer's and Huntington's disease.

Rodman & Renshaw, which ended its coverage of Neurobiological on Jan. 20, estimates the company has a market cap of $15.9 million and about $28.8 million in cash. Over the past year, however, the biotech's market cap has decreased by 89 percent.

-Joseph Haas (j.haas@elsevier.com)

Troubled Biotechs: Akesis, Metabasis, Xoma, Neurobiological Technologies

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