In a glaring sign of just how competitive and expensive the diabetes development space has become, privately-held biotech Phenomix is closing its doors, largely due to its failure to find a new partner for its late-stage DPP-4 inhibitor dutogliptin. This past spring, its partner Forest Labs, abruptly handed back the molecule, announcing the decision on a quarterly earnings call.

The San Diego-based Phenomix told "The Pink Sheet" DAILY it has already laid off most of its 45 employees. A few - including the CEO Laura Shawver - will stay on temporarily as the company would still like to sell rights to dutogliptin, perhaps to a company interested in developing the asset overseas. Shawver in particular will stay on as CEO until the end of September and then continue to work for Phenomix as a consultant.

Despite some good initial results in Phase III, dutogliptin did not make the cut for partnering in the U.S. Phenomix attributes this failure and its closure to regulatory and commercial challenges in diabetes that blighted the potential of a good asset.

In 2008, Phenomix inked a lucrative deal with Forest to develop dutogliptin, securing an upfront payment of $75 million (Also see "Scrapping Its IPO, Phenomix Teams Up With Forest" - Pink Sheet, 24 October, 2008.). But not long after, the FDA changed its guidelines for diabetes drugs to require expensive cardiovascular outcomes trials. By April 2010, Forest wanted out of the deal (Also see "Forest Ends Phenomix Partnership, But Says Its Many Deals Are Bearing Fruit" - Pink Sheet, 20 April, 2010.) and yet within months was buying into a different class of diabetes drugs- glucokinase activators (Also see "Forest Jumps Back Into Diabetes In Deal With TransTech For Glucokinase Activators" - Pink Sheet, 8 June, 2010.).

Phenomix notes that it has raised considerable cash. Since inception in 2003, Phenomix raised $165 million from investors including Nomura Phase 4 Ventures, JP Morgan Partners, Alta Partners and Delphi Ventures.

But even so, it cannot afford to develop the DPP-4 inhibitor on its own. It now costs about $500 million to fund a late stage program in diabetes and Big Pharmas are choosing very carefully which drugs they want to take into Phase III, a company spokesperson told "The Pink Sheet" DAILY.

However, there still could be a buyer who wants to develop the product outside U.S. markets, where regulations may be more lenient. In December 2009 Phenomix sold to Chiesi dutogliptin's rights in various geographies, including Europe, Brazil, Turkey and North Africa. It is now seeking a buyer for China, Japan and other countries (Also see "Phenomix And Chiesi Partner For Phase III DPP-4 Drug In Europe" - Pink Sheet, 2 December, 2009.). The company is also looking to sell rights to some early stage protease inhibitors for hepatitis C.

In addition to the regulatory challenges, there are also formidable commercial obstacles for drugs in the DPP-4 class, the Phenomix spokesperson acknowledged.

Currently, two DPP-4s are FDA-approved - Merck's first-to-market blockbuster Januvia (sitagliptin) and Bristol/AstraZeneca's struggling medicine Onglyza (saxagliptin). Novartis' Galvus (vildagliptin) is cleared outside the United States but was never approved stateside because of skin toxicity signals. Privately held Boehringer Ingelheim is expected to submit an application shortly for a DPP-4 inhibitor ([A#0072029008]).

Experience with Onglyza suggests Januvia still has a strong hold on the market overall, consultants said in response to news of Boehringer Ingelheim's plans to file. The trouble Phenomix has had in finding a partner for dutogliptin, not to mention Forest's willingness to walk out on a high-priced deal only to buy into another diabetes drug class, support a more pessimistic view about prospects for competing DPP-4 drugs given Januvia's dominance.

- Emily Hayes (e.hayes@elsevier.com)

Phenomix Folds After Diabetes Drug Fails To Attract Partner To Fill Forest's Shoes

More from Archive

More from Pink Sheet