Phenomix, Former Highflying Diabetes Drugmaker, Shuts Down After Forest Labs Walks
San Diego-based Phenomix is history. The one-time highflying IPO candidate has shut down its operations, laid off essentially all of its 45 employees, and only has a skeleton crew left attempting to find someone to continue developing its lead drug candidate for diabetes, Xconomy has learned.
Phenomix went out of business about three weeks ago, according to Pam Lord, a senior vice president with Canale Communications and a spokeswoman for Phenomix. The company closed its doors because it was unable to find another pharmaceutical partner to help pay the company’s clinical trial bills since April, when New York-based Forest Laboratories (NYSE: FRX) walked away from its stake in dutogliptin, Lord says. Phenomix CEO Laura Shawver has left the company, and is now working as a San Diego-based entrepreneur-in-residence for 5AM Ventures (based in Menlo Park, CA, and Waltham, MA, while also spending time on her nonprofit work at the Clearity Foundation.
The shutdown of Phenomix (pronounced fuh-NO-mix) is a painful sign of the times in the world of diabetes drug development. The company, founded in 2002 with technology from the Genomics Institute of the Novartis Research Foundation, raised $165 million since its inception and poured $130 million of that into developing an experimental drug for diabetes called dutogliptin. The treatment reached its goals in a pivotal clinical trial unveiled in April, but Forest walked away for what it called “business reasons.”
Part of the business reason is that the diabetes drug development game has changed since Phenomix pulled in $75 million upfront from Forest when the partnership was first struck in October 2008. The plan then was to run six clinical trials at a cost of about $150 million to $200 million, Lord says. But more recently, the FDA has been under an onslaught of criticism for its approval of GlaxoSmithKline’s rosiglitazone (Avandia), which became a billion-dollar seller but was later found linked to increased cardiovascular disease risks. Just last week, San Diego-based Amylin Pharmaceuticals and its partners were shellacked by the FDA, which turned down an application to market the first once-weekly injectable drug for diabetes, exenatide once-weekly (Bydureon).
While the Phenomix drug is from a different class of diabetes medication—known as DPP4 inhibitors—it faces intense competition from FDA-approved medicines in its class, including Merck’s sitagliptin (Januvia) and Bristol-Myers Squibb’s saxagliptin (Onglyza). The diabetes market is huge, with more than $10 billion in sales, and a pool of more than 20 million Americans are thought to have diabetes. Even though the incidence of diabetes is increasing, the FDA’s tough stance toward new drugs means that the price tag for developing the new Phenomix treatment has roughly doubled, making it too expensive for venture capitalists to continue to support it, Lord says.
“The U.S. market is crowded in the DPP4 space,” Lord says. “Only a few pharmaceutical companies are candidates for licensing or acquiring dutogliptin, and they themselves have DPP4 programs and can really only develop one at a time.”
The diabetes treatment may still be sold regionally in countries with less competition from other DPP4 inhibitors and less difficult regulatory hurdles, like China, Korea, and Taiwan, Lord says. Phenomix is also looking to sell off a program to develop an experimental hepatitis C drug, she says.
Phenomix filed paperwork with the Securities & Exchange Commission to go public back in January 2008, but never pulled the trigger as markets soured later in the year. The company’s largest shareholders at the time of the proposed IPO were JP Morgan (18 percent), Nomura Phase4 Ventures (15.8 percent), Delphi Funds (11.1 percent), Alta Partners (9.8 percent), Sofinnova Ventures (9.8 percent), and Swiss drug giant Novartis (9.4 percent).
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