Drug Developer Phenomix Nixes $86.25M IPO

10/23/08

San Diego-based biotech firm Phenomix has withdrawn its plans to raise $86.25 million in an initial public offering—more evidence that even mature biotechs ready for late-stage clinical trials are having trouble raising money from public investors.

For Phenomix, $34 million of the IPO proceeds would have funded the firm’s late-stage studies of its lead drug (PHX1149) for Type 2 diabetes, according to an SEC filing. In May, the company reported positive mid-stage clinical trial results for the drug, which is a dipeptidyl peptidase-4 inhibitor intended to lower blood sugar. The firm had also earmarked $11.5 million that would have paid for further early-stage development of a drug for treating hepatitis C virus infections.

Two years ago Phenomix may have waltzed into the public markets, but the current market for IPOs—especially for biotechs, thought to be one of the most high-risk bets for investors—hasn’t been receptive to companies in similar situations as Phenomix. Given the en mass retreat from biotech by many public investors, it may be a while before the IPO window opens to these companies.

To be sure, Phenomix is targeting a major market with its diabetes drug. The firm says that global sales of oral anti-diabetes medications were $12 billion in 2006. Yet with the huge market diabetes treatments comes major competition from some of the largest pharmaceutical companies in the world such as Eli Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO), both of which sell insulin injections and other drugs to control the diabetic symptoms.

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