Phenomix Aims to Grab Piece of $10 Billion Diabetes Market

2/4/09Follow @xconomy

San Diego-based Phenomix isn’t one to shy away from a fight. This privately held biotech company with just 50 employees is forging ahead with a new drug for diabetes, one of the most competitive, and crowded marketplaces in the entire pharmaceutical industry.

As long as the diabetes epidemic rages on like a “runaway train” in the words of the Centers for Disease Control, affecting more than 20 million people in the U.S., Phenomix figures it can carve out a lucrative niche by being just one of several contenders in the market. I learned about the company’s game plan for the year ahead from CEO Laura Shawver a couple weeks ago at an investor conference in San Francisco.

Phenomix (pronounced Fuh-NO-mix) has been developing an experimental drug for treating diabetes that blocks an enzyme called DPP4. Pharmaceutical giant Merck led the way in October 2006 with sitagliptin (Januvia), the first drug of this class approved in the U.S. Scientifically, the drugs in this class aim to achieve the same goal as San Diego-based Amylin Pharmaceuticals, through a different method. By blocking DPP4, these drugs raise the levels of a peptide called GLP-1, which signals that food is in the body and tells the pancreas to make more insulin to control blood sugar. The advantage with these drugs is they can be taken as an oral pill once a day, instead of having patients take twice-daily injections as required with Amylin’s exenatide. The market for these DPP4 blockers ought to be worth more than $10 billion a year, Shawver says. The Merck drug alone is expected to generate $2.4 billion to $2.7 billion in worldwide sales this year.

“These drugs are safe. They’re oral. They’re convenient,” Shawver says.

Many of the existing drugs on the market, like metformin or TZD drugs, have side effects that would make it difficult for them to pass muster with today’s FDA, Shawver says. The DPP4 blockers promise to be safer, and therefore draw in a broader group of patients looking to prevent disease, just as people now take statin drugs to prevent heart attack. “We’ll see a similar pattern when the right drug comes along for diabetes,” she says.

Phenomix doesn’t have much to say publicly about how its drug is really different from others in its class. Besides Januvia, there are competing drugs under FDA review from New York-based Bristol-Myers Squibb and Japan-based Takeda Pharmaceutical that are further along in development, Shawver says. Another drug from German pharmaceutical company, Boehringer Ingelheim is in the final stages of development. And, there’s the Phenomix candidate, called dutoglipton, which is now in the final stage of clinical trials under a partnership with New York-based Forest Laboratories.

Evidence to support the Phenomix drug looks promising. Shawver says a study of 422 patients showed the drug reached all of its goals, which included a measurement of how much their blood sugar was reduced, and how many patients were able to get to an acceptable standard of hemoglobin A1c in the blood. The data still haven’t been published, and Shawver wouldn’t provide much more detail than that. However, she said the company’s drug is unique because it achieves a very steady concentration in the bloodstream instead of usual peaks and valleys, the drug isn’t metabolized in a way that could leave tiny metabolites that can cause unpredictable side effects, and it has low volume of distribution into tissues, which can be unpredictable. “Those are properties that give us confidence we have a very safe product,” she says.

Phenomix would probably be forced to disclose a bit more if it had been able to go through with an IPO, which it planned to do last year, until the stock markets slammed that window shut. The company still was able to get capital it needed to move the diabetes program forward in October, by signing a partnership with Forest Laboratories.

Forest provides the marketing muscle that’s essential for a little company like Phenomix if it hopes to compete in the diabetes market. Forest has shown it can hold its own in the marketing department in crowded categories, like with the anti-depressant escitalopram (Lexapro). The deal with Forest also brought in $75 million in upfront cash to Phenomix, and allows for the smaller company to receive as much as $340 million in milestone payments over time if the drug reaches certain goals. The deal calls for the companies to co-promote in the U.S., and equally divide profits in this country.

I asked Shawver if this deal provides enough of a financial cushion to Phenomix, even though it didn’t get the IPO cash it was looking for. The company has several other options to generate cash this year, she says. These include offering dutogliptin’s partnership rights outside North America, possibly signing a partnership with a bigger company that wants a piece of a hepatitis C drug it has in development, and there’s a chance she could raise another private round of financing. Even without making those things happen, the company has more than enough cash to get through this year, she says.

Hepatitis C is yet another fiercely competitive market, with Cambridge, MA-based Vertex Pharmaceuticals and Kenilworth, NJ-based Schering-Plough blazing a trail with a new class of protease inhibitors in development, and a slew of others, including San Diego-based Anadys Pharmaceuticals, piling in with different kinds of therapies at earlier stages of development. Phenomix says it will have an idea by “late in the second quarter” whether its candidate can compete in this market or not.

Phenomix got its start in 2002 based on some scientific insights, still very early in development, from researchers at Australian National University in Canberra, the Genomics Institute of the Novartis Research Foundation in San Diego, and the Baylor University College of Medicine in Houston, TX. It was at a point in time when investors were burned by hype over the Human Genome Project leading to cures. So a lot of scientific work got scuttled, in favor of highly concentrated work on lead compounds for diabetes and hepatitis C.

“We’ve found we had to persist through a strong competitive landscape for our lead programs, the DPP4 and hepatitis C programs,” Shawver says. “We just have to focus on what’s differentiating about our drugs and continue to execute on our plans.”

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