Obituaries II: Metabasis Hit by Perfect Storm of Failed Products, Partnerships, Economy

(MoneyWatch)  A surprising fact about the much-predicted Darwinian attrition that has hit the biotech industry over the past 18 months is that it has impacted more than just the weakest. Some of the industry's oldest, most well-known names have fallen, including Metabasis Therapeutics.

Metabasis can trace its roots all the way back to the founding of Gensia in 1986. After going public in 1990, Gensia suffered some setbacks with its cardiovascular drugs and reorganized. In 1996, the firm merged with Sicor to build its specialty pharma business and spun-out its research and development as Metabasis.

With programs underway for diabetes and liver-targeted drug delivery, Metabasis gained its independence through a management buy-out in 1999. The firm raised about $67 million privately before pricing a $35 million IPO in 2004. More money came later through two $40 million financings, a $50 million equity commitment and partnerships with Merck, Roche and others.

But Metabasis never had it easy. The diabetes drug ran into safety trouble as early as 2005 and later failed a Phase IIb trial, while a partnered hepatitis B drug got sublicensed to a new partner who let it languish and eventually dumped it. Then the fall 2008 financial crisis hit, and Metabasis found itself unable to raise money. They firm laid off 30 percent of its work force, and two months later sliced another 43 percent.

The kiss of death occurred when a private placement with Panorama Capital fell through at the 11th hour. According to a Voice of San Diego report, employees were called into a conference room and told:

The company was all but broke, and nearly everyone -- 45 out of the company's 52 employees -- was being laid off--They weren't getting any severance pay, or even their unused vacation pay, and if they didn't hurry to the bank to cash their final paycheck, it would probably bounce.

The chaos was followed by a rush to clean out desks, euthanize rodents and find homes for dogs that had been used in drug research. Less than six months later, all that remained of the once-stalwart San Diego biotech was acquired by Ligand Pharmaceuticals (LGND) for $3.2 million.

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