PHX1149 for the Treatment of Type 2 Diabetes
We are developing PHX1149 for the treatment of Type 2 diabetes, a chronic disease associated with abnormally high levels of glucose in the blood. Type 2 diabetes affects more than 160 million people worldwide, including approximately 18 million people in the United States. According to the American Diabetes Association, direct and indirect expenditures related to diabetes comprise 11% of all U.S. healthcare expenditures. In 2006, worldwide sales of diabetes medications totaled approximately $21 billion, with approximately $12 billion spent on oral anti-diabetic medications, or OADs.

Despite existing therapies and increasing awareness of the need for careful glucose control, nearly two-thirds of patients diagnosed with Type 2 diabetes do not achieve and maintain proper control of blood glucose. Furthermore, many existing therapies result in common side effects, including an increased risk of hypoglycemia, or abnormally low blood glucose levels, weight gain and gastrointestinal problems, as well as less common adverse events such as heart attacks and congestive heart failure. As a result, we believe there is a need for improved therapies for Type 2 diabetes.

DPP-4 inhibitors represent the most recently approved class of agents for the treatment of Type 2 diabetes. DPP-4 inhibitors prevent the enzyme DPP-4 from breaking down GLP-1, thereby increasing the levels of this hormone in the digestive tract and the blood. The increased levels of intact GLP-1 stimulate insulin production by the pancreatic beta cells and reduce glucagon production by the pancreas, both of which result in reduced blood glucose levels. In clinical trials to date, DPP-4 inhibitors have been well tolerated and have provided clinically meaningful reductions in HbA1c when used as the sole medical treatment, as well as important incremental decreases in HbA1c when used in combinations with other anti-diabetic medications. DPP-4 inhibitors also offer several advantages over other types of diabetes therapies, including: absence of weight gain and edema, low risk of hypoglycemia, and potential for improved beta cell function.

Our product candidate, PHX1149, is a dipeptidyl peptidase-4, or DPP-4, inhibitor that we are developing as a once daily, oral treatment for Type 2 diabetes. DPP-4 inhibitors represent a new class of OADs that improve the control of blood glucose and have a favorable tolerability profile.

Our Phase 2a clinical trial of PHX1149 in patients with Type 2 diabetes demonstrated that PHX1149 was well tolerated and met its primary endpoint of reducing post-meal blood glucose levels. We have completed enrollment of a 445 patient, Phase 2b clinical trial of PHX1149, and, pending positive results from this trial, we expect to commence Phase 3 clinical trials of PHX1149 in the second half of 2008.

We believe DPP-4 inhibitors will be differentiated in the market primarily based on their tolerability and convenience. Based on the results of our preclinical studies and clinical trials, we believe PHX1149 has the potential to compete with sitagliptin and other DPP-4 inhibitors in development for the treatment of Type 2 diabetes.

PHX1766 for the Treatment of Hepatitis C Virus Infection
Our second product candidate, PHX1766, is an orally available NS3/4A protease inhibitor, which we are developing for the treatment of HCV infection. HCV is the most common chronic blood-borne viral infection in the United States and a leading cause of liver failure, liver transplants and liver cancer. The Centers for Disease Control and Prevention estimate that approximately 3.2 million people in the United States are chronically infected with HCV.

The current standard of care for the treatment of HCV infection is a combination therapy of injected pegylated interferon and orally-administered ribavirin. However, this combination therapy has been associated with serious side effects. The side effect profile of the standard of care, together with its long duration of therapy and the requirement that interferon be administered by injection, has reduced patient compliance. Furthermore, among patients infected with HCV genotype 1, the most prevalent form of HCV in the United States, only 42-46% treated under the standard of care achieve a sustained viral response, or SVR, which is defined as the absence of a detectable amount of HCV in the blood six months after completion of therapy.

Unlike interferons, which work by stimulating the immune system's response to viral infection, HCV protease inhibitors directly target the virus by inhibiting NS3/4A protease. When tested in Phase 2 clinical trials, NS3/4A protease inhibitors have reduced the levels of virus in the blood and, when added to the standard of care, provided greater SVR rates and a shorter duration of therapy compared to the standard of care alone. PHX1766 has demonstrated high potency and selectivity as well as good pharmacokinetic properties in early nonclinical studies.