CollaGenex Pharmaceuticals Inc., which in 2006 gained approval for the first systemic treatment for rosacea, discontinued development of a second-generation compound in that indication following a Phase II miss.

That news sent the specialty pharmaceutical company's shares (NASDAQ:CGPI) falling 16 percent Wednesday, down $1.78 to close at $9.35.

Results of the Phase II dose-finding study showed that incyclinide, a chemically modified, non-antibiotic tetracycline, failed to meet its primary endpoint. The drug did not demonstrate a greater reduction in inflammatory lesions in rosacea patients over placebo at any time point during the study. A total of 197 patients with moderate-to-severe rosacea were randomized into four groups to receive either 5 mg, 10 mg or 20 mg of incyclinide or a placebo capsule once daily for 12 weeks.

In a press release, CollaGenex's Chief Medical Officer Klaus Theobald called the results disappointing, particularly in light of earlier findings from a 14-patient pilot study, which showed a statistically significant reduction in inflammatory lesions over placebo. Klaus said the Newtown, Pa.-based firm "will not be pursuing further clinical development of incyclinide in rosacea patients." The drug, however, was found to be well tolerated, which means CollaGenex will continue moving forward with the program in acne.

Incyclinide, which emerged from the company's IMPACS platform, was being designed as a potentially more effective treatment to Oracea, its FDA-approved rosacea product which had net sales of $13.1 million for the second quarter.

CollaGenex also has in its development pipeline Col-118, which is expected to start Phase III studies in erythema early in 2008, and becocalcidiol, expected to start Phase II testing next year in psoriasis patients.