By Randall Osborne

West Coast Editor

Insmed Inc.'s SomatoKine came through in a Phase II trial for Type II diabetes - but its previously solid lead product, INS-1, faltered for the same indication, and company scientists are evaluating that trial's 246 patients in an attempt to figure out why.

Sophia Twaddell, spokeswoman for the Richmond, Va.-based firm, called the INS-1 results "irrelevant" in terms of the big picture for INS-1, at least regarding the drug's potential arrival to market.

Wall Street apparently disagreed, and Insmed's stock (NASDAQ:INSM) lost 42 percent of its value, closing Monday at $3, down $2.187.

SomatoKine, Insmed's therapeutic composition of insulin-like growth factor-1 and its primary binding protein, BP3, is being developed to boost insulin sensitivity in late-stage Type I and Type II diabetics.

Initial data from the most recent Phase II study showed the drug, whether administered via continuous infusion or subcutaneous injection, reduced insulin consumption and average daily blood glucose in Type II diabetics, just as it had shown favorable results earlier in Type I patients.

INS-1 is another story. The oral drug, also an insulin sensitizer, is described by the company as a naturally occurring building block, and has proven its mettle in previous trials for Type II diabetes and polycystic ovarian syndrome. It is designed for first-line treatment, with the simpler route of delivery.

But the preliminary intent-to-treat analysis showed that Type II diabetics treated with INS-1 in combination with sulfonylureas showed no statistical significance from placebo. Twaddell said the INS-1 outcome is mysterious, and company officials were expected to discuss it during a conference call this morning. Some analysts speculated drug interactions might be to blame.

"This is the first add-on trial," Twaddell said, noting sulfonylureas were used because they are the first-line treatment for Type II after diet and exercise.

Results from the diabetes trial might be different if the responders - although they do not comprise a statistically significant number - were evaluated as a group unto themselves, Twaddell said. Although such results would be of use only in designing further research, she said, they could provide ideas about what went wrong.

"Intent to treat is very broad," Twaddell said. "It looks at everyone in the trial, even if they dropped out."

Further details from the trial won't be available until later.

"They're working on it right now," Twaddell said. "Certainly, it will be before year's end."

Two more Phase II studies of INS-1, one in combination with metformin and another in combination with diet and exercise, have begun to enroll, but data from these studies are not expected for another six months or so.

"These [latest preliminary] results are not definitive for INS-1," Twaddell said.

Jay Silverman, analyst with Robertson Stephens in New York, agreed, saying in a research note Monday the "most evaluable patient population has not yet been identified for more rigorous analysis," and "patients unqualified for inclusion criteria could have also been included in the [preliminary] analysis. Moreover, Phase II trials are planned or under way to determine the ideal dosing and patient population," he said in his note.

As of Sept. 30, Insmed had $29.9 million in cash, with a net loss for the quarter of $5.1 million, or 19 cents per share.