By Lisa Seachrist

Eli Lilly and Co. stopped development of Ligand Pharmaceuticals Inc.¿s Targretin (bexarotene) and two other first-generation retinoid X receptor (RXR) compounds as diabetes treatments, and intends to focus on developing second-generation products for the indication.

Indianapolis-based Lilly said it has abandoned Oral Targretin, LGD1268 and LGD1324 in order to focus on second-generation RXR compounds, which show a better therapeutic profile for treating diabetes, and to focus on co-agonists in the peroxisome proliferator activated receptor (PPAR) program.

San Diego-based Ligand will continue to develop Targretin for use as a cancer therapy.

This move redirects to second-generation compounds the $190 million deal that Ligand negotiated with Lilly in 1997.

¿This is a small blow,¿ said Mike King, senior analyst with BancBoston Robertson Stephens Inc., in New York. ¿It is by no means fatal. And it wasn¿t altogether unexpected. The second-generation compounds have the highest likelihood of becoming diabetes drugs.¿

Retinoids are naturally occurring hormones chemically related to vitamin A and are known to regulate a number of cellular activities, including cell growth. They work through six receptors that can be classified into two groups, retinoid A receptor (RAR) and RXR. Among other activities, retinoids can stimulate apoptosis, or programmed cell death, by activating different versions of the retinoid receptor.

Targretin has shown activity in both increasing insulin sensitivity for diabetics and in battling cancer growth. However, King pointed out, in clinical trials Targretin also showed some toxicities that would be unacceptable for many patients. For example, while increasing insulin sensitivity, the drug also appeared to raise triglyceride levels.

¿The risk-reward dynamic is different for cancer and diabetes,¿ King said. ¿With diabetes, this is a drug that people are going to use every day for the rest of their lives. Toxicity is pretty much unacceptable.¿

Targretin is in Phase II clinical trials for the treatment of breast cancer and psoriasis. With Lilly¿s decision, all rights to Targretin have reverted to Ligand, which is developing the drug for the cancer and psoriasis indications. A company spokesperson could not be reached.

Ligand¿s stock (NASDAQ:LGND) closed Thursday at $10.312, down $2.062. n