FDA spurns Lilly, Boehringer diabetes drug, cites factory problems

By Ransdell Pierson

March 5 (Reuters) - Eli Lilly and Co and partner Boehringer Ingelheim said U.S. regulators have declined to approve their experimental diabetes drug empagliflozin, citing previously observed problems at a facility where it would be made.

The drugmakers, in a joint release on Wednesday, said the U.S. Food and Drug Administration determined that issues at the Boehringer factory in Ingelheim, Germany, need to be resolved before the product could be approved.

Lilly and privately held Boehringer said the FDA had not asked for new clinical trials of the diabetes drug.

The drug is a member of a new class of diabetes medicines known as SGLT2 inhibitors, which block the kidney from reabsorbing blood sugar, thereby spurring removal of glucose through the urine. Recently approved similar medicines include Johnson & Johnson (NYSE: JNJ - news) 's Invokana.

The FDA issued a warning letter in May 2013 citing problems it found at the Boehringer plant during an inspection six month earlier. Among other issues, the FDA said it detected foreign particles in batches of active pharmaceutical ingredients.

Boehringer said it is continuing a costly program to upgrade systems and processes at the plant while an FDA reinspection is underway.

The improvements include a strengthened management structure, hiring of 200 specialists in manufacturing and quality organizations, and an employee training program.

Alex Arfaei, an analyst with BMO Capital Markets, said he expects the FDA to approve empagliflozin this year, and for it to generate eventual annual collaboration revenue of $1.6 billion for Lilly.

Lilly shares were down 0.7 percent to $59.41 in afternoon trading on the New York Stock Exchange amid a moderate downturn for the drug sector.