This clinical study is being conducted at multiple sites to determine the activity, safety and tolerability of XL784 when given daily to patients with albuminuria due to diabetic nephropathy. XL784 is a small molecule reno-protective metalloproteinase inhibitor, inhibiting both ADAMs (including ADAM10, a target of significant interest because of its important role in blood vessel formation and cell proliferation, and ADAM17/TACE, activation of which has been associated with renal deterioration) and MMPs (including MMP-2 and MMP-9). XL784 was specifically optimized to be MMP-1 sparing, which may be clinically significant because inhibition of MMP-1 has been hypothesized to be associated with musculoskeletal toxicity.

Inclusion Criteria:

• Type 1 or Type 2 diabetes mellitus with albuminuria, observed within 3 months of screening
• Prior to randomization, subject has a glomerular filtration rate (GFR) >/= 40 mL/min
• Prior to randomization, the subject has albuminuria defined as ACR >/= 500 mg/g
• Stable seated blood pressure at the screening visit and prior to randomization
• Subject has been on a stable dose and schedule of an angiotension converting enzyme (ACE) inhibitor and/or an angiotension receptor blocker (ARB) for at least 3 months before first dose of study drug
• If on antidiabetic medication, subject has been on a stable dose and schedule for at least 3 months prior to first dose of study drug
• Sexually active subjects must use an accepted method of contraception during the course of the study and for 3 months after
• Signed informed consent

Exclusion Criteria:

• Subject has participated in an investigational study and received an investigational drug within 30 days of the first dose of XL784
• Hemoglobin A1c (HbA1c) value of >10% at screening
• Subject has had either organ transplantation or is currently on immunosuppressive therapy
• Non-steroidal anti-inflammatory drugs (NSAIDs) within 5 days of urine screening assessments
• Current diagnosis of one or more of the following conditions: 1) infection requiring parenteral antibiotics, 2) urinary tract infection, 3) hepatic dysfunction or disease, 4) symptomatic congestive heart failure, 5) unstable angina pectoris, 5) serious cardiac arrhythmia
• Clinically evident diabetic gastroparesis or motility disturbance
• Proteinuria not due to diabetic nephropathy
• Diltiazem or verapamil
• Ongoing condition where treatment with NSAIDs is anticipated (aspirin \