Neurocrine shares plunge on FDA rejection

WASHINGTON -- Investors stripped 62 percent of a California company's value yesterday after the Food and Drug Administration rejected a formulation of its sleeping pill that represented its best chance to compete in an already crowded market for insomnia treatments.

Shares in Neurocrine Biosciences Inc. plummeted to their lowest level in more than five years, illustrating the peril faced by small companies -- including dozens of Boston area biotechnology firms -- whose value rests on a single product that has not yet reached the market.

The FDA turned down an application by the 14-year-old San Diego company and Pfizer Inc., the world's largest drug maker, to sell a 15 milligram extended-release version of the insomnia drug Indiplon. Pfizer is Neurocrine's development and marketing partner for the treatment.

The federal agency did give conditional approval to two less potent versions of Indiplon, at 5 and 10 milligrams. But those doses aren't strong enough to challenge the top-selling prescription sleep medications already available to consumers.

''The FDA response was a surprise to us," Gary Lyons, Neurocrine's chief executive, told analysts in a brief phone call. He did not take questions. ''We're still trying to digest the information and estimate our time line," he said.

It was unclear last night why the FDA did not approve the extended-release version of Indiplon.

The mixed news from the FDA delays a $109 million milestone payment Neurocrine was to receive from Pfizer upon agency approval. AG Edwards analyst Al Rauch said loss of the 15 milligram formulation greatly diminishes the value of Pfizer remaining in its relationship with Neurocrine.

Pfizer spokeswoman Betsy Raymond said the two companies were meeting, but declined to say what actions Pfizer may take.

''From Neurocrine's standpoint, this is pretty devastating," said Jason Napodano, of a senior biotech analyst at Zacks Investment Research.

About 70 million Americans suffer from sleep problems. During the course of a year, roughly one in three adults experiences symptoms of insomnia.

Neurocrine has several other drug candidates in early stage clinical trials, including treatments for anxiety and congestive heart failure. But its 15 milligram version of Indiplon -- powerful enough to keep people asleep all night -- would have competed head-to-head with Sanofi-Aventis SA's Ambien and Sepracor Inc.'s Lunesta. Those two products dominate the nearly $3 billion US market for sleeping pills.

''Indiplon was clearly their bread and butter," Napodano said. ''You can tell by the stock. It is 70 to 80 percent of the value of the company."

Some analysts had viewed the application warily, because the FDA in January delayed its decision on the drug by three months.

''When the FDA does stuff like that, it suggests something in the process isn't working," said Les Funtleyder, a healthcare strategist with Miller Tabak + Co. ''Either there is a data issue or it's an FDA issue. You can't really tell. But, it means the process has gone off track somewhere."

Neurocrine shares closed yesterday at $20.76 after 46 million shares changed hands, costing the company $1 billion in market value. Pfizer traded up .04 percent, closing at $24.90.

Companies with sleep aids already on the market were rewarded by investors who had feared the FDA would approve Indiplon outright. Shares of Sepracor, of Marlborough, climbed 14 percent, to $51.10.

One analyst projected a 50 percent increase in Lunesta sales this year, to more than $650 million.

American depository shares of the French drug maker Sanofi-Aventis rose 3.6 percent, to $48.90.

Material from Globe wire services was used in this report. Diedtra Henderson can be reached at dhenderson@globe.com.