FDA sends drugmaker back to drawing board

NEW YORK (CNNMoney.com) -- Neurocrine Biosciences suffered a devastating blow when federal regulators withheld approval for the company's experimental insomnia drug Indiplon.

The stock for Neurocrine (NBIX) plunged 50 percent after the San Diego-based drugmaker announced Thursday the Food and Drug Administration had requested more information about the short-acting Indiplon before for it is considered fit for the U.S. market.

Neurocrine Chief Executive Gary Lyons told CNNMoney.com that he is "obviously disappointed" with the FDA decision and has to meet with the agency before deciding on the next step for Indiplon. He said he would request a meeting by Friday.

Lyons also said that Neurocrine and a potential corporate partner on Indiplon "have pulled back."

The FDA told Neurocrine it would have to provide additional Indiplon studies focusing on safety, elderly patients and pregnant women in their third trimester. Such studies are expensive and time-consuming.

Analysts were not hopeful about the fate of Indiplon.

"Going forward, we expect investors to assign essentially zero value to the Indiplon program, so we are removing any contribution from it to our model," said ThinkEquity analyst David Woodburn.

Even if Indiplon does eventually get approved, it would only be as a short-acting product and occupy a niche in the $4 billion U.S. market for sleeping pills. Some analysts have capped annual sales projections for Indiplon at $150 million.

But Neurocrine could have a potential winner in its pipeline, said Woodburn. The company is experimenting with a drug that could be used to treat endometriosis, a problem with uterine tissue that can cause pain, heavy period and infertility. Some five million women in North America suffer from the condition, said Woodburn, who projects $500 million to $1 billion in annual sales for the drug.

That's assuming that the drug, known as a GnRH antagonist, makes it past the FDA. The potential drug is in phase 2 testing, and CEO Lyons said that phase 3 - the final stage before submission to the FDA - will begin in 2008. This means that it is years away from potentially entering the market.

Lyons said Neurocrine will announce a new partner for the GnRH antagonist in January.

As for Indiplon, the FDA's decision was the latest blow for Neurocrine, which does not have any products on the market. In 2006, the FDA decided not to approve the largest, 15 mg dose for Indiplon. This prompted pharmaceutical giant Pfizer Inc. (PFE, Fortune 500) to sever its partnership with Neurocrine, causing the stock to plunge. Trading has been volatile ever since.

The sleeping pill market is dominated by Sanofi-Aventis (SNY), which makes Ambien CR, and Sepracor Inc. (SEPR), which sells Lunesta. King Pharmaceuticals (KG) markets a short-acting pill known as Sonata.

David Woodburn does not own Neurocrine stock but ThinkEquity makes a market in the company.