Not knowing what is in the complete response letter, my gut feeling is that there will be a delay of at least one year," said McNicoll, Lewis & Vlak analyst Christopher James, who does not hold the stock.

James said the drug is still viable and the fall in share price creates a buying opportunity for investors with a high-risk appetite.

The U.S. Food and Drug Administration had assigned an action date of July 14 for the drug, Intermezzo.

Transcept and its partner Purdue Pharmaceutical Products are developing Intermezzo as a treatment for patients who have difficulty in going back to sleep after waking up in the middle of the night.

SAFETY ISSUES

In October 2009, the FDA had rejected the drug and sought additional safety data to prove that the drug, when taken in the middle of the night, would not present any risk, particularly related to driving ability.

"The efficacy is not in doubt because Intermezzo is a low-dose generic version of already approved drug Zolpidem," McNicoll's James said.

"The question is, can it be used for another indication?"

Transcept was planning to address the FDA concerns by submitting the results of a highway driving study that indicated Intermezzo showed no significant effect on performance in volunteers who began driving an automobile four hours after receiving a middle-of-the-night dose.

On Tuesday, the company said the FDA expressed continued concerns about the safety profile of the drug based on information in the resubmitted new drug application.

Transcept and Purdue have a collaboration agreement for the development and commercialization of Intermezzo in the United States

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