Hopes sank that the first new prescription weight-loss pill in more than a decade would be approved for sale when a key federal advisory panel rejected the drug on Thursday amid lingering safety concerns.
The Food and Drug Administration's advisers said there was not enough data to offset concerns that Vivus Inc's prescription drug could cause depression, memory-loss and potential birth defects if used among millions of overweight or obese Americans.
Their decision stunned investors, who had bet safety concerns would not keep the drug from market.
Vivus' stock was halted on Thursday, pending the panel decision, but shares of rival fat-pill hopefuls, Arena Pharmaceuticals Inc and Orexigen Therapeutics Inc, sank after the vote.
Approving the drug would be a huge public health experiment, said panelist Elaine Morrato of University of Colorado, one of the 10 panelists who urged against U.S. approval. Six others supported the drug, called Qnexa.
FDA will weigh the vote before making the final decision, although the agency usually follows its panelists' advice.
The panel's rejection is a blow to Vivus, which has not had a U.S. product approved since 1996. Its shares had swelled more than 100 percent over the last 12 months as investors eyed potential sales to millions of overweight or obese Americans.
Cowen and Co analyst Ian Sanderson said it was possible for Vivus to eventually win U.S. approval, but it would first have to test it in as many as 10,000 patients, at a potential cost of $150 million.
They'd need a partner, Sanderson said.
The California biotechnology company is seeking the FDA's green light with the hope of beating two rival diet drugs to market and told FDA's outside experts Qnexa helped many patients shed 35 to 40 pounds and that risks were not major.
There is little doubt the drug works, but panelists said potential side effects such as depression, memory loss, increased heart rate and birth defects are a worry.
Panelists were also concerned since patients may take Qnexa for years, but Vivus only studied it for about 12 months.
The reality is when they go off (the drug) they gain the weight... This is likely a lifelong therapy, said panelist Dr. Lamont Weide of the University of Missouri School of Medicine.
The company declined to comment after the panel's vote but said it would issue a statement later.
Shares of Arena closed down over 8 percent after the vote, reversing earlier gains. Orexigen closed 10 percent lower.
(Additional reporting by Susan Kelly in Chicago; editing by John Wallace, Andre Grenon and Tim Dobbyn)