UPDATE 3-US FDA staff question Forest, Nycomed lung drug

* FDA will ask panel about safety, efficacy

* Suicides, weight loss, cancer among safety issues

* Forest shares fall 1.4 pct (Adds FDA staff, analyst comments; updates shares)

By Lisa Richwine

WASHINGTON, April 5 (Reuters) - U.S. drug reviewers questioned the effectiveness of a proposed lung drug from Forest Laboratories Inc (FRX.N) and Nycomed [NYCMD.UL] on Monday and raised concerns about suicides and other safety issues.

Forest shares were down 1.4 percent to $30.99 in afternoon trading on the New York Stock Exchange, after shedding as much as 3.8 percent earlier in the session.

Food and Drug Administration reviewers, in documents released on Monday, said improvements in lung function seen with the drug, Daxas, were "quite modest" in company studies of patients with chronic obstructive pulmonary disease (COPD).

Safety issues included a slightly higher rate of cancers, as well as problems previously linked to Daxas' class of drugs, such as nausea, diarrhea and weight loss.

"Of significant concern are the occurrence of three completed suicides and two suicide attempts," the FDA staff said in a summary prepared for an advisory panel that will review the drug on Wednesday.

The fate of Daxas, a once-daily pill, is key to Forest as the company tries to build its portfolio ahead of the 2012 patent expiration for its huge-selling antidepressant Lexapro.

Forest holds U.S. rights to the drug, which was originally developed by Nycomed, a privately held Swiss drugmaker aiming for an initial public offering that could be one of the biggest for the pharmaceutical sector in years.

Lazard Capital Markets analyst Bill Tanner said he did not think any of the concerns would derail approval of Daxas because of the great need for new COPD treatments.

"I think it's approvable. Clearly there's an unmet medical need. This is doing something that other COPD drugs don't," he said.

"We're pretty comfortable thinking it's probably a $500 million drug and it gets approved," he said.

COPD, or "smoker's lung," is a potentially fatal lung disease that causes breathing trouble and chronic coughing. An estimated 80 million people worldwide have moderate to severe COPD. Smoking is a major cause.

Daxas, known generically as roflumilast, works by inhibiting an enzyme called PDE4 that is linked to inflammation.

Diarrhea, weight loss and nausea are known effects of PDE4 inhibitors. Jefferies analyst Corey Davis said cancer and suicides were unexpected safety issues that would draw discussion at the panel meeting.

"The totality of the data warrant a vote in favor of Daxas approval, but the stock is likely to be choppy until the final votes are tallied after the close on Wednesday," Davis wrote in a research note.

FDA reviewers said none of three men who committed suicide had histories of depression. Two of them had stopped taking Daxas about three weeks earlier. Of the suicide attempts, one woman had a history of depression and the other had made a previous suicide attempt.

Psychiatric problems such as depression, insomnia and anxiety were reported in 6 percent of patients who took the highest Daxas dose, compared with 3 percent of placebo patients.

Cancer rates were 1.5 percent for Daxas patients compared with 1.3 percent with a placebo, Davis said.

"These are lifelong smokers and it is not unusual to see lots of cancers," said Davis, but added: "It will come down to a judgment call."

In January, Forest narrowed the proposed use of Daxas from broad treatment of COPD to reducing exacerbations of the disease, the FDA staff said. The late change is "problematic because it shifts the focus of the efficacy analysis," the reviewers said.

Lazard analyst Tanner said the switch could delay a final decision beyond the current mid-May deadline.

Forest, in separate documents prepared for the advisory panel, said the drug had "demonstrated efficacy in reducing the rate of moderate and severe exacerbations (of COPD) and in improving lung function" and had an "additive effect on top of" other medicines.

The company said potential side effects were acceptable.

The number of suicides and attempts was low and a review of the cases "does not suggest a causal relationship" with Daxas, Forest said. Patients should be monitored for severe psychiatric symptoms "as an added precaution," the company said.

The panel is set to vote on whether to recommend approval of Daxas. The FDA usually follows panel recommendations. (Reporting by Lisa Richwine, editing by Gerald E. McCormick)