Shares of Salix Pharmaceuticals Ltd SLXP.O and Progenics Pharmaceuticals (PGNX.O) tumbled after U.S. health regulators declined to approve wider use of their drug for opioid-induced constipation and asked for more data.
Salix shares fell 12 percent to $46, while Progenics shares nearly halved in value to $5.84 on Monday morning on the Nasdaq.
The subcutaneous injection, Relistor, is already approved to treat opioid-induced constipation in patients with advanced illnesses where laxatives are not sufficient.
The companies were trying to get the injection approved for treating opioid-induced constipation in adult patients with chronic, non-cancer pain.
Cantor Fitzgerald analyst Irina Rivkind downgraded the stock to "hold" from "buy," and said the issues raised by the FDA could be related to the safety or effects of the drug class.
Morrisville, North Carolina-based Salix is also trying to get an oral version of the drug approved.
"We believe that the FDA's concerns on the subcutaneous form could also taint oral Relistor," Rivkind added.
Rivkind cut the peak sales estimate on Relistor for 2020 to $90 million from $300 million.
Credit Suisse analyst Michael Faerm also cut his price target on the stock by $3 to $50.
"Our price target is lowered to $50 based on our scenario of the subcutaneous and oral forms being delayed a year, with the approval probability for the subcutaneous (form) lowered to 25 percent," Faerm added.
Salix bought the rights to Relistor from Progenics in April 2011, just two months after Progenics' former partner Pfizer (PFE.N) returned rights to the drug.
According to the deal with Salix, Progenics would have received $40 million in milestone payments had the FDA approved the drug for the wider indication.
(Reporting by Esha Dey and Prateek Kumar in Bangalore; Editing by Viraj Nair, Roshni Menon)