Acorda Therapeutics Inc said the Food and Drug Administration rejected its nasal form of the current standard therapy for epilepsy patients who experience repetitive seizures.
The biotechnology company's shares fell as much as 11 percent after it said that it does not expect the treatment to receive regulatory approval this year.
Analysts expressed surprise at the agency's decision as the drug's active ingredient is diazepam, the decades-old compound commonly sold as anti-anxiety tablet Valium.
Piper Jaffray analyst David Amsellem said the drug's marketing filing was also low risk as it allowed Acorda to present data including research not conducted by or for the company.
The application referenced Valeant Pharmaceuticals' Diastat — the current standard-of-care for epilepsy accompanied by so-called cluster seizures — which is administered rectally via a syringe.
The drug, Plumiaz, has a orphan drug status, providing the company certain incentives including a period of marketing exclusivity.
Acorda did not disclose the reason for the rejection, but said it planned to resubmit the application.
Aegis Capital analyst Raghuram Selvaraju said he expected that the FDA would not mandate additional efficacy trials.
"We believe (Acorda) will refile (the marketing application) by 2015 and hopefully get approval by the end of the year," Selvaraju said. He projected annual sales of $30 million to $60 million for the drug.
Selvaraju said he did not consider the drug would be a major growth driver in the near term, but would have complemented Acorda's existing central nervous system product mix.
The company currently markets Amypyra, used to improve walking in people with multiple sclerosis; Qutenza for post-shingles nerve pain and Zanaflex for use in spasticity.
Acorda is also testing Ampyra, which accounts for the bulk of its revenue, for use in post-stroke deficit, a market Selvaraju projects could be 10 times the size of the drug's MS indication.
About 175,000 of the 2.8 million people in the United States with epilepsy experience cluster seizures, Acorda said.
Epilepsy is a neurological condition that produces seizures, which occur when a brief, strong surge of electrical activity affects part or all of the brain.
The Ardsley, New York-based company's shares were down about 10 percent to $32.47 in afternoon trade on the Nasdaq on Friday.
(Editing by Sriraj Kalluvila)