Alkermes Plc's depression drug failed in two late-stage studies, underlining the challenges drugmakers face in developing treatments for the condition that affects nearly 17 million Americans.
Alkermes shares fell as much as 42.8 percent on Thursday, wiping $3.88 billion from the company's market value.
Drugmakers including Eli Lilly and Co and AstraZeneca Plc have struggled to develop a successful treatment for clinical depression, a condition with symptoms such as loss of interest in daily activities for at least two weeks.
Alkermes' drug, ALKS 5461, is the company's lead product and it is designed to rebalance brain function, which is disrupted when a patient is under depression.
"We believe trial failures present a major setback in the evolution of the company," Guggenheim Partners analyst William Tanner wrote in a note.
Alkermes gets most of its revenue from royalties on drugs such as Acorda Therapeutics Inc's multiple sclerosis drug and AstraZeneca's diabetes treatment.
Given the size of the commercial opportunity of major depressive disorder, the success of ALKS 5461 would have proved that Alkermes was on the path to broadening its revenue base beyond royalties, Tanner wrote.
Alkermes' first late-stage study tested two doses of the drug against a placebo. Although the treatment failed to meet the main goal of the study, post-hoc analyses showed that the higher dose was more effective than a placebo, Alkermes said.
In the second study, no treatment effect was observed and the placebo response was found to be greater, a phenomenon that has earlier been seen in trials by other drugmakers.
Both studies involved patients with an inadequate response to standard therapies.
Alkermes said it would change the statistical analysis plan and test the drug on a higher number of patients in the third trial.
Analysts, however, remain skeptical about the success of the study.
Even if the drug succeeds in the third trial, more studies might be required, Cowen and Co analyst Ken Cacciatore wrote in a note.
Alkermes shares were down 42.3 percent at $34.85 in noon trading after touching an over two-year low earlier.
(Reporting by Amrutha Penumudi in Bengaluru; Editing by Saumyadeb Chakrabarty, Maju Samuel and Kirti Pandey)