Orexigen Therapeutics Inc said the U.S. Food and Drug Administration delayed a decision on the marketing application for its obesity drug, contrave, by three months, sending the company's shares down as much as 20 percent on Wednesday.
The FDA indicated that the extension was needed to reach agreement on packaging and other post-marketing obligations related to the evaluation of potential heart risks associated with the drug, Orexigen said.
Analysts said they still expected contrave to be approved, as the FDA and Orexigen were in talks over the package insert and other post-marketing requirements.
The ongoing discussions suggest that the regulator has become more comfortable with contrave's risk/benefit profile, Wells Fargo analyst Brian Abrahams wrote in a note.
The FDA, which rejected the drug in 2011, had asked Orexigen to conduct additional trials to assess potential heart risk of the drug.
An interim analysis of an 8,900-patient study showed that overweight and obese patients receiving contrave did not have a higher heart risk compared with those on a placebo, the company said in November.
Contrave is a combination of the antidepressant bupropion and Orexigen's formulation of naltrexone, designed to prevent drug dependence.
Obesity has assumed epidemic proportions in the United States, with over one-third of adults in the country being obese, according to the Centers for Disease Control and Prevention.
If approved, contrave will compete with Vivus Inc's Qsymia and Arena Pharmaceuticals Inc's Belviq, which have been slugging it out to conquer the weight-loss market since 2012. Despite their potential, sales of the two drugs have been far short of expectations.
Some analysts blame marketing strategies for tepid sales, while others say physicians are unconvinced that new drugs have overcome the safety issues that caused the withdrawal of earlier diet drugs.
Side-effects have resulted in a number of diet treatments being withdrawn from the market. Among these are the notorious "fen-phen" combination that was pulled out in 1997 due to heart valve problems and Sanofi SA's Acomplia, which went off the market in 2008.
Qsymia and Belviq have been plagued by safety concerns, ranging from depression and anxiety to heart risks and potential harm to fetuses in pregnant patients.
Orexigen, which has licensed the North American rights to contrave to Takeda Pharmaceutical Co, entered into a agreement with Sanofi in November to manufacture the drug outside North America.
Contrave is also currently being evaluated by European regulators. The FDA is also in talks with Orexigen regarding the late-stage development of the company's second experimental diet drug, empatic.
Wallachbeth Capital analyst Bob Ai estimated that contrave's global sales could touch $850 million by 2020.
San Diego-based Orexigen's shares were down 15.8 percent at $5.73 in late morning trading on the Nasdaq.
(Additional reporting by Anjali Rao Koppala in Bangalore; Editing by Don Sebastian and Kirti Pandey)