UPDATE 3-US panel rejects Forest, Nycomed lung drug

* FDA advisers vote 10-5 against recommending approval

* Agency usually follows panel recommendations

* Shares drop 8 percent after hours (New throughout)

SILVER SPRING, Md., April 7 (Reuters) - Forest Laboratories Inc FRX.N suffered a setback on Wednesday as a U.S. advisory panel voted against recommending approval of an experimental drug to treat a common and deadly lung disorder.

The committee voted 10-5 that Forest had not provided substantial evidence to support Food and Drug Administration approval of Daxas for chronic obstructive pulmonary disease (COPD).

Forest shares fell 8 percent in after-hours trading.

The company’s shares had jumped 6.5 percent ahead of the market close after the advisory panel voted that Daxas was safe and effective in separate 9-6 votes.

In opposing approval, some panelists said the benefits of Daxas were small and did not outweigh risks.

“The benefit of this drug, although it’s there, it’s meager,” said Dr. Richard Honsinger of Los Alamos Medical Center Clinic in New Mexico.

“The drug does have side effects,” he added.

The fate of Daxas, a once-a-day 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.

Daxas was developed by Nycomed [NYCMD.UL], a privately held Swiss drugmaker aiming for an initial public offering. Forest holds U.S. rights to the drug. Analysts have estimated peak annual sales could hit $500 million or more.

The FDA usually follows panel recommendations, and a decision is due in mid-May. Analysts said before the meeting they expected a delay as Forest recently modified the drug’s proposed use from broad treatment of COPD to reducing exacerbations, or attacks that restrict breathing. The panel voted on the broader use.

Forest may win approval for the narrower group of patients but not before the end of the year, said analyst Ira Loss of Washington Analysis.

“There’s a lot of places the FDA could go here in getting the narrow indication,” he said.

Collins Stewart analyst Louise Chen also said the panel outcome “doesn’t mean the drug’s not going to get approved.”

She noted that the votes were mixed and said any weakness in Forest’s share price will likely be short-lived.

“I think it will bounce back,” Chen 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.

Forest said COPD patients needed new options as many still have symptoms despite treatment with current drugs. The company said studies in more than 7,000 patients showed Daxas reduced exacerbations.

FDA reviewers, however, said Daxas produced only a modest improvement in lung function. They urged the panel to weigh that against concerns about severe diarrhea, weight loss, cancer, psychiatric problems and suicides among people who took Daxas in studies. Three people killed themselves, and two attempted suicide.

Forest said there was no evidence that Daxas caused the suicides or raised the risk of cancer. The company said other risks were manageable.

Lawrence Olanoff, Forest’s president and chief operating officer, said he was disappointed the panel did not recommend approval but said the company would continue talking with the FDA in light of the two positive votes.

“We believe there is still room for us to begin and go forward with negotiations with the agency,” Olanoff told reporters.

Daxas, known generically as roflumilast, works by inhibiting an enzyme called PDE4 that is linked to inflammation. Nausea, diarrhea and weight loss are known side effects of the PDE4 inhibitors.

Forest shares rose 6.5 percent to close at $32.46 on the New York Stock Exchange. The shares fell 8 percent after hours to $29.77. (Reporting by Lisa Richwine and Deena Beasley; Editing by Gary Hill, Bernard Orr)