Psivida plummets after FDA knockback

Psivida (ASX:PVA) has received a double blow in recent days with its share price plummeting by more than half following an announcement that the U.S. Food and Drug Administraction knocked back approval of Iluvien, an intravitreal insert that releases corticosteroid fluocinolone acetonide for the treatment of diabetic macular edema.

The FDA's complete response letter declared it was unable to approve Iluvien because the New Drug Application provided insufficient data showing the safety and efficacy of the implant.

The FDA stated that the risks of adverse reactions shown for Iluvien in a previous study were significant and were not offset by the benefits demonstrated by the implant in these clinical trials.

Psivida's U.S. partner, Alimera, will need to conduct two additional clinical trials to demonstrate safety and efficacy. Alimera has reported that it will be requesting a meeting with the FDA to clarify next steps.

"We are obviously surprised and disappointed with the FDA's decision," said Dr Paul Ashton, President and Chief Executive Officer of Psivida.

The company also missed a milestone payment due contingent on FDA approval. "Although we will not be due the $25 million milestone payment for FDA approval of Iluvien, we continue to believe that our $21.3 million of cash resources at September 30, 2011 is sufficient to support our current and planned operations into at least calendar year 2013."

Psivida's (ASX:PVA) shares were trading at $4.20 on Friday before plunging to a close of $2.10 on Monday following the announcement of the FDA knockback. The share price has taken another hit, dropping to $1.80 as of midday today, down 57% since Friday.

The company currently has two other marketed drugs, and another six drugs and technologies in development.

Such knockbacks by regulators can be costly for a biotechnology company, but they're not necessarily fatal if the company has sufficient resources to conduct the necessary trials and/or appeals in order to have its product approved.

Sydney-based Pharmaxis (ASX:PXS) suffered similar trials with the European approval of its cystic fibrosis treatment, Bronchitol, but once approved, it enjoyed a substantial rebound