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Shares of Nektar Therapeutics plunged in trading Monday on concerns about regulatory approval of one of its drugs in development, which led to at least one analyst downgrade of its shares.
THE SPARK: The Food and Drug Administration appears to be looking closer at the heart-safety of drugs used to treat opioid-induced constipation, which is a side effect for patients using prescription opioid pain medications.
Two other pharmaceutical companies disclosed last week that FDA officials want a larger safety study about their opioid-induced constipation drug before it can be approved. That, in turn, raised concerns that Nektar may face added hurdles in the approval of its constipation medicine, naloxegol — its most advanced candidate.
THE BIG PICTURE: Nektar's CEO Howard Robin said on a conference call Monday that the company cannot comment on confidential discussions with the FDA and cannot speculate on what the regulatory agency may or may not do.
Robin said the company's program will evaluate this risk and Nektar does not see any cardiovascular risk signal in its studies thus far.
Pharmaceutical drug development, however, is an inherently risky business and investors reacted strongly to the potential threat to its successful development.
THE ANALYSIS: Jefferies analyst Biren Amin downgraded his rating on the company from "Buy" to "Hold" on the increased regulatory risk. He said the recent FDA scrutiny suggest the company will face higher approval hurdles and potentially delay the drug's launch.
He lowered his price target on the company's shares to $8 from $10.
SHARE ACTION: Shares of the San Francisco company fell 12 percent in afternoon trading, dropping $1 to $7.15. Its stock has not closed at a level this low since February.