Alimera Sciences Inc said U.S. health regulators rejected for a third time its eye implant device due to safety concerns, sending its shares down as much as 39 percent.
Shares of pSivida Corp, which sold the rights to Iluvien to Alimera in 2005 but is in line for a 20 percent share of profits, also dropped as much as 39 percent.
"We view running a new clinical trial as unrealistic, since it will require significant capital that Alimera does not currently have," Cowen and Co analyst Simos Simeonidis wrote in a client note.
As of June 30, 2013, Alimera had about $31.9 million in cash and cash equivalents.
Iluvien, used to treat retinal swelling brought on by diabetes, has been approved by some European regulators but the U.S. Food and Drug Administration has rejected it three times in the past three years.
The FDA raised concerns about the eye implant's safety profile in its complete response letter rejecting marketing approval, the company said on Friday. Marketing approval is the final OK needed to start selling a medical device in the United States.
The FDA also referred to deficiencies at the facility where Iluvien is manufactured, Alimera said.
Alimera said it did not believe that these deficiencies will affect its European commercial supply.
The FDA suggested at least 12 months of follow-up for all enrolled patients in a new trial and a meeting with the regulator's advisory panel to address the deficiencies.
Cowen and Co's Simeonidis said he found the panel meeting "rather unusual, and as a theoretical positive for Alimera, since it does leave the door open for something good to come out."
The panel would advise whether a patient population can be identified in which the benefits of the drug might outweigh the risks, the FDA said. The panel will convene on January 27.
In the second quarter ended June 30, Alimera generated revenue for the first time from its only commercial product Iluvien. The company reported revenue of $179,000.
Iluvien is a sustained-release implant used to treat vision impairment associated with chronic diabetic macular oedema.
Alimera shares were down 23 percent at $2.08, while pSivida shares were down 22 percent at $2.97 on the Nasdaq in early-afternoon trading.
(Reporting by Shailesh Kuber; Editing by Sriraj Kalluvila, Rodney Joyce and Maju Samuel)