Shire hit with another setback as FDA rejects top pipeline drug

Shire CEO Flemming Ornskov

Shire CEO Flemming Ornskov has yet another setback to grapple with as his company winds toward the end of a strange year. The FDA has rejected the company's application for the dry-eye drug lifitegrast, a key drug that the biotech has billed as a blockbuster earner, despite its mixed record in the clinic.

The FDA is demanding another clinical trial along with more quality info on the drug, according to Shire ($SHPG), which put out the news late on Friday. And the biotech says it's eager to respond, preparing to add new data from a recently completed Phase III trial.

Analysts started shaking their heads about lifitegrast's prospects at the FDA back in late 2013, when the eye drug missed one of two primary endpoints in a study. The drug failed to reduce corneal staining, a key objective indication of efficacy, though it did clear a hurdle for patient-reported symptoms. Bagging this drug was one of Ornskov's first moves as the newly named chief, when he bought SARcode for $160 million upfront plus milestones.

Regulators typically demand two late-stage studies for a drug like this, and the company says it may be able to provide some decisive answers from its supportive trial, with crucial data out before the end of the year and a new application ready to go in early 2016.

Looking at the rejection as it relates to Allergan's ($AGN) rival Restasis--which is approved for greater tear production, though not specifically for dry eye--Evercore ISI analyst Umer Raffat says it's likely that this next Phase III will prove positive for Shire. And that means lifitegrast may carve into a market niche that has made Restasis a $1.2 billion drug, though some analysts believe lifitegrast may peak out at only $125 million--provided it is approved in the first place. 

Ornskov badly needs a win to prove that he has the company pointed in the right direction. He lined up the $260 million-plus deal for Lumena, only to see it flop in April in the first of several Phase II studies. And that helped lead to a $523 million impairment charge at the end of the first half.

The CEO has also been ripping up and rearranging R&D in the U.S., eliminating hundreds of jobs in Pennsylvania as he continues to build up its central operations in Lexington, MA.

Two months ago, Ornskov announced a $30 billion bid to acquire Baxter ($BAX) spinoff Baxalta. But Baxalta shrugged off the bid and hunkered down behind its defenses. Shire has remained unusually quiet about its next step on that deal and now reportedly may be looking at other, more accessible, targets after the rebuff.

- here's the release from Shire

Special Report: Flemming Ornskov - The 25 most influential people in biopharma today - 2013