FDA Rejects Somaxon’s Silenor for Insomnia — Stock Hammered

On February 26, 2009, after the market closed, the FDA notified Somaxon Pharmaceuticals, Inc. (SOMX) that it could not approve Silenor (doxepin) for the treatment of insomnia. In the Complete Response letter, the FDA raised a number of issues relating to the interpretation of the efficacy data contained in the Silenor new drug application (NDA).

The FDA did indicate, however, that it was open to a discussion of these concerns. The FDA did not specifically request the company to conduct additional clinical trials of Silenor, but Somaxon management believes that a discussion with the FDA will be necessary to gain a complete understanding of the implications for the rejection letter.

In afterhours trading, Somaxon’s stock is down 53% to $1.01.

In a research report published at the beginning of February entitled, “Cautious Going Into Silenor Action Date at the End of the Month” (click on link below for access), we outlined our case as to why investors should avoid Somaxon Pharmaceuticals. Our current rating is a Sell with a $1.00 target.

Today’s news and delay in approval of Silenor is devastating for the company, considering Somaxon is both low on cash and racing against the clock with Silenor’s patent protection. The exclusivity for chronic insomnia is expected to expire in 2013, so a delay in approval to 2010 or 2011 wipes out nearly half of the protected exclusivity for the drug. We think this will make it even more difficult for Somaxon to partner the drug or raise cash in the near-term.  Our model forecasts the existing cash balance will run out by the end of 2009.

We would continue to avoid Somaxon shares and are maintaining our Sell rating. Our $1.00 target is under review.
 
Read the full analyst report on “SOMX”
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