Unkind Cut at Encysive

Encysive (ENCY), still seeking approval of its most important drug, better hope the third time is a charm.

The Houston-based biotech company has now failed twice to secure a blessing from the Food and Drug Administration to sell Thelin, a new treatment for pulmonary arterial hypertension, in this country. Following a similar setback in March, the company announced on Tuesday that it has received an "approvable letter" from the FDA citing concerns about a single issue. That's down from "several" earlier, but still suggests the possibility of further clinical trials.

Investors, who had been counting on outright approval, once again sent the company's shares plummeting. The stock tumbled 42% to $3.57 on Tuesday, leaving it near the two-year low it set in May before some regulatory breakthroughs -- including recommended approval of Thelin in Europe and a quick review by the FDA here -- lifted hopes for the new treatment.

Now, despite management's continued optimism, many experts foresee additional trial work as inevitable and the hit to Thelin's sales as significant. Notably, they believe that Thelin could actually trail Myogen's (MYOG) supposed "best-in-class" PAH drug to the market and miss out on the competitive advantages that it would have enjoyed by winning that fierce race. Myogen soared 12% to $31.61 on the development.

Meanwhile, in a conference call held early Tuesday morning, Encysive CEO Bruce Given expressed his own surprise at the latest setback.

"We were quite in suspense yesterday and were very hopeful of an approval," Given said. But "our reading of the letter is that we got very close."

Judgment Call

Importantly, Given stressed, the FDA has asked for further information about a single item that the agency itself has portrayed as a "matter of judgment," rather than a firm issue of fact. Thus, he expressed confidence that the company could respond with some "intellectual scientific discussion" and perhaps satisfy the agency without any real delay in Thelin's launch.