No Approval for Encysive

Encysive (ENCY Quote) plunged 42% early Monday after the drug company reported its latest regulatory setback.

Encysive said it may need to "make significant reductions in its infrastructure and workforce" as a result of its failure to get regulatory clearance to sell its Thelin drug for pulmonary arterial hypertension.

The Houston-based biotech said Friday evening that the Food and Drug Administration had issued its third "approvable letter" for the drug. The FDA said Encysive's development program "did not demonstrate the evidence of effectiveness needed for approval." Encysive said the FDA "encouraged the company to conduct an additional study" documenting that the drug improves exercise tolerance.

"We believe we adequately addressed the issue raised by the FDA in the second approvable letter and we are deeply disappointed in their decision," said CEO Bruce Given. "Encysive remains committed to Thelin in Europe, Australia and Canada, where it has been approved for sale.''

Shares dropped $1.72 to $2.38 ahead of an 8 a.m. EDT conference call Monday.