Novartis Gets Some Unexpected Bad News on Zelnorm

Swiss drug giant Novartis(NVS Quote - Cramer on NVS - Stock Picks) said Monday that its potential blockbuster drug to treat irritable bowel syndrome was rejected by U.S. drug regulators.

The Food and Drug Administration issued a "not approvable" letter for Zelnorm, asking for more information about abdominal surgery patients who take the drug.

This is the second major setback for Novartis' effort to get Zelnorm onto pharmacy shelves. Earlier this year, European drug regulators also rejected the drug, asking for more information.

Irritable bowel syndrome is a painful digestive disorder, affecting women primarily, which is the second most common cause of work absenteeism after the common cold. There is no approved treatment for the disease. Last year, Glaxo Wellcome, now GlaxoSmithKline(GSK Quote - Cramer on GSK - Stock Picks), was forced to pull its irritable bowel syndrome drug off the market following reports of serious side effects, including fatalities.

Novartis has partnered with Bristol-Myers Squibb(BMY Quote - Cramer on BMY - Stock Picks) to develop Zelnorm. In a recent interview given after the European decision, Novartis Chairman and CEO Dan Vasella gave the drug an 80% chance of getting a green light in the U.S.

Today, the companies said they were "disappointed with the agency's decision; however, the companies are considering all options to help bring this important new therapy to market."

Novartis also reaffirmed its financial outlook for double-digit pharmaceuticals sales growth "in line with or above the market in 2001 and 2002."

Shares of Novartis were down $1.77, or 4.6%, to $36.27 in Monday trading. Shares in Bristol-Myers were off 92 cents, or 1.6%, to $54.58.

In previously announced studies, Zelnorm appeared to work in about 65% of patients who suffer from irritable bowel syndrome, which includes symptoms such as stomach cramps and constipation. Investment bank SG Cowen estimated worldwide Zelnorm sales of $350 million in 2001 and $1.3 billion in 2004.