Updated from 9:33 a.m. EDT

The Food and Drug Administration has rejected a new antibiotic, dealing a major blow to its developer



and its marketing partner

Forest Laboratories



Shares of both companies were hit hard Monday. Replidyne's stock plunged $5.16, or 50.4%, to $5.08, and volume was much heavier than normal. Forest's stock dropped $2.24, or 4.4%, to $49.23.

In rejecting the application for the drug faropenem, the FDA said the companies must conduct additional clinical trials for each of four indications that they were seeking. The extra testing will take a minimum of two years.

Last December, Replidyne asked the FDA to approve faropenem for acute bacterial sinusitis, community-acquired pneumonia, acute exacerbation of chronic bronchitis and uncomplicated skin and skin structure infections. All of the treatments are for adults, and the sinusitis indication would have covered the most patients.

Replidyne signed a marketing and development deal with Forest in February.

The FDA's ruling hurts Replidyne because faropenem is the Louisville, Colo.-based biotech company's lead product. For Forest, it's a setback because the New York-based company relies on licensing and marketing products from other companies, such as the antidepressant Lexapro and the Alzheimer's disease drug Namenda. Among its deals for experimental products, faropenem had been closest candidate for commercialization.

The FDA ruling also could affect the agreement between the two companies because Forest has said it would need two respiratory indications approved by U.S. regulators in order for it to market the drug.

"It is our intention to work together with Replidyne to conduct the additional clinical trials required to obtain FDA approval for at least two respiratory indications in order to launch faropenem," said Howard Solomon, chairman and CEO of Forest, in a prepared statement. "Upon approval, faropenem will be a valuable additional pipeline product for us."

Kenneth Collins, president and CEO of Replidyne, told analysts and investors that he was "clearly disappointed" in the FDA ruling, adding that the drug application was accompanied by 11 late-stage clinical trials and a safety database of more than 5,000 patients.

Collins said the next step is to meet with the FDA and with Forest to determine the guidelines for the new tests. He said he couldn't determine if the companies would conduct all tests concurrently or if they would submit the results to the FDA at the same time.

Clearly, the pressure is on Replidyne due to its agreement with Forest, which pays what one Replidyne executive noted is the "lion's share" of clinical development costs. The company didn't provide details.

During a conference call, Collins said the FDA hadn't raised any questions about the antibiotic's safety or about manufacturing, adding that all clinical trials had been conducted with the agency's endorsement.

However, the agency appears to be changing its requirements for clinical testing of antibiotics, asking that experimental products be confirmed as superior to a placebo rather than being proven to be no worse than an existing drug. All of the faropenem clinical trials were "noninferiority" studies, matching the drug to another antibiotic.

"Historically the FDA has not required superiority design studies such as placebo-controlled studies for approval for antibiotics," says a prepared statement from Forest and Replidyne. "But the companies believe that recent public FDA deliberations over the need for placebo-controlled studies for antibiotics were a factor in its decision. Further, recent FDA statements have reflected a preference for superiority studies in acute bacterial sinusitis."