InterMune story updated to reflect the stock price's drop in afterhours trading.

BRISBANE, Calif. ( TheStreet) -- Federal regulators rejected InterMune's ( ITMN) lung drug pirfenidone Tuesday, asking the company to conduct an additional clinical trial.

InterMune was seeking approval for pirfenidone as a treatment for idiopathic pulmonary fibrosis (IPF), a fatal lung disease. The FDA's decision not to approve pirfenidone at this time comes after an advisory panel in March recommended the drug's approval, albeit with a mixed vote.

InterMune shares were halted Tuesday around 1 p.m. at $45.44; in afterhours trading the stock had plummeted more than 80% to $8.86.

"After the positive FDA advisory committee meeting of March 9 at which the committee recommended the approval of the pirfenidone NDA by a 9-3 margin, we are disappointed by this outcome," said Dan Welch, InterMune's CEO, in a statement.

Intermune plans to meet with FDA to discuss ways to get pirfenidone approved, the company said.

IPF is a disease marked by scarring of the lungs caused by the gradual buildup of fibrous tissue. As the fibrotic scar tissue accumulates, air sacs in the lungs lose their ability to transfer oxygen into the bloodstream. There are no effective treatments for IPF, and unless patients can undergo a successful lung transplant, they eventually die of the disease.

InterMune is hoping that pirfenidone will become the first drug approved for IPF by the FDA and its counterparts in Europe. With well over 200,000 IPF patients in the U.S. and Europe, InterMune could easily transform pirfenidone into a highly profitable drug with more than $1 billion in peak sales.

Pirefenidone is approved as an IPF treatment in Japan, where the drug is sold by Japanese drug maker Shionogi & Co.

-- Reported by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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