The U.S. Food and Drug Administration on Thursday approved Merrimack Pharmaceutical Inc's pancreatic cancer drug, Onivyde, with a severe safety warning.
The company's shares fell as much as 28 percent to a 13-month low of $7.27 in afternoon trade before halving the losses.
Onivyde, in combination with chemotherapy treatments 5-fluorouracil and leucovorin, aims to treat metastatic pancreatic cancer in patients, who have failed to respond to chemotherapy drug gemcitabine.
But the drug, Merrimack's first to win regulatory clearance, carries a black box warning, FDA's most severe and restrictive warning on a product.
The warning flags severe risks of diarrhea and low white blood cell count.
Pancreatic cancer, known as the "deadliest" kind of cancer, is seldom detected in its early stages and is responsible for 7 percent of cancer deaths in the United States, according to the American Cancer Society.
There will be 48,960 new cases of pancreatic cancer diagnosed in the United States this year, the National Cancer Institute estimates.
Guggenheim Securities LLC's analyst Tony Butler said he expected the drug to be priced between $5,000-$10,000 per course and rake in peak annual sales of about $1.5 billion in the United States and Europe.
The company said it expects to launch Onivyde in the United States next week.
Baxter International Inc licensed the rights to market the drug outside the United States in September last year for an upfront fee of $100 million. Baxalta Inc, spun off from Baxter in July, now holds the rights to the drug.
Butler said he expects the approval to trigger a milestone payment of about $50 million to Merrimack.
The drug is also being tested in early-stage studies for breast cancer and pediatric sarcoma, a type of bone or connective tissue cancer in children.
Merrimack's shares were down 10.7 percent at $8.95 in late afternoon trading on the Nasdaq.
Up to Wednesday's close, the shares had fallen about 11 percent this year.