Shares in Alimera Sciences have taken a hammering after regulators in the USA rejected Iluvien, the firms' treatment for diabetic macular oedema.

The US Food and Drug Administration has issued a complete response letter Iluvien (fluocinolone acetonide) for the treatment of DME associated with diabetic retinopathy. The agency says that Alimera's New Drug Application does not provide sufficient data to support the drug's safety and efficacy.

Specifically, the FDA is concerned about the risks of adverse reactions shown for Iluvien in the FAME study, which were described as significant.  It says that Alimera will need to conduct two additional clinical trials  and the company says it will be requesting a meeting with the FDA to clarify next steps.

Chief executive Dan Myers said "we are surprised and disappointed with the FDA's decision", adding that "based on extensive research with US retinal physicians, we have learned that Iluvien's long-term sustained delivery treatment benefit is desired". The treatment consists of a tiny polyimide tube and Iluvien is administered as an intravitreal insert, providing a sustained release of a low, steady, daily dose for unto three years, the firm noted.

Mr Myers said he still believes the drug is a long-term effective treatment option for DME and "we are committed to, and have the funds for, pursuing approval in Europe". There, Alimera  will submit a formal response to the preliminary assessment report to the UK's Medicines and Healthcare products Regulatory Agency (MHRA) later this month.

The MHRA will then make a recommendation by the end of this year, with a decision regarding the approval of Iluvien expected in the first half of 2012. "The market opportunity in Europe is similar in size to the USA", Alimera added.

'Worst-case scenario'

However analysts are concerned and Simos Simeonidis at Cowen & Co said "we view this as the worst-case scenario". Assuming the company decides to go through with the two new trials, he stated that "this news translates into a multi-year delay, and a very significant investment of capital, that the company does not currently have".

Dr Simeonidis added that "the mention of safety as a concern in the CRL is especially ominous, since even if the company decides to invest the time and capital to run two more trials, we are not sure why these two trials may have a different outcome than the well-run, in our view, FAME programme". He concluded by saying that "the only theoretical glimmer of hope for the company near-term is Iluvien's EU regulatory fate", but he is not optimistic the regulator in Europe will rule differently than the FDA.

Alimera's shares crashed 73.4% to $1.96 while development partner pSivida saw its stock sink 48.5% to $2.03. FDA approval of Iluvien would have triggered a $25 million milestone payment to the latter firm.