The FDA stiff-armed Sanofi and Lexicon's diabetes drug Zynquista on Friday, darkening the companies' hopes of launching the drug for Type 1 diabetes this year.

It's not a complete surprise, because an FDA advisory panel was split right down the middle on whether to approve the SGLT1/2 drug. But the FDA could have chosen the positive side of that 8-8 vote, and in Europe, a key regulatory committee recommended it for approval at the end of February.

The two companies announced Friday afternoon that they'd received a complete response letter denying approval but didn't say much more than that. Lexicon shares plummeted by 40% as the news broke but bounced back a little to be down 24% at 3:30 p.m.

On a hastily convened conference call with analysts, Lexicon CEO Lonnel Coats said he couldn't characterize the issues raised by the FDA because Lexicon had not yet seen the CRL itself. Sanofi is taking the lead with regulators, he said.

In their statements, the partners said they'd "work closely with the FDA to determine the appropriate next steps."

The decision follows a tie vote in January by independent experts over whether the drug’s benefits outweigh its risks. At the time, Sanofi Global Vice President and Head of Diabetes Medical Affairs Rachele Berria, M.D., Ph.D., said in a statement that the company believes "in the overall benefit-risk profile of sotagliflozin for adults with Type 1 diabetes who lack adequate glycemic control using insulin alone." 

Pablo Lapuerta, M.D., chief medical officer of Lexicon, added at the time that the drug in combo with insulin "significantly improved glycemic control without increasing hypoglycemia" in clinical trials. 

The results couldn’t "be achieved with insulin alone," he added. 

The FDA’s Friday decision marks a setback for Sanofi, as the company could badly use the revenue from a new launch. The company was one of a few top drugmakers to post a sales decline last year. Jefferies analysts had predicted that the drug would generate peak annual sales of $1 billion. 

Sanofi's shares were down about 2.5% on Friday afternoon.

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