Shares of Cellegy Pharmaceuticals Inc. sank nearly 45 percent Monday, following news late last week that the FDA issued a not approvable letter for the company's anal fissure product, Cellegesic.

South San Francisco-based Cellegy received the letter late Thursday, and released the news shortly before the Christmas holiday. On Monday, the first open trading day following the letter, Cellegy's shares (NASDAQ:CLGY) fell $2.19, or 44.8 percent, to close at $2.70.

Michael Forrest, Cellegy's president and CEO, said the company believed a third Phase III trial provided sufficient data for approval, according to a special protocol assessment agreed upon with the FDA.

The FDA's letter, he said, did specify a number of reasons as to why Cellegesic was not approvable, but Forrest declined to disclose them until he's had a chance to talk with agency officials.

"We may be at a point where there's a difference of opinion," he told BioWorld Today, "but we don't know why the difference exists."

Cellegy filed a new drug application for Cellegesic (nitroglycerin ointment) in July for pain associated with chronic anal fissures. The NDA later received a priority review by the FDA. (See BioWorld Today, July 1, 2004.)

The NDA was based on data from three Phase III trials, the third of which began in August 2003 in order to confirm the earlier two. Designed under an SPA, the 187-patient study hit its primary endpoint of reduction in pain. (See BioWorld Today, Jan. 28, 2004.)

"Our feeling is it's disappointing when you have a product that has complied with a pre-negotiated set of criteria for approval," and yet the FDA rejected it, Forrest said.

"We need to understand why the agency is taking this position on a product that we think can literally help hundreds of thousands of people in the U.S. who have no other treatment [besides] surgery," he said.

While the third Phase III trial met the primary endpoint, it missed the secondary endpoint of time to 50 percent pain reduction. Cellegesic patients, however, reached the endpoint about a week earlier than placebo patients. With the tertiary endpoint of healing, Cellegesic showed no statistical difference from placebo. Cellegesic helps to relax the sphincter muscle, reducing the need for surgery in anal fissure patients.

Cellegy had previously filed an NDA, which it withdrew in April 2002 due to FDA concerns of headaches experienced by 50 percent of patients in a Phase III trial. Forrest said that nitroglycerin headaches are typical within the first 30 minutes following the administration of the drug. Cellegy and the FDA have already discussed the headache concerns and Forrest does not believe it's a safety issue.

"I think the important thing here, really, is that Cellegy has achieved the primary endpoint and we believe the product is safe," he said, "not only as evidenced in our three Phase III clinical trials, but nitroglycerin has been used well over a century for treatment of anginal pain."

Cellegesic is approved in the UK for anal fissures under the brand name Rectogesic. The company received marketing authorization there in September, and a launch through partner ProStrakan Group Ltd., of Galashiels, UK, is expected to occur in the first half of 2005.

Cellegy expects to expand marketing next year.

"The mutual recognition procedure is already in place and we expect approvals in other countries to come around the third quarter of 2005," Forrest said.

Aside from the anal fissures indication, Cellegesic is in development for hemorrhoids and dyspareunia, a painful condition that inhibits sexual intercourse in more than 5 million U.S. women. There is no current treatment for the disorder.

Data should be available by the end of 2005 from the Phase I/II 60-patient dose-ranging study in Australia for dyspareunia, and from the 200-patient Phase II U.S. trial for hemorrhoids, Forrest said.

In October, Cellegy acquired privately held Biosyn Inc., of Huntingdon Valley, Pa., gaining a microbicide contraceptive gel, called Savvy, designed to block HIV. The product is in advanced Phase III trials.

Cellegy also intends to move Tostrelle gel to treat sexual dysfunction in postmenopausal women into Phase III trials in 2005. The company's Fortigel product is undergoing regulatory review in Sweden to treat male hypogonadism caused by testosterone deficiency, and Cellegy is designing a Phase III trial with the FDA to support marketing approval in the U.S. The FDA issued a not-approvable letter for the product in July 2003, questioning safety due to high supraphysiological testosterone levels. (See BioWorld Today, July 8, 2003.)

As of the end of this year, Forrest said Cellegy will have about $10 million in the bank, approximately a year's worth of cash.

He expects to know Cellegesic's next steps by the end of the first quarter.

"It's something we obviously want to focus on and bring to resolution," Forrest said.