By Lisa Seachrist

Washington Editor

WASHINGTON - Ergo Science Corp.'s new drug application for its lead product, Ergoset (bromocriptine mesylate), failed to win approval from the FDA for the treatment of Type II diabetes.

The agency sent the company a non-approvable letter for the product late Friday afternoon, citing as the basis for its denial an unfavorable risk-benefit ratio for using the drug.

The news sent Ergo's stock (NASDAQ:ERGO) down by 51 percent, or $1.718, to close Monday at $1.656.

"Basically, they [FDA] came back to us with a judgment call on the risk-benefit ratio," said Ronald Abrahams, chairman, CEO and president of Boston-based Ergo. "We don't agree with that judgment and believe that Ergoset is a safe and effective treatment. Now we need to consider what path to take."

Although the company has made no decisions on how to proceed with getting Ergoset back on track, Abrahams said that it has hired an FDA regulatory consultant to help the company explore its options. Abrahams said the company is considering an appeal of the decision, as well as a meeting with the agency to discuss the design of further clinical trials.

"We could appeal the decision based on the information that we have assembled since the panel meeting," Abrahams said. "It's information that we have been collecting anyway."

A panel of outside experts declined to recommend the drug for approval in May, sending the company's stock plummeting 55 percent. The panel members were concerned about long-term safety data and the drug's mechanism of action, and decided that they didn't have enough information to recommend the drug for marketing.

Ergoset is an oral, fast-release formulation of bromo criptine, a dopamine-receptor agonist currently approved for the treatment of Parkinson's disease in a different formulation. The company based the drug on basic research showing that daily activity patterns of neurotransmitters can be controlled to normalize glucose and lipid metabolism.

The company currently has $37 million in cash, which will carry it at least through next year, Abrahams said.

In February 1998, New Brunswick, N.J.-based Johnson & Johnson entered an agreement worth up to $40 million for Ergo's Neuroendocrine Resetting Therapy.

"We obviously need to talk to the agency and our partner to decide how to proceed," Abrahams said. n