Why Pacira Pharmaceuticals Inc. Stock Cratered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Pacira Pharmaceuticals sank by more than 14% today after the company announced that it had received a rejection, known technically as a complete response letter, or CRL, from the Food and Drug Administration forits supplemental new drug application, or sNDA, for the pain medicine Exparel.

Exparel is approved as a treatment for post-surgical pain control at the site of an operation. But the specialty-drug maker hoped to expand its use to include nerve blocking in a post-operative setting.

So what: Exparel sales composed about 95% of the company's total revenue last year, and were projected to grow by a staggering 175% this year, according to management's recently released full-year guidance.

Unfortunately, Pacira's brass baked in a roughly 10% bump in sales based on its expectation that the FDA would approve this nerve block indication, despite the drug failing to meet its primary endpoint in some pivotal clinical trials used as the basis for the sNDA.

Now what: Be on the lookout for a revised annual guidance in the near term, reflecting the impact of this negative regulatory decision. Another key event to monitor is the expected end-of-review meeting with the FDACenter for Drug Evaluation and Research's Division of Anesthesia, Analgesia, and Addiction Products, where management will have the opportunity to discuss the details of the CRL.

All told, we didn't learn much today about the specific reasons for the rejection, making it hard to judge the drug's chances of ultimately gaining approval for this nerve block indication. Until the smoke clears, investors probably should not place too much weight on this label expansion in their valuation estimates of the company as a whole.

The article Why Pacira Pharmaceuticals Inc. Stock Cratered originally appeared on Fool.com.

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.