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India's Glenmark Pharmaceuticals Ltd. (532296.BY) and U.S.-based Forest Laboratories Inc. (FRX) said Wednesday their experimental drug failed to meet desired targets during mid-stage trials in patients with a breathing ailment.

Glenmark's shares tanked after the companies announced the outcome of the study to treat chronic obstructive pulmonary disease, or COPD, with oglemilast. The shares closed nearly 15% down at INR223.20 on the Bombay Stock Exchange, compared with a 1.5% fall for the benchmark index.

A once-daily treatment with oglemilast didn't show "a statistically meaningful" improvement in COPD patients compared with a dummy drug during lung-function tests, the companies said in a joint statement.

The study was to evaluate the efficacy and safety of the drug in patients with moderate to very severe COPD, a condition that makes it hard to breathe and seen mainly in cigarette smokers. It was well-tolerated in all the doses studied, the statement added.

Glenmark is seen as a front-runner among India-based generic drug makers who are now venturing into developing new drugs, often under licensing deals with foreign pharmaceutical companies that help finance costly and lengthy research.

The failure of the drug is the latest in a string of bad news for the company, which receives payments from research partners based on the drugs meeting various targets during the course of their development.

Eli Lilly & Co. and a division of Merck KGaA had last year stopped their drug-development pacts with Glenmark.

"My reading is that Glenmark will not receive any further payments for oglemilast," said Bino Pathiparampil, a pharma analyst at IIFL.

Pathiparampil said the development will be negative for the company's earnings. He has a "sell" rating and a target price of INR161 on the stock.

Forest Laboratories had bought the U.S. license for oglemilast in 2004. The New York company has already paid $35 million of the total expected milestone and upfront payment of $190 million to Glenmark.

Howard Solomon, chairman and chief executive of Forest Laboratories, said in the statement his company was disappointed by the results and, together with Glenmark, is considering "what further action would be useful or appropriate."

The companies meanwhile said oglemilast is still being studied for the treatment of asthma, with results expected during the first quarter of 2010.

"If all goes well with the (asthma) trials, if things are positive, we will continue to get milestones," Glenmark Chief Executive Glenn Saldanha said during a conference call with investors that was broadcast on news channel CNBC-TV18.

The Indian company had failed to meet its forecast of $69 million in milestone payments in the last financial year ended March 31 after Eli Lilly and Merck Serono pulled out of their agreements and Glenmark failed to attract new partners because of the global economic slowdown.

Glenmark and Eli Lilly haven't yet said why they suspended the agreement on a drug to treat osteoarthritis pain, while the Indian company had cited Merck Serono's decision to quit diabetes research for the termination of their pact on a diabetes treatment.

Glenmark, in an investor presentation, said it has received $117 million in upfront and milestone payments related to drug developments over the last four years.

This includes $6 million from Teijin Pharma Ltd., which holds a license to sell oglemilast in Japan. Glenmark had projected to receive $53 million in milestone and upfront payments from Teijin for the drug.

Saldanha had in July forecast a net profit of INR3 billion-INR4 billion for the current fiscal year, excluding potential milestone payments or patent settlement proceeds.

Including oglemilast, Glenmark has seven experimental drugs in different stages of clinical, or human, trials.

-By Rumman Ahmed, Dow Jones Newswires; 91-9845104173; rumman.ahmed@dowjones.com