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In a major setback for drug giant Roche Holding AG (ROG.VX), its Japanese unit Chugai Pharmaceutical Co. (4519.TO) Wednesday said a study here showed its rheumatoid arthritis treatment Actemra might be a causal factor in the deaths of 15 Japanese patients, with heavy side effects detected in over 200 cases.

A spokesman for Chugai, 60%-owned by Roche, confirmed local media reports on a study into nearly 5,000 cases. With Chugai shares falling sharply on the news, he said the company will continue to sell the agent by providing more information so that doctors can have a better understanding of the drug's possible side effects.

"We can't deny that there is a causal relationship," the Chugai spokesman said.

The study was conducted by the Japanese company as part of requirements imposed by Japan's Ministry of Health, Labor and Welfare when the drug was approved.

Actemra was developed by Chugai and Roche, and the two companies jointly sell the product in Germany, France and the UK. The Swiss company also sells it in other European markets.

The Chugai spokesman said his company expects sales of Y15.5 billion for 2009 from the drug, which was first approved in April 2005 in Japan as an agent to treat enlarged lymph nodes and then in April last year to treat rheumatic arthritis. The company chalked up Y7.2 billion from sales of the drug in 2008.

While Roche and the Japanese subsidiary won approval to sell the treatment in the European Union in January, the U.S. Food and Drug Administration last December asked for a new animal trial and other information on the drug, delaying its theoretical launch by at least 18 months.

Japan's health ministry had requested a study of all Japanese patients who had taken Actemra to research mainly the side effects, and Chugai will continue the study until the ministry obtains enough data.

According to the interim results of the study into 4,915 cases conducted through doctors who prescribed the drug, heavy side effects such as severe fever, pneumonia and phlegmon were found in 221 cases, while 15 deaths were undeniably connected to the drug during the 10 months to February, the Chugai spokesman said.

After a delayed trading start on the Tokyo stock exchange, Chugai shares opened 10% lower before rebounding. Chugai shares ended the morning session down 5.4% at Y1,505, while the Nikkei blue chip index was nearly flat.

"The news is hitting the shares," a fund manager at a Japanese asset management firm said, speaking on condition of anonymity. While Chugai shares may not keep falling for many days, the manager said, there are likely to be few buying cues in the short term.

Hopes have been high for Actemra because of its new approach. There are already many treatments for rheumatoid arthritis, including Rituxan/MabThera, which is sold by Roche and its U.S. ally Genentech Inc. (DNA). But many of these drugs merely relieve pain - in some cases with severe long-term side effects, including osteoporosis and high blood pressure.

Actemra, however, is a humanized monoclonal antibody - an antibody produced by a single cell - and the first to inhibit the interleukin-6 receptor. This receptor is considered an important mediator of the acute inflammatory response that underpins the rheumatoid arthritis disease process.

-By Yoshio Takahashi and Kenneth Maxwell, Dow Jones Newswires; 813-5255-2929; yoshio.takahashi@dowjones.com

(Ayai Tomisawa contributed to this story)