Biotech Resmed had $2 billion wiped off its market cap after one of its sleep disorder therapies was found to increase the risk of fatal heart attacks.
The sleep disorder specialist had been carrying out a clinical trial of a therapy it hoped would help patients with chronic heart failure and who suffer from breathing problems while they sleep.
But the trial revealed the therapy actually increased the risk of fatal heart attacks, Resmed said.
"Patient safety is our first and foremost priority," Resmed chief medical officer Glenn Richards said.
"We have alerted and are working with appropriate global regulatory authorities about the safety signal observed in this study."
Resmed shares plunged by $1.52, or 18.4 per cent, to close at $6.73, with 400 million shares having changed hands.
The biotech had been testing one of its Adaptive Servo-Ventilation (ASV) therapy devices in patients diagnosed with chronic heart failure and central sleep apnoea.
The devices, which accounts for about seven per cent of Resmed's total sales, were designed to treat central sleep apnoea by monitoring and adapting a person's breathing.
Resmed was testing the ASV devices to see if they could help reduce deaths among people with major heart problems and who have been diagnosed with sleep apnoea, a disorder in which the brain fails to transmit a "breathe" signal to relevant muscles while a person is asleep.
But the phase III clinical trial found that such patients actually had a 2.5 per cent higher risk of dying of heart failure if they used an ASV device.
Resmed is working to have warning labels put on the devices, alerting people with heart problems of the potential dangers.
The biotech estimates about a quarter of its ASV devices have been prescribed for people with heart problems.
Some brokers slapped sell ratings on the stock, while others downgraded earnings estimates.
Deutsche Bank analysts David Low and Dave Johnson said the failure of Resmed's trial was likely to have a "chilling effect" on sales of its ASV devices.
The analysts cut their net profit forecast for fiscal 2016 by about six per cent to $350 million.
"We expect ResMed to fund further trials in an effort to demonstrate the link between sleep apnoea and other cardio-respiratory conditions," they wrote in a note to clients.
"However the potential lift in sales arising from such efforts has now been pushed out by a number of years."
