Xenon Pharmaceuticals said it submitted a regulatory filing for its lead drug candidate that puts it on the brink of its first commercial product. However, what should have been a celebratory moment for the biopharmaceutical company was overshadowed by a clinical setback.

Xenon said late Thursday that it had submitted a New Drug Application for azetukalner in focal seizures, a type of seizure affecting only one side of the brain and body. Simultaneously, the company announced it had paused new patient enrollment in ongoing studies for major depressive disorder and bipolar depression, citing "neuropsychiatric adverse events."

While these events aligned with azetukalner's known safety and tolerability profile, they hadn't ppeared earlier in clinical testing, Xenon said. The drugmaker described the enrollment pause as a likely temporary, precautionary measure and noted it was evaluating potential dosing modifications to mitigate the issue.

Wall Street was split on the news. Deutsche Bank's David Hoang cut his rating on Xenon shares to Hold from Buy, arguing the update weakens the drug's case as a leading treatment for focal epilepsy. Wells Fargo's Benjamin Burnett disagreed, keeping an Overweight rating on the stock while noting he sees no negative read-through for focal onset seizures.

Shares cratered 25% to $42.84 in premarket trading Friday, deepening a slump that began after hours Thursday. If these losses hold, Xenon will record its lowest close in six months and its largest single-day drop since March 2017, when the stock plunged a record 53%.