Cephalon's (Nasdaq: CEPH ) attention-deficit drug is getting plenty of attention today, but not the kind for which the company had hoped. Shares in the biotechnology outfit were recently down 13% in heavy trading as the market digested a Food and Drug Administration advisory panel's recommendation that the drug in question, Sparlon, not be approved. The news is a significant setback for Cephalon, but investors shouldn't panic -- the company's outlook still looks pretty solid.
Sparlon has generated a lot of hype in recent months. The drug, intended for the condition known as attention deficit hyperactivity disorder (ADHD), carries the same active ingredient as Cephalon's Provigil, a medicine approved to treat excessive sleepiness related to certain sleep disorders.
Even as Sparlon was under review, the FDA had been mulling putting a black-box warning on other ADHD drugs marketed by big-name firms like Novartis (NYSE: NVS ) , Johnson & Johnson (NYSE: JNJ ) , and Eli Lilly (NYSE: LLY ) . Sparlon, with its unique active ingredient, was thought not to have the black-box risk; if approved, it would have enjoyed a clear advantage over ADHD drugs that carried the warning.
Now the tables appear to have almost completely turned. A more recent FDA panel recommended that the regulatory body not put a warning label on currently marketed drugs. Meanwhile, a different FDA panel went against Sparlon over concerns that it is linked to Stevens-Johnson syndrome, a rare and potentially fatal skin condition. The FDA believes more data is needed before Sparlon can be approved.
Notably, though, the panel's decision isn't Sparlon's death knell. Cephalon seems likely to gather additional data and prepare to seek approval again. It's still possible that Sparlon will be marketed, especially if Cephalon can show that the Stevens-Johnson syndrome risk is very low or inconsequential.
But even if Sparlon is never approved, Cephalon remains in good shape for years to come. Provigil, its top seller, is safe from generic competition until 2011. Furthermore, sales of its second-best seller, Actiq, a treatment for breakthrough pain in opioid-tolerant cancer patients, have been showing solid growth.
It's definitely not a good day for Cephalon. But the company still has room to grow with marketed medicines, and Sparlon still has a shot at approval. Given these facts, investors may want to look at the current sell-off as a potential buying opportunity.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
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