Collateral Damage From an FDA Warning

Ouch -- that's got to hurt. A fellow drugmaker's product got hit with an FDA warning that it could potentially cause cancer, and BioMimetic Therapeutics' (Nasdaq: BMTI) stock dropped more than 50% in response. Adding insult to injury, the stock of the drugmaker receiving the warning traded essentially flat that day.

Of course, that's only half the story. The drugmaker is Johnson & Johnson (NYSE: JNJ), which doesn't live and die by any one product. And BioMimetic's Gem 21S contains the same active ingredient (becaplermin) as J&J's Regranex, the drug hit with the Thursday warning.

After the news came out and its stock tanked, BioMimetic tried to reassure investors that, while they contain the same active ingredient, the two companies' products are far from the same. Regranex is used multiple times a day to treat leg and foot wounds in diabetics for as much as 140 days, while Gem 21S is used to regrow bone in patients with advanced gum disease. The data that worries the FDA suggests that patients who were prescribed Regranex three or more times had an increased risk of dying from cancer.

It seems completely reasonable that even if the drug might cause cancer after chronic use -- which hasn't been proven yet -- it might not when used acutely, as Gem 21S is. Therefore, the FDA may be fine with Gem 21S's marketing, even if it pulls Regranex off the market. Adolor (Nasdaq: ADLR) and marketing partner GlaxoSmithKline's (NYSE: GSK) Entereg faces a similar situation; it looks like the FDA will approve the drug for treating post-operative ileus (POI) but not for long-term use in opioid-induced bowel dysfunction (OBD).

Still, BioMimetic also has two drugs in development, Gem OS1 and Gem OS2, that also contain becaplermin, so it's understandable that investors might be a little jumpy about any reports of adverse side effects the compound causes. But considering the increase in relatively minor FDA warnings -- there were three last week, including one on Merck's (NYSE: MRK) Singulair -- investors are going to need to decrease their anxiety about such warnings.