Extended Look at an Extended-Release Drug

Negative publicity is something most companies should avoid. But if you are a pharmaceutical company and the negative publicity is about one of your drugs, well, that can be a problem.

Teva Pharmaceutical's (Nasdaq: TEVA  ) generic version of GlaxoSmithKline's (NYSE: GSK  ) extended-release Wellbutrin is turning into an extended investigation. Last April, the Food and Drug Administration said that Teva's version, manufactured by Impax Laboratories, is a "safe and effective choice" for the depression drug developed by Glaxo and Biovail (NYSE: BVF  ) . But now, it appears the agency is interested in running a clinical trial to confirm that conclusion.

Patients are continuing to pressure the agency to investigate Teva's version, Budeprion XL, after continued reports of side effects like nausea, anxiety, or headaches. An independent lab previously found that it released 34% of its active ingredients after two hours, compared with just 8% for Glaxo's Wellbutrin XL. That doesn't sound very extended-release to me.

For investors in Biovail, any new investigation into Budeprion XL -- or even pulling it -- won't help much. Generic competition from Teva, Watson Pharmaceuticals (NYSE: WPI  ) , Novartis (NYSE: NVS  ) , and others pretty much killed Biovail's momentum. Revenue from Wellbutrin XL was about $450 million in 2006 out of $1.07 billion total. In 2007, after the generics entered the market, sales dropped to about $212 million out of $843 million total. Over the past 12 months, Biovail has managed just $787 million in total revenue.

If the investigation into Budeprion XL is extended, other companies, such as Alkermes (Nasdaq: ALKS  ) andFlamel Technologies (Nasdaq: FLML  ) , may be the winners. These companies specialize in helping pharmaceutical companies develop extended-release versions of their drugs. In addition to making the drugs easier for patients to take, they often extend the patents of the drugs. Considering the increased safety consciousness at the FDA, Alkermes and its peers could benefit from more business being sent their way.

Getting back to Teva, any loss of Budeprion XL wouldn't be a major blow to it, as far as revenue goes. But the extended investigation could result in extended bad press, which no company wants. When dealing with public health, companies, and investors in those companies, need a clean bill of health.