New Drug for New River

I've always had an affinity for New River Pharmaceuticals (NASDAQ:NRPH) simply because its name reminds me of one of my favorite movies, A River Runs Through It. Much like the theme of the movie (which chronicles the lives of two boys growing up), New River Pharma is finally coming of age. It soon will be able to call itself one of the select pharmaceutical companies with a marketed drug, now that the FDA has issued an approvable letter for its lead drug to treat attention deficit hyperactivity disorder (ADHD).

After the market closed on Friday, New River and partner Shire (NASDAQ:SHPGY) received word from the FDA that the companies' ADHD drug, creatively titled NRP104, had received an approvable letter. The great news is that the FDA is not requesting any additional trials or clinical information in order for the drug to gain full approval.

Once negotiations with the U.S. Drug Enforcement Agency over the drug's label and scheduling (a designation denoting a drug's potential for abuse) are completed, NRP104 should be fully approved and able to be marketed. New River expects this process to take a couple of months and for the drug's launch to occur in the second quarter of 2007.

NRP104 will be marketed in the U.S. mostly by Shire, but New River will be allowed some level of co-promotion as well. Making this agreement was a smart move by New River, because it will keep Shire honest and provides some degree of protection in case Shire doesn't promote NRP104 as actively as its other ADHD products (namely the more-than-$800-million-a-year Adderall franchise).

According to the terms of the co-promotion agreement, New River will take a share of the profits from sales of the drug; the size of its cut will be tiered based on the drug's level of sales and the schedule that the DEA slaps on the drug.

It was fun to watch how shares of New River were trading on Friday; whenever there are Friday FDA decisions, some shareholders inevitably become skittish and sell their shares as the end of the trading day nears because of the notion that companies wait until after the market is closed to release bad news. Probably because of this thought, shares of New River were down more than 3% before the market closed. Once the good news of the approvable letter was released, though, shares of New River jumped more than 12% in after-hours trading and are up a whopping 50% this morning. If NRP104 can get a favorable label and scheduling by the DEA (and an improved name), the drug should prove to be a winner for New River. If this happens, I won't be surprised to see the value of New River shares increase like this many more times in the future.

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Fool contributor Brian Lawler is in love with acronyms and does not own shares of any company mentioned in this article. The Fool has a disclosure policy.