Biopharmaceutical firm Cephalon (NASDAQ:CEPH) popped back onto my radar yesterday, when the company announced that its drug to treat generalized anxiety disorder (GAD), Gabitril, failed to reach statistical significance on the primary endpoints of a pivotal phase 3 trial.

The company has not released any information on the failed study, so I can't judge whether Gabitril's got a future, or whether another trial is warranted. I'm guessing that the phase 3 failure isn't good news for Gabitril, though the drug did show effectiveness at treating GAD in its phase 2 trials. I'll be interested to see management's comments on the differing results of the two rounds of testing.

Gabitril is already approved to help with seizures, but has been experiencing significant sales declines due to some adverse events associated with the drug. Last year, Gabitril accounted for only $72 million of Cephalon's more than $1 billion in sales; an expanded label to treat GAD would have been a nice boost to the drug's prospects.

Even without this opportunity to increase Gabitril sales, Cephalon estimates that its revenues will grow at least 20% this year, to around $1.5 billion. At first glance, Cephalon looks cheap, sporting a market cap of only $3.2 billion. Unfortunately, there's one big obstacle to its future sales growth: Its second-largest drug, Actiq, with more than $400 million in sales, will face generic competition no later than 2007.

Despite the expected future decline in Actiq and Gabitril revenues, the company does have several potential sales-growth catalysts. Cephalon and partner Alkermes (NASDAQ:ALKS) just got approval for a drug named Vivitrol to treat alcohol dependence; they expect to start selling the drug in June. Vivitrol has the potential to eventually grow to several hundred million dollars in sales.

In addition, the company expects to hear back from the FDA on Friday regarding an approval decision for a drug to treat cancer-related pain, and on Aug. 22 for a drug indicated for attention deficit hyperactivity disorder in children. If approved, both of these drugs could also help reverse Actiq's expected revenue decline.

Cephalon's final growth driver is its lead drug for excessive sleepiness, Provigil, and its eventual replacement, Nuvigil. Management deserves considerable praise for navigating through some potentially thorny patent issues with Provigil at the end of last year. The company's fancy footwork has paved the way for Provigil sales to increase 48% compared to last year's first quarter.

With sales of $513 million, Provigil represented nearly 42% of Cephalon's 2005 revenues. Clearly, it's important that the company maintains this flagship drug's rapid growth until Vivitrol and other potential revenue drivers arrive later in the year.

The announcement of Gabitril's phase 3 failure was definitely not good news for Cephalon. However, if the market panics and drives down the company's share price because of this announcement or bad tidings from the FDA on Friday, investors could find themselves with a great buying opportunity.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Send condolences about the U.S.A.'s World Cup elimination to blawler@utk.edu.