The reality of an uninformed public (who don't always adequately weigh drug risks and benefits) necessitates government oversight to "protect" patients. This task falls upon the U.S. Food and Drug Administration (FDA), and unfortunately, any perceived failing of the agency to sufficiently inform the public of a drug's risk brings calls for tighter drug approval standards. Some argue that the Vioxx recall was the defining moment that precipitated the current excess of conservatism at the FDA, but in reality, the agency has been ultraconservative in regards to drug approvals for many years.

MGI Pharma (NASDAQ:MOGN) has also suffered from the FDA's strictures. Its drug, Saforis, used to treat chemotherapy-induced mouth ulcers, did not receive regulatory approval on Friday.

The FDA issued an approvable letter for Saforis, and MGI can gain full approval to market the drug by running another phase 3 trial. Ironically, MGI's management had previously been planning to run a second phase 3 trial but chose not to, most likely as a reaction to the FDA's approval of a similar drug, Kepivance, for oral mucositis from Amgen (NASDAQ:AMGN) in late 2004.

The other irony here is that the reduced need for another treatment for this excruciatingly painful disorder is probably why the FDA felt no immediate urge to approve Saforis on this first go-round. Even so, the Saforis phase 3 trial was larger than the Kepivance trial (326 patients versus 212), showed similar efficacy to Kepivance, and had minimal side effects. These types of contradictory FDA decisions make drug development so risky, and drive pharmaceutical companies and investors crazy.

MGI acquired Saforis in late 2004, when it bought privately held Aesgen for $32 million in cash. The phase 3 trial that MGI used in its NDA filing for Saforis was already completed by then, so MGI hasn't been wasting resources trying to get the drug approved.

With the length of another phase 3 trial and the time needed to refile an application for approval, it may be as long as two years before Saforis is on the market.

It's tough to estimate what sort of sales Saforis could achieve if approved, because Amgen doesn't break Kepivance sales out (it's in the company's "other product" sales category, with at most $30 million in sales for the first half of 2006) of its quarterly results. However, Saforis would be indicated for a larger patient population than Kepivance.

With no other drugs on the market for oral mucositis besides Kepivance, and MGI's specialization in treating chemotherapy-related side effects, peak sales of Saforis could be up to $100 million a year if MGI can get the drug approved.

MGI is run by a refreshingly straight-talking management team that has had a flair for smart drug acquisitions in the past, including Saforis and two other compounds in phase 3 development. If this regulatory setback and the impending generic competition for the company's lead drug, Aloxi, knocks down the share price of MGI, investors should take notice of this well-run pharmaceutical company.

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