Acorda Therapeutics (NASDAQ:ACOR) illustrates why investing in small biotech companies requires nerves of steel.

In the past 12 months, its stock has bounced between the mid-teens and high $20s. Today, it is back in the mid-$20s -- up about 50% -- after a scientific advisory panel to the Food and Drug Administration endorsed Acorda's drug to improve the walking ability of people with multiple sclerosis.

The advisory committee, acting Wednesday while trading in the stock was halted, voted 12-1 that the drug, Amaya, is effective and 10-2 with one abstention that the drug is safe. The panel said Acorda should evaluate the drug at lower doses, adding that Acorda could do so after FDA approval.

Although Amaya isn't designed to treat the disease, FDA approval would make it the first oral MS drug. So far, all marketed drugs for treating MS must be injected or infused, such as Teva Pharmaceutical's (NASDAQ:TEVA) Copaxone. Several companies, including Novartis (NYSE:NVS) and Germany's Merck KGaA, are developing oral medicines to treat MS.

Don't expect immediate action
The FDA isn't required to follow the advice of its outside advisors, but it usually does so. The target date for the FDA's verdict is Oct. 22. However, because Amaya can cause severe side effects, I believe the FDA will take more time to study it. In clinical trials, serious side effects included a relapse of MS, convulsions, and four "seizure-related events."

The FDA also will need time to review a risk evaluation and mitigation strategy (REMS) program from Acorda. These are an increasingly common FDA requirement to ensure safe prescribing and use of drugs with potentially severe side effects.

Acorda licenses Amaya from Elan (NYSE:ELN), which continues to manufacture the drug. Acorda recently signed an agreement with Biogen Idec (NASDAQ:BIIB) giving it marketing rights in Europe. Biogen Idec is expected to seek European Union approval early next year.

Investors react ... and overreact
The market's reaction today stood in sharp contrast to Oct. 9, when an FDA staff report raised questions about Amaya's effectiveness even though the drug had met the goals of clinical trials.

When the report was released, Acorda's stock plunged 21.4%, prompting one analyst to cut his rating to market underperform. By this morning, however, two other analysts had raised their ratings to buy.

If analysts can be so skittish, I'm not sure preaching patience to biotech investors will have any effect. And I can only imagine the blood pressure readings of Acorda executives over the past few days. I believe they'll now have to wait a few more months for an FDA ruling. Considering that Acorda has been working with this drug since 1998, they've probably grown accustomed to the pace.

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Fool contributor Robert Steyer doesn't own shares of any companies cited in this story. Elan is a Motley Fool Rule Breakers selection. Novartis is a Global Gains recommendation. The Fool has a disclosure policy.