Neoprobe (AMEX: NEOP) fell 15% late on Friday after investors got wind that privately held Pharmalucence had gained additional FDA approval to use its Sulfur Colloid Injection to locate lymph nodes in breast cancer patients.

The biotech is developing a lymph node detector of its own called Lymphoseek. Competition is bad, moats are good, and all that jazz.

It didn't help that Pharmalucence is a private company, so most investors probably weren't even aware they were trying to expand approval into an indication that will compete against Lymphoseek. I couldn't find any mention of the company in the Risk Factors section of Neoprobe's latest 10-Q or 10-K -- or anywhere else in the documents, for that matter.

Private companies, which don't have the same disclosure requirements as public ones, can be problematic. Figuring out what companies like pain-medication specialist Purdue Pharma are planning can be problematic for investors in Pfizer (NYSE: PFE), Acura Pharmaceuticals (Nasdaq: ACUR), and Pain Therapeutics (Nasdaq: PTIE) as they develop and sell prescription pain meds of their own. Even public companies like Roche and Bayer that are listed on foreign exchanges can be problematic if you're not paying attention.

Yesterday, it ran back up 10%, erasing almost all the loss after Neoprobe issued a press release pointing out investors' mistakes (nicely, of course). The company was always planning on competing with Sulfur Colloid Injection and plans to point out the "multiple advantages" that Lymphoseek has. More importantly, Neoprobe said that the approval of Sulfur Colloid Injection means the company is taking the correct regulatory approval pathway. Neoprobe compared Lymphoseek to vital blue dye, which is the same comparator that Pharmalucence used to gain approval for Sulfur Colloid Injection.

So which was right: the initial reaction or the recovery? I'm inclined to say a little of both. There's less reason to worry about an approval -- although it's still not a sure thing -- but the added competition could make the launch of Lymphoseek harder. We won't have to wait too long to see how this plays out: Neoprobe plans to submit its marketing application to the FDA in this quarter.

Interested in keeping track of Neoprobe as it tries to gain approval of Lymphoseek? Click here to add it to My Watchlist, which will help you keep track of all our Foolish analysis on Neoprobe.

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