Cephalon Overcomes Sparlon Scare

Sagient says it's possible that the FDA could require long-term studies, either before a formal review or after the drug reaches the market. Sagient Research, which has no financial relationship with Cephalon, expects Sparlon to ultimately be approved. The FDA granted conditional approval in October.

On Wednesday, another FDA advisory committee is examining existing ADHD drugs for their effects on children and for possible psychiatric side effects. Some ADHD drugs are prescribed for adults and children.

"The risk has gone up for a black-box warning [for Cephalon]," says Marc Goodman of Morgan Stanley, referring to the toughest drug-label alert that the FDA can require. "We would rather err on the side of caution with respect to the equity," adds Goodman in a March 16 research report, in which he cut his rating to equal-weight from overweight. He reduced his Sparlon sales forecast to $500 million from $700 million for 2010.

Goodman also predicts the agency will probably require stricter labels on other ADHD drugs for cardiovascular risks, knocking the growth rate of all ADHD drugs down to 5% from 7% between 2006 and 2010.

"The bottom line is that the FDA has gotten stricter on safety," says Goodman, who doesn't own shares but whose firm has had an investment-banking relationship with Cephalon. "The FDA clearly wants to make material changes to the labeling for the ADHD class of drugs."

Seeking an Edge

Among existing and experimental ADHD drugs, the FDA found more suicidal events with Sparlon and with Eli Lilly's (LLY Quote - Cramer on LLY - Stock Picks) Strattera when all drugs were compared against a placebo, but not to the point that the events were considered statistically significant.

Strattera, available since 2003, already has a black-box warning that describes the risks of suicidal thinking among children and adolescents and a strong warning for potential liver problems. If Sparlon gets a black box, it would lose a potential marketing advantage against Strattera.

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