Cephalon Overcomes Sparlon Scare

There might be a replay of this debate involving psychiatric side effects. The FDA's staff analyzed data from roughly 90 clinical trials, looking for three types of side effects -- psychosis and mania, suicidal events and aggression.

Many trials "were of very short duration" and many tested small numbers of patients, the FDA says. Plus, because different test sponsors had different guidelines, there was a "potential lack of consistency" in identifying side effects, the agency says.

The FDA adds that if companies continue to rely on short-term testing, there will be "limitations for defining the safety profile of the drug." Until the FDA offers clear guidance, Cephalon investors will receive mixed messages from Wall Street.

The FDA report "shouldn't affect the approvability of Sparlon, and we remain comfortable with our current projections," says Megan Murphy of Lazard Capital Markets in a research note published last week.

Murphy, who has a buy rating, predicts Sparlon could reach peak yearly sales of $430 million four years after it goes on sale. She bases her optimism on the many research limitations cited by the FDA and the lack of statistical significance in the reports of psychiatric side effects linked to Sparlon. She doesn't own shares, and her firm doesn't have an investment-banking relationship.

However, though David Windley still has a buy rating on Cepahlon, the Jefferies & Co. analyst says in a research report last week that the FDA might require stronger-than-expected language on Sparlon's label. He doesn't own shares of Cephalon.

"Sparlon may not get a label that offers distinctive advantages over stimulants, which could have assisted in rapid adoption," he says.

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