Sparlon Ruling Slams Cephalon

Cephalon's (CEPH - Cramer's Take - Stockpickr) shares were plunging Friday, one day after a panel of medical experts said the company needed to conduct more safety tests for Sparlon, its experimental treatment for attention deficit hyperactivity disorder.

A medical advisory committee to the Food and Drug Administration voted 12 to 1 Thursday to reject Cephalon's application, recommending that the company provide additional information about Sparlon's potential link to a rare and potentially fatal skin disorder called Stevens-Johnson syndrome.

The experts unanimously agreed that Sparlon was effective in treating ADHD, but they said the one case of the skin disease in clinical trials -- among 933 participants -- was enough to sway their votes against approval. The Food and Drug Administration isn't required to follow the opinion of its advisers, but it usually does. The agency is expected to make its ruling in mid-May.

Cephalon's stock, which was halted while the FDA advisers deliberated, sank with a vengeance in the wake of the decision. By early afternoon it was down $9.81, or 13.4%, to $63.50, having dropped as low as $62.45. Volume was six times the daily average for the past three months.

Cephalon entered the advisory panel meeting with overwhelming support on Wall Street. According to Thomson First Call, 17 analysts had buy recommendations and five had hold ratings. After the FDA committee's stance became known, six firms cut their ratings.

Favorable reviews had been building in recent months after Cephalon settled four separate patent challenges to its best-selling drug, the sleep-disorders medication Provigil, and appeared poised to launch three other new drugs this year in addition to Sparlon.

Now, analysts say, it will take perhaps two years for Sparlon to reach the market, depending on what additional tests the company must perform. Even then, the drug probably will be subject to labeling restrictions that would hurt sales. Company officials say they can't predict what tests will be needed or how long they might take to carry out until they meet with FDA representatives.