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Cephalon Bounces Back

A day after a quick, steep selloff, its shares rebound in a big way.

Shares of



snapped back Thursday following a sharp drop in the final minutes of the previous session's trading.

The frenzied selling followed by the opportunistic buying were linked to the Food and Drug Administration's delay in acting on Sparlon, a drug for attention deficit hyperactivity disorder, or ADHD, in children ages 6 to 17. The agency had been scheduled to decide on Jan. 22, but it said an advisory panel of medical experts must first review the drug in March.

Cephalon, which had predicted a first-quarter Sparlon launch, now says it expects the drug to reach the market during the second quarter. Cephalon initially had hoped for an FDA decision in late October, but the agency said it needed an extra 90 days to review the drug.

The stock fell 8.2% Wednesday, closing at $66.83, with most of the decline and most of the volume occurring in the final 30 minutes of trading. Volume of nearly 7 million shares was more than triple the average daily trading for the past three months.

By early afternoon Thursday, the stock was up $4.97, or 7.4%, to $71.80 on trading that had already reached 5.1 million shares.

Cepahlon attributed the FDA delay to the agency's review of all ADHD drugs. Advisory panels will meet Feb. 9 and March 22 to examine existing drugs for any links to sudden death, hypertension, stroke or heart attack in adults and children.

Without identifying specific drugs, the FDA says some cases of death and dangerous side effects have been reported "in association with therapeutic doses" of ADHD drugs. "The few controlled clinical studies of longer term drug treatment of ADHD provided little information on cardiovascular risks," the FDA says.

Brand-name ADHD drugs include Adderall XR from

Shire Pharmaceuticals Group


, Strattera from

Eli Lilly

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, Ritalin from


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and Concerta from

Johnson & Johnson

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Because Sparlon is still experimental, it must be reviewed by a separate advisory panel, Cephalon says.

The previous day's stock selling was overdone, says Matthew Murray of Rodman & Renshaw, in a report to clients. He has an outperform rating on Cephalon, but he says the "added scrutiny" of Sparlon prompted him to reduce his odds of FDA approval to 75% from 95%. He doesn't own shares of the company.

On Tuesday, Murray alerted clients to the FDA missing its Jan. 22 deadline for acting on Sparlon. These deadlines aren't carved in stone. Sometimes, the FDA acts before the deadline and sometimes it makes a decision a day or two after the deadline. The agency usually leaves it up to a company to announce if a drug has been approved, rejected or approved with conditions.

Murray said then that he believed the FDA and Cephalon were still talking about the drug and that there were "no significant outstanding issues." By mid-afternoon Wednesday, when

contacted Cepahlon, a spokesman said the company and the FDA were still in discussion.

The stock began diving about 3:20 p.m. EST, and at 3:40 p.m., the financial news Web site

said the FDA had scheduled a March 23 advisory committee review of Sparlon. Cephalon issued a press release at 4:50 p.m.

Eric Schmidt of SG Cowen told clients that the FDA decision was "unexpected," adding that there aren't any safety or efficacy issues. "The FDA has raised no new issues with regard to Sparlon and labeling discussions have been completed to Cephalon's satisfaction," he says.

Schmidt doesn't own shares. His firm, which doesn't issue stock ratings, participated in a Cephalon public offering within the last three years.

Cephalon may provide more information about Sparlon when it releases its fourth-quarter and full-year results on Feb. 14. The company also will issue revised guidance for 2006.

Cephalon withdrew its guidance Wednesday, citing several factors in addition to the Sparlon delay. Previously, it had forecast sales of $1.35 billion to $1.40 billion and earnings, excluding special items, of $2.90 to $3 a share this year.