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Cephalon's Next Big Thing

The experimental ADHD drug Sparlon is about to get a hearing before an FDA panel.

A series of fast-moving events has once again put



in Wall Street's spotlight.

Between early December and early February, Cephalon negotiated a flurry of deals with generic drugmakers,

protecting the patent for its sleep-disorders drug Provigil. The next big moment will come three weeks from now, when the experimental drug Sparlon goes before a panel of medical advisers to the Food and Drug Administration.

Cephalon's goal will be to distinguish Sparlon from the other drugs for attention deficit hyperactivity disorder that are now under heightened regulatory scrutiny.

Because Cephalon says Sparlon differs from other ADHD drugs, analysts say the company could get a boost if the FDA agrees and at the same time says other drugs need stronger warnings.

"We note that the vast majority of ADHD drugs are stimulants where there have traditionally been concerns about the potential for addiction and abuse, and Sparlon is a nonstimulant," says Gary Nachman of Leerink Swann in a recent research report. Nachman, who has an outperform rating, doesn't own shares. His firm has had a non-investment-banking relationship with Cephalon.

Another analyst, Bret Holley of CIBC World Markets, wrote in a Feb. 15 research report that the "recent concerns of cardiovascular toxicities of stimulant-class ADHD drugs could give Sparlon a marketing advantage in terms of risk/benefit. We are not aware of any major safety concerns specific to Sparlon." Holley, who doesn't own shares, has an overweight rating on Cephalon. His firm has had an investment-banking relationship.

The ADHD market was jolted on Feb. 9 when a panel of medical experts recommended that most drugs should carry

a black box warning alerting patients and doctors about potential cardiovascular risks. A black box is the strongest FDA warning.

The FDA isn't bound by its advisory panels' recommendations, and the 8-7 vote, with one abstention, suggests there will be fierce debate within the agency regarding the black box labels. The advisory committee focused on drug safety and risk management.

Another advisory group, which analyzes drugs' effects on children, will review ADHD medications on March 22. The next day, a separate panel will examine Sparlon. Cephalon wants the drug approved as a treatment for ADHD in children ages 6 through 17.

The FDA had been expected to act on Sparlon by late January.

The divided vote last month illustrates dueling opinions on a crucial question: Lacking conclusive clinical evidence linking sudden death or heart disease to ADHD drugs, should regulators seek a black box warning that would affect both adults and children?

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Supporters say dangerous adverse events for many drugs are often underreported to the FDA. They say there's enough information to cause concern, adding that it would be better to insert a black box warning now and remove it later if subsequent tests prove there's no link.

Opponents contend that a black box based on inconclusive data would dissuade physicians and scare patients from using potentially helpful drugs.

Cephalon's Opportunity

Prior to Feb. 9, Cephalon had been watching the ADHD developments from the sidelines because it had more immediate concerns, namely signing truces with four generic drug companies. Cephalon had feared an attack of generics on Provigil in mid-2006, but now it can sell the drug unfettered until at least the fall of 2011, and perhaps as late as the spring of 2012.

Provigil treats excessive sleepiness, but the drug isn't considered a stimulant. That's important, because the ADHD drug Sparlon contains modafinil, the same ingredient in Provigil.

Most ADHD drugs cited by the FDA advisory panel last month are stimulants. They include Ritalin from


(NVS) - Get Novartis AG Report

, Adderall and Adderall XR from

Shire Pharmaceuticals Group


, Concerta from

Johnson & Johnson

(JNJ) - Get Johnson & Johnson Report

and generic versions of Ritalin.

The one nonstimulant in the ADHD group is Strattera from

Eli Lilly

(LLY) - Get Eli Lilly and Company Report

. Both a Lilly representative and an FDA spokeswoman said it was their understanding that Strattera was excluded from the FDA advisory panel's recommendations.

However, Strattera's label contains a black box warning about suicidal thinking, and the label also has been strengthened to caution patients about potential liver problems. After a promising start, Strattera has stumbled. Last year's sales of $552 million fell 17% from 2004.

Recently, Cephalon has been reminding analysts and journalists about favorable cardiovascular data from company-sponsored clinical trials for modafinil, including three presentations at medical conferences in recent years.

"Management expressed confidence in the cardiovascular profile of modafinil and predicted

a positive outcome from the

March 23 advisory committee meeting," says David Windley of Jefferies & Co., who issued a research report a day after a Cephalon teleconference last month. Windley, who recently raised his rating to buy from hold, doesn't own shares of Cephalon.

When Cephalon asked the FDA in December 2004 to approve Sparlon, its application contained the results of three clinical trials involving children ages 6 to 17. The data showed improvements in those taking Sparlon vs. the placebo, based on daily dosages of 340 milligrams and 425 milligrams.

The standard dose for Provigil is 200 milligrams a day. Provigil is a Schedule IV controlled substance, according to the Drug Enforcement Administration, the second mildest category among DEA drugs.

Each of the Sparlon studies lasted nine weeks. The most common side effects included mild insomnia, headaches and loss of appetite. The drug was "generally well-tolerated," Cephalon says.

One study, with 248 patients, was published in December in


, the official journal of the American Academy of Pediatrics. The authors of the study said Sparlon's effectiveness and safety profile, along with its low potential for abuse, may offer doctors and parents a new option for children and adolescents with ADHD.

Because their study lasted only nine weeks, the authors said they didn't know if "the initial benefits will be sustained over longer periods of time." They called for more research to assess the "longer-term efficacy and safety."

Last October, Cephalon employees and an independent heart-failure expert presented data at a medical conference showing Sparlon patients experienced "no statistically significant or clinically meaningful changes" in blood pressure, heart rate or heart-rhythm measurements.

Cardiovascular side effects were statistically similar between patients taking Sparlon and those receiving a placebo. The authors pooled the results of three clinical trials, each lasting nine weeks, analyzing 633 children ages 6 to 17.