Cephalon's ( CEPH) 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.

Cephalon is sticking with its previously issued 2006 guidance of adjusted earnings of $3.80 to $4.00 a share, but the company cut its sales forecast by $100 million to a range of $1.45 billion to $1.50 billion. The sales projection for its central nervous system drug franchise was also lowered by $100 million, to a range of $665 million to $715 million.

"We believe the advisory panel overreacted ... and that Sparlon will ultimately reach the market," says Brett Holley of CIBC World Markets, in a research report Friday. He cut his rating to sector-perform from outperform.

"We are concerned that the FDA panel took an overly myopic view and may be setting a double standard for new ADHD drugs, as existing drugs have potentially dangerous side effects," adds Holley, who doesn't own shares. His firm has an investment-banking relationship with Cephalon.

Gary Nachman of Leerink Swann said in a research report that he doesn't think Sparlon is dead, but he cut his rating to market-perform from outperform. "Sparlon represented the largest opportunity of all the new products" that Cephalon hopes to launch this year, said Nachman, who doesn't own shares and whose firm has had a noninvestment-banking relationship.

On April 16, the FDA is expected to rule on Vivitrol, an alcoholism treatment that Cephalon is marketing for Alkermes ( ALKS).

On April 30, the agency is scheduled to act on Nuvigil, a sleep-disorders drug that's a chemical cousin of Provigil. Provigil contains modafinil, the same ingredient in the ADHD drug Sparlon. However, Sparlon contains a higher dose of modafinil than Provigil. Cephalon officials say clinical trials of Nuvigil haven't yielded any skin-rash problems.

In late June or early July the FDA is expected to decide on a Cephalon application for a new cancer-pain treatment. These other experimental drugs prompted Megan Murphy of Lazard Capital Markets to maintain her buy rating even though the FDA panel's recommendation "removed a big contributor to projected 2007 growth." Murphy doesn't own shares, and her firm doesn't have an investment-banking relationship.

Adding that "the future of Sparlon is uncertain," Murphy tells clients in a research note that even if the drug reaches the market, its label will likely carry a black box warning for the skin disease, thus "limiting its commercial appeal." A black box warning is the FDA's strongest alert for side effects.

Among existing ADHD drugs, Strattera has a black box warning for suicidal thinking among adolescents and Adderall and Adderall XR have black boxes alerting patients to the risks of amphetamine abuse.

Strattera is made by Eli Lilly ( LLY). The Adderall family is produced by Shire PLC ( SHPGY).