The Food and Drug Administration told Jazz Pharmaceuticals Inc. (JAZZ) it can't approve the company's new-drug application for a fibromyalgia treatment in its present form.

The drug maker, which focuses on developing neurology and psychiatry products, said the FDA wants more clinical testing of the drug. Ahead of an August meeting of an agency advisory committee, the FDA raised safety concerns that included the potential for misuse and abuse of the product. The panel broadly voted against the approval of the drug.

Shares of Jazz recently rose 4% to $10.51 on more than twice their average daily trading volume. The stock was initial lower in pre-market trading when the company announced the FDA ruling. The stock through Friday was up 28% this year after the company raised its 2010 forecast in August.

Lazard Capital Markets analyst William Tanner said he believes that the company's existing business is worth at least $10 per share, and investors have been hesitant to own the stock ahead of a possibly damaging FDA decision.

Tanner concedes that the need for more clinical testing is a disappointment, but it is unclear exactly what that will entail until the company meets with the agency.

The drug is currently sold under the brand name Xyrem for narcolepsy, a condition marked by excessive daytime sleepiness. It is known by its generic name, sodium oxybate, and JZP-6. The compound is also known as GHB, which is used recreationally and as a "date rape drug," something that has raised concerns about expanding access to its use.

Tanner said he believes that Jazz may actually benefit from stopping development of the drug in fibromyalgia and continue to profit by continuing to raise the price for its use in narcolepsy.

The current price for narcolepsy patients is about $20,000 per year, Tanner said, while the most expensive fibromyalgia drug on the market is about $5,000.

"You can more than double the price for narcolepsy, so do you even need fibromyalgia?" Tanner said.

Jazz Chairman and Chief Executive Bruce Cozadd said Monday that officials will meet with FDA representatives "to discuss and clarify the contents of the [complete response letter] and will then evaluate our next steps" for the treatment. "We continue to believe there is a significant unmet medical need among fibromyalgia patients that could be met by JZP-6."

Fibromyalgia is a chronic condition characterized by widespread pain and decreased physical function. It is believed to affect up to 6 million Americans, mostly women, and is marked by widespread muscle pain, tenderness and fatigue. The condition traditionally has been treated with a mix of painkillers and antidepressants.

Since 2007 the FDA has approved three products to treat fibromyalgia: Pfizer Inc.'s (PFE) Lyrica; Eli Lilly & Co.'s (LLY) Cymbalta; and Savella from Forest Laboratories Inc. (FRX) and Cypress Bioscience Inc. (CYPB).

-By Kevin Kingsbury and Thomas Gryta; Dow Jones Newswires; 212-416-2354; kevin.kingsbury@dowjones.com

(Jennifer Corbett Dooren contributed to this article.)
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