This Drug May Wake Up Orphan

A curious thing happened at Orphan Medical (ORPH ) in July, after the Food & Drug Administration approved its new narcolepsy drug, Xyrem: Orphan's stock fell from 11 in June to 7 in August, where it now trades. Apart from the market's collapse in July, a big holder had to sell out to meet margin calls on his portfolio. Management's reaction? Chairman John Bullion bought 31,500 shares at 6 to 8.17 apiece, and Chief Operating Officer William Houghton purchased 1,500 shares at 8.30 to 8.65. Bullion says Xyrem will be launched in the fourth quarter and that by 2004, it will be turning in profits. The buzz is that drugmaker Cephalon, whose FDA-approved product Provigil is for daytime narcolepsy, is eyeballing Orphan. "Xyrem, a nighttime drug for narcolepsy patients who mostly suffer too from cataplexy, would add to Provigil's market," says one money pro, who has been buying Orphan. Orphan declined to comment on the Cephalon rumor. Xyrem was specifically approved for cataplexy, a condition characterized by sudden loss of muscle tone, similar to narcolepsy. Donald Ellis of Thomas Weisel Partners says Xyrem's approval "marks the single most important step in Orphan's path to profitability." Xyrem is in final clinical studies for a wider use of the drug to treat "excessive daytime sleepiness," which would serve a $200 million market in addition to cataplexy's $200 million. Orphan expects to file a new-drug application for such use in 2003.

By Gene G. Marcial

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