By Val Brickates Kennedy

Drug stocks gained in early action Monday as shares of Icagen Inc. rallied on news that the FDA was allowing the company to proceed with development of its new therapy for epilepsy.

The NYSE Arca Pharmaceutical Index (DRG) inched up 0.3% to 279.55 and the NYSE Arca Biotechnology Index (BTK) advanced 0.5% to 874.18.

Shares of Icagen (ICGN) shot up almost 50% to 94 cents a share.

The biotech group said the Food and Drug Administration has lifted a temporary hold on clinical study of its compound ICA-105665 in the treatment of epilepsy. The agency had placed the hold in March over concerns about certain data compiled from animal studies.

Icagen added that it now plans to initiate a proof-of-concept study testing the drug in the treatment of photosensitive epilepsy. The company expects the study to be completed by mid-2010. Icagen is also testing the compound for the treatment of pain.

In June, Icagen said that it had retained J.P. Morgan to help it explore various strategic options, including a possible sale of the company.

Shares of Genzyme Corp. (GENZ) slipped 2% to $51.01.

On Friday, Genzyme shares fell about 7% after the biotechnology group said the Food and Drug Administration is planning to re-inspect its main U.S. plant to ensure it complies with a warning letter the agency issued in February.

The facility is used to make two of Genzyme's best-selling medications, Cerezyme and Fabrazyme. Genzyme had also been seeking FDA approval to make a version of its product Myozyme at the facility. The company specializes in biologic drugs to treat rare genetic disorders.

Genzyme shut down production of Cerezyme, which is used to treat Gaucher disease, in June, after a contaminating virus was found in one of the plant's bioreactors. While production resumed in late July, shortages of the product have caused concern in the medical community.

In addition, on Monday, Shire PLC (SHPGY) reported the Food and Drug Administration has agreed to allow doctors to use its experimental treatment for Gaucher, called velavelaglucerase alfa, during the shortage, even though it is not yet approved. The product is currently in Phase III testing.

A third company, Israel's Protalix BioTherapeutics (PLX), also has a Gaucher treatment in Phase III testing. Protalix has likewise been in contact with the FDA about making its therapy available to doctors during the Cerezyme shortage.

Shares of Protalix were up 4% at $7.20.

-Val Brickates Kennedy; 415-439-6400; AskNewswires@dowjones.com