The FDA's Helping Hand To Investors

If you have any comments, questions, or thoughts on this article or on anything to do on biotechnology or medical technology feel free to email me at prugg@tradingmarkets.com.

On June 28, we saw the positive influence the FDA can have on a company’s stock price and future drug development and how investors can take advantage of it. Several companies filed New Drug Applications (NDAs) with the FDA on June 28 for their lead drugs. The filing of a new drug application or NDA is the first tangible step a company takes in the process of getting a new drug approved by the FDA. 

The application is made after several large Phase III clinical trials have been completed and show the new drug to be safe and effective. Once the NDA is filed, it may take several months for the FDA to accept the drug application. There is a chance the FDA may reject application if the supporting clinical data is not acceptable. Once accepted, the FDA is telling the company, yes, you definitely have something here. 

The next step in the process to approval is a thorough review of the incoming clinical data. This review could take up to a year before the FDA actually votes on whether or not to approve the drug. However, if a drug has been given “fast-track” status, then the average time to the definitive vote can be four to six months. Fast-track status means the FDA will expedite the processing of the designated application because the drug is intended to treat a life-threatening condition, one that has no current effective therapy.  

Fast-track status does not guarantee the drug will get approved. However, its designation can have a very positive influence on the stock price, when announced. During the time the FDA is reviewing the application, the agency may ask for more clinical data supporting the new drug’s effectiveness or, in the worst-case scenario, ask the company to perform another large-scale clinical trial. 

The filing of an NDA is truly a seminal event in the life of a maturing biotechnology company and investors do benefit from it if they are aware of the actual date. The decision by the FDA to accept the NDA application is also an event in the life of a biotech company that excites investors and usually moves the stock price. Ultimately, the big prize is drug approval and this event can be the brass ring for investors.  

ImClone Systems (IMCL | Quote | Chart | News | PowerRating), a leader in developing novel monoclonal antibody treatments for cancer, filed what is called a “rolling” Biologic License Application (BLA) for approval of its lead cancer drug, IMC-225. A rolling designation only applies to drugs given the fast-track status and means the company can submit data supporting the application periodically and not all at once. The rolling designation allows the company to constantly work with the FDA, obtaining feedback along the way, and maximizing its opportunity for approval. A biologic license application is synonymous with a new drug application.  

ImClone’s new drug has shown great promise as a new way to treat a variety of cancers, especially colorectal cancer that is refractory to current medical treatment. The company also has a clinical pipeline of other novel drugs, including the development of vaccines to treat cancer. Investors applauded the application with a nice 5% move in the stock (see charts) and should keep their eye on this company over the next six months.

ICOS Corporation (ICOS | Quote | Chart | News | PowerRating), along with Eli Lilly (LLY | Quote | Chart | News | PowerRating), also filed an NDA with the FDA for its drug to treat erectile dysfunction. The company recently presented very convincing Phase III data on its effectiveness and safety in treating erectile dysfunction, or ED. The ED market is huge and currently monopolized by Pfizer’s blockbuster Viagra.  

However, ICOS has a formidable competitor in its new drug Cialis, because it actually may work faster and longer than Viagra. Again, the filing of the NDA rewarded investors by a 7% move in the stock price (see charts). I expect this drug to be on the market in 2002.  ICOS also is developing a drug to treat another growing, untapped disease market called sepsis that warrants investor attention in the long run.

One last, but definitely not least, company that was rewarded by the FDA yesterday was MGI Pharma (MOGN | Quote | Chart | News | PowerRating). The company was granted “fast-track” status by the FDA for its new drug to treat refractory pancreatic cancer. The drug irofulven is currently being tested in Phase III clinical trials to treat a variety of cancers, including the deadly pancreatic, and the company does not expect to file a new drug application (NDA) until all the data is in. However, the FDA feels this drug can fill an unmet need in the medical community and will expedite its review, once the application is in. Again, investors welcomed the designation, with a 14% increase in the stock price. 

The above examples are just some of the ways you, as an investor, can take advantage of the how the FDA influences the potential growth of a company. In July, I will give a two-part course on “Trading The FDA” and give added insight to the ways investors can benefit from decisions made by the FDA.    

Until then,

Paul

I have been investing/trading in medical and biotechnology stocks for years. The one common theme is that this is a high risk/reward endeavor. When you are correct, many times you are richly rewarded. When you are wrong, you can be badly punished. Please keep this in mind and hedge/protect yourself appropriately when trading/investing in these stocks.