Biotech Stocks: Friendlier FDA Making Biotech Investors Rich!
Betting on biotechs with new drugs coming up for FDA approval may have just become the best game in town. After a stingy 2010 in which only 21 new drugs gained regulatory approval, the FDA essentially opened the flood gates in 2011.
Last year, the FDA approved a whopping 35 new medicines.
It’s the second highest number of new drugs approved in a single year over the past decade. Only 2009 saw more drugs gain regulatory approval… 37 were approved that year.
And the agency didn’t play it close to the vest either…
A number of the newly approved drugs are on the cutting edge of medicine. Among them are two new treatments for Hepatitis C, a drug for late-stage prostate cancer, the first new drug for Hodgkin’s lymphoma in 30 years, and the first new drug for lupus in 50 years.
This is great news for the millions of patients suffering from hard to treat diseases. The FDA has heard their anguished cries for help. And the agency is clearly more willing than ever to put new drugs in the hands of those who need them.
Why is the FDA suddenly so fleet of foot?
The new FDA is using a variety of innovative mechanisms to speed up the drug approval process. Expedited approval authorities, flexibility in clinical trial requirements, and resources collected under the Prescription Drug User Fee Act (PDUFA) are just a few of the agency’s newest weapons in the war against disease.
But the biggest reason is the one no one is talking about…
The FDA has clearly changed their attitude toward novel therapeutics.
In 2010, the agency was focused on safety to a fault. Even though patients needed many of these drugs to stay alive for just a few more months, the FDA wouldn’t release them if their safety record wasn’t perfect.
But it seems, the FDA has finally changed its tune.
Of course, the FDA’s new stance on novel drugs is also music to the ears of biotech investors.
In 2010, it certainly looked like investing in biotechs was becoming an effort in futility. A good number of investors saw their hopes and dreams flushed down the drain as the FDA rejected drug after drug.
The most high profile example of this was Vivus (VVUS).
The popular biotech was developing Qnexa, a drug many believed would be the first approved anti-obesity medication in over a decade. And the hype appeared well-deserved.
Extensive clinical testing showed patients taking Qnexa lost an average of 10% of their body weight!
What’s more, most experts estimated the drug’s market potential at $5 billion a year!
As you might imagine, investors were piling into the shares in ahead of the upcoming FDA Advisory Committee meeting in July 2010. Approval for Qnexa looked like a done deal. And VVUS shares were poised to explode higher.
In fact, the shares climbed from a low of $2.72 in March to $12.11 the day before the meeting.
That’s a staggering 345% increase in just four months’ time.
But the FDA Advisory Committee was not so easily convinced.
The committee members were more focused on the health risks Qnexa posed than the weight-loss benefits. And in the end, the committee voted overwhelmingly to recommend the FDA not approve Qnexa.
Of course, the stock plunged on the news…
By the close of market the next day, VVUS had lost 55% of its market value. And many investors had lost a boatload of money.
But that was the old FDA…
Today’s FDA appears to be tipping the balance more in favor of a drug’s health benefits than its risks. On February 22, 2012, a new FDA Advisory Committee convened to once again determine if Qnexa deserves FDA approval.
And after considering all the evidence, the committee voted by a whopping 20-2 margin to recommend approval.
As you probably know, VVUS soared on the news.
The biotech’s shares rocketed 138% higher in just three days! And you can see on the above chart, VVUS is now up by an eye-popping 354% from the July 2010 low.
While those returns are phenomenal, I’m more interested in the change of philosophy at the FDA. And more importantly, what it means for investors.
Statements by a couple of the Qnexa Advisory Committee members provide a revealing glimpse.
Dr. Kenneth Burman said, “the potential benefits of this medication seem to trump the side effects….” And Dr. Elaine Morrato concurred by saying, “I believe Qnexa demonstrated a meaningful efficacy benefit and that there are consequences to not treating obesity.”
No question about it, the FDA has transformed itself since 2010.
The new FDA is much more willing to approve a drug with potential health risks for some patients as long as there is strong evidence of efficacy for most. Rather than hold a drug up indefinitely, the FDA appears ready to approve it while requiring the drug maker to continue monitoring patients.
The upshot…
The new FDA is a dream come true for biotech investors. We should see a larger number of drugs gaining FDA approval this year and beyond. And that means a larger number of skyrocketing biotech stocks to make a killing on.
This is one trend you definitely don’t want to miss!
Category: Stocks
