FDA Creating New Investment Opportunities in BioTech Stocks

FDA Creating New Investment Opportunities in BioTech Stocks

Because FDA marketing clearance to sell a drug or device in the US remains the brass ring for medical manufacturers around the world, companies consistently invested in US trials in spite of rising costs. By 2016, however, more manufacturers were starting to question the investment required. Not anymore.

FDA Approval Of Drugs At Record Pace

In 2017, the FDA approved 46 novel drugs, easily outpacing the average of 31 novel approvals between 2010 and 2016. In the first nine months of 2018, the FDA already has signed off on 47 novel drugs, affirming 2018 will be a banner year for the FDA, and bodes well for 2019.

What has changed? Drug executives consistently point to a new responsiveness by the FDA and the need to introduce more competition in the market. Between 2014 and 2016, drug and device companies responded to new guidelines introduced in 2014 by the Affordable Care Act (ACA), also known as Obamacare. Device manufacturers were mandated to pay a higher tax on revenue, consequently slashing R&D budgets and sending device companies to Europe to test and introduce new products.

Pharma companies also went to Europe and Canada via corporate inversions, in which a company such Minnesota-based Medtronic plc. Ordinary Shares (NYSE:MDT) combined with Ireland-domiciled Covidien, consequently reducing its corporate tax rate. Pharma companies likewise focused less on new drugs and relied more on their ability to raise prices arbitrarily to deliver profits to shareholders. As the large price increases were exposed to restrict access to care, most prominently with Mylan N.v. (NASDAQ:MYL) EpiPen, Congress began to push back on drug companies and pharmaceutical benefit managers (PBMs), who act as middlemen in drug distribution.

While the FDA is supposed to render decisions independent of pricing and political concerns, the Washington-based agency is not entirely walled off from political winds. Certain drugs advance quickly through the FDA because of strong patient advocacy groups, such as therapies for breast cancer and HIV, while other drugs can be delayed, often for minor problems in applications. The 2017 appointment of Scott Gottlieb as FDA Commissioner established consistent processes at the agency, and has ushered in more competition among brands.

Biosimilar drugs reflect the FDA trend. Biosimilars are generic versions of biologic medicines, or medicines produced by living cells. However, because biologics are significantly more complicated to manufacture than generic pharmaceuticals, they have been able to command high prices. Between 2010 and 2015, biologics accounted for 70% of the growth in drug spending. Neulasta, a biologic drug, generated more than $4.7 billion in revenue for Amgen Inc. (NASDAQ:AMGN) in 2017.

In testimony before Congress in July, Gottlieb told legislators the FDA was not going to wait a decade for biosimilar competitors to enter the market. This year, the FDA gave marketing clearance to two competitors to Neulasta, most recently to Udenyca from Coherus BioSciences (Coherus Biosciences, Inc. (NASDAQ:CHRS)) on November 2.

The agency also demonstrated this year it would address the opioid epidemic appropriately. While rejecting or requesting more clinical studies on opioid-based drugs that marginally addressed public safety concerns, the FDA in May approved US WorldMeds’ Lucemyra as a non-opioid treatment to manage opioid withdrawal symptoms in adults.

More significantly, the FDA signed off on Dsuvia from Acelrx Pharmaceuticals, Inc. (NASDAQ:ACRX), a pain drug that is 10 times stronger than the widely used opioid Fentanyl. Dsuvia dissolves under a patient’s tongue to deliver fast pain relief during extreme trauma, such as a broken leg or a gunshot wound. To develop Dsuvia, AcelRx received funding from the US Army. Despite the drug dissolving immediately and its design for use only in hospital settings, clinicians and the agency still were cautious because of the potential for abuse outside the hospital. After three weeks of public and private debate, the FDA gave final approval on November 2.

Of the 47 novel drugs already approved this year, the agency’s approval of GW Pharmaceuticals’ (PINK:GWPRF) cannabidiol (CBD) drug Epidiolex stands out. Epidiolex was approved to treat seizures associated with two rare and severe forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome. Epidiolex is the first cannabis-based drug approved for pharmaceutical use in the US.

The approval of Epidiolex forced the US Drug Enforcement Agency (DEA) to issue a guideline stating CBD drugs with THC content below 0.1% are now considered Schedule 5 drugs, as long as they are FDA approved. Until the DEA’s ruling in September, all cannabis-based formulations were regarded as Schedule 1 drugs, federal law category reserved for drugs with a high potential for abuse and no medical value. The new DEA classification opens the door for more research on cannabis-based, especially CBD-based, research that can be considered by the FDA.

On a broader scale, the FDA said two months ago it expected to expand implementation of real-time reviews of drug applications. The real-time reviews evaluate clinical data as soon as a company makes trial results available. Currently, the program is only being implemented in pilot programs by the Oncology Center for Excellence (OCE).  In one example, the agency was able to guide analysis from a phase IV study of the breast cancer drug Kisqali (ribociclib) to extract the most relevant information. Kisqali originally was approved in 2017, and its manufacturers were seeking approval for use in additional indications.  Using the real-time reviews, the FDA approved the additional indications with 30 days, several months ahead of the anticipated deadline for action.

Check out more of what SanaCurrents thinks and how we plan to take advantage of the current trend of drug approvals by the FDA.

About the Author:

Before starting SanaCurrents, William (Bill) Langbein spent more than 20 years as a life science business journalist, with stops at California Medicine, In Vivo and Reuters Health. During that time, he wrote on genomic discoveries, the transition of the pharmaceutical companies to rely more on biologics, and the dawn of precision medicine, through which most drug developers came to recognize a one-drug-for-all approach would no longer work. One constant truth he learned is smaller companies deliver the most innovation and highest value to patients and investors. Yet because of the inherent volatility of biopharma and medical devices, small companies typically fly under the radar of investors. The emergence of precision medicine, however, reduces the volatility of small cap companies and increases the potential for strong returns. SanaCurrents was founded to identify the undervalued therapies that would benefit patients and investors the most.

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