Short-Term Catalyst: FDA's Humanitarian Use Device Designation Decision
I would like to present a short-term investment idea based on the imminent news of a potentially bullish decision by the FDA to grant orphan status, or Humanitarian Use Device Designation, to InVivo Therapeutics' (NVIV.OB) lead biopolymer scaffolding product for treatment of complete functional spinal cord injury, an area where no successful treatment options currently exist.
InVivo Therapeutics is a promising, young biotech company on the verge of the commencement of the first human clinical pilot study to treat spinal cord injury patients with thoracic injuries.
InVivo is a Cambridge, Massachusetts based company focused on utilizing polymers as a platform technology to develop treatments to improve function in individuals paralyzed as a result of traumatic spinal cord injury. The company was founded in 2005 on the basis of proprietary technology invented by the legendary Robert Langer, ScD., Professor at Massachusetts Institute of Technology. InVivo went public in November 2010 at a price of $2.60/share. In 2011, the company earned the prestigious David S. Apple award from the American Spinal Injury Association for its outstanding contribution to spinal cord injury medicine.
The reason why I point to NVIV as a short-term catalyst play is because the company filed its formal request to the FDA seeking Humanitarian Use Device designation for its spinal cord injury treatment device on December 14, 2012. In the press release announcing this submission, it was clear "the Company expects to receive feedback from the FDA on the HUD request in January 2013."
And who could fault the company for expecting to receive feedback by 45 days? After all, according to FDA records, 100% of all HUD reviews over the last three years have been completed in 45 days or less. This record was not lost on investors who were attempting to time the FDA decision and 45-day window evidenced by the volatile run-up of NVIV share price.
In anticipation of this FDA decision and expectation of HUD status being granted, biotech investors began to bid up the shares of NVIV over 60% in the following weeks from the December 14 submission date to the 45th day, January 28, for a run from the low of $1.60 to the high of $2.59 during that time period. Yet, when the company released no news of the FDA decision on its HUD application, investors feared the worst and punished the stock back down to the $1.62 level where it sat just before the December 14th HUD submission.
Why March 9th Now Matters
Those who sold their NVIV shares thinking the 45-day review window was closed on January 28 need to consider an unexpected FDA-related event that happened on January 24, which could have likely restarted the 45-day clock on InVivo's HUD submission. In this scenario, instead of InVivo's expectation to hear back from the FDA by January 28, the date of the 45-day review period may well end now on March 9.
This is possible because the FDA's Office of Orphan Products Development issued new guidance on Humanitarian Use Device Designations in a 14-page report on January 24, 2013. This new guidance came within InVivo's initial 45-day HUD review period. In essence, the rules were changed while the FDA was in the middle of reviewing InVivo's HUD application.
For the FDA to review InVivo's application based on their old guidance and not this new guidance (which will guide FDA decisions going forward) would be unfair to InVivo and any other HUD applicant currently in a 45-day review with old guidance as the basis. A new 45-day review period would be needed to allow the FDA time to consider InVivo's filing in the context of this new guidance.
Therefore, I believe the FDA reset the 45-day clock for InVivo's application on the date the new guidance was issued, January 24, 2013. This would put their review period ending on March 9, 2013.
Background on Orphan Designation by FDA
These orphan product designations are handled via the FDA's Office of Orphan Products Development. Recognizing that adequate drugs & devices for rare disorders had not been developed in the United States, the U.S. Congress in 1983 passed the Orphan Drug Act to offer incentives to induce companies to develop products for small markets of individuals with rare disorders.
To help incentivize and expedite medical devices (not drugs) to market, the Humanitarian Use Device (HUD) program was established in 1990. This program provides an alternative pathway for getting market approval for medical devices which may help people with rare conditions. The threshold for products to be included in the HUD program are for them to treat a condition that is manifested in less than 4,000 people annually.
Speculative biotech investors looking for a rare opportunity to get another chance to capture the run-up frenzy of an imminent FDA decision should take a close look at NVIV. With the HUD designation review period now potentially ending on March 9th and with the stock back down to the levels seen when the HUD application was submitted, you could very well see NVIV run back up 60% by March 9th to the $2.59 peak it hit on the first and premature run-up to its HUD decision.
Disclosure: I am long NVIV.OB.