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Summary

  • The development of novel drugs that will have a large impact on the public health is a worthy investment.
  • Investing ahead of the herd but safely requires the most reliable source of information: trials results are often published in expertly peer-reviewed journals ahead of approval.
  • As a single, reliable source of important clinical trials results for novel drugs ahead of FDA approval, New England Journal of Medicine is unparalleled.
  • If the herd has already stampeded a stock on preliminary data ahead of expertly peer-reviewed publication and approval, just wait.

In this article I discuss the value of New England Journal of Medicine (NEJM) as the single most reliable source information on clinical trials of important new drugs. I list the companies with the largest numbers of novel drugs or the most important ones that were approved by the FDA in the years 2011-2013. Finally, I attempt to determine whether focusing one's attention on a reliable source of information such as NEJM - instead of becoming overloaded with too much preliminary information from press releases and meetings - can simplify the search for pharmaceuticals or biotech companies in which to invest, possibly even ahead of the herd.

Methods: The FDA refers to the most important, novel small molecules and biologicals as New Molecular Entities, abbreviated NME. Approved NME can be viewed at the FDA website for 2013, 2012, and 2011. The New Molecular Entity program and the economics of drug development are discussed in the February 24, 2014 issue of NEJM in which there is also a list of articles related to NME approved by the FDA in 2013. I began my search for key, peer-reviewed publications there, and extended the search to FDA documents, to the clinicaltrials.gov website, and when necessary to the internet. After compiling a complete list of NME approvals, I entered into my spreadsheet whether the FDA considers the drug to be 1st-in-class or an Orphan in its impact on public health. I also recorded the approval method (Fast Track, Breakthrough, Priority, Accelerated - in that order of precedence), the approval date, and the date of what I determined to be the key publication and the journal; if there was no one clear publication leading to approval, then none was attributed. I then tallied the key publications that appeared ahead of FDA approval by sorting them by journal and also by pharmaceutical. After that I examined stock price charts in attempt to identify the market moving approvals and publications.

Results: NEJM published by far the largest number of key NME trials 1-71 months (median 8 months) ahead of approval, 31 of them. Lancet published 4 NME trials 2-35 months ahead of FDA approval. Respiratory Medicine published 3, Epilepsia and Blood each published two. A few other journals published one each. Nine NME trials were published in NEJM only after FDA approval, compared to the 31 published ahead of approval. Some NME trials were published in other journals only after FDA approval as well: for example, four trials were published in the Journal of Clinical Oncology after approval.

Pharmaceuticals publicly traded on US exchanges or ADR with New Molecular Entities approved in years 2011-2013 are listed in descending order of their number of NMEs. Those that the FDA considered important enough for expedited approval or to have impact as 1st-in-class or Orphans are mentioned:

· 7 for Glaxo-Smith-Kline (NYSE:GSK) including 4 approved Fast Track as Orphan, 1st-in-class, or both (Tafinlar, Benlysta, raxibacumab, Mekinist), and another (Potiga) routine as 1st-in-class.

· 6 for Pfizer (NYSE:PFE) including 3 Orphan drugs (Bosulif, Xalkori and Elelyso) - the latter 2 were approved Fast Track.

· 5 for Bayer (OTCPK:BAYRY) including one approved Fast Track as 1st-in-class (Xofigo), and one approved Priority as Orphan (Adempas).

· 5 for Roche (OTCQX:RHHBY) including three 1st-in-class (Zelboraf also given Orphan status, Kadcyla, and Erivedge) or Orphan (Gazyva); each of these was approved as Fast Track, Breakthrough, or Priority. Perjeta was also approved Priority.

· 3 for Bristol-Myers-Squib (NYSE:BMY) two of which were approved Fast Track as 1st-in-class and Orphan (Yervoy and Nulojix). Eliquis was approved Priority via collaborative effort with Pfizer.

· 3 for Forest Labs (NYSE:FRX) one of which was approved routine as 1st-in-class (Linzess); in addition, FRX collaborated with Takeda on Daliresp approved as 1st-in-class.

· 2 for Astellas (OTCPK:ALPMY): Myrbetriq (1st-in-class) and Xtandi (Fast Track).

· 2 for Astra-Zeneca (NYSE:AZN) one of which (Caprelsa) was approved Fast Track as Orphan.

· 2 for Gilead (NASDAQ:GILD): Stribild was approved Fast Track and Sovaldi was approved Breakthrough as 1st-in-class.

· 2 for GE one of which (Datscan) was approved Priority.

· 2 for Merck (NYSE:MRK) one of which (Victrelis) was Fast Track as 1st-in-class.

· 2 for Novartis (NYSE:NVS) one of which (Signifor) was considered 1st-in-class and Orphan.

· 2 for Regeneron (NASDAQ:REGN): Eylea approved Priority; REGN also partnered with Sanofi (NYSE:SNY) on Priority approval Zaltrap.

· 2 for Sanofi : Aubagio approved as 1st-in-class and Zaltrap in partnership with REGN.

· 2 for Vertex (NASDAQ:VRTX) including Kalydeco approved Fast Track as 1st-in-class and Incivek approved Fast Track.

Each of the following had 1 NME approved by the FDA during 2011-2013:

· Aegerion (NASDAQ:AEGR): Juxtapid which was considered 1st-in-class.

· Affymax (OTCQB:AFFY): Omontys.

· Ariad (NASDAQ:ARIA): Iclusig which was approved Fast Track as Orphan.

· Arena (NASDAQ:ARNA): Belviq approved routine as 1st-in-class.

· Actelion (OTC:ALIOY): Opsumit approved as an Orphan.

· Biogen Idec (NASDAQ:BIIB): Tecfidera approved as 1st-in-class.

· Celgene (NASDAQ:CELG): Pomalyst approved Fast Track as Orphan.

· Discovery (NASDAQ:DSCO): Surfaxin approved Fast Track.

· Exelixis (NASDAQ:EXEL): Cometriq approved Fast Track as Orphan.

· Incyte (NASDAQ:INCY): Jakafi approved Fast Track as 1st-in-class and Orphan.

· ISIS (NASDAQ:ISIS) and Genzyme: Kynamro as 1st-in-class and Orphan.

· NPS (NASDAQ:NPSP): Gattex approved routine as 1st-in-class and Orphan.

· Navidea (NYSEMKT:NAVB): Lymphoseek as 1st-in-class.

· Johnson & Johnson (NYSE:JNJ): Zytiga approved Priority as 1st-in-class.

· Onyx (NASDAQ:ONXX) acquired by Amgen (NASDAQ:AMGN): Kyprolis approved Fast Track as Orphan.

· Optimer (NASDAQ:OPTR) and Cubist (NASDAQ:CBST): Dificid approved Fast Track.

· Pharmacyclics (NASDAQ:PCYC): Imbruvica approved Breakthrough as 1st-in-class and Orphan.

· Seattle Genetics (NASDAQ:SGEN): Adcetris approved Fast Track as Orphan.

· Shire (NASDAQ:SHPG) approved Fast Track as 1st-in-class and Orphan: Firazyr.

· Salix (NASDAQ:SLXP): Fulyzaq approved Fast Track as 1st-in-class.

· TEVA (NYSE:TEVA): Synribo approved Accelerated as 1st-in-class and Orphan.

· Thrombogenics NV (NYSE:THR): Jetrea approved Priority as 1st-in-class

Effect of FDA approval on large cap pharmaceuticals' stock prices

GSK had the largest number of approvals during the 3-year period - seven of them. On May 29, 2013 GSK won Fast Track approvals of Orphan drugs Mekinist and Tafinlar on the same day. Over the next 4 months the stock price fell by about 4%. Neither did approvals of Breo Ellipta approval on May 10 and Anoro Ellipta on December 18, 2013 move the market. On December 14, 2012 1st-in-class and Orphan drug raxibacumab won Fast Track approval - GSK stock was market-perform over the next 3 months. Three months after FDA approval of 1st-in-class drug Potiga, GSK stock price was the same. For the 3-year period beginning last week January, 2011 to same period 2014, GSK performed much in-line with the S&P (33% versus 38%). NEJM publications related to these approvals had no obvious effect on stock price either. Apparently, the market views GSK as a high dividend value stock, and has assigned it a market-average P/E.

Pfizer stock outpaced the S&P during the period when it received 6 NME approvals between August of 2011 and October of 2012, but none of these approvals or key publications supporting them caused a perceptible surge in stock price.

Bayer stock surged ahead in 2013, contributing to an 82% 3-year gain, but there are no visible surges in stock price corresponding to approval dates, even for its 1st-in-class radium isotope for prostate cancer, Xofigo, which was approved on May 15, and its Orphan Adempas approved on October 8, 2013. Trial results for both published in NEJM a week apart in July did not visibly move the market either.

Roche stock was treated pretty much the same, but its stock began to outpace the S&P after approval of cancer drug Perjeta on June 8, 2012, six months after the key trial results were published in NEJM.

Effect of FDA approval on some smaller-cap stock prices

Those with a key publication ahead of FDA approval are listed in the following table along with the 1-month subsequent price change. Since price at a single point in time failed to capture price movement, and since the effect of publication and FDA approval on stock price was so variable, examples are discussed.

New Molecular Entity

Pharma

Price 1 mo after pub.

Price 1 mo after FDA

Firazyr

SHPG

-2%

-4%

Iclusig

ARIA

2%

-6%

Opsumit

ATLN

-0%

18%

Jakafi

INCY

21%

10%

Adcetris

SGEN

-3%

26%

Imbruvica

PCYC

28%

-10%

Kynamro

ISIS

11%

12%

Jetrea

THR

14%

2%

Kalydeco

VRTX

5%

13%

Sovaldi

GILD

-9%

0%

Belviq

ARNA

71%

1%

Linzess

FRX

-3%

3%

Tecfidera

BIIB

-6%

20%

Dificid

CBST

-2%

-0%

Stribild

GILD

8%

17%

Xtandi

ALPMY

3%

-1%

Median Price Change

 

2%

2%

Actelion: Orphan drug Opsumit was approved by the FDA on October 18, 2013 six weeks following publication in NEJM of a trial showing that it improved survival in patients with pulmonary hypertension. ATLN stock was flat for the 6 weeks following the NEJM publication, but then over the 6 weeks following FDA approval moved 20% higher, easily outpacing the NASDAQ.

ARIAD: the FDA approved Iclusig (ponatinib) for two types of leukemia on December 14, 2012 five weeks following publication in NEJM of a phase I trial showing this small molecule was "highly active" against these diseases. Neither the announcement nor publication moved the market on ARIA stock which had already reached a high of $25 in early October. Looking over the price chart, ARIA began its steady climb above $5 or $6 in early 2011 on news about another drug ridaforolimus for solid tumors, then moved higher after data on ponatinib was presented at the June 2011 ASCO meeting. Then in mid-2012 ARIA stock price surged on announcement of the phase 3 trial of ponatinib for chronic myelogenous leukemia, and on the announcement of its NDA to the FDA for this indication. Thus, in the case of ARIAD, intense excitement about this new drug preceded peer-reviewed publication of the data and drug approval. A lot of that excitement dissipated on October 31, 2013 when marketing of ARIAD's 1st and only product was temporarily suspended.

Biogen: BIIB is currently over $330, but look at the stock price movement over the last 3 years. From mid-2012 until late January, 2013, BIIB price was flat at about $140. In the middle of that period (September 20) when stock price was flat, a small molecule called dimethyl fumarate (Tecfidera) was shown in a phase 3 trial published in NEJM to be effective in relapsing-remitting multiple sclerosis [RRMS]. On January 25, 2013 BIIB stock began a steep climb on news that a phase 3 pivotal clinical trial showing benefit of peg-interferon beta-1a for RRMS. Then news of acquisition from Elan of multiple sclerosis drug Tysabri. It is hard to discern at a glance at the stock chart if there was an immediate impact from FDA approval of Tecfidera on March 27 - there was too much else going on.

Cubist/Optimer: Neither the NEJM publication of non-inferiority of Dificid compared to vancomycin, nor the approval of Dificid by FDA moved the market - understandably in retrospect: in 2013 Cubist reaped only $12 of $871 in US revenues from Dificid.

Gilead: a key publication in Lancet on June 30, 2012 concluded "If regulatory approval is given, EVG/COBI/FTC/TDF [which is Stribild] would be the only single-tablet, once-daily, integrase-inhibitor-based regimen for initial treatment of HIV infection." A week later, $40B Gilead's stock began a 1-month 10% climb, outpacing the NASDAQ. GILD stock price leveled off during August. The FDA approved Stribild on August 27, 2012. GILD stock climbed another 20% over the following month, again outpacing the NASDAQ before leveling off again.

Incyte: positive phase 1-2 results on Jakafi for myelofibrosis were published in NEJM on September 16, 2010. INCY stock price moved from $14 to $17 over the following month, then fell back to $14 over the following 5 months. Even after Jakafi was give given Fast Track approval with 1st-in-class and Orphan status by the FDA on November 16, 2011, INCY failed to consistently outperform the NASDAQ. INCY stock finally surged on release of the phase 3 survival data at the EHA Congress in mid-June 2012.

ISIS: amazingly, the key phase 3 Kynamro publication appeared in the March 10, 2010 issue of Lancet, but ISIS stock moved from $10 to $8 over the following 6 months. This 1st-in-class and Orphan, antisense drug was ISIS's 1st FDA approval on January 29, 2013, but that did not immediately move the stock. Following this there was a flurry of other activity bringing the ISIS pipeline to the market's attention which elicited quite a response.

Pharmacyclics: even with great momentum already behind its stock, the June 20, 2013 e-publication in NEJM was followed by a visible 35% surge in PCYC price over the following 3 weeks with no obvious movement after the November 13 FDA approval of Imbruvica for mantle cell lymphoma, PCYC's 1st product to market.

Seattle Genetics: favorable phase 1 data on Adcetris for CD30-positive lymphomas published in NEJM on November 4, 2010 did not move the market. But following Fast Track approval and 1st-in-class and Orphan status on August 9, 2011, SGEN gained 35% compared to 15% for the NASDAQ over the next 6 months. Adcetris is SGEN's 1st product to market.

Discussion: Investors can suffer from information overload. Sometimes the noise created by numerous press releases and presentations of preliminary data at meetings causes a stampede for a biotech stock that careful investors should avoid. Journal publications are then anticlimactic. Careful investors will wait until the herd stampedes in the opposite direction following a word of caution from the FDA as already happened with ARIA. At the other extreme, important publications and even approvals seem to go unnoticed by the market. For example, ISIS stock declined to $8 after the Kynamro publication in Lancet, and remained flat at $14 for a month after its approval almost 3 years after the Lancet article. Another example is INCY which failed to consistently outperform the NASDAQ following publication of phase 1-2 results for Jakafi in NEJM, and even after its Fast Track FDA approval as a 1st-in-class and Orphan Drug. In other cases, key publications presaged FDA approval which only then moved the market: examples include the trial of Actelion's Opsumit published in NEJM, the trial of Biogen's Tecfidera in NEJM, the trial of Gilead's Stribild in Lancet, and the trial of Seattle Genetics' Adcetris published in NEJM. In these cases, a regular reader of the weekly NEJM could have been way ahead of the herd.

Publication of trial results and FDA approvals did not seem to be immediate market movers for the large caps that had the most approvals during 2011-2013. I would think that companies with the most NME approvals would be good considerations for conservative investments. Perhaps in some cases the approved drug is just not that important financially to the company's portfolio. It may be difficult for someone not an analyst and with no medical background to make the determination that an approval or the key publication supporting it is just not going to make a big difference on profit or returns.

Without doing more research, I cannot tell you the proportion of trials published in NEJM that represent New Molecular Entities. I would attempt to determine that as I read each new publication about a small molecule or biological.

Recent examples of important NEJM publications: The very important phase 3 results of idelalisib for chronic lymphocytic leukemia and the phase 2 results for non-Hodgkin lymphoma were both published in NEJM on March 13, 2014. Gilead idelalisib in an NME and is a high probability for FDA approval for one or both conditions on the basis of its impact. This is not a "Buy" recommendation, but if I were already seriously considering an investment in Gilead, strong results like these from this reliable source might clinch it.

Source: FDA New Molecular Entities - Finding Them Ahead Of Approval But Also Ahead Of The Herd

Additional disclosure: I have no affiliation with the New England Journal of Medicine - I just read it.