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The Obama FDA's drug approval policy is becoming clearer, and it is a shift from past practice. If you have a generic drug that will save patients money, come on into the market. For example, Jubilant's Pantoprazole Sodium for stomach acid and Perrigo's (NYSE:PRGO) Ketoconazole Foam for dermatitis.

If you can treat what has not been treatable before, [Zelboraf (vemurafenib) for melanoma] then come on in.

Fast approval is also available if your drug demonstrates increased safety for patients, as with the Johnson & Johnson's (NYSE:JNJ) pain medication Nucynta XR, a non-opioid. It's one of three J&J medications to win approval this year, the other two being Zytiga for prostate cancer and Incivek for hepatitis C. This is also why Regeneron (NASDAQ:REGN) popped last month – the agency found its Eylea for wet eye safer than Roche's anti-cancer drug Avastin.

But if you're treating something that's already treated, like the Xerelto blood thinner from Johnson & Johnson and Bayer, then you better prove your stuff is demonstrably better, especially if you're going up against a generic. In this case, an FDA panel found that the Xerelto study failed to administer the competing generic, wayfarin, correctly in many cases, skewing the data.

The same reasoning can be seen in AstraZeneca's (NYSE:AZN) Crestor – with Lipitor coming off-patent the difference in outcomes may not be enough.

That's not to say the door is entirely closed. The AstraZeneca anti-platelet drug Ticagrelor, apparently proved itself after a review of aspirin dosages taken with the drug. It will now get the chance to compete with drugs like Sanofi-Aventis' Plavix, which is coming off patent.

The same attitude – you'd better be better – is behind the second review of Discovery Labs' Surfaxin, which aims to reduce the chance of respiratory distress in premature babies.

This deeper testing will be funded by an additional six percent fee from the industry, which wants faster reviews of new drugs. Generic drug-makers have also reached agreement on new, higher fees to speed approvals.

This needs to inform investors' views of all pharmaceutical makers with drugs currently in the approval pipeline. The agency wants new cures, less expensive cures, cures with fewer side effects, but drugs against currently treatable conditions have a higher hurdle. You can call that attitude a job-killer if you're making a political point, but the key investment takeaway is that the patient's wallet, as well as his or her life, is now on the line.

Disclosure:

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: FDA Approval Process Sets Higher Bar For What's Treatable