With the strong comeback of the biotech sector in 2017, now is as good a time as any to consider the corporate event data that can affect volatility. Although event data can range from FDA drug approval dates and FDA Advisory Committee meetings to investor conferences and analyst days, in this post, I’d like to focus on FDA drug approval dates.
In December 2017, the FDA broke a recent record for the most new drug approvals in a year with 46 approvals. Note that there were 22 approvals in 2016.
FDA drug approval dates, also known as PDUFA (Prescription Drug User Fee Act) dates, are available in Wall Street Horizon’s web-based application, Enchilada. If you are new to investing and trading biotech stocks, here’s a quick history on PDUFA.
Evolution of PDUFA
Prior to the 1992 PDUFA law, the drug manufacturers, the FDA and the public were all in agreement that the drug approval process was taking too long. At the time, the typical approval process was about 30 months. The FDA needed more people and money to speed up the process, but Congress was unwilling to fund the FDA's request for more resources and the drug manufacturers were unwilling to pay to have their drugs approved as they feared that their money would not speed up the process.
In 1992, the PDUFA law allowing the FDA to collect fees from drug manufacturers passed when;
a) the FDA and drug manufacturers agreed to set target completion times for drug reviews and
b) the FDA and Congress promised that these fees would supplement federal appropriations and not replace them.
Today, at a high level, here is how the process works:
- A drug manufacturer submits a New Drug Application (NDA) or supplemental New Drug Application (sNDA) along with the appropriate fee to the FDA. Supplemental applications are submitted when a drug manufacturer wants approval to market an already approved drug for a different use.
- The FDA has 60 days to decide if the application is acceptable for review.
- If accepted, the FDA then has 10 months to respond (or 6 months for a priority review) with an approval or non-approval or with a 'complete response'.
- A complete response basically informs applicants of changes that must be made before an application can be approved.
FDA Drug Approval Process Dates to Track
The following dates (source: Informa’s Biomedtracker) are available in Wall Street Horizon’s web-based application Enchilada:
PD Start - Date the drug manufacturer submits its NDA
PD Expect - Date the FDA is expected to respond to the drug manufacturer with its approval/non-approval
PD Update - Dates for any/all events that occur during the review process, e.g. FDA updates, changes to the Expect date, etc.
PD End - Date the FDA responds to the drug manufacturer.
Example: Novo Nordisk A/S ADR (NYSE: NVO)
Company: Headquartered in Denmark, Novo Nordisk is a global healthcare company with more than 90 years of innovation and leadership in diabetes care.
Drug focusing on in this example: Fiasp (insulin aspart injection) to treat diabetes mellitus, type 2.
In the example illustrated below, Novo Nordisk was given an update by the FDA on 5/3/17 (reflected in Enchilada as a PD Update) that it could expect a decision on Fiasp on 9/29/17 (reflected in Enchilada as a forward-looking PD-Expect date).
Result: You can see the stock experienced a slight increase after the FDA approval start date in early May. Subsequently the stock continued a steady increase of 17% between the start and end of the approval process.
What is the Value of These Dates to Investors and Traders?
The value for an investor or trader in some cases is dramatic or many times you may see a steady increase in a stock price leading up to a FDA decision when consensus is that an approval is imminent (such as in the above example). In addition, if it's a very large drug manufacturer and the drug up for approval does not have significant market potential, the impact of the FDA's decision may be small as well.
No matter the situation however, the expected date for an FDA approval, or non-approval, of a drug is a significant corporate event that should be known and observed if you want to make informed investment and/or trading decisions in biotech. Additionally, knowing the PDUFA dates along with the company’s other corporate events can greatly assist in forecasting upcoming volatility in a company’s stock or options.