Wall Street Horizon Blog

What FDA Drug Approval Dates Can Mean to Investors and Traders

Posted by Eric Soderberg on Feb 28, 2016 11:14:43 AM

Last week we announced a partnership with Informa to make FDA drug approval dates, also known as PDUFA (Prescription Drug User Fee Act) dates, available to clients through our new online application, Enchilada™. If you invest in or trade biotech stocks, chances are you know a lot about PDUFA dates.  If you don't, let me start this blog post with a PDUFA 101 . . .

Prior to the PDUFA law being passed in 1992, 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 that would allow the FDA to collect fees from drug manufacturers was 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.

So today, at a high level, here is how the process works.  A drug manufacturer submits an NDA or sNDA (supplemental new drug application) 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 two months to decide if the application is acceptable for review, meaning the application has been properly filled out, the right fee has been submitted, etc.  If accepted, the FDA then has 10 months to respond (or 6 months when it's a priority review) with an approval or non-approval or with what is called a 'complete response'.  A complete response basically informs applicants of changes that must be made before an application can be approved.

In Enchilada, we provide clients with the following dates that are associated with this process:

PD-START - Date the drug manufacturer submits its NDA

PD-EXPECT - Date 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.

So what is the value of these dates and information to investors and traders?  Well, for some companies and some drugs, the impact of an FDA approval can be dramatic.  Take for example the company Relypsa Inc. (NASDAQ: RLYP) that had its stock double over the course of a couple months after the FDA approved its drug Veltassa to treat hyperkalemia (a serious condition defined as abnormally elevated levels of potassium in the blood . . . in case you wanted to know).  

In this example (illustrated below), Relypsa was given an update by the FDA on 8/10/15 (reflected in Enchilada as a PD-UPDATE) that it could expect a decision on Valtassa on 10/21/15 (reflected in Echilada as a forward-looking PD-EXPECT date).  

Relypsa_chart.png


So, the value for an investor or trader in this case, particularly those who were aware of the upcoming FDA approval date, was certainly significant.  However, do not expect to see results like this every time a drug gets approved.  Many times in fact what you might see is a steady increase in a stock price leading up to an FDA decision when consensus is that an approval is imminent.   And of course, 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.  

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Enchilada™

Learn more about this online application that includes forward-looking and historical corporate events for 6,000 global equities.  Also available in Thomson Reuters Eikon!

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