Volatility around US FDA advisory committee meetings provides remarkable opportunities for bio run-up trading, and those following this strategy will find it vital to stay abreast of the agency’s behaviour following adcom recommendations.
An analysis published last week by the investment bank UBS thus makes essential reading, lifting the lid on this trend over the past five years. Sponsors routinely state that the FDA is not obliged to follow an adcom’s advice, and the analysis suggests that this has of late become a particularly pertinent caveat (see charts).
The FDA’s growing reliance on adcoms makes perfect sense given its cautious stance on drug approvals and the growing threat of litigation. Panels are convened to provide the agency with independent expertise it does not have internally, especially on risk/benefit considerations, and to improve transparency.
So it is interesting that the rate of approvals in line with an adcom’s positive recommendation is actually falling, suggesting that the vote is less important than the deliberations, on the basis of which the FDA feels increasingly able to make up its own mind.
The chances of the FDA following a positive endorsement have fallen from 100% to 95% in 2012 and to 80% last year, which “seems to suggest that the FDA is decreasingly relying on panel recommendations and more relying on its own analysis/view”, wrote the UBS healthcare analyst team headed by Guillaume van Renterghem.
The number of adcoms convened fell from 34 in 2012 to 27 last year, though the odds of getting a positive vote in them remained steady at 56%.
The apparent trend of the agency going against positive adcoms is reflected in the fact that the likelihood of getting the FDA nod for any project for which an adcom is scheduled has also fallen since 2011 – from 76% to 59% to 52%. The average FDA approval rate for all projects is higher, at around 77% – logical if one assumes that requesting an adcom reflects doubt about a drug’s approvability.
No doubt bio run-up investors, who take advantage of share price appreciation in the run-up to binary events, will take note of this, and apply the same logic that they tend to do in periods approaching key clinical trial readouts: the position must at all cost be closed before the event takes place.
That said, the UBS analysis finds that holding a stock beyond an adcom vote only tends to yield a negative return if applied across all companies. A borderline positive outcome resulted in three of the last five years if a market cap-weighted approach was used.
Interestingly, however, the share price reaction to the posting of adcom briefing documents had limited correlation with the movement following the actual recommendation. Then again, the numbers are probably too small for this level of detail.
But the message is that it is still hard to forecast accurately whether an adcom vote will be followed by the FDA, and this goes for negative as well as positive votes. The FDA's approval rate when the adcom is negative or mixed has actually gone up from 0% in 2011 to 14% in 2012 and 17% in 2013.
Among projects that got a negative or mixed adcom vote last year, Noven Therapeutics’ Brisdelle and Endo’s Aveed were approved, though the former with a warning of suicide on its label, and the latter through a restricted programme.
The year before, two adcom rejects got the nod: Hikma’s phenylephrine and Sanofi’s Kynamro. The latter was aimed at a rare disease and lacked therapeutic alternatives, and its approval showed a divergence of opinions not only between the FDA and its panel but also between the US and EU regulators (Europe spurns FDA’s lead on three more drugs, March 25, 2013).
That might be the last crumb of comfort for those banking on a US green light for Novartis’s breakthrough therapy candidate serelaxin, which was last month hit with a 11-0 negative adcom vote. Likewise, followers of Epigenomics’ troubled colorectal cancer test Epi proColon might be breathing a little easier.
This story has been corrected to reflect the restrictions under which Brisdelle and Aveed were approved.