As you can see from this chart, in the U.S. one big hit is usually recommendations of Advisory Committee (AdCom) meetings organized by the U.S. Food and Drug Administration (FDA) that frequently precede the FDA's Prescription Drug User Fee Act (PDUFA) decisions of whether to approve a drug. As our experts have pointed out, sometimes, just the release of briefing documents outlining safety and efficacy results in advance of an AdCom meeting can set the bar higher—or lower. If expectations have been set too high by a very favorable AdCom recommendation, even a subsequent FDA approval could result in a decrease in share price, especially if the FDA adds some restrictions like a "black box" drug label warning.
Another big stock price rightsizing can come in Phase 2 proof-of-concept. In a December interview, Christopher James, senior equity research analyst and SVP at FBR Capital Markets, pointed to data from Phase 2 trials as "where we start to see the inflection of share price, when value creation occurs. At this stage, stocks will generally trade fairly."
For insight into the process in Europe, we turned to George Zavoico, an analyst at JonesTrading Institutional Services. He pointed to the Committee for Medicinal Products for Human Use (CHMP) recommendation as a one of the turning points for many drugs after the release of safety data and Phase 3 results. "The European Medicines Agency (EMA) decisions to approve a new drug rarely go against the CHMP," he said. "However, then the drug has to go to each country for review as to whether it will be added to the formulary and at what negotiated price, including, in some countries, an evaluation of whether it is economically feasible. This can be a time consuming, complex process." Often companies will target the big five: United Kingdom, Germany, France, Spain and Italy. Then the other 22 countries fall into place, he said.
The EMA approved 82 drugs in 2014, of which 17 were orphan drugs. The agency predicted even more orphan drugs would get the green light in 2015 as companies work through a new early collaboration process with CHMP. On the other side of the pond during the same year, the FDA approved 41 drugs, 15 for orphan diseases, also a record high for orphan drugs.
While a "harmonization" process exists between the EMA and FDA, and the two market sizes are similar, companies carefully strategize whether to go through the approval processes individually or in parallel. Small U.S. biotech companies usually secure a partner for the European market before getting to the marketing authorization application (MAA) submission and marketing stage there, Zavoico said.
Jim Patrick is publisher of The Life Sciences Report. For over 20 years, Jim has served in publisher roles for investment research publications including Buyside Magazine and Wall Street Research Magazine. Jim has achieved master status for chess players and is a third degree black belt in Aikido, a nonviolent martial art.