PDUFA is both a legislation and a procedure in the drug approval process. In terms of legislation, it is a law enacted by Congress which allows the FDA to collect fees from drug-approval seeking companies in order to partially finance the process of approval. In terms of procedure, it is a specific date on which a whole range of FDA experts meet and provide the final stamp of approval/rejection on an experimental drug.
The procedure is important for us. The PDUFA date is one of the most significant catalysts for a biopharma stock. This is a staggered catalyst in the sense that it is preceded by 3 other catalysts that give you an idea of what to expect in the PDUFA and how to play it. These are, chronologically, the phase 3 topline data readout, the NDA submission, and finally, the Advisory Committee meeting or adcomm which is a panel of outside experts who give their non-binding opinion to the FDA. If the data readout is good, the NDA submitted is exhaustive and strong. If the NDA is good, the adcomm is usually positive. If the adcomm is positive by a large majority, the PDUFA generally is, too.
Time-wise, too, the NDA should come within 2-3 months of the data readout. The PDUFA comes 10 months after the NDA submission is complete, and the adcomm is one month before the PDUFA. If there’s a priority review, the PDUFA happens in 6 months. If there’s rolling submission of NDA, parts of the NDA could be submitted as the phase 3 trial progresses, reducing the 3 month gap between the data readout and the NDA. Each of these speed-up steps is important because it may give the sponsor just that small amount of first mover advantage that will be critical to win against competition.
If a drug is approved, it can proceed to the market. If the FDA does not approve an NDA in its current form, it sends a Complete Response Letter (CRL) to the sponsoring company, either asking for more data or to resolve a manufacturing or other issue, or rejecting the NDA altogether. Safety is a major reason for drug rejections. Lack of efficacy could be another, but in general, if a drug is safe, some doubt in efficacy may not block approval. Conversely, if a drug is effective, but not safe, then, depending on the terminal nature of the target disease, the drug may be rejected. A recent example is Solithromycin from Cempra, which was deemed safe, but since the target disease, a form of bacterial infection, was not considered dangerous enough to outweigh the hepatotoxicity (liver toxicity) risks associated with the drug, it was rejected with a CRL asking for a much larger study documenting drug safety.
What are the various catalysts for a biopharmaceutical stock?
A stock can be catalysed by any number of events – management changes, insider buying, a new President. But biotech stocks have a few catalysts specific to the industry. This gives the biopharma industry its typical organized, preset catalyst-driven nature. That makes investing in biotech generally more disciplined than throwing stones in the dark and hoping to hit something.
Almost the first catalyst for a drug candidate is preclinical data, which results in an IND or Investigational New Drug application seeking permission from the FDA to begin human trials. Good preclinical data for important drugs could be published in major scientific publications like the Blood Journal, new england journal of medicine, The Lancet, JAMA: The Journal of the American Medical Association, the various Nature reviews, which could act as catalysts for the stock. Data could also be published in important medical conferences.
Some of the major global conferences are ASCO (AMERICAN SOCIETY OF CLINICAL ONCOLOGY), ASH (American Society of Hematology), ESMO (European Society for Medical Oncology), JPMorgan Annual Healthcare Conference, AACR (American Association for Cancer Research).
These could act as important catalysts for a biopharma stock.
Data readout from a phase 1 study is generally not a major catalyst unless the drug, the company, the target disease or the drug platform is exciting. For example, phase 1 data from a skin condition may not have any impact on the stock; however, widely followed new technology like CAR-T can see major movements even with phase 1 data readout.
Other important catalysts in the lifecycle of a drug are, of course, data readouts of topline results from phase 2 and phase 3 trials, and even interim results from major phase 3 trials. Just recently, Achaogen (AKAO) went up 170% within a week after declaring good topline results from a phase 3 trial of plazomicin. For professional analysts, the trick in taking advantage of an upcoming catalyst is to look at a previous catalyst and try to gauge the future outcome. This is especially true of the phase 2-phase 3 pair of catalysts. One can often, though not always, get a fair prediction of a phase 3 outcome from what happened with phase 2. A rule of thumb is that both safety and lack of efficacy become more pronounced from phase 2 to phase 3 because of the larger trial population, which increases the power of the trial. So if a drug showed signals of being unsafe in phase 2, expect that to be more pronounced in phase 3; and if it showed that it wasn’t very effective compared to a control drug, expect that signal to become more pronounced.
After good results, cash-starved small biotech often make secondary offerings. Although, for long term investors, this is the best time to raise cash, when the company is in a strong position, for people who bought before the catalyst and held on for too long, this could be a dampener. So these offerings are, in a sense, negative catalysts.
Other catalysts could be clinical holds, partial or full, and their removal. A clinical hold is put on a drug trial when there are treatment-emergent deaths from the trial, or other safety concerns that make the trial too unsafe to continue. A partial clinical hold could be when the FDA doesn’t stop a trial, but blocks further enrolment until more safety data is available from the existing number of patients. A clinical hold is lifted when new data relieves the safety concern, and can often be an important catalyst for a bear stock; for example, when Geron’s clinical hold was lifted last year, the stock saw major upward movement.
The FDA confers various designations to a drug or its trial; some of these are Fast Track, Priority Review, QIDP or Qualified Infectious Disease Product, or ODD or Orphan Drug Designation etc. Some of these reduce the potential time to market for a drug, while others give them competitive advantage. News of any of these could catalyse the stock.
9 months after a complete NDA is submitted to the FDA, an Advisory Committee meeting is held. Dates for these adcomm meetings are pre-announced on the FDA website. An adcomm consists of 11 outside experts specializing in the target disease. It also has spokespersons from the sponsor, from interested bodies, and also community members. The panel hears testimony from all these sources, including what trial participants and disease activists have to say about the drug. Then there’s a vote on safety, efficacy and approvability questions. The FDA is not bound by what the adcomm recommends, but more often than not, it concurs with it the following month, when the drug goes for its PDUFA or the final FDA decision, which is perhaps the most important catalyst in the lifecycle of a drug.
After the drug gets approved, we have two more important catalysts in its lifecycle. Firstly, we have the first couple prescription data, which come out within 3 and 6 months of market entry, and give an idea about the market uptake of the drug. Good prescription data will often raise the stock. Finally, after some years, we have patent or orphan designation expiry, when biosimilars or generic drugs hit the market. Around this time, ANDAs may be filed by generic drug manufacturers to approve a generic version of the drug, and there may be lawsuits challenging the patent covering the original drug. Outcomes of all these events may act as catalysts, giving one last bounce to a stock, or killing it.
Note though, that all these catalysts really work well when we have a one-pony company, a company which has only one important drug. For a company with a long pipeline with multiple important drugs in advanced stages, or for a big company with many approved products and a pipeline, catalysts for one drug may make hardly any impact on the stock.
What is drug efficacy?
In biopharma industry, efficacy of a drug is a measure of its capacity to cause a positive therapeutic effect on a patient population in a controlled situation, like a clinical trial. Efficacy is a comparative term; the efficacy of a drug intervention is always measured in comparison with other available interventions, usually the standard of care. If there are no existing treatments available, efficacy may be measured against placebo. In clinical trials, a primary parameter is selected, which varies from disease to disease, and efficacy is measured in terms of statistically significant differences in that primary parameter between the experimental drug and the comparator. Statistical significance is, in effect, equated to clinical significance, which becomes more and more correct as the size of the trial population increases.
The clinical parameter varies from disease to disease. In solid tumor cancer, for example, reduction in tumor mass could be a primary parameter. In viral diseases, mean log changes in viral load could be the primary parameter. In CNS and mental diseases, subjective tests like MMSE or ADAS-COG could be it, or sometimes there could be more objective, physical parameters.
Efficacy of a drug is mostly measured in phase 3 trials, and to some extent in phase 2 trials. Sometimes, non-inferiority rather than superiority in efficacy is a measure, where the experimental drug is shown to be not less efficacious than the standard of care drug. The marketing edge for such a drug may be other factors like price or dosage or safety etc.
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