August 27, 2014

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Investors pull profits from fast-track drug status

CLEVELAND – Investors are on a fast track for profits from stocks whose companies` drugs are given fast track status by the federal Food and Drug Administration, whether further research bears fruit or not, a newspaper reported Sunday.

Since 1998, fast-track announcements for almost 200 drug treatments resulted in single-day stock price increases that averaged 10 percent for publicly traded biotech and pharmaceutical companies, an analysis by The Plain Dealer found.

The trading volume of those stocks was even more dramatic, the newspaper said. One-day increases in shares bought and sold average almost 1,300 percent, the newspaper said.

The fast track designation is not an indication that a drug will be proven safe and effective. Many of the drugs so designated have flunked clinical trials required for government approval.

Many companies have found quick FDA approval for drugs to treat such life-threatening conditions as kidney cancer and stomach cancer without attaining fast-track status.

Dr. John Jenkins, director of the FDA`s Office of New Drugs, said the designation only gives companies the same access to FDA programs that was in place when they lobbied Congress for the provision in 1997.

“There`s really not much other, if any, benefit for fast track,” Jenkins said. “Fast-track designation is simply an indication that the drug under development has the potential to meet a serious unmet need.”

In some cases, companies have done little to develop the drugs after obtaining fast-track status for them, but the designations bumped up the stock price shortly before their acquisition by larger firms, The Plain Dealer reported.

A biotech company`s partnership with a major company to develop a drug or the disclosure of the results of a clinical trial can alter the prospects for a drug`s approval, said Reni Benjamin, senior biotech analyst with Rodman & Renshaw, a New York investment house. But fast track designation is another matter, Benjamin said.

“It doesn`t change the process of the drug, the potential of the drug or the probability of the drug`s success. On a fundamental basis, fast- track designation means absolutely nothing to me as an analyst,” Benjamin said. “A fast-track designation, frankly, is noise and an opportunity to take some profit.”

In 1997, the Congress approved the designation. Jenkins said the main difference between fast track and what existed then “is that there is an affirmative response from the agency saying, ‘Yes, you have been granted fast track designation,` and then the companies can utilize that however they choose to utilize that for their purposes for their investment community or communicating to the public.”

Fast-track status is not unusual in the industry, said David Miller, co-founder and CEO of Seattle-based Biotech Stock Research.

“They make it look like the FDA only chooses for fast track those drugs that are important and have a good chance, and that`s just not the case because the FDA will fast track most anything,” Miller said.

Fast-track status has become so routine that Adam Feuerstein, senior columnist for TheStreet.com, an online financial news service, calls the designation a “box checker.”

Feuerstein, who covers the biotech industry, told The Plain Dealer that fast track releases are “the most oversold and over-hyped announcements that a drug company puts out.”