FDA Panel Decision Is Good For These Three Stocks
After
trading hours yesterday, an FDA Advisory panel unanimously approved a
novel approach to treating asthma, a disease that affects millions of people
worldwide. Genentech
(
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mechanism of action focuses on blocking a naturally occurring antibody that
serves as the stimulus for the inflammatory process underlying the etiology of
asthma. The abundance of clinical data presented to the FDA panel proved the
drug was safe and efficacious in preventing asthma attacks and its associated
complications. This is good news for the medical health of asthmatics in this
country and for the financial health of the developing companies involved. This
good news will most assuredly translate into some nice gains in their stock
prices today, especially Tanox. There may also be enough momentum to carry into
Monday. The drug is expected to generate revenue of up to $800 million within
the next five years, revenue divided by the royalty agreements already in place.
Conspiracy Theory?
As I
look at the market events leading up to yesterday’s decision, I often wonder
what those bright FDA men and women are really thinking as they gather to decide
the fate of each new major drug. Call me crazy, but I am starting to see a
pattern develop in certain FDA behavior several days before a major advisory
panel meeting. Is the FDA conspiring to keep traders in a confused funk the day
before a major drug decision by “leaking†conflicting information to Wall
Street? The FDA surely understands the financial implications of each new drug
decision made, especially those related to this highly anticipated decision.
Traders have been waiting for this decision to come down the pike for weeks
because of its financial implications on the long-term growth of the companies
involved.
Let’s
look at what transpired on Wednesday, the day before the decision. On Wednesday
morning a story came across the FDA’s official website (immediately picked up by
Reuters) stating that the asthma drug Xolair “had achieved its efficacy goals in
clinical trials.†This was potentially good preemptive news, especially for
those with positions in Genentech and Tanox. However, later in the day another
story mysteriously appeared on the FDA’s official website stating that patients
who had used Xolair “may have an increased risk for developing cancer…but no
definitive link had been established.†This is obviously not good news,
especially with the utterance of the word cancer. When people hear the word
cancer associated with a new drug, all run for the hills. When Wall Street hears
the word cancer associated with a new drug, then companies get hurt and stock
prices drop. Interestingly enough, on the morning of the decision Novartis fired
back with a press statement defending the safety of Xolair.
What Is Really Going On Here?
This
release of conflicting news is an interesting phenomenon occurring more
frequently the day before a major FDA panel decision. The news does directly
come from FDA people on the inside, people involved in the decision. However,
these people have no faces and the articles quote unnamed “staff membersâ€
associated with the upcoming decision. I have always asked the question, “Who
are these guys and why are they leaking information the day before a major new
drug decision?†Are these “staff members†the equivalent to the unnamed “White
House Officials†often quoted by newspapers as sources of leaked information? Is
there a Deep Throat within the FDA purposely leaking information out to Wall
Street in order to throw traders off the speculation scent? This seems to be the
case, particularly as it relates to the smaller biotechs, and in this case, it’s
Tanox.
During the months leading up to the FDA meeting, Tanox experienced a nice run in
its stock price in anticipation of a decision (up 40%). However, starting on the
Monday before the meeting, the stock started to sell off, giving back some of
its earlier gains. On the day before yesterday’s meeting, Tanox’s stock price
declined 8%, mainly due to the fear connected with the big “C†word. Now that
the FDA Advisory panel has unanimously recommended the drug, I suspect those who
took a position in Tanox at the end of Wednesday’s trading will be nicely
rewarded today.
Is
the FDA really conspiring to confuse traders and minimize financial speculation
the day before a major drug decision by releasing conflicting news, news that it
knows Wall Street will react to? Again, the evidence speaks for itself. The
speculation paranoia has gotten so bad that it has even infected the medical
profession. For the first time in its history, organizers of this year’s highly
anticipated upcoming ASCO conference (American Society of Clinical Oncology),
will release the summary of presenting abstracts on developing new cancer drugs
only at the meeting itself, and only to those with credentials to get it. They
are guarding this information with their lives, hoping it does not leak out to
Wall Street before it can be presented. Normally, this book-bound summary goes
out a month before to all the doctors attending. I think the entire ImClone
scandal several years ago has left a bad taste in many people’s mouths.
Where Does This Leave Traders?
It
leaves you to be very vigilant the day before a major new drug decision because
this “leak†of conflicting drug news by “unnamed FDA staff members†will
continue. The FDA is keenly aware of the financial speculation that surrounds
high profile, major drug decisions, and this latest one falls into the “majorâ€
category. However, when a decision approaches on a new drug or medical device
that targets a small disease market and comes in under the radar screen, this
“leaking phenomenon†is generally not observed. Under these circumstances, the
day before the decision is usually more predictable and not as hostile to a
trader’s position.
On a
final note, keep an eye on InterMune
(
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(
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upcoming meeting of the American Thoracic Society in Seattle (May 16-21), data
that could cause some stock price movement. InterMune will release new clinical
data on its drug Actimmune to treat idiopathic pulmonary fibrosis. Texas
Biotechnology will also release new data on its developing drug, Sitaxsentan, to
treat pulmonary arterial hypertension.
Stay
tuned for my ASCO company focus list next week.
Good
Luck,
Paul
Ruggieri MD