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Betting Wrong on the FDA

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Human Genome Sciences, AstraZeneca and others got the thumbs up from expert panels, but it's another question whether the FDA will follow the panels' recommendations.

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Stocks surge and plunge on recommendations made by Food and Drug Administration expert advisory panels. But do positive panel votes give investors false hope that a drug will be approved?

In the past year, 10 panel-recommended drugs resulted in five FDA approvals, an analysis by biotech company consultant MD Becker Partners shows. On the other hand, nine panels recommended rejecting drug applications in the past year and the FDA followed the advice every time.

"No is no -- you can take that to the bank," says senior partner Michael D. Becker. A negative panel vote "is not going to get overturned by the FDA. Yes means a flip of a coin. That's about as scientific as an investor can get."

That sobering advice isn't likely to sway all investors.

Orexigen Therapeutics' (OREX) stock soared, almost doubling in one day, after a panel of government advisers recommended in December that the company's diet pill Contrave be approved in the US. More than a month later, the shares plunged 70% when the FDA rejected the drug and told Orexigen it would need to conduct more human studies if it wants a chance of taking Contrave to market some day.

Even a unanimous positive panel vote doesn't guarantee success. Advisers voted 13-0 in August on the question of whether Valeant Pharmaceuticals' (VRX) seizure drug Potiga was effective. The FDA rejected the drug in December. GlaxoSmithKline (GSK) is Valeant's drug partner.

The FDA bases its decisions on the unmet need a drug addresses, safety and effectiveness. In the post-Vioxx world, safety is crucial. That weighed heavily on Orexigen. The FDA panel said Orexigen should conduct a cardiovascular safety study after the drug is approved. The agency decided the study should be done before approval.

"For the FDA, there's no good that can come from approving a drug," Becker says. "The only thing that can happen are bad things -- safety issues that creep up later."

Given that scenario, here's a look at some upcoming FDA decisions:

German drug maker Bayer won a 16-0 panel vote endorsing the central nervous system imaging drug gadobutrol. That sounds like a winner but Becker still gives approval chances only 50-50.

Likewise, AstraZeneca's (AZN) thyroid cancer drug vandetanib was recommended on a 10-0 vote in December. An FDA decision is expected in April.

Human Genome Sciences (HGSI) won a 13-2 recommendation in November to sell the first new lupus treatment in half a century. A decision was delayed until next month and that has a number of investors spooked about approval or labeling requirements that would hurt sales. The drug, Benlysta, appears safe but there are questions about effectiveness. Glaxo is a partner on the drug.

On the other hand, Mela Sciences' (MELA) skin cancer detection product MelaFind was recommended in November on a slim 8-7 majority. That application looks dead, Becker says.

Here's one almost sure bet: Eli Lilly's (LLY) pancreatic enzyme replacement for cystic fibrosis patients was rejected by a panel in January. Solpura's effectiveness was called into question and the panel voted 7-4 that the benefits didn't outweigh the risks of approving the treatment. Don't expect the FDA to reverse course.


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No positions in stocks mentioned.
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