Gridlock under the Trump administration, particularly the repeated failures to repeal and replace Obamacare, is riveting the nation’s attention. Yet at least one government agency is running smoothly—and even accelerating its operations.
The U.S Food and Drug Administration, under Commissioner Scott Gottlieb, is taking advantage of policy groundwork laid in past years to speed drug approvals. Thirty-four new drugs—treating everything from cancer to rare genetic diseases—have been approved so far this year. That’s on pace to nearly double last year’s approvals. So far, at least nine decisions came more than 20 days ahead of the FDA’s scheduled action date.
Wall Street is paying attention, with some portfolio managers shifting their strategies, anticipating faster approvals and less restrictive labels. Life under the new FDA chief is a mixed bag, as they see it.
On the one hand, a more permissive agency is a boon to the industry, which typically sees only 12 percent of experimental drugs successfully make it through human trials and onto the market. On the other hand, broader approvals for how drugs can be used may give more power to insurers to force price competition, lowering expected profits for new drugs.
Samuel Isaly is a managing partner of health-focused OrbiMed Advisors and a storied biotechnology investor—according to Barron’s Magazine, he consistently beat the S&P 500 for 25 years straight, from 1990 to 2015. He says he’s never seen anything like the recent flurry of FDA approvals.
“Trump, embodied in Gottlieb, has encouraged competition as a way to bring down prices,” said Isaly. “I like the idea of making more medicines available to more people at a more reasonable price, so as a human being, not as an investor, I think it’s a great thing.”
It’s not just the new administration that’s behind the speedier approvals. The agency’s actions are partly thanks to legislation passed in 2012 that created mechanisms to reduce review times, such the Breakthrough Therapy designation and widening the use of accelerated approvals. Both give a faster review process to drugs seen as providing a substantial improvement to patients with dire need.
Drug stocks have been rising as well. Since the start of the year, the Nasdaq Biotechnology Index—a key measure of investor sentiment about the drug industry—is up 29 percent, outpacing broader indexes.
Since becoming commissioner in May, Gottlieb has stressed his desire to tackle rising drug prices by encouraging competition, echoing the sentiments of President Donald Trump, who had pledged to reduce drug costs during the campaign. Gottlieb has recently been talked about as a possible new head of the Health and Human Services in the wake of Tom Price’s resignation from that post last week.
The agency stresses that the changes to increase speed aren’t at the expense of safety.
“The FDA makes decisions based on consistent, rigorous scientific principles,” said spokeswoman Sandy Walsh in an email. “We’re always implementing reforms to modernize and strengthen how we determine safety and effectiveness, while also making the drug development and review process more efficient.”
Joep Muijrers, a partner at investment firm LSP adds a word of caution to eager investors—while he’s cheered by the agency’s rapid actions, he doesn’t see standards being lowered.
“You still need to show convincing data,” said Muijrers. “If you’re saying, let’s go to the FDA with a sub-optimal data set and get approved—I don’t think that’s going to happen.”
While faster regulatory decisions are widely seen as a plus for the drug industry, portfolio managers are on the fence about drugs being approved for wider groups of patients than in the past. AstraZeneca Plc’s Lynparza was approved on Aug. 17 for use in ovarian cancer patients regardless of whether the patients carried a genetic mutation called BRCA.
That surprised analysts, who had expected the label to only include BRCA positive patients, which were the subject of AstraZeneca’s main clinical trial. The broader label meant that Lynparza was comparable to Tesaro Inc.’s competing treatment, which had shown in trials that it worked for both BRCA positive and negative patients.
The agency’s move prompted Kennen MacKay, an analyst at RBC Capital, to rate Tesaro at neutral instead of buy because its drug lost the edge it held over AstraZeneca.
John Schroer, sector head of U.S. health care at Allianz Global Investors, said he’s concerned that broader labels will bring price competition to the cancer arena, a therapeutic area that, to date, has been fairly resistant to price pressure.
“Often times labels for oncology products are all slightly different, and therefore payers are not able to say ‘Give me a bid,’” said Schroer. “As a payer, if I can hold these two labels up and can’t see the difference, I can go back to the manufacturers and say, ‘Who wants to win all of my patients?’”
Another surprise to Wall Street was the agency’s decision to grant Celgene Corp. and Agios Pharmaceuticals Inc. full approval on its cancer drug for adults with a form of advanced acute myeloid leukemia. The approval on Aug. 1 came nearly a month ahead of the agency’s expected action date.
The companies had submitted data from a single-arm trial, meaning all patients got the drug, with no comparison to standard-of-care or placebo. As such, analysts had expected the agency to grant “accelerated approval,” a conditional nod which allows the drug onto market, while the manufacturer runs additional studies to further prove its treatment’s benefit.
Orbimed’s Isaly says he’s now factoring the trend into his bets.
“We are more ready to give the benefit of the doubt toward approval rather than disapproval,” he said. “There’s not only a higher probability of approval, but of a broader, more expansive label.”