The FDA Is About to Make Some Major Drug Decisions. What Investors Need to Know.
The Food and Drug Administration’s decisions on Covid-19 vaccine boosters have dominated investors’ attention in recent weeks, but the agency has plenty more on its plate in the coming months.
Before the year is out, the FDA will announce a handful of billion-dollar decisions expected to move the shares of big pharma companies like Pfizer (ticker: PFE) and Eli Lilly (LLY), and of biotechs small and large, including Intra-Cellular Therapies (ITCI) and BioMarin Phamaceutical (BMRN), among others.
The rulings will come from an agency that has been working without a permanent commissioner since the start of the year, and has been buffeted by controversy over some of its approval decisions. That injects a degree of unpredictability into the process, and demands careful watching by investors.
Dr. Janet Woodcock, a longtime FDA official, has led the agency as its acting commissioner. Her term expires on Nov. 15, putting pressure on the Biden administration to make a pick in the coming weeks.
Until that appointee is confirmed, analysts say that the lack of permanent leadership at the agency is making it harder to know what to expect from the FDA on certain decisions.
“From an operational standpoint, the FDA has actually been working relatively efficiently,” says Brian Abrahams, an analyst at RBC Capital Markets. Still, he says that “there are a number of spaces where having a more defined philosophy and direction would be helpful.”
One of those areas is Alzheimer’s disease treatments, where the agency received enormous backlash over its approval of Biogen ’s (BIIB) Alzheimer’s therapy, Aduhelm, despite a rejection of its efficacy by the agency’s outside advisers.
Before the end of the year, Eli Lilly is expected to submit an application for accelerated approval of its own Alzheimer’s therapy, known as donanemab. The FDA will need to decide whether to accept the application for review.
“Given all the controversy around Biogen’s Aduhelm, it’s not a zero percent chance” that the FDA will decline to review Lilly’s application, says Louise Chen, a Cantor Fitzgerald analyst. “That would be a bad day for Lilly, if that happened.”
Lilly shares are up about 40% this year, to a recent $236, in no small part because of the excitement over donanemab after the FDA’s surprise approval of Aduhelm. While the agency is likely to accept the application for review, Chen says that Lilly shares would plunge if it didn’t. It would also probably drag on the shares of other companies developing similar Alzheimer’s therapies, including Roche Holding (RHHBY) and Biogen.
Another big decision likely to come soon from the FDA will determine the future of a drug class known as the JAK inhibitors.
JAK inhibitors are used to treat rheumatoid arthritis, along with other inflammatory conditions. The FDA has been increasingly worried about the drugs’ safety. In September, the agency announced that it would require JAK inhibitors being used to treat arthritis and ulcerative colitis to carry new labels warning that these drugs carry a risk of serious heart-related events and death.
Pfizer and AbbVie (ABBV), meanwhile, have each been waiting on the regulator to decide whether to approve their JAK inhibitors to treat atopic dermatitis. The FDA has missed deadlines to determine whether to approve Pfizer’s abrocitinib, and AbbVie’s Rinvoq, to treat the skin disorder.
Now, the FDA needs to decide how the safety concerns around JAK inhibitors as arthritis treatments should apply in a different area of medicine, overseen by different offices within the agency. The lack of a commissioner could make this tougher.
“The commissioner’s role, to some extent, is to coordinate between divisions,” says Ronny Gal, an analyst at Bernstein.
The decision, when it comes, will offer insight into how the FDA is thinking about JAK inhibitors as a class, and will have implications beyond Pfizer and AbbVie, to companies like Incyte (INCY) and Eli Lilly that also sell such drugs.
Smaller firms are also waiting on decisions that could have major implications for their share prices. Intra-Cellular Therapies is expecting a decision from the FDA by Dec. 17 on whether to approve its drug Caplyta to treat bipolar depression. Andrew Tsai, an analyst at Jefferies, says he thinks the drug will be approved, and that the stock will climb from its recent price of $38 to as high as $55 on approval.
Another biotech, argenx (ARGX), is expecting the FDA to decide by Dec. 17 on whether to approve its drug efgartigimod as a myasthenia gravis treatment. Jefferies analyst Akash Tewari wrote in an early October note that he believes the approval will come this year. He has a $362 target price on the stock, which traded recently around $297.
BioMarin, meanwhile, is expecting the FDA to decide by Nov. 20 on whether to approve Voxzogo as a treatment for a genetic disorder called achondroplasia. Cowen analyst Phil Nadeau wrote in August that signs point to the FDA approving the therapy. Nadeau’s target price on the stock is $135; it traded recently at $76.