The FDA (Still) Hates Antibiotic Makers

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"To be blunt, we don't really believe your data."

That was basically the sentiment out of the Food and Drug Administration yesterday, as Johnson & Johnson (NYSE: JNJ  ) announced that the agency had nixed the application for the antibiotic ceftobiprole.

A little more than a year ago, the FDA turned down ceftobiprole, requesting "additional audit work of clinical investigator sites and to address specific questions related to site monitoring." It seems Johnson & Johnson's answers to the FDA's questions weren't compelling enough; the agency wants Johnson & Johnson to complete new trials to prove that ceftobiprole works.

And it only gets worse from there.

The health-care giant licensed the drug from Swiss drugmaker Basilea Pharmaceutica, which has already initiated an arbitration request because of the delay. Basilea claims that 10 of 49 clinical investigation sites were deemed unreliable by the FDA or the third-party auditor. Not quite as bad as how Sequenom (Nasdaq: SQNM  ) screwed up the relationship with its partner Xenomics, but it sure seems as though Johnson & Johnson dropped the ball.

Then again, maybe the FDA is just being hard on Johnson & Johnson; drugmakers have to make sure clinical sites are documenting their data properly, but "properly" is somewhat subjective. It sure seems as if whoever is reviewing antibiotics at the FDA has become a stickler, with antibiotics from Theravance (Nasdaq: THRX  ) , Wyeth -- now part of Pfizer (NYSE: PFE  ) -- and another one from Johnson & Johnson being turned down recently.

Investors in drugmakers such as Cubist Pharmaceuticals (Nasdaq: CBST  ) and ViroPharma (Nasdaq: VPHM  ) with antibiotics in their pipeline should be very careful with their valuations. Even if the drugs get through the clinical trial process, investors should ensure that the company has enough cash to make it through an FDA delay because, from the looks of things, they're going to need it.

Johnson & Johnson is an Income Investor recommendation. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter service with a 30-day free trial.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is an Inside Value recommendation. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 31, 2009, at 5:43 PM, ds10 wrote:

    I'm a J&J shareholder and have been for many years.

    Yet I support the FDA's decision: better to be extra-cautious about what enters the marketplace than to

    run the risk of allowing insufficiently vetted pharmaceuticals through.

  • Report this Comment On January 01, 2010, at 2:01 AM, Fool wrote:

    When the government is in charge of what drugs you can have, and cost-cutting is their goal, you better not get too sick.

  • Report this Comment On January 03, 2010, at 8:26 AM, theinvestingboy wrote:

    At least J&J has a dividend yield of 3%, which isn't too shabby.

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