What to Make of This FDA Rejection

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As I've said many times before, drug manufacturing is a black box for investors. A drug can have perfect efficacy and safety, but if the Food and Drug Administration has an issue with the manufacturing of the drug, it's not going to be approved. Unfortunately, investors often get no information from the company about the manufacturing of the drug.

For Navidea Biopharmaceuticals' (NYSE: NAVB  ) Lymphoseek, there was an additional level of obstruction because Navidea is using a third-party contractor to manufacture the diagnostic used to map lymph nodes that may contain cancer cells. According to the company, the FDA's rejection of the drug on Monday only focused on manufacturing. The FDA inspected the plant where Lymphoseek will be made, and the third-party manufacturer responded to issues raised by the agency, but apparently the issues haven't been cleared up yet.

Navidea wasn't willing to give a timeline for resubmitting, but did offer one nugget of information that makes it sound like the issue could be cleared up quickly. The FDA's concerns surround Good Manufacturing Practices, which are typically easier to fix than processes for making the drug. For instance, it's a lot harder to change the way the drug is made to ensure it fits within specifications than it is to change the cleaning schedule of an instrument.

Best case scenario, the issue is cleared up in two weeks. That's how fast Forest Labs (NYSE: FRX  ) and Mylan (Nasdaq: MYL  ) cleared up their manufacturing issue, a record as far as I know. That was nearly five years ago, though; the FDA has changed a bit since then.

Realistically, unless we're talking about something really minor, investors should figure it could take a couple of months to get a plan in place to fix the issues and resubmit to the FDA. MAP Pharmaceuticals (Nasdaq: MAPP  ) , for instance, cited manufacturing problems as the major reason for the FDA's rejection of its migraine drug Levadex in March. MAP's issues might be more extensive than Navidea's, but it's worth noting that MAP plans to submit its response in the next couple of months -- six months or more after it received the FDA decision.

As a worst case scenario, there's Discovery Laboratories (Nasdaq: DSCO  ) that took seven years to clear up manufacturing issues. I doubt the issues are that extensive, but then neither did Discovery Labs' investors back in 2005.

Once Navidea resubmits its package to the FDA, the agency will decide if it's a class 1 or class 2 response, giving the FDA a goal of making a decision in two months or six months. If it really is a minor issue, the FDA will likely give Navidea a class 1 response, which I would take as a good sign that there's nothing else wrong with the drug. Transcept Pharmaceuticals, for example, received a class 1 response for the resubmission of its sleeping pill Intermezzo, which was approved a month later.

This recent drop could be a buying opportunity -- just keep in mind that Navidea is low on cash with just $17 million in the bank at the end of last quarter. If the issue drags on, it'll need to go into debt or dilute investors through a secondary offering, which isn't ideal at this knocked down price.

Unlike Navidea, these companies have so much extra cash that they're sharing it with their shareholders. Check out the Fool's new free report "Secure Your Future With 9 Rock-Solid Dividend Stocks" to find out which ones Fool analysts like best. Just click here to get your free copy.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy.

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