Good News, Just Not 13%-Pop Good News

Without a doubt, Cell Therapeutics (Nasdaq: CTIC  ) getting orphan-drug designation for its brain cancer drug Opaxio is good news.

In the same way that the sun coming up today is good news. We'd be in trouble if it didn't, but there doesn't seem to be much reason to be excited about it.

Yet Cell Therapeutics spiked 13% on Tuesday after announcing that the Food and Drug Administration had signed off on the designation.

There are benefits to getting designated as an orphan drug, including fee waivers, tax incentives, and an extended exclusivity period. But orphan-drug designation doesn't help a drug pass its phase 3 trial. It doesn't make the FDA less stringent over approving the drug. The benefits just don't justify a 13% gain.

The cost savings, for instance, are nice, but they're pretty minor in the grand scheme of things if the drug is approved. Why get excited about saving a few million dollars on a drug that might rake in a billion dollars each year?

The seven-year exclusivity runs concurrent with patents, so it doesn't really help a drug with decent intellectual property protection. The orphan status does protect the company from competitors developing other drugs for the same disease, because they have to show superiority to get on the market -- which tripped up Protalix BioTherapeutics (NYSE: PLX  ) and Pfizer's (NYSE: PFE  ) Gaucher disease treatment, taliglucerase alfa, in Europe. Of course, it's the superior drugs, which orphan drugs aren't protected against, that are the biggest threat.

But the main reason why investors shouldn't be all that excited is that orphan-drug designation isn't that hard to get. As long as the drug treats a disease that affects less than 200,000 people in the U.S., the FDA generally approves the request. The only recent case I can think of where the FDA denied an orphan drug was for Depomed's (Nasdaq: DEPO  ) Gralise, but that was a special case where the FDA actually did give orphan-drug designation, but didn't allow the seven-year exclusivity because the drug is related to an already-approved compound.

Chock up yesterday's big jump to the fact that any sort of news seems to send Cell Therapeutics into a frenzy. By contrast, Cleveland BioLabs traded down a little yesterday after pointing out that its hepatocellular carcinoma drug CBL0102 gained orphan-drug status.

Cell Therapeutics stock should be driven by revenue and by real binary events, clinical trial results, and drug approvals. The biggest binary event -- the presidential election -- is around the corner. Check out the Fool's new free report, "These Stocks Could Skyrocket After the 2012 Presidential Election," where you'll get ideas for companies that can benefit from each candidate's platform. Get your free copy by clicking here.

Fool contributor Brian Orelli has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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