Is the FDA Still Approving New Drugs?

Lately the FDA seems more reluctant to approve new drugs than it once was. Some observers believe that Merck's (NYSE: MRK  ) 2004 Vioxx recall touched off a new safety-conscious attitude at the FDA, skewing the way the agency viewed a drug's risk versus its benefit. Others think that the slowdown in approvals simply results from an overworked, understaffed agency. Let's find out for ourselves, Fools, with a quick look at the actual numbers.

Parsing the data
We'll look at the data from the two branches of the FDA responsible for approving all therapeutic drugs, and check for evidence of a slowdown in the recent number of new drugs coming onto the market. Using readily available FDA resources, I searched through the past eight years to calculate the number of new molecular entities (NME) and new biologics like Biogen Idec's (Nasdaq: BIIB  ) Tysabri that have gained FDA approval.

Looking at the number of "NME approvals" rather than "all drug approvals" should be a better proxy for the number of new drugs approved, because the "all drug" data available from the FDA includes things like new formulations of existing drugs, combination treatments of already-approved drugs, diagnostic compounds, and FDA approvals of non-therapeutic compounds like sunscreen products from L'Oreal or a paste developed by the U.S. Army to prevent chemical-weapons contact with skin.

These other products and follow-on drugs are interesting, but they are not a good measure of the FDA's approval of new drugs. Therefore, I count Merck's new diabetes treatment Januvia as a new drug approval, since it is a NME. But I don't count Merck's combination product Janumet, since it's just Januvia combined with the already-approved and long-genericized metformin.

The list of new drug approvals includes new vaccines and other new molecular entities approved from the FDA's two main branches. The Center for Biologics Evaluation and Research (CBER) is charged with approving or denying vaccines and some other biologic drugs. The FDA's Center for Drug Evaluation and Research (CDER) processes most of the new drug approvals, focusing mostly on small-molecule compounds. 

CBER

CDER

Total New
Drug Approvals

2007*

6

16

22

2006

8

24

32

2005

8

18

26

2004

2

33

35

2003

8

31

39

2002

3

21

24

2001

3

29

32

2000

3

29

32

*Through October.

Looking at the above data, if the last two months of 2007 keep pace with the first 10 months of 2007, then this year's pace of 26 new drug approvals (an average 2.2 a month) will tie for the second slowest year for drug approvals since 2002.

There are still several compounds -- like Neurocrine Biosciences' (Nasdaq: NBIX  ) insomnia drug indiplon, and BioMarin's (Nasdaq: BMRN  ) enzyme-replacement therapy Kuvan -- with 2007 PDUFA action dates. But if the average 2007 monthly approval rate holds, this year's 26 new drug approvals would be 17% lower than the average annualized rate of 31.4 NMEs and biologics approved since 2000.

Drawing conclusions
Other factors, like pharmaceutical drug pipeline productivity, and how long the FDA takes to review a New Drug Application, are also key variables in determining whether the FDA is being stingier in its approval of new drugs. These unknown factors make it difficult to draw hard conclusions from the above data.

With numerous compounds such as Novartis' (NYSE: NVS  ) diabetes treatment Galvus, Pfizer's (NYSE: PFE  ) Selzentry, and Encysive Pharmaceuticals' Thelin having their marketing reviews delayed or denied, it's hard to argue that the FDA has been anything but stricter in its review of certain classes of therapies.

During his company's third-quarter conference call, GlaxoSmithKline's (NYSE: GSK  ) CEO remarked that four out of five new drug applications were getting approvable letters from the FDA rather than outright approval.

Historically, most drugs that get hit with an approvable letter ultimately are approved. But those letters cost drugmakers valuable patent time as they work to remedy the FDA's concerns. Fewer years of marketing exclusivity for a drug before generic competition hits the market can cost drugmakers billions of dollars in lost revenue, leaving less money for research and development budgets to produce new drugs in the future.

I'll take a look at other ways of viewing this FDA data on Friday. The main conclusion that investors should draw from this exercise is that even in today's regulatory environment, the FDA's still approving drugs.

For drugs targeting specific ailments, or indications already well-served by existing medications, it may be best for investors to expect delays in FDA approval, especially in light of the Glaxo comment and abundant anecdotal evidence. For a large drugmaker like Pfizer, a delay in marketing might only mean lost sales, but for a development-stage drugmaker burning through its cash, an extended delay in approval of its lead drug could have horrible consequences. 


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