The Death of the Approvable Letter

Yesterday, the FDA announced that on Aug. 11 it will finally put the "approvable letter" out of its misery. Loved by short sellers, hated by most investors, the approvable letter and its evil twin, the "not approved letter," will disappear from your drug industry ticker feeds for good.

Don't start jumping up and down quite yet, drug industry investors; the agency hasn't decided to start automatically approving every application that crosses its desks. Instead, the FDA's Center for Drug Evaluation and Research (CDER) -- the one that deals with small molecule drugs -- is adopting the same system currently used by the Center for Biologics Evaluation and Research (CBER), which tackles biologic drugs and vaccines.

Instead of issuing "approvable" and "not approved" letters, CDER will now issue "complete response" letters to indicate that the agency has completed its review and found a drug unapprovable. Leave it up to the government to replace a slightly inaccurate euphemism with a completely vague and nondescript name. Maybe they should have taken it to the extreme, and called it a "Dear Drugmaker" letter. Is it really that hard to call it what it is: a "rejection letter"?

While the old system was helpful in theory -- "approvable" was better than "not approved" -- in reality, "approvable" had such a wide definition that it really didn't tell investors a whole lot. Sometimes, it could mean a delay of just a couple of weeks, as was the case for Forest Laboratories' (NYSE: FRX  ) and Mylan's (NYSE: MYL  ) beta-blocker. At the other extreme, there's Encysive Pharmaceuticals' (now Pfizer's (NYSE: PFE  ) ) Thelin. The company never could seem to figure out what the "-able" in "approvable" was all about, as it received letters again and again and again.

Ultimately, investors will remain dependent on the companies to disclose the contents of the letters -- no matter what they're called. Expect more of the same: Large companies like Merck (NYSE: MRK  ) will keep mum, disclosing little more than the fact that they received the letter; while smaller companies like Discovery Laboratories (Nasdaq: DSCO  ) will lay things out in painstaking detail just to keep investors happy.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a pick of both the Income Investor and Inside Value newsletters. The Fool has revelation guidelines -- also known as our disclosure policy.


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