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Remind me never to get in a poker game with Food and Drug Administration reviewers. Reading the agency's signals is a tough job.

Last week, I suggested that investors sit out the binary approval of Corcept Therapeutics' (Nasdaq: CORT  ) Cushing's syndrome treatment, Korlym. All signs -- cryptic though they were -- pointed to a rejection.

I was wrong. Clearly. Investors who had the guts to buy are up 50% today.

But was it really that bad of a decision? I don't think so. In biotech, you have to pick your battles. When it's hard to estimate the risk, it's best to watch from the sidelines and try to learn something along the way.

Where did I go wrong on my educated guess? I assumed the lack of a priority review for Korlym was bad news. The FDA is supposed to give them to drugs that "offer major advances in treatment, or provide a treatment where no adequate therapy exists," which would seem to be an adequate description of Korlym: There are no treatments approved for Cushing's syndrome in the U.S., although Novartis' (NYSE: NVS  ) Signifor is approved in Europe and is hot on its tail in the U.S. Ultimately though, it's the FDA's decision to offer a priority review, and with limited resources, it has to draw the line somewhere.

The FDA didn't hold an advisory panel to review Korlym, but all that tells you is that the FDA is confident with its decision; it doesn't give much of a hint about whether the decision will be positive or negative. Either way, if the agency had held an advisory panel to review the drug, investors would have gotten a sense of what the FDA was thinking. VIVUS (Nasdaq: VVUS  ) and Arena Pharmaceuticals (Nasdaq: ARNA  ) are currently in this same category -- it's really hard to figure out the FDA's stance on the risk-benefit analysis for their obesity drugs -- but investors will get hints at the FDA's advisory panels before the approval decisions. Playing poker is a little easier when you can see some of the dealer's cards.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Novartis. 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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  • Report this Comment On February 22, 2012, at 5:59 PM, sromd wrote:

    One other thing that might have led you to an erroneous conclusion about Korlym's chance of approval was your misunderstanding that the symptoms of Cushing's "aren't that bad." Cushing's is absolutely miserable at best, and fatal at worst. That misassessment skewed your risk-benefit assessment of the drug.

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