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Biotech Investors, Take Note: Margin of Victory Matters

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Another day, another positive advisory panel recommendation. Too bad all positive recommendations aren't created equal.

Wednesday, an advisory panel recommended approving VIVUS' (Nasdaq: VVUS  ) obesity drug Qnexa, followed yesterday by another panel of outside experts recommending Chelsea Therapeutics' (Nasdaq: CHTP  ) Northera, a treatment for neurogenic orthostatic hypotension, or NOH. Shares were up over 60% on the news.

The difference: VIVUS' win was 20-2; Chelsea's was just 7-4. Remember, the panel's vote is only a recommendation, so the margin of victory matters, as do the comments that the experts make during their vote.

Unfortunately for Chelsea, one panelist abstained and another just didn't vote. I'd feel a lot better about the FDA following the panel's advice if both of those had been positive votes.

The required margin of victory is dependent on the FDA's opinion going into the panel. If the FDA had been neutral to positive going into the advisory panel, I'd say a 7-4 win might be enough to push the agency towards approval. But the FDA's briefing documents were very tough on Northera's efficacy and safety data. The advisory panel members were much more level-headed, considering the unmet need; Shire Pharmaceuticals' (Nasdaq: SHPGY  ) ProAmatine is approved for NOH, but hasn't proven effective. But it's unclear whether the small margin of victory will be enough to overcome the FDA's concerns.

Biotech history is riddled with positive advisory panel recommendations that the FDA ignored. InterMune's (Nasdaq: ITMN  ) 9-3 vote wasn't enough to get Esbriet approved. Ditto for the 13-4 outcome in favor of Dendreon's (Nasdaq: DNDN  ) Provenge. Like Northera, both treat unmet needs, which I think causes doctors on the panel to loosen their level of scientific rigor, something the FDA doesn't seem as capable of doing. Even VIVUS, with its solid win, isn't out of the woods. The FDA has the final say. Always.

When Chelsea announced the FDA's concerns last week, I said there was more upside potential than downside risk and made a CAPScall giving it a thumbs-up. I ended that pick today after its monster jump. Northera could be approved, but the risk/reward doesn't look nearly as promising as it did yesterday.

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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. The Motley Fool owns shares of Dendreon. 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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