Using a companion diagnostic to identify patients that a drug will help makes it much easier to prove that a drug is effective. But there's a regulatory downside because the companion diagnostic has to be approved for the company to sell the drug. If there's no companion diagnostic, there's no way for doctors to figure out which patients are appropriate for the drug.
So when ARIAD Pharmaceuticals (Nasdaq: ARIA ) and MolecularMD announced that they were withdrawing the Food and Drug Administration application for premarket approval for their BCR-ABL T315I mutation test, it seemed like very bad news for ARIAD. The company's leukemia drug, ponatinib, which the test was developed for, is currently under review at the FDA.
While the press release headline sounded ominous, it turns out there was a pretty good reason for the companies to withdraw the application: The FDA said it wasn't required.
The agency requires the approval of companion diagnostics when a test is necessary to determine if a drug is appropriate for a patient. But ARIAD is applying to use ponatinib for patients with resistant or intolerant chronic myeloid leukemia and Philadelphia-chromosome positive acute lymphoblastic leukemia. Since the test isn't specifically required -- having the T315I mutation is just one way that patients can qualify under the "resistant or intolerant" criteria -- the drug can be approved on its own without requiring an OK of the companion diagnostic.
On the biotech riskiness scale, worrying about whether a companion diagnostic will get approved seems fairly low. Abbott Labs' (NYSE: ABT ) companion ALK test was approved on the same day as Pfizer's (NYSE: PFE ) lung cancer drug Xalkori. And Roche's test for its melanoma treatment Zelboraf, which is now sold by LabCorp (NYSE: LH ) , was approved on the same day as the drug.
In fact, I don't know of any drug approval that was delayed because of problems with the companion diagnostic. But this is biotech, after all -- what can go wrong will eventually go wrong. At some point, there will be an issue, and investors should be happy to know that ponatinib won't fall into Murphy's Law.
Biotech binary events like FDA approvals provide an opportunity to see major gains. The U.S.'s 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.