With the ongoing race to develop a coronavirus vaccine, a small handful of vaccine developers like Pfizer, (NYSE:PFE), BioNTech (NASDAQ:BNTX), and Moderna (NASDAQ:MRNA) have successfully sought fast-track status from the U.S. Food and Drug Administration (FDA), making headlines and prompting frenetic trading.
Few would dispute that fast-track designations are significant signals for investors. But, to appreciate the impact of fast-tracking on coronavirus vaccine stocks, it's prudent to take a closer look at the process and compare a couple of relevant examples.
What is fast-tracking?
The FDA has several special statuses it awards to companies that want to move their drugs or vaccines through the regulatory approval process more rapidly than usual. These include fast-tracking, "breakthrough therapy" designation, accelerated approval, and priority review. The fast-track designation is intended to speed the development of therapies or vaccines which address urgent and serious conditions that have no approved and effective treatment, such as COVID-19, though in some cases the FDA grants this status when a new therapy is significantly safer or more effective than the existing solution.
In a nutshell, a fast-track classification means that the FDA will work closely with the developer to ensure that there are as few issues as possible during the clinical trial process. This means that the FDA communicates with the company more frequently regarding clinical trial design, data collection, analysis of results, and the submission of regulatory paperwork. It also enables companies to submit hefty and highly complex regulatory documents like New Drug Applications (NDAs) in segments on a rolling basis, thereby getting the FDA's feedback much sooner. The result is that major issues have a chance to be identified and fixed before they dramatically delay the entire process.
Companies can apply for the fast-track designation at any point in the drug development process, but it's more beneficial for early-stage efforts than late-stage efforts. Critically, fast-tracking is not in any way a guarantee that the vaccine candidate will be effective or safe, though promising preliminary data often contributes to the FDA's decision to grant the status.
How does fast-tracking influence a stock?
Stock prices often grow immediately after the announcement of an expedited designation, because it implies that the company might be able to complete the clinical trial process and sell its vaccine or therapy sooner than the competition. In the case of Pfizer and BioNTech's July 13 fast-track announcement, this growth amounted to a rise of around 2% and 6%, respectively, before markets opened, whereas Moderna's announcement in May resulted in a bump of 1.9%. But it's difficult to disentangle whether these announcements were beneficial for growth after being priced in.
Fast-tracking is not without risks. Accelerated vaccine development isn't to blame for every mishap in the clinical trial process, but it can increase the chance that a company will stumble somewhere along the way. When Moderna's much-hyped vaccine didn't start its phase 3 clinical trial on time in early July because it needed more time to refine its trial protocols, its stock fell by more than 9%. Smaller companies may struggle to meet the compressed clinical development timetables that taking full advantage of a fast-track classification requires, and investors may be eager for preliminary clinical results earlier than they would be otherwise.
Other risks include manufacturing delays, shortages of key materials, and difficulty recruiting enough subjects for the trial's target cohort, all of which are intensified by the ongoing pandemic. In particular, investors in biotechs without any experience in late-stage clinical development and vaccine commercialization may doubt whether these companies can rise to the challenge without help from high-powered big pharma collaborators.
Thus, smart investors should take care not to interpret fast-tracking as a uniformly positive signal regarding a stock's future performance, especially in the context of the race for a coronavirus vaccine. On the other hand, for companies with the organizational resources to move quickly and a demonstrated history of effectively operating at a faster pace, it's reasonable to be a bit more optimistic if they get the green light.