The U.S. Food and Drug Administration (FDA) recently issued a complete response letter for Incyte's (INCY 0.77%) PD-1 drug retifanlimab. The PD-1 and PD-L1 immunotherapy market was already getting crowded with eight drugs already approved in the U.S. In this Motley Fool Live video recorded on July 28, Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not the PD-(L)1 party is over after Incyte's FDA rejection.

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Keith Speights: Now let's switch to oncology for a minute. Late last week the FDA issued a complete response letter for Incyte's PD-1 drug retifanlimab. I think it's how you pronounce it. And Incyte was hoping to get a thumbs-up from the FDA and for the drug in treating squamous cell carcinoma of the anal canal.

Brian first of all, why did the FDA not approve the drug? Then secondly, we already have eight PD-1 or PD-L1 drugs approved in the U.S. Do you think the party for these PD-1, PDL-1 drugs might be over with the FDA stance on Incyte's drug?

Brian Orelli: Yeah. The complete response letter and that's the FDA's euphemism for rejection, it wasn't really all that unexpected. The advisory committee of outside experts voted 13-4 that more data was needed and then the FDA briefing documents for that advisory committee were fairly negative. I think most people were assuming that the FDA was going to issue a complete response letter.

On the surface this is an issue about the number of PD-L1 drugs on the market. There is a limited number of markets left for companies to find a niche in. Incyte was trying to find this niche in metastatic squamous cell carcinoma. It did try to do without running a placebo-controlled clinical trial just comparing it to historical data. That's where the FDA wants more data before it will approve it.

But I think more generally, I think this is a sign that the FDA might be getting a little more strict on accelerated approvals when there's no placebo control. Maybe it's more broad and it's probably going to affect other companies beyond PD-L1 drugs.

The problem for companies is that it's obviously a lot easier to enroll a single-arm study that only has the drug so patients are more likely to go into a study that doesn't have a placebo control because they know they're going to get the drug and they're usually a lot of clinical trials for oncology drugs or last-line so the patients have run out of approved drugs and so that's why they're going into a clinical trial.

From the company's standpoint, I think it will be harder to run clinical trials that are placebo-controlled, just because it's getting harder to get patients to enroll in those patients. The FDA seems to be signaling that companies will need substantial benefit over historical controls. If there aren't going to run a placebo-controlled and it seemed like Incyte just didn't have that, hadn't met that threshold of compared to the historical controls.

Speights: There really is a first-mover advantage in the biotech world, Brian, and we already have Merck's Keytruda, Bristol Myers Squibb's Opdivo, those two drugs, in particular, have really carved out their markets in some of the bigger indications.

Orelli: Yeah. I think all the big indications are probably already snapped up by the PD-L1 drugs. We're getting into the niche indications, which there's still some money to be made there. But it's becoming harder and harder for the companies to find that space. But I think that's a completely different issue than whether the FDA will approve those niches. I think there's two separate issues and so I think units investors have to be observant of that.