Sitting Tight in September

For drug developers, few events can affect their share price more than an FDA decision about one of their drug candidates. The Food and Drug Administration calls the date it sets as its goal to review a new drug marketing application a Prescription Drug User Fee Action date, or PDUFA date. This month, several drugmakers will hear about compounds awaiting approval, so we can expect some volatility in their share prices.

A new label
The first important PDUFA date is Sept. 13, when Cephalon (NASDAQ:CEPH) could hear back from the FDA on whether its opioid fentanyl drug Fentora is approved as a treatment for chronic pain conditions outside of cancer.

Fentora has been approved as a treatment for cancer-related pain since 2006. Cephalon introduced Fentora as a response to generic competition against its former top-selling pain drug Actiq. Sales of Fentora were $75 million in the first half of the year, up 10.7%, with just its cancer-related pain label.

Investors shouldn't expect the FDA to approve Fentora as a broader treatment for chronic pain. In May, an FDA advisory panel voted 17-3 against recommending that it be approved for this patient group because of the risk that it could be misused. The FDA doesn't always follow the advice of its advisory panels, but the odds for Fentora getting this broader label don't look good.

Progress for an orphan drug?
On Sept. 16, Gilead Sciences (NASDAQ:GILD) is set to hear back from the FDA on whether aztreonam lysine (AL), its antibiotic for cystic fibrosis-related lung infection, is good enough for approval.

Gilead estimates that there are 30,000 cystic fibrosis patients in the U.S. and another 30,000 in Europe. The vast majority of these patients get the infection that AL will treat. AL is an inhaled antibiotic, and an intravenous version of the drug is already on the market in the U.S. -- sold by Elan (NYSE:ELN) with the brand name Azactam.

Sales of Azactam were $52 million in the first half of this year, up 23%, and another comparable inhaled cystic fibrosis antibiotic named Tobi (tobramycin) from Novartis (NYSE:NVS) generated sales of $91 million in the U.S. and $145 million worldwide in the first half.

AL succeeded on its primary goals in both of its two phase 3 studies, and there were no unusual safety issues that should stop it from being approved. While nothing is certain when it comes to the FDA, considering Gilead's positive phase 3 studies, the more than 20 years that Azactam has been on the market, and the terminal nature of cystic fibrosis, I expect the FDA to approve AL.

With that competition likely hindering Gilead's pricing leverage, it seems like peak U.S. sales of AL from $100 million to $200 million would be reasonable. The good news is that Gilead hasn't accounted for any AL sales in its financial guidance for 2008, so any sales of the orphan drug would be pure upside to its sales estimates if the FDA approves it.

Probably a shoe-in
Then there's the PDUFA date for Promacta, GlaxoSmithKline's (NYSE:GSK) and Ligand Pharmaceuticals' blood disorder drug. The two partners are set to hear on Sept. 19 whether the FDA has approved Promacta to treat a rare blood disorder called idiopathic thrombocytopenic purpura (ITP), which involves platelet destruction, low platelet levels in the blood, or both.

A rival ITP therapy from Amgen was granted marketing approval last month, and in a positive hearing, an FDA advisory panel voted 16-0 that Promacta "demonstrated a favorable risk-benefit profile" for short-term ITP treatment.

Too tough to call
The last one to highlight is later in the month, when, it's hoped, investors will hear about an FDA decision on prasugrel, Eli Lilly's (NYSE:LLY) potential blockbuster anticoagulant heart drug. Prasugrel had been set for an FDA review in June, but the agency pushed back its PDUFA date three months to Sept. 26 after Eli Lilly submitted new data on the drug.

Lilly is setting up prasugrel to compete most directly with Bristol-Myers Squibb's and Sanofi-Aventis' (NYSE:SNY) Plavix, which produced about $8 billion in worldwide sales last year between the two marketing partners.

In head-to-head testing versus Plavix, patients treated with prasugrel experienced a statistically significant reduction in serious cardiovascular disorders. However, they also experienced a higher amount of serious bleeding disorders (this excellent article describes the study results more fully). Also, Eli Lilly temporarily halted two phase 2 studies of prasugrel last year for unknown reasons to amend the dose of prasugrel given to patients.

Surprisingly, the FDA has not ordered an advisory committee hearing to discuss prasugrel, so the data available to investors on its effects is limited to what Eli Lilly and the prasugrel study investigators have released. The FDA hasn't tipped its hand one way or another on how it will decide on prasugrel, and the mixed study results make any forecast of what the FDA will do unclear, in my book.

Final thoughts
Here's a summary:

Shares of drugmakers awaiting a decision from the FDA are likely to experience a lot of volatility around their compound's PDUFA date. This volatility can create opportunity on both the long and short side of the investing equation, so it's best to be prepared for a wild ride in some of these companies' shares.