Not all Food and Drug Administration approvals are created equal. Sometimes they create massive increases in stock prices, like the spikes Vanda Pharmaceuticals (NASDAQ:VNDA) experienced earlier this month, and other times they're nothing more than a sigh of relief.
Bristol-Myers Squibb's (NYSE:BMY) approval of cancer drug Sprycel yesterday was definitely in the latter category. The company had nothing to gain and $100 million or more per year in revenue to lose from a decision. Sprycel had already received an accelerated approval in 2006 as a second-line treatment for chronic myeloid leukemia (CML) after failure on or resistance to Novartis' (NYSE:NVS) Gleevec. The full approval it received yesterday probably won't increase sales much, but a rejection would surely have resulted in lost patients.
The FDA grants accelerated approvals for cancer drugs like Sprycel and Roche's Avastin, HIV drugs like Merck's (NYSE:MRK) Isentress and Johnson & Johnson's (NYSE:JNJ) Intelence, and drugs for other life-threatening illnesses. The requirements for approval are less rigorous, but a full approval, like Bristol-Myers got yesterday, is required to continue to market the drug. Sometimes, like in the case of AstraZeneca's (NYSE:AZN) Iressa, things don't always work out that way.
Now that Bristol-Myers has the formalities out of the way, it can get back to working on getting Sprycel out of its niche market and approved to treat other types of cancer. The drug is being tested in a wide variety of tumors from lung to brain and everything in between.
The lesson here, Fools, is to avoid hitting the buy button just because you see the announcement of an approval. Sprycel may end up being a blockbuster for Bristol-Myers, but yesterday's approval isn't going to move it very far toward that goal.
Johnson & Johnson is an Income Investor pick. Novartis is a Global Gains selection. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.
