"You told the truth up to a point, but a lie of omission is still a lie."
That's a quote from Captain Jean-Luc Picard of Star Trek fame.
And my mom. And probably yours, too. You can't go around telling part of the story, claiming it's the truth. We all learned that as kids.
But that's exactly what biotech companies have been doing for years.
It's easy to lie when one side can't talk
When the Food and Drug Administration rejects a marketing application for a drug, the agency issues a "complete response letter," or CRL, which lays out what the company needs to do to get the marketing application approved. These letters aren't made public because the agency doesn't discuss unapproved drugs, so investors have no way of knowing what's in the CRL, or even that a CRL has been issued, unless the company discloses the information. This situation allows drugmakers to bend the truth about the reasons behind the rejection.
For instance, the FDA in 2010 for a second time rejected Amylin Pharmaceuticals' diabetes drug Bydureon, calling for the company to conduct a clinical trial to test potential heart problems the drug might cause. "Why the FDA didn't ask for this study when it rejected Bydureon the first time is anyone's guess," I naively chastised the agency at the time.
Nearly two years later after FDA memos were published, we learned the company knew exactly why the clinical trial was added to its to-do list despite being absent from the first CRL: Between the first and second rejection the agency learned of data the company had that suggested a potential cardiovascular safety signal. Amylin just didn't bother to share this information with the public, and the FDA couldn't say anything until Bydureon was eventually approved.
Source: FDA via flickr.
But now we've got definitive proof
The FDA might not be allowed to talk about individual drugs, but apparently there's no law against talking about CRLs in aggregate. In an article published in this month's BMJ, the FDA compared 61 CRLs issued from August 2008 to June 2013 to the corresponding press releases from the companies.
Surprisingly 11 of the 61 CRLs didn't even have associated press releases. Some of those are likely from private companies that don't have the same disclosure requirements as their public peers and can be given a pass. But that can't account for all of them -- there were eight public companies with CRLs with no matched statements -- so clearly some public companies didn't think it was material enough to let investors know what had happened through a press release.
Complete response letters often address more than one issue -- efficacy, safety, or problems with manufacturing, for instance -- that needs to be resolved, so the FDA broke down the issues into the individual components and then compared them to the disclosures in the press releases. Of the 687 statements identified as issues in the 61 CRLs, only 14% were disclosed in the press releases. Even if you assume the FDA has a bone to pick in some cases, that's a pitiful level of proper disclosure.
Looking at individual press releases, 13 -- 21% of the 61 -- didn't cite any disclosures that matched the corresponding CRL. Two of those were short press releases that didn't make any claims pertaining to specific issues in the CRLs, but the other 11 made at least one claim that didn't match up with statements in the associated CRL. These aren't lies of omission, but flat-out lies, according to the FDA.
Over half of the press releases only had between 1% and 50% of claims that matched the corresponding CRL, according to the FDA's analysis. Only two of the 61 offered a 100% match between issues brought up in the CRL and those disclosed in the press release.
Big problem, simple solution
Investing in biotech, perhaps more than any other sector, is about balancing risk with the reward. It's OK to buy stock in a biotech that only has a 50% chance at success if you believe it will triple if the binary event comes back positive. Sure, you'll probably lose money on some investments, but if you buy enough biotechs with good risk-reward propositions, you'll end up ahead on aggregate.
But the only way biotech investors can only make sound investments is if they have a complete picture of the risk. If the company says it has to do A, B, and C to get its drug approved, but the agency actually wants D, E, F, G, H, I, J, and K, there's no way to accurately assess the risk.
The solution, of course, is for companies to publish the complete response letter, but when I've asked biotech CEOs why they don't publish the full CRL, most claim it would give their competitors an unfair advantage.
Since it's unlikely companies will voluntarily disclose CRLs, the only way we'll get this information is if the FDA is given the authority to release the letters. It's not all that far-fetched. The European Medicines Agency, the European version of the FDA, publishes summaries of the reasons drugs were approved or rejected. The only downside is that some companies game the system by withdrawing their application when its clear from interactions with regulators that a rejection is coming.
If this FDA report outrages you, I encourage you to urge your lawmakers to enact a law giving the FDA the power to release CRLs.
