Earlier this week, shares of Nuvelo (NASDAQ:NUVO) leapt more than 20% higher on the relatively innocuous news that it received fast-track designation from the FDA for one of its cancer compounds in development.
Nuvelo's newly fast-tracked drug candidate is in phase 2 testing for colorectal cancer. This designation is not in any way a signal that the drug is more likely to be approved and can be requested by a drugmaker at any time for its development-stage products. As long as the compound potentially "fills an unmet medical need," it will receive this status.
It's always a surprise to see stock prices move so much on fast-track designation. As a rule of thumb, investors can assume that any drug for diseases with no good treatments -- like many of the various cancers -- will be able to get that designation. When a drug is fast-tracked, the FDA provides a slightly easier development process versus non-fast-tracked drugs. The time it takes to bring a drug to market is, on average, more than two years shorter for fast-tracked medicines versus non-fast tracked drugs that actually gain marketing approval.
Gaining this designation is a minor milestone in the drug development process. Why drug companies gain tens of millions of dollars on their market caps for such an expected developmental milestone is an interesting phenomenon, since this status doesn't increase the odds of Nuvelo's cancer compound being approved by the FDA.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
