A report released earlier this week stated that the number of new drugs approved by the FDA is down by nearly one-third for the year. Unfortunately, investors in drugmakers already know that all too well.
According to the report by Friedman, Billings, Ramsey, only 38 new drugs secured FDA approval through July of this year, down 31% from the year-ago 55 drugs. Of those, there were only seven new molecular entities -- drugs with a completely different mechanism of action than those currently on the market. New molecular entities often get additional scrutiny from the FDA, because there's less known about the new class of drugs.
Much of the increased scrutiny probably stems from the backlash over the deadly side effects seen in Merck's
In June, Sanofi-Aventis
Earlier this month, Pozen
Just last week, the FDA rejected Wyeth
Not just the FDA's fault
The FDA's increased scrutiny certainly helps to explain the decreased approvals, but it's not completely the agency's fault. In quite a few instances this year, the drug companies have tried to sneak one past the FDA.
In June, Encysive Pharmaceuticals
Last month, GPC Biotech
The other problem contributing to the lack of new drug approvals is a dearth of drugs in the pipeline, especially at large pharmaceutical companies. Some companies have replenished their pipelines by purchasing marketing rights to compounds in the clinic right now, but I would guess that a lower level of New Drug Applications last year at least partly led to this year's the lack of approvals.
What goes around, comes around
Over the last few years, Congress and patient advocacy groups have been hammering the FDA to increase its scrutiny of drugs, in hopes of avoiding another Vioxx situation. But in a few years, after a dearth of approvals, those same groups will be clamoring to get the FDA to lighten up its requirements and spur innovation. In my opinion, it's a seemingly perpetual cycle.
The downturn in approvals makes this the perfect time to start investing in pharmaceutical or biotech companies. There's plenty of value out there; investors just need to find the companies with the best chances of turning approvable letters into approved, marketable drugs.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Glaxo was picked by the Income Investor team. The Fool's disclosure policy has no side effects, unless you count an increased sense of well-being.