Using a companion diagnostic to identify patients that a drug will help makes it much easier to prove that a drug is effective. But there's a regulatory downside because the companion diagnostic has to be approved for the company to sell the drug. If there's no companion diagnostic, there's no way for doctors to figure out which patients are appropriate for the drug.
So when ARIAD Pharmaceuticals
While the press release headline sounded ominous, it turns out there was a pretty good reason for the companies to withdraw the application: The FDA said it wasn't required.
The agency requires the approval of companion diagnostics when a test is necessary to determine if a drug is appropriate for a patient. But ARIAD is applying to use ponatinib for patients with resistant or intolerant chronic myeloid leukemia and Philadelphia-chromosome positive acute lymphoblastic leukemia. Since the test isn't specifically required -- having the T315I mutation is just one way that patients can qualify under the "resistant or intolerant" criteria -- the drug can be approved on its own without requiring an OK of the companion diagnostic.
On the biotech riskiness scale, worrying about whether a companion diagnostic will get approved seems fairly low. Abbott Labs'
In fact, I don't know of any drug approval that was delayed because of problems with the companion diagnostic. But this is biotech, after all -- what can go wrong will eventually go wrong. At some point, there will be an issue, and investors should be happy to know that ponatinib won't fall into Murphy's Law.
Biotech binary events like FDA approvals provide an opportunity to see major gains. The U.S.'s biggest binary event, the presidential election, is around the corner. Check out the Fool's new free report, "These Stocks Could Skyrocket After the 2012 Presidential Election," where you'll get ideas for companies that can benefit from each candidate's platform. Get your free copy by clicking here.
Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Laboratory of America Holdings. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.