Biotech/Pharmaceuticals

Return to Article

FDA Slowing Approval Times for New Drugs

Adam Feuerstein

U.S. drug regulators are taking longer to approve new drugs, which is forcing drugmakers to reluctantly reset Wall Street expectations. And that could mean trouble for biotech stocks.

Data released recently by the Food and Drug Administration show a four-month increase in approval times for at least one class of drug in 2000 from 1999. Official data are not available for this year, but observers say the FDA's go-slower approach continues.

It takes years to move a new drug from the laboratory to pharmacy shelves, so four months may not sound like much time to wait. But the delay is enough to force drugmakers to lower near-term revenue and profit estimates, which doesn't play well with anxious investors.

And biotech firms, more so than larger pharmaceutical giants, are especially vulnerable to delays. With fewer products on the market, new drugs have a disproportionate influence on their bottom lines. In the past few weeks, Idec PharmaceuticalsIDPH, GenentechDNA and AmgenAMGN have all warned investors that they would have to wait just a bit longer before highly anticipated drugs get the final FDA seal of approval.

"There is definitely a sense out there that approvals are dragging on longer at the FDA," says SG Cowen biotech analyst Eric Schmidt. "We've already seen several companies acknowledge the delays, and we're now in the process of resetting expectations for companies with drugs further back in the [development] pipeline."

New molecular entities, drugs with ingredients never before marketed in the U.S. -- known as NMEs -- that were approved by the FDA in 2000 spent an average of 15.6 months being reviewed by regulators. That compares with an average NME approval time of 11.6 months in 1999.

Average approval times for new drug applications, another way the FDA classifies drugs, stayed relatively flat -- 11.6 months in 2000 vs. 11.9 months in 1999.

Performance goals set by the FDA require the agency to review drug applications within one year of their submission, or six months for drugs with priority status. But actual approval takes longer because the FDA frequently has additional questions or asks for more data from drugmakers.

"The numbers back up the claims by the drug industry that things are slowing down at the FDA," says Joseph DiMasi, director of economic analysis at the Tufts Center for the Study of Drug Development. "The reasons for the slowdown are numerous, but the FDA is very concerned with drug safety, especially after being stung by critics who say the agency has been lax in terms of drug safety evaluations."

An investigative report published in the Los Angeles Times last year found that seven drugs approved by the FDA since 1993 had been withdrawn from the market after reports of deaths and severe side effects. The story lent credence to FDA critics who said the agency had gone too far in trying to speed up the drug-approval process.

The FDA is also handling more drug-approval cases than ever before, which is taxing its staff and contributing to the slowdown.

An FDA spokeswoman says the regulatory agency, despite its heavier-than-ever workload, has not made any official change to the way it handles drug approvals. In fact, when examined over a longer period of time -- 10 years or more -- drug-approval times have been cut in half.

But investors are worried about what the FDA is doing today because their investments in biotech companies rise and fall on new drug approvals or delays. And a recent run of bad news from biotech firms hints of slower times ahead.

On April 12, Genentech said its asthma drug, Xolair, likely will not get a green light from the FDA until early 2002. Unfortunately, most analysts were expecting the drug to be approved by the end of this year.

On April 19, Idec Pharmaceuticals warned of an approval delay for its anti-cancer drug Zevalin. While Wall Street was expecting the new drug to be approved in mid-to-late summer, it has now been pushed back to the end of the year at the earliest. The delay caused several analysts to head back to their chalkboards and lower IDEC revenue and earnings estimates for 2001.

One week later, Amgen issued a similar warning for its next big drug, Aranesp, used to treat anemia. Analysts used the warning as a reason to lower revenue and earnings estimates for 2001.

Based on these high-profile disappointments and the FDA's own data, SG Cowen's Schmidt says Wall Street analysts are starting to take a more-conservative view of drug-approval schedules.

"The old assumption of 12 months to 15 months for drug approval probably needs to be stretched out to as long as 18 months," he says, adding that drugs on a fast track for approval in six months will now take nine months or more to be approved.

CV Therapeutics CVTX is preparing to release results from late-stage testing of Ranolazine, a new drug to fight chronic angina. If positive, the findings will lead to a filing with the FDA next year. Normally, Schmidt says he would model Ranolazine sales for early 2003, but now he's not expecting sales until late 2003. Schmidt rates CV Therapeutics a strong buy and his firm has done banking for the company.

Schmidt is also applying the new rules to Biogen and its experimental psoriasis drug, Amevive. He's changing his financial forecast to reflect expected Amevive sales beginning in early 2003, instead of late 2002. Among big-cap biotechs, Biogen can least afford this because the company faces stiff competition for its main moneymaker, the multiple sclerosis drug Avonex. Schmidt rates Biogen a buy and his firm has no banking relationship with the company.

"I think you have to look at any drugmaker with drugs in [late-stage] testing, or with drugs currently under review by the FDA, and expect approvals to take a little longer," he says.

Unfortunately, most investors haven't gotten that message yet, which may mean rough seas ahead for already-volatile biotech stocks.