I'm in a fighting mood, so let's get into it with Anavex Life Sciences(AVXL) - Get Report over last week's stock promotion stunt, tied to its meaningless "The FDA Awarded Us Orphan Drug Designation!" press release.
Too many investors have a fundamental misunderstanding about the significance of orphan drug designation. I should say, insignificance, because the FDA delineation, on its own, means very little. Yet almost every day, biotech companies like Anavex issue press releases touting orphan drug designation as if it were an achievement of supreme importance.
It's not, and I'll explain why below.
Anavex issued said press release on Friday. It contains a wee bit of truth. On April 6, the U.S. Food and Drug Administration granted orphan drug designation to the company's experimental compound Anavex 3-71 for the treatment of frontotemporal dementia.
But then, Anavex goes off the rails with this canned quote from Kristina Capiak, vice president of regulatory affairs: "We believe that Orphan Drug Designation for Anavex 3-71 for the treatment of frontotemporal dementia is a significant achievement."
Sure, if you consider answering eight questions on a standardized Food and Drug Administration form to be a "significant achievement."
Answer eight questions on an FDA form. Do it correctly. Make two copies of the form. Send to FDA. That's all it takes for any biotech and drug company to secure orphan drug designation from the FDA. It's really that easy.
Is that a "significant achievement"? No, except if your ulterior motive is to hoodwink gullible retail investors into buying your stock.
Let's tell some truths about orphan drugs and the FDA.
The Orphan Drug Act was enacted to incentivize drugmakers to develop new treatments for rare diseases, defined as a disease affecting 200,000 patients or fewer. The FDA grants seven years of market exclusivity to an orphan drug, if it is approved. Companies developing orphan drugs also get priority review, research tax credits and a waiver of FDA fees.
Drug companies like the goodies that come with developing orphan drugs, but what they love most is the ability to charge really high prices for approved orphan drugs -- and not worry too much about reimbursement headaches from insurance companies. Lots of companies want to emulate the biotech sector's most successful orphan drug developers like Alexion Pharmaceuticals(ALXN) - Get Report , which charges $500,000 or more per year for Soliris, a drug that treats several rare blood diseases.
The FDA granted 354 orphan drug designations in 2015, a 22% increase over 2014. During last week alone, seven other drugs were granted orphan drug designation in addition to Anavex-371. You can search the FDA's orphan drug database here.
Orphan drug designation is the starting point in the regulatory process. It's the acknowledgement drugmakers get from the FDA that their experimental compound will be eligible for orphan drug benefits -- IF IT IS APPROVED.
That last bit is the kicker. Orphan drug designation doesn't mean the FDA favors a drug or believes a drug will be approved. Let me repeat that: If you believe orphan drug designation connotes favor from FDA or correlates in any way with higher approval chances or proven benefit for patients, you are sadly misinformed.
I wasn't joking earlier when I said securing orphan drug designation requires a company to answer eight questions on an FDA form. Here's the FDA instruction form: How to Apply for Orphan Drug Designation. There are eight questions. Simple. Need help? The FDA provides it here: Tips for Submitting an Application for Orphan Designation.
Only question No. 4 requires significant work. In addition to providing the FDA with a description of the drug's active moiety or molecular structure, the agency asks companies to submit the following:
A discussion of the scientific rationale to establish a medically plausible basis for the use of the drug for the rare disease or condition, including all relevant data from in vitro laboratory studies, preclinical efficacy studies conducted in an animal model for the human disease or condition, and clinical experience with the drug in the rare disease or condition that are available to the sponsor, whether positive, negative, or inconclusive. Animal toxicology studies are generally not relevant to a request for orphan-drug designation. Copies of pertinent unpublished and published papers are also required.
The FDA doesn't care if the data submitted is "positive, negative or inconclusive." As long as a company can make a "medically plausible" case for the drug treating a rare disease and provide coherent responses to seven other easy questions, the FDA will grant orphan drug designation.
To Anavex, achieving orphan drug designation for Anavex 3-71 is a "meaningful achievement." To everyone else, it's a homework assignment.
I can list a few real companies with drugs awarded orphan drug designation which later blew up or were rejected by the FDA.
BioMarin's(BMRN) - Get Report drisapersen received an orphan drug designation from the FDA. Drisapersen was also anointed with a rare pediatric disease designation, fast track status, priority review and breakthrough therapy designation. The FDA rejected drisapersen.
Catalyst Pharmaceuticals' (CPRX) - Get Report Firdapse received orphan drug designation and breakthrough therapy designation. The FDA issued Catalyst a refuse-to-file letter for Firdapse, meaning the new drug application was insufficient for review.
Anavex hasn't even tested Anavex 3-71 in humans yet. The orphan drug designations means nothing.
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.