New Drug Application and it’s implication on stock price

A New Drug Application (NDA) is submitted by pharmaceutical companies to the FDA for approval after clinical trials are complete in order market and sell the new drug in the US.

A typical NDA tells the full history of the proposed drug and can have over 100,000 pages of information on the drug from it’s initial laboratory tests through phase 3 clinical trials, with the main purpose being it’s safety and efficacy for it’s intended use on humans. Along with all the studies, data, analysis and any information gathered along the clinical trials, the NDA must include:

  • Patent, Manufacturing, Labeling and Packaging information
  • Safety information
  • Possible abuse information
  • Direction for use
  • Any additional studies not performed in the US

Once the a completed New Drug Application is submitted, the FDA has 60 days to conduct it’s preliminary review and decide whether it will accept and file the application or, if the FDA finds the information insufficient, reject the application by sending a refuse to file letter explaining how the application failed to meet requirements. If the NDA is accepted, the FDA will decide if the NDA requires standard or accelerated review. Under the Prescription Drug User Fee Act a standard review is 10 months and an accelerated review is 6months. Accelerated reviews being allowed for generic drugs, drugs that provide meaningful therapeutic benefit over there drugs, drugs that treat serious or life threatening conditions, or treat previously unmet medical need.

FDA Review of New Drug Application

During the process of reviewing the NDA, the FDA has members that conduct reviews on different sections of the NDA, for example:

  • Medical officers review clinical date
  • Pharmacologist reviews the data from animal studies
  • FDA inspectors investigate to find if any information was withheld or manipulated

The FDA will then decide whether to approve the New Drug Application or submit a Complete Response Letter articulating it’s decision not to approve the NDA in it’s current form and letter the provide the application with guidance and steps on how to gain an approval.

How the New Drug Application affects Investors:

Once a company has reached the NDA stages, there is about an 80% probability that the drug will eventually be approved for marketing and sale in the US. The filing of the NDA normally does not increase the price of a stock much, as most of the appreciation should have occurred during the Stages Of New Drug Development, and when approved.

BUT the decline of a NDA could lower the price of a stock as it will cost the company additional time and resources to refile or conduct further studies, if needed.

In my experience after a successful phase 3 clinical trial result, the stock price could increase in value (not always), but then it will slide down some as few investors want to have their investment stagnant over the period of time it takes to gather all the information and prepare the NDA.

During this wait period there are risks the company might need financing, the best way to study this is by looking into the company’s finances and financial reports. The company could also sell some rights to it’s drug, partner with other companies, or even become a candidate for a buyout.

A few months before the FDA is ready to answer the NDA and either provide an approval or request more information, the stock will again gain some momentum and could again start a rally upwards into the FDA approval date, PDUFA date as it is called by some. Personally, I don’t like to hold through catalyst events, and would rather ride the hype and sell the news.

As of 2018, the New Drug Application fees (PDUFA fees) are:

New Drug Application Fee – Clinical Data Required $2,421,495
New Drug Application Fee – No Clinical Data Required $1,210,748

New Drug Application
New Drug Application

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