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

Complete Response Letter

When a pharmaceutical company receives a FDA Complete Response Letter it means that a review of the New Drug Application, NDA, was completed and a decision to approve was not reached for the new drug application in it’s current form and with the current information provided. Basically a CRL can be thought of as a rejection letter, but it does not mean that the drug can never be approved. In the Complete Response Letter the FDA will provide a description of the requirements that were not met, and normally any recommendations of actions to gain approval.

Actions Following a Complete Response Letter:

An applicant must respond to the CRL within one year or the application is considered withdrawn unless an extension is granted.
The applicant can respond to the Complete Response Letter in one of three ways:

  • Resubmission – the company can resubmit the new drug application addressing all deficiencies identified in the complete response letter.
  • Withdraw – the application without prejudice, allowing for a subsequent re-submission of the NDA at a later time.
  • Request a hearing – the applicant can request a hearing meet with the FDA and discuss whether there are grounds for denying the application.

If the applicant resubmits the drug application, the FDA will then have a certain amount of time to once again make a decision. This decision may result in approval or another Complete Response Letter. This could go on until the drug is approved or the applicant decides that it is not willing or able meet the FDA requirements.

How does a Complete Response Letter affect your investment?

The reason(s) cited in the the Complete Response letter is what can affect your investment. The FDA rarely ever rejects a new drug application that was a accepted for review, but it does send out the CRL with issues that need to be addressed before it will review the application again. Some issues have an easier remedy than others, but requesting further clinical trials can very really damaging for a pharmaceutical company’s stock price. A CRL that cites manufacturing concerns and not the drug itself, can be remedied having less of an impact on the stock price.

Not disclosing to shareholders that a Complete Response letter was received could cause shareholders to initiate legal action against the company. Since the specific details are not subject to full disclosure, some companies will notify investors that they received a CRL and provide minimal information.

With larger biotech companies this might not be a major event, but with smaller companies it could be catastrophic. Since most smaller biotech companies have a run up to the PDUFA date, if a smaller biotech company receives a complete response letter, it could need additional funding, which could lower it’s stock’s price.

Because the Prescription Drug User Fee Act, PDUFA, requires the FDA to provide a response within 10 months, in cases where FDA may need more data or clarification for a new drug application, it may issue a CRL to satisfy it’s time requirement and request for more information, in other words the FDA could be “buying time”.

Drug Application can receive CRLs for a variety of reasons, but the most common are manufacturing sites, safety, efficacy, bioequivalence, faulty statistics, product quality and stability, and proposed labeling.

Complete Response Letter
Complete Response Letter

Related: Stages of New Drug Development