Guest post by Jim Patrick, Publisher, The Life Sciences Report
What moves biotech stocks the most and is it different in the US than it is in Europe? According to The Small-Cap Biotech Watchlist The Life Sciences Report unveils at the Biotech Showcase each year, catalysts move stock prices and some catalysts move stocks more than others. That is why in order to create the Watchlist, we call on the experts to look at the expected announcements in their coverage universes and pick out the companies with the most to gain. Then everyone can follow along all year long with the real-time Portfolio Tracker.
As you can see from this chart, in the US one big hit is usually recommendations of Advisory Committee (AdCom) meetings organized by the Food and Drug Administration (FDA) that frequently precede the FDA’s Prescription Drug User Fee Act (PDUFA) decisions of whether to approve a drug. As our experts have pointed out, sometimes, just the release of briefing documents outlining safety and efficacy results in advance of an AdCom meeting can set the bar higher—or lower. If expectations have been set too high by a very favorable AdCom recommendation, even a subsequent FDA approval could result in a decrease in share price, especially if the FDA adds in some restrictions like a “black box” drug label warning.
Another big stock price rightsizing can come in Phase II proof-of-concept. In a December interview, Christopher James, senior equity research analyst and SVP at FBR Capital Markets, pointed to data from Phase II trials as “where we start to see the inflection of share price, when value creation occurs. At this stage, stocks will generally trade fairly.”
For insight into the process in Europe, we turned to George Zavoico, an analyst at JonesTrading Institutional Services. He pointed to the Committee for Medicinal Products for Human Use (CHMP) recommendation as one of the turning points for many drugs after the release of safety data and Phase III results. “The European Medicines Agency (EMA) decisions to approve a new drug rarely go against the CHMP,” he said. “However, then the drug has to go to each country for review as to whether it will be added to the formulary and at what negotiated price, including, in some countries, an evaluation of whether it is economically feasible. This can be a time consuming, complex process.” Often companies will target the big five: The United Kingdom, Germany, France, Spain and Italy. Then the other 22 countries fall into place, he said.
The EMA approved 82 drugs in 2014, of which 17 were orphan drugs. The agency predicted even more orphan drugs would get the green light in 2015 as companies work through a new early collaboration process with CHMP. On the other side of the pond during the same year, the FDA approved 41 drugs, 15 for orphan diseases, also a record high for orphan drugs.
While a “harmonization” process exists between the EMA and FDA, and the two market sizes are similar, companies carefully strategize whether to go through the approval processes individually or in parallel. Small US biotech companies usually secure a partner for the European market before getting to the marketing authorization application (MAA) submission and marketing stage there, Zavoico said.
Jim Patrick is publisher of The Life Sciences Report, an on-line investor publication that aggregates expert commentary on small- and mid-cap companies in the biotech and medical device sectors. For over 20 years, Jim has served in publisher roles for investment research publications including Buyside Magazine and WSR (Wall Street Research) Magazine. Launched in April 2012, The Life Sciences Report has a built a readership of over 50,000 dedicated readers representing both institutional and retail investors. These investors come to The Life Sciences Report to get investing strategies and recommendations from leading analysts and fund managers in these sectors. To find out more about how you can tell your company story on The Life Sciences Report, email firstname.lastname@example.org.