FDA might call a drug a ‘breakthrough,’ but investors don’t seem to care, study finds

Researchers examined FDA Breakthrough Therapy Designations over a six-year period, but found they had little effect on companies’ stock prices.

A new study has found that while drugmakers benefit in various ways when a product candidate receives Breakthrough Therapy Designation from the Food and Drug Administration, it seems to carry little weight with investors.

The researchers found that while companies with no products on the market may experience a spike in their stock price when their drug candidates receive the designation, those that already have marketed products do not. “So, although drug developers receive significant benefits from BTD, these benefits do not include higher sustained valuations in the US public markets,” the authors wrote.

The study was conducted by researchers at the Washburn University School of Business in Topeka, Kansas; Milton, Massachusetts-based consultancy Pharmagellan; and the Institute of Molecular Biotechnology in Vienna. The analysis included 143 BTDs. The original sample size was 218 BTDs from a total of 264 between the BTD program’s 2012 creation and May 2018, which was adjusted to exclude non-US companies, private companies and BTDs that coincided with major corporate news like clinical trial results and earnings reports.

According to the FDA, the agency received 18 BTD requests in fiscal year 2018 – which lasted from October 2017 until September 2018 – and nine BTD approvals during that same period. For fiscal year 2017, the agency granted eight approvals from 25 requests. Yet, the study authors found that while 43 companies without products on the market saw their stock prices increase and peak by an average of 9 percent, they would soon decline, while the 100 commercial-stage companies saw no change at all.

But in addition to not apparently affecting investor sentiment, such designations may have the effect of creating exaggerated confidence among the public. According to a 2015 study cited in the paper, the terms “breakthrough” and “promising” increased people’s beliefs in a drug’s effectiveness and strength and the evidence used to support it compared with information that only included facts.

Participants – 597 people chosen from among the general public – were shown one of five short descriptions of a lung cancer drug that had recently received accelerated approval based on its ability to shrink tumors, considered a surrogate marker rather than a more robust, survival-based endpoint. But when they had the definition of accelerated approval explained to them, it also mitigated the confidence they showed when vignettes used “breakthrough” language. The study noted that all FDA announcements of BTD use the term “breakthrough,” while about half also use the term “promising.”

Photo: FDA, Flickr