Periodically when the FDA is criticized for slowing the approval of new drugs they announce a new policy like Fast Track. I’m skeptical of these announcements since they are inconsistent with the FDA’s incentives. A recent investigative report in the Cleveland Plain Dealer seems to suggest that I am right to be skeptical but in the end makes me wonder whether Fast Track may be useful after all. Here’s the part that supports my skepticism.
A decade ago, the Food and Drug Administration introduced a Fast
Track designation for drugs in development that was intended to speed
the availability of medical treatments for serious diseases.
However, a seven-month investigation by The Plain Dealer shows that
this government blessing has not increased the number of drugs approved
or moved them to market faster.
…Dr. John Jenkins, director of the FDA’s Office of New Drugs,
acknowledged that the Fast Track designation only gives companies the
same access to FDA programs that was already in place when they lobbied
Congress for the provision in 1997.
"There’s really not much other, if any, benefit for Fast Track," he said.
The report, however, makes a big deal of the fact that stock prices do respond positively to Fast Track designation. The report spins this as pump and dump with the FDA in effect doing the pumping and insiders and hedge funds doing the dumping.
…frenzied trading occurs regularly when companies announce Fast Track
status. The number of shares bought and sold more than doubled on 49
percent of days that companies announced Fast Track designations.
Trading was 10 times higher than the day before in 22 percent of
instances….hedge funds and others who [short the stock] bet that the price of a
stock will fall – and it often does after the initial jump a company
receives from Fast Track designation.
But I’m also skeptical of stories that suggest markets are systematically fooled by non-events and the numbers presented do not seem wildly inconsistent with a modest but real positive signal from being listed as Fast Track.
Stock prices of companies that trade on the New York Stock Exchange
rose just 1 percent after Fast Track announcements… Excluding these companies, most of which are major
pharmaceutical firms, Fast Track announcements boosted stock prices
I’ll call this one a draw until further information arrives. What wisdom does the crowd offer?
Hat tip to Mike Giberson at Knowledge Problem.