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A change in how the US responds to drug applications may add uncertainty for investors trying to gauge if a medicine will reach the world's largest pharmaceutical market.

A change in how the United States responds to drug applications threatens to add more uncertainty for investors trying to gauge if a new medicine will reach the world's largest pharmaceutical market.

The approach could cloud a drug review process already growing less predictable as global pharmaceutical companies find less success winning US approval for new products.

Starting this week, the US Food and Drug Administration will send a "complete response" letter when officials decide a drug is not ready for approval. It replaces the "approvable" and "not approvable" letters from the past.

The result may provide less information for investors about a drug's prospects, industry experts said.

The policy "may not give as much visibility to the direction the FDA is going," Morningstar analyst Damien Conover said.

A test of the new rules could soon confront investors in Eli Lilly & Co, which is awaiting a September ruling on a potential blockbuster anti-clotting drug called prasugrel.

Companies including GlaxoSmithKline Plc, Pfizer Inc and Schering-Plough Corp also have key medicines under review in the United States. Major drugmakers need new medicines to replenish sales lost to generic rivals.

The new process could prompt more shareholder lawsuits, if companies disclose little about the FDA responses.

In the past, an approvable letter told companies their applications could be cleared if certain conditions were met. A not-approvable letter was seen as a sign of more serious problems.

The complete response letters will spell out what drugmakers could do to win approval, the FDA said.

But the agency by law must keep the letters confidential. Investors must rely on the companies, which often disclose only the type of letter received and give little detail about the FDA's complaints. Manufacturers typically do not release a letter's actual text.

"Lack of transparency"

The letters are gaining importance as fewer medicines now win approval on their first review by the FDA, Conover said.

"The lack of transparency by just going to a complete response letter will likely increase the uncertainty for the pharmaceutical space," he said.

With the old notices, investors could draw basic conclusions by knowing the type of letter, said David Kotler, a securities litigation partner at law firm Dechert LLP.

Now, "it will be even more difficult for the investing public to make that kind of baseline assumption," he said.

Investors "definitely get less" information with the new format, said Natixis Bleichroeder analyst Jon LeCroy.

"Companies have typically put a very positive spin on whatever letters they are seeing. Now I'm assuming that's all we'll get -- the positive spin," he said.

To be sure, the previous system also could create confusion, said JP Morgan analyst Ipsita Smolinski. An approvable letter could mean issues were "minor" or could indicate "you have to do a whole new set of trials," she said.

Some manufacturers also complained a not-approvable letter gave the wrong impression a drug would never reach the market, which could hurt a company's ability to raise capital.

The move to complete response letters was meant to provide a "more consistent and neutral mechanism to convey that we cannot approve an application in its present form," the FDA said in announcing the policy. The shift was in the works since 1997 and was put in place for biotechnology products in 1998.

Analyst LeCroy said the new policy "takes away the potential for big downside impact" by eliminating the not-approvable letters, which could sink a company's stock.

Drugmakers, however, should consider disclosing more details to avoid shareholder lawsuits, attorney Kotler said.

"It's going to be incumbent on the companies to provide any additional disclosures... to make sure shareholders are getting all material information," he said.

The Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group, welcomed the shift as a step that would bring more consistency to FDA decisions.

The impact for investors should be minimal as companies are legally required to disclose material information, said Alan Goldhammer, a deputy vice president at PhRMA.

Drugmakers "have been fairly transparent when they get these letters (about) what the letters mean," he said.

(Additional reporting by Susan Heavey, editing by Richard Chang)