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Breakthroughs, Sort of

We’re all familiar with the FDA’s “breakthrough” designation for drugs (and drug indications) in the clinical trial/approval process. Opinions vary on the whole idea – useful way to prioritize regulatory attention, PR device for all involved because they’re handing ’em out like Halloween candy these days, or some of each. But if you want to know what the public (or at least one segment of the public) thinks of these designations,  here’s a way to find out: a study looking on what happens to company stock prices after such announcement.

The authors identified 218 public announcements of breakthrough designations (out of 264 total) from 2012 up to May of 2018 – and if you think that’s a lot of breakthroughs, have some leftover Halloween candy. The ones in the wrappers are still fine. Be that as it may, they went on to exclude non-US firms, private ones, and instances where the announcement hit at the same time as other corporate news. They divided the companies involved into those that did not have a commercial product at the time of the announcement, and those that were already more established, and then checked the stocks’ returns against a mixture of the S&P 500 and the XBI biopharma stock index, looking for excess returns. Three companies were excluded at that point for weird outlier returns (outside the 99% confidence interval) that might have skewed the results.

So, are investors going wild? Raking it in? Not exactly. For the pre-commercial companies, there was an effect, but it peaked (+9%) at the third day after the announcement and lost all statistical significance out by day 8. And the companies that already had drugs on the market? No statistically significant effect at all. So it appears that investors don’t value the designation all that much – although it would be interesting to see if this effect was larger back when the “breakthrough” category was first established. My guess is that it might well have been, but that (264 breakthroughs later) the excitement has receded a bit.

Of course, the idea behind that designation wasn’t to get investors excited; it’s to speed up regulatory approval for the drugs most likely to make an impact. Whether it’s done that, or done it well, is a topic for another data set. Here are the drugs and indications that have actually made it through approval after being so designated; there are 75. Note that that’s not 75 drugs – there are several that appear more than once for their various indications. Nivolumab is on there six times, ivacaftor five times, pembrolizumab five times, and so on. So there’s around a 70% failure rate – grim, but relatively appealing next to the general clinical failure rates that approach 90%. As for impact, the FDA has defended the idea, but there have been calls for physicians to be more aware of what it means and the possible heterogeneity of the data supporting the indications.

This overview of the program (albeit authored by some people who are known to be skeptical of the pharma industry) comes down on the fence, but with a recommendation that the term “breakthrough” be scrapped because it raises expectations too high compared to the actual standards for the designation. I would guess that investors have, for the most part, internalized just such thoughts.

10 comments on “Breakthroughs, Sort of”

  1. biotechtoreador says:

    M’eh, BTD is the same as orphan status, it’s good for a PR but in reality is pretty meaningless to nPV of drug.

  2. MrXYZ says:

    Given the grim but somewhat more appealing 70% failure rate (versus 90%), I wonder if it would be a reasonable strategy to invest in multiple companies that have BTDs. The chance of any individual drug making it through the regulatory process is still terrible, but as a group, would your investment do better in the long run? I am not a stock investor so this is a purely ‘academic’ exercise for me. Thanks.

    1. StumpedByTheCaptchaMath says:

      I’d say no because one shouldn’t be comparing the failure rate of breakthrough therapy designated drugs (70%) with the general failure rate for all drugs (90%) and here’s why. The 90% failure rate is for drugs entering Phase 1 trials (i.e. 9 out of 10 drugs that enter clinical trials will never be approved). But, to get breakthrough therapy designation you have to have shown preliminary clinical evidence of effectiveness (but should not past your End of Phase 2 meeting) so any drug that has breakthrough therapy designation is, by definition, not entering Phase 1 clinical trials. It is somewhere between start of Phase 1 (where failure rate to approval is 90%) and end of Phase 2 (where failure rate to approval is 50%). Therefore the BTD failure rate of 70% should be compared to other drugs at the same stage of development, which will have failure rates in the range of 50% to 90% (and suddenly 70% failure doesn’t look so good).

      *Failure rates quoted here are based on the BIO report released June 2016.

      1. MrXYZ says:

        Just saw your posted answer. Thanks. That makes lots of sense and is a reminder to always know your starting point for a calculation.

  3. Janex says:

    It may already be baked into the stock price. What may be more telling is drugs that were expected to get a break through designation but didn’t get it.

    1. skeptic says:

      That was my thought but how would you do the analyses?

  4. Emjeff says:

    I have considerable experience with this and in my opinion, BTD is not worth the electrons it takes to form the words on your computer monitor. It’s a way for the FDA to appear to be doing something about quick review, but in reality , it means nothing. Even the much-touted “extra meetings” that you are entitled to mean nothing, because a lot of time, they can’t/won’t do them. It’s no wonder that the market ignores it.

  5. electrochemist says:

    I just skimmed the article, but i did not see any mention of how they corrected (or accounted for) the size of the share “float’ for these companies. For example, among “those that were already more established,” I see Pfizer, Merck, GSK, Novartis, BMS, AZ. Lilly, Roche, etc. Is it really surprising that there was “no statistically significant effect at all” on the share price for such companies when they reported a BTD on a new molecule? Not much of anything makes those stocks move upward rapidly….

  6. CMCguy says:

    The whole premise of using changes in stock price to evaluate anything seems dubious, kind of like looking just at the surface of anocean to forecast weather: one might see sun reflection but could be a beam through heavy clouds or if perturbed by wind or rain the storm has likely already passed.

    1. Thoryke says:

      CMCguy, that is one of the more beautiful metaphors for decision-making I’ve seen in a while. Especially evocative as I sit in my office watching the 50+mph winds bend each tree in slightly different ways. And thank you, Derek, for a place to see these conversations!

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