As we noted in our piece on biotechnology, we don’t think 2016 will bring a good environment for biotech or for pharma, with Presidential candidates vying with one another to see who can talk toughest on drug pricing. Nevertheless we continue to monitor news related to the sector to stay abreast of the fundamentals, and particularly to note legal and regulatory changes that affect it.
Recently we read a piece in The Wall Street Journal describing a phenomenon that our readers might not be familiar with: the “off-label” uses of drugs. When new drugs are approved for commercial production and marketing by the Food and Drug Administration, it is always with specific uses in mind. Early-stage studies evaluate the investigational drug’s toxicology and pharmacokinetics; later-stage studies evaluate its efficacy in the particular diseases, or indications, for which it was developed. The drug’s label specifies what those indications are, and the company that manufactures the drug can market it only for those indications.
Nevertheless, although the manufacturer can only market and promote the drug for the indications for which it is labeled, doctors can prescribe it for any indication they wish. The reality is that more than 20 percent of all prescriptions are for off-label uses. In some patient populations -- especially pediatric patients and patients in intensive-care units -- the proportion is even higher.
These unofficial uses can amount to huge ongoing studies which reveal new indications for drugs -- but until now it has been impossible for drug companies to promote the drugs for these new uses, even if physicians become aware of them by word of mouth and write off-label prescriptions for them. Of course, although efficacy studies are performed for a specific indication, the safety data generated during the approval process mean that the drug’s safety characteristics are already known.
Earlier this month, the FDA reached a settlement with a small pharma company, Amarin (NASDAQ:AMRN), permitting them to market one of their drugs for an indication for which it had not received specific approval. According to the agency the exception was “specific to this particular case and situation.” However, it may be a significant event that heralds a new, easier regulatory pathway for companies to market drugs that have accumulated data supporting an off-label use, without going through the arduous and expensive process that current regulations require.
That new potential regulatory pathway is far from taking shape; the FDA will need to hammer out exactly how much supporting data is needed before approval for such marketing can occur. As this pathway emerges, though, it will be a boon for the entire industry, since almost all pharma companies will have drugs with off-label uses for which they will be able to significantly expand sales when they can legally promote and market the drugs for those new indications. We will watch this process and keep readers informed as it develops.
Investment implications: Many investors may not be aware that although drug companies can market their drugs only for specific indications approved by the Food and Drug Administration, doctors are allowed to prescribe them for any condition they wish. Many of these “off-label” uses turn out to be significant -- but until now the regulatory pathway to get official recognition from the FDA and official approval to promote drugs for these other uses has been expensive and arduous -- even when the drugs have been proven safe. A recent settlement by the FDA may indicate that a change is coming, and a new, less onerous regulatory process may be developed. When and if this happens, it will be a boon for most pharma companies, since overall, nearly 20 percent of prescriptions written are for off-label uses. We’ll watch the process carefully, and keep readers informed as it develops. Pharma stocks will once again become attractive after we know how much their profits will be cut by legislation introduced by the new U.S. President. Therefore, we are watching, even though it may be a year or two before we return to pharma as an investment.