I recently predicted that Mallinckrodt PLC’s (MNK, Financial) new drug application for stannsoporfin would be rejected. Low and behold, on Wednesday, the company confirmed that the Food and Drug Administration had rejected the treatment. After making such predictions, I’m often asked how I am so accurate.Â
Truth be told, I’m no psychic. I can’t look into a crystal ball and see exactly what’s going to happen. No one can. All I’m doing is digging into the data and making a prediction based on what I have learned.
With the recent Mallinckrodt rejection as a great example, I figured now would be a good time to share my strategy.Ă‚
Find the opportunity
The Prescription Drug User Fee Act (PDUFA) dictates quite a bit with regard to the approval or rejection of new prescription drugs in the U.S. As far as I’m concerned, the most important part of this is the PDUFA date, which is when the FDA makes their decision to either approve or reject a treatment.
When it comes to Mallinckrodt, I came across a news release stating that the FDA had accepted the company’s new drug application for stannsoporfin. In the release, the company announced the PDUFA date was Aug. 22. So, I marked my calendar.
Dig into the data
When attempting to obtain a new drug approval in the U.S., or any other region for that matter, companies must produce and provide data from various clinical trials. It’s important to dig into this data. To find this information, all you need to do is go to your favorite search engine and search the drug’s name followed by “clinical data.” In this case, I searched “stannsoporfin clinical data” and started to dig in.
The data showed that while there were some mild improvements, there was no strong evidence of statistical significance. In this particular case, Mallinckrodt was working to show a significant reduction in the risk of severe jaundice or severe hyperbilirubinemia in patients 35 weeks of age or younger. Minor improvements may be enough to parade in front of the public, but as you can see from the drug rejection, they’re not going to be strong enough to warrant an approval.
Search for advisory committee votes
When the FDA is reviewing a new drug application, they often meet with an advisory committee or two. The goal of the meeting is to seek the committee’s opinion with regard to whether or not to approve the treatment. These advisory committees are made up of highly respected medical professionals whose opinions are taken seriously by the FDA. A good vote from an advisory committee likely means approval is coming, while a negative vote is likely to lead to a rejection.
In the case of Mallinckrodt’s stannsoporfin, this proved to be the final nail in the coffin. On May 4, the FDA met with two advisory committees:Â the Gastrointestinal Drug Advisory Committee and the Pediatric Advisory Committee. The vote among the committees was nearly unanimous. Each committee had 12 members, bringing the total number of votes to 24. In the case of stannsoporfin, the committees voted a whopping 21 to 3 against the approval of the treatment.
Using these predictions to your advantage
At the end of the day, when the FDA speaks, investors listen. After all, an approval could mean a new stream of revenue, while rejections generally mean that millions of dollars may have been wasted. So this news tends to move the market. By paying attention to PDUFA dates, clinical data and advisory committee votes, it’s possible to get a leg up on the market and make strong trades based on predictions surrounding FDA approvals and rejections.
