Biotech 101: Knowing Your Designations

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The length of time it takes an investigative drug to get through clinical trials and reach markets varies dramatically, however very rough estimates put it at between 10 and 15 years from discovery to commercialization. Further, only a very small proportion of those treatments that enter this timeline actually make it to FDA approval, and a smaller proportion still achieve what can be deemed commercial success. In order to try and speed up the process in areas of biotech that the FDA deems a shorter path to market as being beneficial to patients, there are a number of specialized designations that the FDA can grant certain treatments based on their attributes and target populations and conditions. These designations can play a big part in the valuation of companies that are developing treatments, and as such, as biotech investors, it’s important to understand the implications of each. So, with this said, here’s what you need to know.

Orphan Drug Designation

First up, we got orphan drug designation. In order to qualify for consideration as an orphan drug, a treatment must be targeting a rare disease or condition – technically defined by the FDA as something that has an incidence rate of less than 200,000 in the US. Basically, it can be very expensive to develop drugs for rare diseases. Further, because of the restricted number of target patients, the revenue potential can make it difficult for a company to justify spending the development capital required to get the treatment to market. Orphan drug designation is designed to incentivize development, and includes a range of associated benefits. These include an extended exclusivity period, the potential for accelerated approval (something we will look at shortly) and a range of tax benefits.

Fast Track Designation

This one is a designation available for treatments that target serious conditions with a currently unmet medical need. A company must request fast track. For example, a pharma such as Merck & Co. Inc. (NYSE:MRK), which develops heavily in the unmet needs space, might approach the FDA and say “hey, we’ve got this treatment that we believe could cure this disease for which no other treatment currently exists”. If the FDA agrees, it will grant fast-track, which primarily involves an increased frequency of interaction between the development company and the FDA. This increased interaction helps the developing company to overcome hurdles quickly and – theoretically – speed up the time to market.

Accelerated Approval Designation

A treatment that qualifies for fast-track designation may also qualify for accelerated approval. The key to understanding accelerated approval is knowing the difference between a primary and a surrogate endpoint. A primary endpoint is (as we have discussed in other tutorials) the topline measure of the efficacy of a development stage treatment. A surrogate endpoint is an indicator of sorts – something that suggests efficacy but cannot really lay claim to confirming it. The example most widely used is that of tumor shrinkage. If Amgen Inc. (NASDAQ:AMGN), which develops a large number of breakthrough cancer therapies, can demonstrate its treatment leads to shrinkage of a tumor in a particular cancer, this might be considered a surrogate endpoint for efficacy. Accelerated approval designation gives a treatment the chance to gain FDA approval based on surrogate endpoints rather than primary efficacy endpoints. Understandably, biotech investors get very excited about the potential for accelerated approval, as it can both cut the time to market and cost to market of a pipeline candidate.

Priority Review Designation

This one is pretty simple. All drugs have either standard or priority review designation. With the standard designation, the FDA will try and review a new drug application (NDA) submitted by a company that has demonstrated efficacy in phase 3 within 10 months of the submission. With a priority review, however, this 10-month period shortens to 6 months. How does the FDA differentiate between the two? Well, it comes down to – as with a number of other designations – improvement or unmet need. If the treatment in question targets a currently unmet medical need, it will likely receive priority review. Similarly, if it demonstrates significant improvement in clinical trials over the currently available standard of care treatment, priority review becomes likely.

Conclusion

So there we go. An understanding of what each of these designations mean, and their respective implications for the time and cost to market for a development stage drug is vital, so stay on top of these designation definitions and it could give you the edge over other biotech investors when interpreting industry announcements.

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