1 Sure Sign of an FDA Approval

Food and Drug Administration review times usually offer little in the way of a hint at the likelihood of approval. Sometimes drugs are given a priority review because they treat an unmet need and then get rejected: Dendreon's (NAS: DNDN) Provenge the first time, for instance. Review times get extended and some drugs still get approved -- Pfizer's (NYS: PFE) Prevnar 13 and Human Genome Sciences' (NAS: HGSI) Benlysta, for example -- while others get a thumbs down: Merck KGaA's cladribine, for example.

The one exception: The FDA classifying a company's response to a complete response letter -- the agency's euphemism for a rejection -- as a class 1 response. The response comes with a two-month turnaround instead of the standard six-month response for a class 2 response. The FDA issues a class 1 response because the resubmission is for something minor: a labeling issue, commitments to do post-approval studies, "minor" clarifying information and the like. There are no guarantees for an FDA approval, but minor issues are usually easily cleared up.

So it isn't all that surprising that Transcept Pharmaceuticals (NAS: TSPT) shot up 34% yesterday after announcing that the FDA had classified its resubmission as a class 1 response. The company got a complete response letter back in July when it said the FDA had a laundry list of things it wanted before an approval could be issued for its sleeping pill Intermezzo. The press release explaining the requirements was 14 paragraphs excluding the background and disclosures at the end!

But after meeting with the FDA, Transcept said the agency had agreed that reducing the dose for women plus adding an additional warning to the label would be enough to satisfy the agency. No clinical studies required.

Any investor who's been around the block with a biotech or two knows that FDA-company conversations sit in a black box that's off limits to investors. The agency doesn't speak publically about unapproved drugs, so the investors are dependent on the company for information, which may or may not be a rosy version of reality.

In Transcept's case, it appears the issues really are minor. That of course assumes the company is following the FDA's instructions for what it wants in the resubmission, but that's a risk investors have to take with every company if they're going to hold shares through an FDA decision.

Transcept will get to sell Intermezzo four months early by getting a class 1 response, but that seems like a minor consideration, it's the selling at all -- as in having an approval -- that's most important.

Follow Transcept while it tries to gain FDA approval for Intermezzo by clicking here to add it to your My Watchlist. No My Watchlist account? Sign up here for free.

At the time thisarticle was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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