Saturday, May 9, 2009

Is The FDA Easing Up? How one company turned a rejection into a thumbs up, and what it could mean for the drug industry as a whole.

After the Food and Drug Administration told Vanda Pharmaceuticals that the company's schizophrenia drug was "not approvable" last July, Wall Street marked the tiny biotech for dead.

The FDA asked for a new clinical trial; Vanda insisted it could change the agency's mind with its existing data. Its shares sank from $4 to 45 cents. A hedge fund, Tang Capital Partners, started a proxy fight to try and get Vanda to liquidate and distribute the proceeds to shareholders.

Then Wednesday night, the FDA announced it was approving the drug, Fanapt, based on data from 3,000 patients. Vanda shares exploded 700% to $8. That's the kind of jackpot that could start getting investors interested in gambling on tiny biotechs again.

But the Vanda story may signal something far more important for investors than just a reminder that biotech stocks can pop: an easier FDA. Both Wyeth ( WYE - news - people ), which is being bought by Pfizer ( PFE - news - people ), and Schering-Plough ( SGP - news - people ), which is being bought by Merck ( MRK - news - people ), were rebuffed last year by the FDA after submitting data for schizophrenia drugs.


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