New drug rulings may confuse investors

By Lisa Richwine - Analysis

WASHINGTON (Reuters) - A change in how the United States responds to drug applications threatens to add more uncertainty for investors trying to gauge if a new medicine will reach the world's largest pharmaceutical market.

The approach could cloud a drug review process already growing less predictable as global pharmaceutical companies find less success winning U.S. approval for new products.

Starting this week, the U.S. Food and Drug Administration will send a "complete response" letter when officials decide a drug is not ready for approval. It replaces the "approvable" and "not approvable" letters from the past.

The result may provide less information for investors about a drug's prospects, industry experts said.

The policy "may not give as much visibility to the direction the FDA is going," Morningstar analyst Damien Conover said.

A test of the new rules could soon confront investors. Eli Lilly & Co (LLY.N) is waiting for a September ruling on a potential blockbuster anti-clotting drug called prasugrel.

Companies including GlaxoSmithKline Plc (GSK.L), Pfizer Inc (PFE.N) and Schering-Plough Corp (SGP.N) also have key medicines under review in the United States. Major drugmakers need new medicines to replenish sales lost to generic rivals.

The new process could prompt more shareholder lawsuits, if companies disclose little about the FDA responses.

In the past, an approvable letter told companies their applications could be cleared if certain conditions were met. A not-approvable letter was seen as a sign of more serious problems.

The complete response letters will spell out what drugmakers could do to win approval, the FDA said.

But the agency by law must keep the letters confidential. Investors must rely on the companies, which often disclose only the type of letter received and give little detail about the FDA's complaints. Manufacturers typically do not release a letter's actual text.

"LACK OF TRANSPARENCY"

The letters are gaining importance as fewer medicines now win approval on their first review by the FDA, Conover said.

"The lack of transparency by just going to a complete response letter will likely increase the uncertainty for the pharmaceutical space," he said.

With the old notices, investors could draw basic conclusions by knowing the type of letter, said David Kotler, a securities litigation partner at law firm Dechert LLP.