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Politics : A US National Health Care System? -- Ignore unavailable to you. Want to Upgrade?

To: i-node who wrote (6765)	5/7/2009 9:34:33 PM
From: TimF	Respond to of 42652

Why Would FDA Approval Cause a Stock to Increase Ten-Fold? Submitted by Constant on Thu, 2009-05-07 05:41. In the news: Vanda Pharmaceuticals won U.S. approval for its first product, a drug to treat schizophrenia, the Food and Drug Administration said. ... Vanda, which closed at $1.08 in regular trading yesterday, soared to $9.98 in extended Nasdaq trading. It would appear, going by the jump in price, that prior to the FDA's decision, investors gave the drug at most a 1 in 10 chance of being approved. If Vanda's case is typical, then, even moments before the actual decision is made, it is hard to predict what drugs the FDA will approve. I can understand it being difficult to predict whether a new chemical will turn out to be a useful drug when all the testing is done five or ten years down the road. But once the testing has been done, at the very least the results of those tests are fully known. There is no uncertainty about the results that have already been observed. And the FDA decision is, necessarily, based entirely on the results available at the time the decision is made. If the FDA's decisionmaking process is a) not arbitrary, and b) based on the available results, then the FDA's decision should be highly replicable, and therefore highly predictable, by any independent entity with access to the same results. And yet the FDA's decision is, apparently, hard to predict. Two possible alternative explanations are: 1) The results that the FDA bases its decision on are extremely well-guarded right up until the very moment that the FDA makes its decision. I doubt this is possible. 2) The FDA's decisionmaking process is highly arbitrary. This is my tentative conclusion. A few anticipated objections and responses. Objection: Vanda's case is not typical. Answer: Could be. However, this seems not all that atypical. When I read the story it didn't really stand out as atypical. Objection: The typical investor doesn't know how to interpret the data, doesn't know what the data is, etc. Answer: This is true of most investors in most publicly traded companies. If it were a significant problem the efficient market hypothesis (EMH) would be not only wrong, but wildly wrong, all the time, and Vanda's case would provide a model for disproving the EMH. Objection: Pharmaceutical companies really keep a tight lid on their results. Answer: I have a hard time believing that. A tremendous number of people are involved in any study that gets to this stage. Even partial information should give a sense of how well a drug is working and what its side-effects are. Objection: The cause of the unpredictability isn't that the FDA is arbitrary, but that the drug is borderline useful, and even the most predictable decisionmaking process will be unpredictable when it comes to borderline cases. Answer: But surely the typical drug is not borderline. Objection: The FDA can hardly be blamed because it is fundamentally hard to judge whether a drug is useful or not. It is unclear and/or subjective whether a given drug is useful or not. Answer: Then why is the FDA making a decision for all of us? distributedrepublic.net