Here are 4 biotech stocks that could get a boost from Trump's new regulatory climate

MW Here are 4 biotech stocks that could get a boost from Trump's new regulatory climate

By Michael Brush

Biotech-stock investing has one tough test for success - and it's about to get easier

The key to successful biotech investing is straightforward: Own stocks of companies that get drugs approved. That hasn't been so easy. But the U.S. Food & Drug Administration (FDA) has become more flexible about granting new drug approvals, and drugs for rare diseases in particular - which could boost the shares of the four promising biotech firms discussed below.

"Right now, the FDA is at peak flexibility," Baird biotech analyst Brian Skorney said in a recent interview. "The FDA has demonstrated more flexibility every year, over the past 10 years."

President-elect Donald Trump's administration might affect the FDA's increased leniency, but the trend has been developing across three administrations, including Trump's first tenure in office.

Indeed, while this easier FDA approval process can help both patients and stock investors by getting drugs to market, it is not always a good thing for U.S. taxpayers or patients.

Let's start with taxpayers. The key here is that whenever the FDA approves a drug, the Centers for Medicare & Medicaid Services $(CMS)$ typically greenlights Medicare and Medicaid coverage.

But when borderline drugs are approved, the U.S. government may in effect be funding an ineffective, or quasi-experimental drug. Is this really fair to taxpayers? "There are plenty of drugs that generate a lot of revenue even though there are questions about whether they really work," Skorney said.

Patients don't always benefit, either. That's because FDA flexibility can mean approval for drugs that are too dangerous or simply do not work. Skorney cited a drug called Oxbryta from Pfizer $(PFE)$, which was approved to treat the blood disorder sickle cell.

Instead of using clinical benefit as the benchmark, the FDA approved Oxbryta based on studies that showed it reduced a biomarker for the disorder, Skorney said. "It was a controversial approval decision because of questions about whether the endpoints justified approval," he added.

Pfizer pulled the drug in late September following patient deaths. "The overall benefit of Oxbryta no longer outweighs the risk," the company said in a press release.

Helping patients and investors

To be sure, FDA flexibility has helped patients by clearing the way for successful therapies for cancer, HIV and other disorders, for example, Skorney said. "For a lot of indications, flexibility has been a good thing."

Here are four companies where FDA flexibility improves the odds of drug approvals - and resulting stock gains.

1. Applied Therapeutics: Applied Therapeutics' $(APLT)$ lead product candidate, govorestat, is used to treat galactosemia. This is a rare genetic disorder that impairs the body's ability to metabolize a sugar called galactose. It causes motor skill and cognitive issues, tremors, and difficulties with speech. The disease is so rare, it affects only about 3,000 people in the U.S.

One issue with govorestat is that failed in Phase III trials. But the "totality of the data clearly demonstrates a clinical benefit," William Blair analyst Tim Lugo maintained in a research note. The FDA will need to be flexible to go along with this assessment. Another challenge is that earlier this year, Applied Therapeutics had to recalculate and resubmit some data because of an error in analysis by an outside consultant.

The FDA is scheduled to rule on approval by Nov. 28. Approval would be a significant stock catalyst. Further, the company expects a European Medicines Agency (EMA) decision in the first quarter of 2025.

2. Biohaven: This company has multiple shots on goal in epilepsy, mood disorders, immunological diseases, neuropathic pain, rheumatoid arthritis and oncology. The drug candidate that would be helped by FDA flexibility is called troriluzole. Biohaven $(BHVN)$ is developing it for spinocerebellar ataxia, a neurodegenerative disorder characterized by atrophy of the cerebellum, brainstem and spinal cord.

Studies over the past few years have produced mixed results, which is a problem. So Biohaven came up with a new trial design. Data are expected by the end of the year. This could be a stock catalyst. The data could support a new drug application to the FDA. The therapy is also being evaluated in Europe.

3. PTC Therapeutics: A rare disease called Friedreich ataxia causes a breakdown of nerve fibers, hampering muscle control. PTC Therapeutics $(PTCT)$ believes it has a cure, called vatiquinone.

The drug failed to meet primary endpoints in study results announced in 2023, but it did show some effectiveness. In 2024, the FDA agreed to look beyond the study failure and consider the results from continued studies. In October, PTC Therapeutics said vatiquinone showed some effectiveness in these ongoing studies. It plans to submit a new drug application in December. This could be a stock catalyst.

4. Soleno Therapeutics: Soleno Therapeutics' (SLNO) lead product candidate is diazoxide choline (DCCR) for Prader-Willi syndrome $(PWS)$ - a rare genetic disorder that causes constant hunger, leading to obesity. The drug failed in a 2020 study, but it did show some effectiveness. So Soleno continued the study, with the encouragement of the FDA. In 2023 Soleno released statistically significant, positive results. The FDA has an informal deadline of Dec. 27 of this year to approve or reject DCCR as a therapy for PWS. If FDA flexibility helps it over the goal line, the stock should move higher.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned BHVN. Brush has suggested BHVN in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks

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November 19, 2024 14:04 ET (19:04 GMT)

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