The Rx Industry's Black Box

A drug company gets a letter from the Food and Drug Administration explaining why its application for a new drug approval has been rejected. The company writes a short press release. The company's stock plunges.

As Matthew Herper explains in this interesting Forbes Magazine story, the FDA cannot release the contents of the letter, which Congress, at industry's behest, has deemed proprietary information. The companies rarely release the letter. They only give their brief interpretation of what it said.

Moreover, a month ago, the FDA, again at industry's urging, removed the "approvable" or "non-approvable" labels attached to the rejection letters, according to the story. These FDA pronouncements at least indicated to the general public (and investors) whether the drug, given some additional testing, might eventually pass the regulatory tests for safety and effectiveness.

The story, misheadlined "The FDA's Black Box," concludes with a call for Congress to repeal the law that prohibits the FDA from releasing the letters. I agree. The FDA's analysis of failed drugs can provide important insights to researchers considering similar drugs and to physicians who may be prescribing similar drugs in that class.

But the FDA isn't the only agency with an interest in these matters. Even short of Congressional action, it seems to me that drug companies, at least the publicly traded ones, could be forced to reveal the contents of those letters by the Securities and Exchange Commission. Investors have the right to any information that will have such a material and immediate impact on a company's stock price. Companies should not be allowed to hide such information behind a few phrases in a brief press release.