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Monday, December 05, 2005

The FDA's Softening Skin

This past Friday, an FDA advisory panel determined that an experimental skin patch designed to treat children with attention deficit hyperactivity disorder (ADHD) was safe and effective. The ruling burned some investors because, the day before, a key FDA staffer publicly suggested said that the patch was too risky.

This type of hyper-activity leads me to wonder if perhaps the FDA shouldn’t conduct some further testing of the patch on its own staff.

In all seriousness, though, the FDA usually follows the advice of its advisory panels and the patch, which will deliver a generic version of Ritalin, will likely be formally approved toward the end of this month. This is good news for the manufacturer the patch, Noven Pharmaceutical (Nasdaq: NOVN) and Britain-based Shire Pharmaceuticals Group (L: SHP).

From a broader perspective, however, the ruling should serve as a warning sign to investors hoping to profit from the advancement of alternative drug delivery systems. Drug delivery is now one of the hottest areas in pharmaceutical research and development, and it has been estimated that the demand for new systems could grow 10% annually for the next few years.

Controlled-released pills will likely remain the dominant method for delivering drugs to their target for the foreseeable future, but, as someone who follows the advances in nanotechnology quite closely -- and understands its potential to make implants, patches and inhalers far more effective -- I am both pleased and unnerved at the FDA’s recent reversal.

I am pleased because the FDA is obviously open to the unique benefits that these new alternatives can provide. For instance, they give patients who dislike or find taking pills to be unpleasant a second option; or, as in the case of a patch, they allow the drug to be quickly removed if the drug’s adverse side-effects prove to be too discomforting.

Other nanoscale drug delivery systems will offer additional benefits. Unfortunately,
I am not confident the staff at the FDA understands enough about these new technologies to make informed decisions about the myriad of devices which are likely to require approval in the years ahead.

As a result, I think investors can expect to be jerked around by an FDA staff which is uncomfortable in its attempt to quantify the risks and benefits of these new systems.

Therefore, while the FDA has seemingly softened its skin with regard to ADHD patch, I advise investors to develop a thick skin and learn to control their emotions in response to future FDA decisions. My guess is that we will be seeing more -- and not fewer -- such reversals in the future.

Jack Uldrich

P.S. I don't own any stock in the companies mentioned in this article.