RedHill Biopharma (NASDAQ: RDHL) stock is up 212% yesterday. This is off the back of the FDA granting a certain protection to the new antibiotic formulation. This is an interesting example of how important the FDA is to pharma development valuations. More usually we see a stock price leap on approval. Here it’s not that at all, it’s protection. There’s a good and solid economic reason for this.
The announcement: “(NASDAQ: RDHL) ("RedHill" or the "Company"), a specialty biopharmaceutical company, announced that the U.S. FDA (U.S. Food and Drug Administration) has granted five years' market exclusivity for Talicia under the Generating Antibiotic Incentives Now (GAIN) Act Qualified Infectious Disease Product (QIDP) designation, as recommended by the FDA Exclusivity Board. This grant is on top of three years' exclusivity granted for the approval of Talicia under section 505(b)(2). Talicia is protected by its broad intellectual property suite to 2034.”
It is indeed this and only this that has led to the RDHL stock price jump.
RedHill Biopharma stock price from Google Finance
The more normal leap is when the FDA decides that a particular drug works and can therefore be sold. It’s the patent which protects the company from copies. After all, we all know the economics of drug development. It takes tens to hundreds of millions of $ to get it through testing. But once approved the drug can be made for pennies by anyone who can copy the recipe. It’s that patent protection that allows a profit to be made subject to gaining that authorisation to sell.
However, antibiotics are different. Society generally agrees that there’s a specific problem here and so the rules are slightly different. The FDA is able to grant this extra period of exclusivity over something - amoxicillin is well out of patent for example - that deals with something we’d all like to see dealt with. Here Heliobacter pylori.
Which is what has produced this stock price jump for RedHill. That amoxicillin works on H pylori we’ve known for decades. But this specific formulation of it is new, we’ve a problem with protecting new antibiotic formulations, so the FDA has these special rules.
It’s deeply, deeply, unlikely that RedHill is going to regain those heady share prices of 2021 - $300 and $400 - but this is indeed value additive.