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FDA Drug Approvals Enjoy Positive Trend

Two FDA initiatives have increased the number of drugs and biologics approved in recent years, but the pace is not likely to continue unabated.

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Morningstar Credit Ratings looks at approvals of novel medicines by the Food and Drug Administration as a proxy for innovation in the brand name pharmaceutical industry. The branded drug industry hit its stride having obtained 45 novel drug and biologics approvals from the FDA. This followed a down year in 2016 when only 22 new drugs gained regulatory approval. Out of this number, companies rated by Morningstar Credit Ratings accounted for 23 novel treatments, around one half of the total, with AstraZeneca leading the group with four. We understand that there can be substantial volatility in the approval numbers from year to year, so we recognize trends over multiple years as more insightful.

Along these lines, we call out two notable approval trends since the FDA's drug approval foundation was established in 1992 with the enactment of the Prescription Drug User Fee Act. Despite early success with the law and subsequent amendments, a negative trend arose after Merck's voluntary market withdrawal of COX-2 inhibitor Vioxx in September 2004 due to cardiovascular safety concerns. In light of extensive political and consumer fallout from this event, the FDA needed to reassess and develop new safety standards to ensure that the issue was not repeated. As the agency and Congress worked toward this goal, the average number of drug approvals per year fell to 23 in 2005 to 2011 from 33 in the 1996 to 2003 period. 

Michael Zbinovec does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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