If you’re dabbling in the idea of investing in clinical-stage biotechnology companies, chances are that you’ve come across the acronym PDUFA once or twice. The acronym stands for Prescription Drug User Fee Act.
The PDUFA was a law that was passed in the United States in 1992 that gave the United States Food and Drug Administration the right to collect fees from drug manufacturers in an attempt to offset the cost of the approval process surrounding new drugs.
As a result of the act, the FDA now has the ability to collect a relatively large application fee from drug manufacturers when a New Drug Application or Biologics License Application is submitted.
The funds collected as a result of the PDUFA are only to be used by the Center for Drug Evaluation and Research or the Center for Biologics Evaluation and Research and are designated to cover the costs associated with drug approval activities.
So, what does this have to do with investing in biotech? EVERYTHING!
Aside from the ability to collect fees surrounding New Drug Applications and Biologics License Applications, the PDUFA put requirements on the FDA as well. In particular, the FDA only has a short period of time to review applications that have been submitted and paid for.
This was a big move for biotechnology companies and investors. Companies submitting applications had shorter waiting periods to find out if drugs were going to be approved or declined. Moreover, exact dates, known as PDUFA dates are now provided as soon as an application is submitted, providing information on a timeframe of the next big catalyst for investors.
So, how do you use PUDFA dates to create profits in the stock market? The process is relatively simple. Here’s a step by step guide:
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