We’re all familiar with the FDA’s “breakthrough” designation for drugs (and drug indications) in the clinical trial/approval process. Opinions vary on the whole idea – useful way to prioritize regulatory attention, PR device for all involved because they’re handing ’em out like Halloween candy these days, or some of each. But if you want to know what the public (or at least one segment of the public) thinks of these designations, here’s a way to find out: a study looking on what happens to company stock prices after such announcement.

The authors identified 218 public announcements of breakthrough designations (out of 264 total) from 2012 up to May of 2018 – and if you think that’s a lot of breakthroughs, have some leftover Halloween candy. The ones in the wrappers are still fine. Be that as it may, they went on to exclude non-US firms, private ones, and instances where the announcement hit at the same time as other corporate news. They divided the companies involved into those that did not have a commercial product at the time of the announcement, and those that were already more established, and then checked the stocks’ returns against a mixture of the S&P 500 and the XBI biopharma stock index, looking for excess returns. Three companies were excluded at that point for weird outlier returns (outside the 99% confidence interval) that might have skewed the results.

So, are investors going wild? Raking it in? Not exactly. For the pre-commercial companies, there was an effect, but it peaked (+9%) at the third day after the announcement and lost all statistical significance out by day 8. And the companies that already had drugs on the market? No statistically significant effect at all. So it appears that investors don’t value the designation all that much – although it would be interesting to see if this effect was larger back when the “breakthrough” category was first established. My guess is that it might well have been, but that (264 breakthroughs later) the excitement has receded a bit.

Of course, the idea behind that designation wasn’t to get investors excited; it’s to speed up regulatory approval for the drugs most likely to make an impact. Whether it’s done that, or done it well, is a topic for another data set. Here are the drugs and indications that have actually made it through approval after being so designated; there are 75. Note that that’s not 75 drugs – there are several that appear more than once for their various indications. Nivolumab is on there six times, ivacaftor five times, pembrolizumab five times, and so on. So there’s around a 70% failure rate – grim, but relatively appealing next to the general clinical failure rates that approach 90%. As for impact, the FDA has defended the idea, but there have been calls for physicians to be more aware of what it means and the possible heterogeneity of the data supporting the indications.

This overview of the program (albeit authored by some people who are known to be skeptical of the pharma industry) comes down on the fence, but with a recommendation that the term “breakthrough” be scrapped because it raises expectations too high compared to the actual standards for the designation. I would guess that investors have, for the most part, internalized just such thoughts.