Stock for Hoth Therapeutics, Inc. (HOTH) has unexpectedly gone on an abrupt growth rocket. After a 2 month period of little variation, the stock suddenly shot up by 56% within a 30-minute window in the pre-market. This growth later stabilized at 21.57%, signaling remarkable stock appreciation for investors. It is evident that an external information update rocked traders into activity, rushing to get hold of HOTH. Evidently, this led to a rapid driving up of price in a short span of time.
Orphan Drug Designation
As is the case with any biopharmaceutical, value is close to the progress of developing treatments, and approvals from regulatory agencies. A recent press release by Hoth Therapeutics reported an FDA designation for the HT-KIT as an ‘Orphan Drug’. This gives an economic incentive to the company to develop the treatment for the rare Mastocytosis. Typically, companies do not have a market pull factor to develop life-saving drugs that do not have a substantial market. Research and development costs are unfeasible to incur, and investment is an impractical project. As per the Orphan Drug Act of 1983, drugs falling under this designation face substantial economic incentives for development.
Direct Benefits of Orphan Drug Designation to HOTH
The direct benefits to HOTH as a result of the FDA designation are as follows:
- Exclusive marketing rights for treatment, for a seven-year period.
- Federal tax credits of 25% for costs incurred during research and development (These could be applied to future profits spanning 20 years)
- Waiver of Prescription fee for drug developers, costing approximately $3M as of 2021
- Research grants priority extending beyond orphan drug research and development
- Regulatory assistance extending beyond orphan drug research and development
In the case of Hoth Therapeutics, the market is certainly responding favorably to the news of the orphan designation by the FDA. However, its translation into value for stockholders remains ambiguous. The designation for the HT-KIT was applied at an early stage of the development, as is typical with orphan drugs. As a result, this reflects the high-risk factor and uncertainty surrounding the treatment, as of yet. However, the designation certainly adds value to the company in the form of brand value and overall credibility as a stellar biopharmaceutical in the industry. Furthermore, the innovation benefits, although of little commercial value could potentially lead to breakthroughs in other domains that have a wider market pool.