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Prana Biotechnology Limited leaps on potential breakthrough: Should you buy?

What: Shares in biotech business Prana Biotechnology Limited (ASX: PBT) rocketed more than 42% today after it announced that its PBT2 drug for the treatment of Huntington’s disease has been granted Orphan Drug designation by the U.S. Food and Drug Administration (FDA).

So what: Orphan drug designation is granted by the FDA to promote the development of drugs for rare diseases that affect less than 200,000 people in the U.S.

Huntington’s disease is a neurodegenerative brain disorder that leads to cognitive decline. It affects more than 30,000 people in the U.S. and there are currently no effective treatments for the cognitive decline symptoms of the disease.

The company plans to apply for Orphan Drug designation in other jurisdictions.

Now what: Orphan Drug designation entitles Prana to seven years of market exclusivity for the use of PBT2 in the treatment of Huntington’s disease. It also means Prana is able to formally receive guidance from the FDA as to how to go about the approval process in applying for eventual marketing approval.

Prana recently completed a Phase 2 trial of the drug’s effectiveness in treating Huntington’s disease. Prana says some of the trial results were positive in showing statistically significant behavioural improvement in some of the patients using the drug.

The company says it is now developing its Phase 2 trial dossier for submission to the FDA to commence discussions on the next development steps for PBT2. Notably, Prana remains a long way off being able to commercialise the drugs and its biggest problem remains demonstrating to the FDA that they are actually effective in the treatment of Huntington’s.

Back in February shares in Prana lifted to more than $1.30 as a whirl of publicity-driven excitement surrounded the company’s claims that it had a real chance of developing the PBT2 drug as a treatment for Alzheimer’s disease. However, when trial results disappointed shares crashed around 80% to under 20 cents as the old investing adage of buy the rumour sell the fact came home to roost.

Investors appear to be throwing more caution to the wind on the latest news and Prana remains a highly speculative play.

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Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

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