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The Drug Approval Process
Clinical trials are a series of procedures used to determine the safety and effectiveness of new medical treatments. The process is necessary to gain approval from the Food and Drug Administration (FDA) in the U.S. and other regulatory bodies (notably the EMA) internationally. A sequence of phases serves as an indicator of how well new drugs and treatments are progressing through the trials procedure. Companies with drugs in later stages are perceived to have a more promising future. Accordingly, the analysis of these trials is an important part of developing an investment thesis, as future revenues of a company are highly dependent on the success of new drugs and treatments.
Clinical trials are usually derived from the ideas of researchers. These researchers use data from prior studies in labs, as well as animal studies. The most promising results are then moved into the clinical trial format. There are different categories of clinical trials, depending on the concept being researched. Treatment trials test new drugs or combinations of drugs, or different approaches to surgery or radiation therapy. Corporations that commonly use this method are big pharmaceutical companies, such as Merck (MRK - Free Merck Stock Report) and GlaxoSmithKline (GSK). Biotechnology companies, such as Amgen (AMGN), Genentech, Cephalon (CEPH), Gilead (GILD), and BioMarin (BMRN), also perform treatment trials. Prevention trials examine better ways to prevent diseases in people who have never had the disease or ways to prevent the disease from returning. These are commonly performed by health organizations, such as the National Institutes of Health (NIH) (specifically the National Cancer Institute). Diagnostic trials study better ways to diagnose a particular disease or conditions in those with symptoms. Screening trials test better ways to detect health conditions or diseases in those without symptoms. Diagnostics companies, such as Abbot Labs (ABT) and Myriad Genetics (MYGN) perform diagnostic and screening trials. Lastly, quality of life trials determine ways to improve the comfort of life for those with a chronic illness and/or need palliative care. Various organizations focus on this part of medicine.
Clinical trials are separated into phases based on the success of the study. Each trial is comprised of a group of participants that have been qualified. Some of the participants in the trial have the intended illness being researched, and others may be healthy. Qualifications are based on age, gender, and the staging of the disease, as well as patient history. Participants are commonly divided into two groups. An active group receives the new treatment being tested, while the control group receives an existing treatment for a disease or a placebo. Results are then analyzed to see if there is conclusive evidence that the new treatment is safe and provides identifiable benefits.
Trials are conducted on only the most successful results received from preclinical testing. On average, there are six years of preclinical data before a clinical trial is observed. And, less than one in 5,000 research studies makes it to a clinical trial. The average time of a clinical trial is six to ten years.
Clinical trials are typically divided into four phases: Phase I (the earliest stage for primary human testing) Phase II, Phase III, and Phase IV (post marketing trial when potential risks/side effects are analyzed). However, most of the clinical work is done in Phase I, II, and III. Through the trial, an investigator, typically hired by the sponsor (company or organization), is responsible for maintaining an accurate assessment of the drug’s safety. The investigator reports all safety issues and progress shown to the FDA. Although there are four main phases, some ancillary steps to the procedure have been added. An exploratory IND (Investigational New Drug) stage was recently introduced to speed up the development of successful drugs and rank the order of potential Phase I candidates. Subjects are given a fractional dosage (well below intended therapy dosage) to see if results can be detected early, thus enabling investigators to decide to move on with the trial. There is also what is known as a fast-track drug trial that speeds up the entire clinical process. Only a few drugs meet this category (drugs with unmet medical need for a serious illness).
Phase I trials test the drug or treatment in a small group of generally healthy participants. This can range from 20 to 100 people. In this trial, researchers analyze the safety of the proposed treatment, and figure the proper dosage and potential side effects. The main objective of the trial is to develop a level that is not too poisonous for a potential patient. Historically, about 75% of Phase I candidates have moved on to Phase II.
When the level of safety has been established, researchers move to Phase II of clinical trials. This is the first time that results are analyzed for potential benefits. As such, about 50% of drug candidates fail at this stage. Phase II is typically comprised of 100 to 300 participants. In some instances, this trial is divided into two subphases, Phase IIA and Phase IIB. Phase IIA engages in more tests for safety, while Phase IIB determines the efficacy (effectiveness within the trial) of the new treatment.
If a drug candidate or treatment has shown substantial promise, it is then moved to Phase III trials. This involves mass testing to see if the treatment works on a large scale. The Phase III trial is also repeated a few times in multiple locations to make sure that the benefits are clear. Each trial is usually comprised of a large group (1,000-3,000 people). This phase tends to be expensive and can span a long duration, depending on the type of trial. In treatment for chronic illness, this is particularly true. However, investor markets react positively to drugs in Phase III, as many are anticipated to significantly boost future revenues of a pharmaceutical or biotech company. About 65% of drug candidates pass Phase III, and 90% of those are eventually approved by the FDA.
Once the drug completes all three major trials, the sponsor files a New Drug Application (NDA) to be reviewed and approved by the FDA. In 2010, the FDA approved 21 drugs. The pace is significantly higher in 2011, with 20 drugs already approved through the first half.
In Europe, the European Medicines Agency (also known as EMA or EMEA) approves drugs in a similar fashion to the FDA. When a drug undergoes trials in the United States., it can typically use this clinical data when filing for European approval. Inherent risks include trial termination due to safety concerns or failure to realize a benefit. Pharmaceutical and biotech stocks can fall dramatically when these events occur.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.