Investing in pharma companies with a portfolio of drugs in its development pipeline can be extremely profitable if the research pays off. The risks are high since a large number of drug candidates don’t even make it out of the lab. But in order to make an informed decision, you need to understand drug development lifecycle.
Once the drug discovery phase is completed and a compound identified, there are two major clinical test phases - pre-clinical testing phase and clinical testing phase. Pre-clinical testing is done in the lab and on animals, the effects studied and monitored. If the results are satisfactory and if the company sees potential, a patent application is filed and an IND application is filed with the FDA. If the FDA doesn’t object within 30 days, this can proceed to the clinical trials phase.
What is an IND application?
IND, Investigational New Drug, is a program administrated by the Food and Drug Administration (FDA), whereby a pharmaceutical company obtains permission to ship an experimental drug across state lines before the drug has been approved for marketing.
The IND is a pre-requisite for Phase I clinical Trials. The FDA reviews the application to ensure that the subjects are not exposed to unreasonable risks.
Clinical trials are done on human subjects and carried out under strict FDA regulations and guidelines. The trials are closely monitored with utmost priority given to safety of the subjects and side-effects of the drug. Each phase must be approved by the FDA before proceeding on to the next phase.
Phase I:
Small group (20-100) of human subjects
Often has healthy individuals
One of the objectives is to find the therapeutic dose
Main objective is to study the safety of the drug
Phase II:
Testing conducted on a larger group (20-300)
Further studies conducted to see the effectiveness of the drug
Phase III:
Much larger group (300-3000) of test subjects
Objective is to find out how well the drug works against the current best drug treatment
Expensive and time consuming process
If successful, most drugs can be marketed as per FDA norms with guidelines and recommendations
Phase IV:
Also called post-marketing surveillance trial, aims to study the safety of the drug once it is in the market. Adverse, harmful side-effects can result in the drug being recalled.
This is a very short summary of how a drug is developed and marketed. An investor in the Pharma sector, must understand these phases to make an informed decision.
What is Orphan Drug Designation?
This designation is granted by the FDA to a drug that is intended to treat or cure a rare disease or condition that affects a very small number of people (less than 200K). This designation gives the sponsor, market exclusivity for a seven year period and tax credits related to clinical trial expenses provided certain conditions are met.
Why Phase II Trials Matter?
From an investor’s perspective, Phase II trials are a critical juncture in a drug’s lifecycle. A majority of the drugs don’t make it beyond this phase either due to safety concerns or if the drug does not prove to be as effective as anticipated.
It’s pretty amazing what scientists do to develop new drugs. Too bad animals have to be the first test subjects but guess there’s not much that can be done to avoid that. Better a rat gives his life than a human!
I’ve tried getting into biotech after I heard it was a hot commodity. But I don’t think I have the patience to wait for these drugs to make it through the pipeline and especially when they could flop. I would play this with a “fun money” fund.