Biotech 101: Drug Development and the FDA

Biotech 101: Drug Development and the FDA

Investing in biotech is unlike investing in any other sector of the market. Much of the time, investors will look to take a position in companies that aren’t yet generating revenues, but have drugs or therapies in development. Instead of earnings and sales driving the valuation, therefore, markets must look to the development process of the therapies in question. You can think of clinical trials as milestones in a new drug development process – they follow a set pattern, a relatively similar structure across therapies and the company must successfully complete one before moving onto the next. As development stage biotech investors, it’s important to understand what the completion of each stage means for a treatment’s prospects. So, with this said, let’s take a look.

Discovery and Preclinical

Everything kicks off with the discovery phase. Discovery is ongoing, and more often than not takes place in University or College research laboratories. During discovery, scientists test thousands and thousands of compounds each year in order to ascertain whether any are worth carrying forward into development. The vast majority of those tested go no further.

The small number that do pass discovery go in to what’s called preclinical testing. Essentially, this is testing on animals (often mice or primates) in order to gauge the safety of a compound. It is worth mentioning that efficacy isn’t really under scrutiny here and – as a result – few investors get excited about preclinical testing. Next up is where the real action begins.

Trials Begin

Phase 1 trials are for those compounds that have shown the potential for efficacy in discovery and proven they are safe enough to be administered in humans – albeit a small sample. It is not unusual for phase 1 trials to consist of a single or low double-digit sample size, but they can run up to a maximum of triple digits for a treatment with a potentially large-scale application. Once again, here, efficacy is not that important. When things reach this stage, the company developing the treatment will set “endpoints” – generally primary and secondary. Primary is the main goal of the trial, while secondary are extended (but often less important) goals. The primary endpoints of phase 1 trials and generally safety and tolerability. Simply put, the company is looking to confirm the conclusion of the preclinical safety data, while establishing a tolerability level – or dose, in other words. Efficacy is often no more than a secondary endpoint at this stage.

If the treatment is successful in its phase 1 trials (i.e. it meets its primary endpoint) it will generally then head into phase 2. The aim of a phase 2 trial is to show the treatment is effective across a reasonably sized sample. There is no set number associated with the sample size, but they normally involve triple digits, with the general rule being the more common the targeted indication that higher the sample size. Once again, the developing company will set primary and secondary endpoints before heading into trial – with the primary being a specific efficacy endpoint related to a predefined marker. The market varies depending on the nature of the indication. For example, for this phase 2 trial of AstraZeneca PLC’s (NYSE:AZN) glioblastoma treatment MEDI4736, the primary endpoint was efficacy as judged by overall survival rate at 12 months. What this means is if at 12 months the rate of survival is higher in patients treated with MEDI4736 than those not, the trial has met its primary endpoint.

Finally, if a treatment is successful in phase 2, it will head onto a phase 3 trial – the final phase of the process before the company is able to file a new drug application (NDA) the FDA. More often than not, the primary and secondary endpoints in a phase 3 trial are similar if not identical to those in the phase 2, but the goal is to replicate phase 2 results across a much wider sample size. In a common indication, the sample can range up to thousands. In an ongoing Alzheimer’s trial conducted by Biogen Inc. (NASDAQ:BIIB), for example, Aducanumab will be administered to an estimated to 2700 patients across a period of five years. Delivering a drug on this scale also forces the company to prove that it can manufacture and distribute a treatment safely and effectively if required as part of a post approval, scaled up, administration regime.

NDA Submission

Between 25 and 30% of phase 3 drugs demonstrate efficacy across a wide scale population, and become eligible for submission as part of a NDA. Essentially this is where the company brings together everything it has learnt and proven about the treatment in question, and submits it for consideration by the FDA.

The remit of a successful NDA is that it must allow the FDA to answer three questions concerning the treatment. First, is the drug is safe and effective (also, does its benefits outweigh its risks?). Second, does the drug’s packaging clearly display the information patients and consumers require to make informed decisions? Third, can the company in question manufacture the drug and distribute it without interfering with safety and efficacy demonstrated at small scale administration?

If the answer to any of these questions is no, the FDA will generally return the NDA to the development company to request revisions – either that or decline the drug outright. However, if the FDA is satisfied, it will approve the drug and the development company can take the treatment forward to the marketing stage – essentially it can start to generate revenues.

A Final Consideration…

Remember, a drug’s approval does not guarantee success in the market. There have been numerous failed introductions, with one famous example being Pfizer Inc.’s (NYSE:PFE) inhalable insulin treatment Exubera. What looked like a potentially $5 billion blockbuster proved not to strike a chord with its target market and ended up costing Pfizer nearly $3 billion!

And there we have it. Aside from ongoing trials (sometimes called phase 4) that monitor a drug’s efficacy and safety for an extended period of time after the marketing phase, this pretty much sums up the development timeline. How an investor approaches each of these develop phases, and what they look for in clinical trial results releases, is something we will address in a later article. For now, however, get to grips with this structure and you will have a firm grounding in how a drug gets to market.

Image courtesy of Raymond Bryson