Healthcare/ Biotechnology/ FDA Approval Process 1 comments

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There has been a disproportionate amount of attention on biotech stocks of late on online forums, in particular Biosensors, which experienced huge turbulence in stock prices as it went through a period of incessant newsflow characteristic of companies in this sector: regulatory approval to distribute in Europe, lawsuits from competitors subsequently dismissed, frothy valuations triggered by newsflows from the prime biotech market, the US (the acquisition saga of Guidant), persistent losses subsequently brushed aside by the market. Throughout all this, most investors/traders in this stock still have relatively hazy views on the biotech industry, like me (although I avoid this stock). I thought it would be useful to investigate a typical FDA (Food and Drugs Authority, the relevant regulatory authority in the US) drug approval process in the US and illustrate the long periods involved; this of course gives an idea of the payoff period for investors in such stocks.

Stages of the FDA Approval Process

Preclinical testing (1-3 yrs)
- Lab and animal tests. To prove efficacy of compound and potential toxicity.

Investigational New Drug(IND)Application
- A milestone. The company files this with the FDA to commence testing on humans. It marks the beginning of 3 compulsory phases of clinical trials.

Phase I Clinical Trials (~1 yr)
- Tests on 20-80 healthy volunteers. To determine safety profile (dosage, absorption, metabolization, excretion by body).
- The risk-> Percentage of drugs successfully passed (of those with IND submitted): 70%

Phase II Clinical Trials (1-2 yrs)
- Tests on 100-300 volunteers with the targeted disease. To evaluate drug effectiveness.
- The risk-> Percentage of drugs successfully passed (of those that have already passed Phase I): 47%

Phase III Clinical Trials (~2 yrs)
- Tests on 500-3000 volunteers with the targeted disease., to assess long-term effects. Patients are monitored for possible adverse reactions and critical incidents. To evaluate safety and efficacy of the drug (much like preclinical testing on animals).
- The risk-> Percentage of drugs successfully passed (of those that have already passed Phase II): 75%

(Typically there is a post-marketing Phase IV clinical trials, to benchmark against competitor drugs, which can be concurrent with product approval).

New Drug Application(NDA) (~2 yrs)
- After the first 3 phases, the company can proceed to file an NDA application with the FDA who will take (an extraordinarily long!) time to decide whether to approve the drug.
- For serious illnesses with no alternative cures, there is a process known as Accelerated Review which allows approval to be granted prior to Phase III results.
- The risk-> Percentage of drugs successfully approved (of those that have already passed Phase III): 80%

Approval
- The final milestone. Now doctors can prescribe the drug to their patients.

One has to be aware of the risk in buying biotech stocks. Firstly, the long arduous period of testing to obtain drug approval (I am assuming that a drug-eluting stent, being a medical device inserted into the body and eluting drugs, is similar to drug approval)-- 5 (Accelerated Review) to 10 years from the onstart of pre-clinical testing. Secondly, compounding the probabilities for clinical trials + approval process above, only 20 out of 100 drugs with INDs submitted will be approved. One may also note that with Phase II (appaarently the most stringent, looking at the high failure rate) cleared, the road to approval seems clearer: there is a more than even chance that the drug will be approved (60%).

So for those monitoring the Biosensors products, they may want to check on the status of testing for their drug-eluting stents such as Biomatrix and evaluate their risk exposure from there. Of course, for the Europe side apparently all is clear for their distribution of their Axxion stent with their CE mark award; the CE mark for Biomatrix is expected to be awarded soon.

References:
(1) The Essential Biotech Investment Guide (Mark Tang)