Many of us grew up learning civics on Saturday mornings via ABC's Schoolhouse Rock. Ask me how a bill becomes a law even today, and the I'm Just a Bill tune pops into my head. (If you have no idea what I'm talking about, click here to find out.)
Memories of long-ago Saturday mornings prompted me to think about how we at the Fool could help investors new to the complex world of pharma learn some of the basics of the business. Therefore, I humbly submit to you a Schoolhouse Rock version of how a new drug gets approved in the U.S. Feel free to hum along to any tune you like.
"Find a new drug for the lab to test."
The approval process for new drugs can be viewed as a funnel with some filters. At the top of the funnel is the drug discovery process.
Pharmaceutical companies research thousands of compounds in efforts to determine which might have potential for treating diseases. Only those compounds showing potential move down the funnel.
"If discovery goes well, kick off a pre-clinical quest."
Pre-clinical studies must next be conducted to determine the product's safety. Scientists administer the product to animals, typically mice, rats, or dogs, so scientists can assess its safety profile for later testing on humans.
"Submit an IND for the FDA to OK."
If pre-clinical studies yield positive results, the next step the pharmaceutical company takes is to submit an Investigational New Drug Application to the U.S. Food and Drug Administration. The IND must be approved for the company to be able to take the drug across state lines and proceed with human testing.
"If the FDA says 'yes,' get clinical trials underway."
Organizations seeking drug approval must conduct three pre-market phases of clinical trials:
- Phase 1 -- Investigators test the drug with a small group of volunteer patients (usually less than 100) to evaluate its safety.
- Phase 2 -- Studies are performed with a larger group of patients (usually in the hundreds) to see if it is effective and to further verify its safety.
- Phase 3 -- Large groups of patients (usually in the thousands) take the drug to confirm effectiveness and allow monitoring of side effects.
Some drugs target treatment of rare diseases that affect less than 200,000 patients. Alexion Pharmaceuticals (Nasdaq: ALXN ) , for example, makes Soliris. The drug is used to treat paroxysmal nocturnal hemoglobinuria, a rare blood disease affecting no more than 6,000 Americans.
Drugs like Soliris can receive orphan drug status, which provides several benefits to the sponsor of the drug. Fewer patients are involved in clinical trials for orphan drugs, but the same phases apply.
"When the trials look good, submit the NDA."
Success in the clinical trials sounds like music to the ears for the pharmaceutical company. It now believes that it has substantive evidence that the drug produces positive outcomes for the intended treatment and is safe enough for people to take.
The next step is for the company to submit a New Drug Application to the FDA. Ariad Pharmaceuticals (Nasdaq: ARIA ) recently took this step by submitting an NDA for ponatinib to treat patients with resistant or intolerant chronic myeloid leukemia and Philadelphia-chromosome positive acute lymphoblastic leukemia. The company now awaits the FDA's decision.
Note that a different application applies for biologics, which are made from living organisms and their products. Companies submit a Biologic License Application instead of an NDA for biologics.
Some clinical trials don't end so well. In these cases, the pharmaceutical company won't submit an NDA. The company might look for other potential treatments that the drug can address. Sometimes, though, the company abandons efforts related to the drug.
"The vote of yea or nay rests with the FDA."
FDA advisory committees usually review the NDA first. These advisory committees consist of physician-researchers, statisticians and representatives of the public, including patients. The committees make recommendations to the FDA based on their review of the product. A recent example in the news was the advisory committee recommendation that the FDA approve Truvada, made by Gilead Sciences (Nasdaq: GILD ) , for use in treating HIV pre-exposure prophylaxis.
The final decision, though, rests solely in the FDA's hands. The advisory committee's recommendation doesn't bind the FDA to agree with its decision, although that is generally what happens.
"If the NDA they uphold, at last the drug can be sold."
If the FDA approves the NDA, the pharmaceutical company can finally move forward with selling the drug. The company now gets to reap the rewards from the years and hundreds of millions of dollars invested in the drug. A recent example of a company reaching this milestone is Amarin (Nasdaq: AMRN ) . Its drug Vascepa received FDA approval in July.
Some drugs still have another small hurdle to jump even after the NDA is approved, though. The Drug Enforcement Agency must finalize controls for prescribers for drugs that have the potential to be abused. Arena Pharmaceuticals (Nasdaq: ARNA ) faced this situation a few months ago with its Belviq diet pill.
"But that's not the end -- more still can be told."
After drugs hit the market, phase 4 clinical trials may begin to determine risks, benefits, and optimal use. The pharmaceutical company might even repeat the entire process for the same drug but for treatment of a different disease.
Sometimes, the song ends on a sour note. If serious problems emerge with patients taking the drug, the company might be forced to pull it from the market. More often, though, the drug continues to sell until a more effective or cheaper alternative comes along.
A couple more verses to this song could probably be written. While the key points are addressed, there are a few additional twists and turns not covered. Check out the FDA's web site to delve into the details of the approval process.
If you're ready to rock on into the world of biopharma, we at The Motley Fool salute you. And to help you in your research, the Fool has prepared a premium report exploring the risks and opportunities of one of the companies mentioned earlier -- Arena Pharmaceuticals. The report comes with a full year of analyst updates, so click here to get your copy now!