Ever wonder what a drug that gets approved by the FDA looks like? What are the most common types of drugs that the agency approves, and what other characteristics improve a drug's chances for approval? If you've pondered these questions, then you're in luck: In 2006, the FDA released a review examining the drugs that get approved by the agency and their characteristics.

Every five years since 1992, Congress has had to renew the Prescription Drug User Fee Act (PDUFA), which allows the FDA to get cash from drugmakers in return for reviewing the marketing applications related to their drugs. The latest PDUFA renewal, which occurred earlier this year, was covered by my fine Foolish colleague Brian Orelli.

In conjunction with the previous PDUFA renewal, the FDA hired an independent auditor to take a look at all drugs that were up for approval from 2002 to 2004 and determine the characteristics of drugs that were approved. Some of the auditor's findings will come as a surprise, while others weren't so unexpected. Below is a useful summary of the review, which can be found here.

This is an approved drug
Overall, 47% of the 77 drugs reviewed from 2002 through 2004 were approved the first time they went up for approval; 23% were approved after resolving approvable-letter concerns; 5% were issued not-approvable letters; and the remainder had approvable-letter concerns that had not been resolved by the time the report was issued. Cumulatively, then, at least 70% of drugs making it to the FDA review process went on to get approved.

The Milken Institute (opens PDF) pegged the approval rate for new molecular entities under review at 81% in an earlier 2002 report. The FDA report cited 73% of drugs treating a life-threatening condition with a new mechanism of action as getting approved on the first go-round from 2002 through 2004. A drug like Genentech's (NYSE:DNA) Avastin falls into this category.

Interestingly, only 42% of drugs developed in-house and not partnered out received approval the first time they went up for FDA review, whereas 65% of drugs that got partnered out received approval on the first go-round. The reviewers surmised that drugs that get partnered are exposed to more scrutiny prior to partnering, and thus may be of higher quality than the average in-house drug. This bodes well for a drugmaker like Exelixis (NASDAQ:EXEL) if partner GlaxoSmithKline (NYSE:GSK) is able to get cancer treatment XL880 through phase 3 testing.

As most investors would probably suspect, drugs subjected to an advisory-committee hearing fare worse than drugs for which the agency doesn't hold a panel hearing. Of drugs subjected to a panel hearing, 31% get approved on the first go-round, whereas 46% of those without hearings get approved immediately. Even though Theravance's (NASDAQ:THRX) Telavancin has already been subject to an FDA review, this is why investors took Theravance shares down 9% last Friday after it announced an FDA panel hearing may be convened to discuss its lead drug.

Unsurprisingly, positive past experience with the FDA matters: 51% of drugs submitted for approval by drugmakers who had already received marketing approval for other drugs got approved on the first go-round, compared to 30% for drugmakers without any previous FDA approvals. This is good news for drugmakers like CV Therapeutics (NASDAQ:CVTX), which is awaiting a regulatory decision on its second drug early next year.

Other experience-related variables also matter. Large U.S.-based pharmaceutical firms received approval for their drugs at a 64% rate without needing to give the agency additional information, compared to a 43% rate for foreign pharmas. U.S.-based biotechs did even better, with an 86% first-time approval rate, while small biotechs only received approval at a 33% rate on the first go-round for their drugs. 

An article in SIGNALS Magazine (one of the best biotech investor resources on the Web, by the way) highlights the unpredictable nature of drugs receiving "fast-track" and priority review designation. The FDA stats from 2002 to 2004 show that 62% of drugs with a priority review designation received FDA approval without the need for any more data, compared to 34% of non-priority reviewed drugs. This doesn't account for the huge amount of fast-tracked drugs not making it to an FDA review, though.

Finally, one of the more interesting data points from the article is that "between two and three times as many applications are submitted in the fourth quarter of each calendar year than any other quarter." Only 26% of drugs submitted during this time receive approval on the first go-round, compared to 64% of drugs submitted during the other three quarters.

The reviewers hypothesized that the huge strain on agency resources that all these fourth-quarter applications present is probably what affects the fourth-quarter submissions' success rate. Considering the rash of drugs receiving extended review times in the fourth quarter (not the same as a fourth-quarter submission, but similar), like Novartis' (NYSE:NVS) Galvus and Encysive Pharmaceuticals' (NASDAQ:ENCY) Thelin in 2006, and this hypothesis doesn't sound too far off.

The ideal drug for approval
It's important to remember that this list only covers drugs making it to the FDA New Drug Application or Biologics License Application stage, and does not detail the characteristics of a drug in clinical trials that will make it to approval.

Nonetheless, the above characteristics of approved drugs will be helpful for investors who like to make bets on drugs awaiting FDA approval. If you want to maximize the odds that a drug will get approved the first time it's up for review, you should look for a large U.S.-based biotech that in-licensed a compound that didn't have to go through an advisory panel hearing; a drug that treats a life-threatening disease such as cancer; and a marketing application that wasn't submitted in the fourth quarter.

More Foolish FDA coverage:

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Glaxo is a selection of the Income Investor newsletter. The Fool has an A+ disclosure policy.