It takes years of testing for a new drug to be approved by the FDA and then made available to the public. By the time a drug reaches its third stage of testing, it has already been deemed safe and reasonably effective at treating the condition it's designed for. Phase 3, however, represents a pivotal point in a drug's testing life cycle. It is the final and most comprehensive test a drug must pass before it can be sold.

Because phase 3 trials are conducted on a large number of patients and generally take multiple years to complete, they offer better insight into a drug's effectiveness and safety than the earlier phases of testing.


What happens during a phase 3 drug trial?

During the first phase of a clinical drug trial, a new medication is tested on a small group of patients. Once the drug is deemed safe enough to warrant further testing, it moves on to phase 2, which involves testing it on a much larger patient population. During a phase 3 trial, a new drug is typically tested on several thousand patients who have the condition or disease it's designed to treat. Phase 3 drug trials can take anywhere from one to four years, and because they're so lengthy, they're more likely to reveal long-term side effects than the earlier trials.

Patients in a phase 3 trial are randomly assigned to receive either the current standard of care for their condition or the new treatment being tested. Phase 3 drug trials are typically double-blind, meaning that neither the patients nor the researchers know which group is receiving the new treatment or the existing standard. The benefit of conducting drug tests this way is that it gives researchers a completely unbiased view of the side effects and benefits of the treatment at hand.

As is the case during the first two stages of drug testing, during a phase 3 trial, the patients involved are monitored closely for both side effects and improvements. If the drug is shown to be effective and safe, then the company that makes it can then seek approval from the FDA to market it to the public. The majority of drugs that enter phase 3 wind up successfully completing this stage of the testing process.

Investing in companies with phase 3 drugs

The outcome of a phase 3 drug trial can make or break a company and significantly impact its stock price. By the time a drug reaches the third stage of testing, the company behind it has already sunk many years and countless dollars into developing it. For this reason, a failed phase 3 trial can be downright catastrophic. If you invest in a pharmaceutical company when a drug enters phase 3 and the results of the trial are positive, then you stand to make money once news of those results gets out. But if you invest in a company whose phase 3 drug test ultimately fails, then you're likely to see its stock price go down. It's therefore important to consider the upside and the risk of investing in companies with multiple phase 3 drugs in their pipelines. 

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