In 1911, in response to the widespread sales of "snake venom" and other wonder cures, the Sherly Amendment was passed. This amendment made it a crime to make false claims in drug labeling.
In 1928, the government formed a separate law enforcement agency, originally called the Food, Drug, and Insecticide Administration. In 1930, the name was changed to the Food and Drug Administration.
The foundation of the modern clinical trial process was enacted in 1938 with the Federal Food, Drug, and Cosmetic Act. This was the first attempt to regulate cosmetics and medical devices. This act required that drugs be proven safe prior to marketing. The manufacturers of drugs now had to provide scientific proof of safety by submitting an Investigational New Drug (IND) filing prior to human trials, and a New Drug Application (NDA) before marketing new drug products.
In 1962, the FDA was thrust into public view as a result of the discovery and use of Thalidomide, a sleeping pill which resulted in thousands of birth defects in Western Europe. Because of the FDA's role in keeping the drug off the market in the U.S., the agency received a lot of positive press.
Twenty years later, the much publicized deaths of seven people from Tylenol laced with cyanide prompted the passage by the FDA in 1982 of tamper-resistant packaging regulations.
In 1983, the orphan Drug Act provided incentives for drug companies to develop drugs for rare diseases.
Finally, in 1992, the Prescription Drug User Fee Act was passed, which required drug and biologic manufacture application and other fees to be paid to the agency. This revenue is used to hire more FDA reviewers, and resulted in increased efficiency in the drug approval process.
The drug approval process starts in the laboratory. After discovering a promising compound, studies using the cultures, isolated tissues, and laboratory animals are conducted. This gives researchers a pretty good idea of what to expect in human trials. On average, only one compound in a thousand will actually make it to human testing. Assuming the data is promising, the company decides whether to begin the long and costly process of getting the compound on the market.
Since most drug companies have multiple candidates, the company must take into account the size of the potential patient population, whether the market for that particular drug is already being served, and the company's financial situation. Also, the patent protection for the drug, generally lasting 17 years, begins to tick once the compound begins pre-clinical trials. The pre-clinical trials for most drugs average about five years.
Assuming the company decides to pursue human studies, it must first submit an Investigational New Drug application to the FDA for approval. The IND becomes effective 30 days after receipt by the FDA (assuming the FDA does not require further information) and must be filed annually thereafter until the completion of clinical testing. The IND must provide pre-clinical data of sufficient quality to justify the testing of the drug in humans. About 85% of all IND applications move on to begin clinical trials. Assuming the company receives the FDA go-ahead, the company will begin Phase 1 testing in human subjects. At this point, the compound has a one in five chance of reaching the market, and will normally take another five to nine years to reach that destination.
Phase 1 trials concentrate on developing the drug's safety profile. The human subjects in the study are normally healthy volunteers, though sometimes patients who have terminal illnesses and have no other therapeutic alternative will take part in Phase 1 studies as well. (For example, the first person to take Foscarnett for the treatment of CMV was a PWA and he died with the first dose.) The sample in Phase I is normally not more than 100 patients. The basic goal of this phase is to determine how the drug is absorbed, distributed in the body, metabolized, and excreted. The duration of the drug's effects are also measured. Phase 1 testing ranges from one to three years, on average.
Assuming the data from Phase 1 are positive and the safety of the compound is established, the drug moves to Phase 2 testing. If the company moves on to begin Phase 2 trials, the drug's chance of eventually making it to market improves to just under 30%.
Phase 2 trials consist of small, well-controlled experiments to continue to evaluate the drug's safety and assess side effects. The drugs are given to volunteers (usually between 100 and 300 patients) who actually suffer from the disease or condition being targeted by the drug. This phase is where the optimal dosage of the drug is established. Also, statistical endpoints are established for the drug that represent the targeted favorable outcome of the study. The current standard of care for the medical condition can be used as a benchmark in setting the endpoint. Phase 2 trials last an average of two years.
A drug that moves on to begin Phase 3 testing has about a 69% chance of being approved by the FDA.
Phase 3 testing is intended to verify the effectiveness of the drug against the condition that it targets, based on the statistical endpoints established in Phase 2. The study continues to build the safety profile of the drug and record possible side effects and adverse reactions resulting from long-term use. Phase 3 studies are tightly controlled, double-blind studies with a sample size of at least 1000 patients. If the drug proves to be effective in this stage, the trial is deemed successful (pivotal). Normally two pivotal trials are required to ensure the validity of the studies, although if the results are extremely strong, one may suffice. Phase 3 testing averages between three and four years.
Assuming the drug reaches the desirable endpoint in Phase 3 trials, the company will then file a New Drug Application which can contain 100,000 pages of data supporting the efficacy and safety of the drug. At this point, the drug has better than a 70% chance of being approved by the FDA.
Approval of the NDA can take anywhere from two months to an extreme of several years (in the case that the FDA requests additional information), with an average wait of between 18 and 24 months. Upon approval, the company may begin to market and distribute the drug.
Once the drug is on the market, the company must continue to perform observational studies in an ongoing evaluation of the drug's safety during routine use. The company also attempts to monitor any usage of the drug for conditions other than the approved medical indication. If the drug is being successfully used for off-label indications, the company will often initiate further clinical trials for those indications in order to widen the potential market for the drug. The company cannot advertise or endorse off-market use of the drug, however.
The clinical trial process is costly as well as time-consuming. Estimates of the cost of pushing a drug through clinical trials range from $350 million to $500 million. Investors interested in early stage companies should factor in the costs, risk, and extended time to market required for FDA approval.
Investors interested in the biotechnology sector would do well to consider companies that already have one or more successful products on the market, have a large pipeline of candidate drugs, and have plenty of cash to fund the development of their new drug candidates. Amgen (Nasdaq: AMGN), Biogen (Nasdaq: BGEN), Chiron (Nasdaq: CHIR), and Genentech (NYSE: DNA) are the largest companies in the biotech sector.