New Drug Application and it’s implication on stock price

A New Drug Application (NDA) is submitted by pharmaceutical companies to the FDA for approval after clinical trials are complete in order market and sell the new drug in the US.

A typical NDA tells the full history of the proposed drug and can have over 100,000 pages of information on the drug from it’s initial laboratory tests through phase 3 clinical trials, with the main purpose being it’s safety and efficacy for it’s intended use on humans. Along with all the studies, data, analysis and any information gathered along the clinical trials, the NDA must include:

  • Patent, Manufacturing, Labeling and Packaging information
  • Safety information
  • Possible abuse information
  • Direction for use
  • Any additional studies not performed in the US

Once the a completed New Drug Application is submitted, the FDA has 60 days to conduct it’s preliminary review and decide whether it will accept and file the application or, if the FDA finds the information insufficient, reject the application by sending a refuse to file letter explaining how the application failed to meet requirements. If the NDA is accepted, the FDA will decide if the NDA requires standard or accelerated review. Under the Prescription Drug User Fee Act a standard review is 10 months and an accelerated review is 6months. Accelerated reviews being allowed for generic drugs, drugs that provide meaningful therapeutic benefit over there drugs, drugs that treat serious or life threatening conditions, or treat previously unmet medical need.

FDA Review of New Drug Application

During the process of reviewing the NDA, the FDA has members that conduct reviews on different sections of the NDA, for example:

  • Medical officers review clinical date
  • Pharmacologist reviews the data from animal studies
  • FDA inspectors investigate to find if any information was withheld or manipulated

The FDA will then decide whether to approve the New Drug Application or submit a Complete Response Letter articulating it’s decision not to approve the NDA in it’s current form and letter the provide the application with guidance and steps on how to gain an approval.

How the New Drug Application affects Investors:

Once a company has reached the NDA stages, there is about an 80% probability that the drug will eventually be approved for marketing and sale in the US. The filing of the NDA normally does not increase the price of a stock much, as most of the appreciation should have occurred during the Stages Of New Drug Development, and when approved.

BUT the decline of a NDA could lower the price of a stock as it will cost the company additional time and resources to refile or conduct further studies, if needed.

In my experience after a successful phase 3 clinical trial result, the stock price could increase in value (not always), but then it will slide down some as few investors want to have their investment stagnant over the period of time it takes to gather all the information and prepare the NDA.

During this wait period there are risks the company might need financing, the best way to study this is by looking into the company’s finances and financial reports. The company could also sell some rights to it’s drug, partner with other companies, or even become a candidate for a buyout.

A few months before the FDA is ready to answer the NDA and either provide an approval or request more information, the stock will again gain some momentum and could again start a rally upwards into the FDA approval date, PDUFA date as it is called by some. Personally, I don’t like to hold through catalyst events, and would rather ride the hype and sell the news.

As of 2018, the New Drug Application fees (PDUFA fees) are:

New Drug Application Fee – Clinical Data Required $2,421,495
New Drug Application Fee – No Clinical Data Required $1,210,748

New Drug Application
New Drug Application

How the Prescription Drug User Fee Act affects Investors

In 1992 Congress passed The Prescription Drug User Fee Act, PDUFA, allowing the FDA to collect an application fee for new drug applications, in return for certain performance benchmarks, mainly speed. The under the Prescription Drug User Fee Act the FDA is required to respond to NDA’s within a 10 month period. Previous to the PDUFA act new drugs were taking too long getting to market, according to FDA, due to lack of funding.

Since Congress first authorized PDUFA in 1992, the average time for new drug approval has dropped by nearly 60%. This was the goal of the PDUFA, getting new drugs to the market quickly and as safely as possible. The fees collected from the drug manufacturers is used solely for human drug and device approvals activities, and are a supplement, not a replacement, to any government funding.

PDUFA also requires congressional action to reauthorize every 5 years. This is done to ensure the refining and modernizing of the approval process, clarify any expectation dragon the development process, and promote long term stability of the FDA’s drug review and approval programs.

How the Prescription Drug User Fee Act affects investors

In essence as a stock trader the Prescription Drug User Fee Act does not in itself interest you, it’s whether the FDA will approve a new drug or provide a complete response letter (CRL), and the stages of New Drug Development which could make the stock price of a biotech company move in either direction.

The way that the PDUFA mainly affects investors is with it’s time frame. The FDA is mainly given 10 months to review and provide a response, unless the drug is designated for priority review, at which point the FDA is given six months to review that drug. However the FDA can respond at any time prior to the 10 months, with an approval or CRL.

By policy the FDA does not publish or release PDUFA dates, but some biotech companies do in hopes of increasing their stock price as an approval will normally increase it’s value.

Here are the basic Stages of New Drug Development:

  • Animal Testing to gather information on safety and efficacy
  • Investigational New Drug Application submission
  • Phase 1 Clinical Trial: Healthy volunteers looking for side effects and how the drug metabolizes and excretes the body
  • Phase 2 Clinical Trial: Hundreds of patients focusing on effectiveness in a diseased population
  • Phase 3 Clinical Trial: Thousands of patients, gathering more information on safety and efficacy
  • New Drug Application: FDA has 60 days to decide whether to accept application
  • FDA reviews Drug Labeling to ensure appropriate communication to providers and consumers
  • Facility Inspection: To ensure compliance
  • Drug Approval, or Complete Response Letter
  • Phase 4 Clinical Trial: Continued safety and efficacy monitoring

Here are some of The Prescription Drug User Fee Act, PDUFA fees:

Prescription Drug User Fee Act (PDUFA) 2017 2016 2015
New Drug Application (With Clinical Data) $2,038,100 $2,374,200 $2,335,200
New Drug Application (Without Clinical Data) $1,019,050 $1,187,100 $1,167,600
New Drug Application Supplement With Clinical Data $1,019,050 $1,187,100 $1,167,600
NDA Establishment $512,200 $585,200 $569,200
Annual Product Registration $97,750 $114,450 $110,370

Prescription Drug User Fee Act
Prescription Drug User Fee Act

Stages Of New Drug Development – Investing in Biotech Companies

In order to bring a new drug to market, there are several stages of new drug development starting with discovery and development, research, and FDA approval. As it refers to investing in stocks, or in biopharmaceutical companies, the main catalysts are Phase 1, Phase 2, Phase 3 and FDA approval (PDUFA). Those are the catalyst I look for to invest, scalp, or swing trade a stock. Sure we can say it’s going up to a phase 2 result, but do you really know what that means for the company stock? Hopefully these stages of new drug development will provide you with more information as to the meaning and implication of these catalyst, and give you an idea on how to investigate and invest in biopharmaceutical stocks.

Just as a side note, I normally don’t like to hold through a catalyst date. I also take into account the company’s cash on hand as many biotech companies like to do offerings to raise cash after their stock has climbed from results. This is not to say that I never hold through a catalyst, as some biotech offer great returns if they have positive results.

According to the FDA there are 5 steps when developing a new drug for market use:

Stages Of New Drug Development – Discovery and Development:

In this stage of new drug development many compounds may be candidates to treat health conditions, but after laboratory testing maybe only a few will be promising enough for further study. Once researchers have identified a promising drug for development, they will experiment in order to gather information on how the drug is absorbed, distributed, metabolized and excreted, it’s potential benefits, get an idea on dosages, how best to administer the drug, possible side effects, how it interacts with other drugs, and it’s effectiveness compared to similar drugs or treatments already in the market.

Stages Of New Drug Development – Preclinical Research:

Prior to testing a new drug on humans, researchers must have sufficient information as to the potential harm and/or toxicity of the compounds.
Preclinical research include:

  • In Vitro: considered to be “test-tube” experiments performed with microorganisms, cells, and biological molecules, normally tested in petri dishes, tubes or flasks.

and

  • In Vivo: studies performed on animals, living organisms, plants and in some cases, humans.

Preclinical research studies look to find information on dosing, and toxicity levels. At this point a decision is made whether to proceed to clinical research. Because the expense associated with clinical trials, the research must have sufficient information as to the possible positive and negative effects of the new drug.

Stages Of New Drug Development – Clinical Research:

Preclinical trials do answer some questions about the drug, but in order to gather more information on the how the drug will take effect in humans, clinical research is needed. Clinical research is the studies or trials on humans.

Prior to starting clinical trials, researchers must have a study plan and follow certain study protocols. Researchers must determine:

  • Who qualifies to participate (selection criteria)
  • How many people will be part of the study
  • How long the study will last
  • Whether there will be a control group and other ways to limit research bias
  • How the drug will be given to patients and at what dosage
  • What assessments will be conducted, when, and what data will be collected
  • How the data will be reviewed and analyzed

Clinical trials follow a typical series from early, small-scale, Phase 1 studies to late-stage, large scale, Phase 3 studies.

Stages Of New Drug Development – Phase 1:

Phase 1 clinical trials are normally conducted on approximately 20-80 human volunteers of which some might have the disease or condition the new drug is targeting. This phase is the initial introduction of a drug or therapy. Phase 1 is generally looking for safety and dosage, and not so much for the efficacy of the new drug. Researchers closely monitor how the new interacts in the human body and adjust dosing to evaluate how much can be tolerated and side effects. Before moving on to phase 2 studies, researches gather information as to how the body handled the drug at different doses, side effects as associated with dosage, and some information as to how best to administer the new drug to maximize results and limit side effects.
About 70% of new drugs move onto the next phase and only about 10% to 15% of Phase 1 drug candidates make it to market.

Stages Of New Drug Development – Phase 2:

Phase II clinical trials evaluate the efficacy of new drugs, the safety of said treatments and dosage specifications. In this phase researchers administer the drug to a group of patients with the disease or condition for which the drug is being developed. Normally involving a few hundred patient. Safety remains a big focus of phase 2 clinical trials, with short term side effects being closely monitored. An increasing emphasis will begin to be placed on whether or not a drug is working as expected and if it’s improving the condition or not. Phase 2 trials will also establish dosage information, as to which performed most optimally. If the experimental drug continues to look promising it’ll move onto phase 3 clinical trials.
Approximately 33% of drugs move to the next phase.

Stages Of New Drug Development -Phase 3:

This is the final phase to new experimental drugs. The drugs that progress to Phase 3 are definitively tested for effectiveness in the treatment or cure of a specific condition, this is where efficacy also plays a big role. These trials are often randomized, meaning that trial participants can receive the experimental drug, a placebo, or another drug considered to be the current standard. In these clinical trials neither the researcher nor the patient know what drug was issued.
Phase 3 trials are normally conducted on hundreds or even thousands of participants, are the lengthiest trials, and normally account for about 40% of a company’s total R&D expense.
Approximately 25-30% of drugs move to the next phase.

Even though rare, at any point during clinical trials the Center for Drug Evaluation and Research (CDER) can impose a clinical hold on if the study is unsafe or if the trial design is deficient in meeting its objectives.

Stages Of New Drug Development (NDA) – New Drug Application:

The NDA application is the vehicle through which drug sponsors formally propose that the FDA approve a new pharmaceutical drug for sale in the U.S.
The goals of the NDA are to provide enough information to permit FDA reviewer to reach the following key decisions:

  • Whether the drug is safe and effective in its proposed use(s), and whether the benefits of the drug outweigh the risks.
  • Whether the drug’s proposed labeling (package insert) is appropriate, and what it should contain.
  • Whether the methods used in manufacturing the drug and the controls used to maintain the drug’s quality are adequate to preserve the drug’s identity, strength, quality, and purity.

The NDA can be tens of thousands of pages containing all the research and safety data examined during all the prior steps. When an NDA is submitted, the FDA has 60 days to decide whether to file it for review, or reject the application because some required information is missing. If the NDA is accepted, in accordance with the Prescription Drug User Fee Act, the FDA will respond within 10 months, at which point the FDA is expected to make a decision. The FDA can, and sometimes does, postpone a decision or even provide their results early; just not very common.

Just because a drug reaches the NDA stage, it doesn’t mean it’s going to be marketed in the US, in actuality only about 80% of drugs that have reached this level are marketed in the US. This stage of the drug development does not do much for investors, as most of the highlights were within the successive phase in clinical trails.

Stages Of New Drug Development – PDUFA date and decision:

Generally the FDA has three choice, Approve, Deny (very rare) or issue a Complete Response Letter (CRL) requesting more information. If the FDA requires more information they will make suggestion as to what is preventing the drug from being approved, sometime this could include running additional studies or alter their manufacturing process (delays are not good for stock prices).

Stages Of New Drug Development- Phase 4:

There is a phase 4, after the drug is approved the FDA can require the drug developers provide long lasting effects of the drug, as safety is the FDA’s main concern.

Development of a new drug through all these phases can take 10-15 years, and cost tens of millions of dollars.

Stages of New Drug Development
Stages of New Drug Development

510K – Premarket Notification

A 510K, or 510(K), is a submission made to FDA to demonstrate that the device that is to be marketed is at least as safe and effective to an already legally marketed device.

Anyone who wishes to market a Class I, II, and III device intended for human use, that does not require specific FDA approval due to having an equivalent item on the market already, must submit a 510(k) to FDA unless the device is exempt from 510(k) requirements of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) and does not exceed the limitations of exemptions in .9 of the device classification regulation chapters (e.g., 21 CFR 862.9, 21 CFR 864.9).

In basic language, if a company wants to take to market a medical device for which a similar device is already FDA approved, can submit a 510K, and once approved and cleared, can take the device to market.

Full 510K details from the FDA

510K
510K