What You Don’t Know About Drug Trials Can Hurt You (and Your Portfolio)

Companies eventually will have to turn that clinical data into actual sales and profits. PHOTO: DIRK WAEM/BELGA/ZUMA PRESS

Navigating the world of clinical trials is more art than science.

The stakes are high for patients, companies and investors: The vast majority of drug candidates fail. The ones that manage to cross the finish line in the U.S. can take nearly a decade to go from “molecule to market.” At that point they stand a chance to bring in billions of dollars of annual sales globally and have a massive impact on stock prices.

This is the first in a series of Heard Explainers that seek to demystify concepts in finance and business that crop up frequently in our coverage. They are written by columnists who have relevant expertise, and may be updated as new information warrants.

Approval from the U.S. Food and Drug Administration means the agency has determined that a drug provides benefits that outweigh its known and potential risks for the intended population. What that means in the eyes of the agency isn’t so simple to answer, though.

For instance, the FDA’s analysis might vary based on how devastating the effects of the disease are or whether the illness in question already has an effective treatment available. In 2018, the agency approved 17 new cancer drugs and a total of 5,157 patients participated in the clinical trials for those medicines. Over that same period, the FDA approved just 11 new treatments for infectious diseases even as more than 12,000 patients participated in those trials. Yet some rare-disease treatments have won regulatory approval with data from just a small number of patients.

Broadly speaking, a drug must be safe and effective. The agency gives companies and other sponsors wide latitude in designing clinical trials. Those hoping to begin the process submit what is known as an investigational new drug application to the FDA containing information such as preclinical animal study data and manufacturing details.

Once the FDA signs off on those details, human trials can begin. The goal of Phase 1 trials is to demonstrate safety. This step can generally be accomplished with a few patients, including healthy ones.

Once safety is established, Phase 2 and Phase 3 trials aim to prove a drug candidate is effective and that adverse side effects are manageable. These trials take longer and involve higher numbers of patients. They often include randomized control groups to compare the drug candidate either with a placebo or the current standard of care.

Molecule to Market

When news breaks about a trial’s outcome, it can influence the share price of the company that owns the intellectual property as well as those of current or future competitors. Success or failure can be a pivotal event for smaller biotech upstarts. Investors can search for detailed trial information at clinicaltrials.gov, a database which often contains more information than a company press release.

Once trials are complete, trial sponsors can formally petition the FDA for approval. The agency can take the better part of a year to review the results. In the case of drugs with a novel mechanism of action, the FDA might convene a public advisory committee of relevant scientific experts and patients to debate a drug’s merits and issue a recommendation.

There are ways to speed up that process. For example, accelerated approvals are possible for drugs that treat serious conditions. Such approvals are based on what are known as surrogate endpoints, or signals thought to predict a clinical benefit rather than a benefit itself. For instance, a surrogate endpoint in a cancer trial might be a reduction in tumor size, instead of an overall survival rate, which could take years to determine.

Meanwhile, companies that successfully bring a pediatric rare-disease treatment to market can earn a priority-review voucher, which shaves several months off the review process when used. These vouchers can instead be sold on the secondary market to other companies seeking quicker approvals and have fetched prices as high as $350 million.

Correctly forecasting how a drug candidate will fare through this process can lead to big gains for investors, but companies eventually have to turn that clinical data into actual sales and profits. Evaluating a drug’s commercial prospects once it reaches the market presents another challenge. Health insurers make their own decisions on whether they will pay for a new medication, so they need to be persuaded of a drug’s merits as well. Key information to make that determination, such as a drug’s price or prescribing information, isn’t available until after approval.

Even drugs that seem to fizzle out can suddenly resurface. In October, Biogen announced it would seek approval for its Alzheimer’s disease treatment aducanumab, after previously announcing the drug had failed a late-stage study in March. The change, of course, came after a new analysis of the data and conversations with regulators, the company said. Biogen’s market value has grown by nearly $15 billion since that announcement.

Such price volatility is fairly common throughout the industry. It is in investors’ interest to arm themselves with an understanding of the many twists and turns of the drug-approval process.

Source: The Wall Street Journal

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