The FDA: Small-Cap Catalyst Or Small-Cap Killer?

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This particular bureaucracy neither gives nor takes. Data do. If a drug works, the company that develops it will do well. If a drug doesn’t work, the company that develops it had better have a diversified pipeline.

Many of the 4,000 or so drugs in the Food and Drug Administration’s (FDA) approval system are there because of the work of intrepid scientists employed by small-cap companies.

Some are so unique they gain special status. Some generate positive clinical trial results. Some generate negative clinical trial results.

It can be a long, cumbersome, and expensive gauntlet. But “efficacy” can be an elusive target when it comes to complex chemical interactions.

The FDA: Small-Cap Catalyst or Small-Cap Killer?

FDA decisions are, ultimately, driven by data, not by some nefarious desire to stymie innovators’ and entrepreneurs’ desire to save lives.

Here’s how it works.

Phase 1 trials are about safety. They typically involve 20–80 patient volunteers, with testing designed to identify a candidate drug’s most frequent side effects and how it’s metabolized and excreted.

Phase 2 emphasizes effectiveness, with a patient volunteer pool numbering in the hundreds and the trial often placebo-controlled. The goal is to gather sufficient data to determine whether the drug actually works for its intended purpose. Safety and short-term side effects are also evaluated.

Phase 3 trials typically involve thousands of patient-volunteers. Here, more data are gathered about safety and effectiveness, while testing is fine-tuned to assess impact on different populations at varying dosages and in combination with other drugs.

Many of the 4,000 or so drugs in the Food and Drug Administration’s (FDA) approval system are there because of the work of intrepid scientists employed by small-cap companies.

The FDA’s New Drug Application (NDA) review involves a meeting with a drug’s sponsor, a formal submission of the drug, a formal review of all research on safety and effectiveness, an evaluation of drug labeling for appropriate information, and an inspection of the facility where the drug will be manufactured.

Following all that, the FDA will either approve the application or issue a response letter. The former is, obviously, positive. The latter is not.

Even after a drug is approved, the FDA continues to monitor it, as “it’s not possible to predict all of a drug’s effects during clinical trials.” During the Phase 4 post-marketing monitoring stage, a drug sponsor submits periodic safety updates.

“Fast Track Designation” is an alternative FDA process designed to facilitate faster approval of drugs developed for serious diseases that “address an unmet medical need.”

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