The Phases Of Clinical Stage Biotechnology Companies

clinical stage biotechnology companiesIf you’re considering investing in clinical stage biotechnology companies, it’s important that you know the phases to watch for. After all, as the companies step into each new phase, the move tends to act as a catalyst, sending the value of the stock flying dramatically toward the top. So, where are these catalysts in clinical stage biotechnology companies?

Catalyst #1: Clinical Data

By definition, a clinical phase biotechnology company is a company that has either completed or is currently in the process of completing a clinical trial. These trials are designed to assess new medications for efficacy, tolerability, safety and other signals. There are multiple phases of clinical trials, generally ranging from Phase 1 to Phase 3. However, data from any clinical trial has the potential to cause dramatic gains in the value of the stock that represents the company in charge of the trial. So, keep your eyes peeled for clinical data.

Catalyst #2: Regulatory Approvals Of Trials

Before a clinical trial can take place, the regulating agency in charge of the regulation of medicine in the country the trial is set to take place must approve the design of the clinical trial. This is ultimately to protect the patients from undue risk. When these approvals happen, clinical phase companies will generally publish a press release, informing investors of the approval. When investors find out that a clinical trial is going to begin, excitement hits, leading to gains in the market.

Catalyst #3: Trial Initiations

It takes quite a bit of work and money to get a clinical trial up and running. As mentioned above, you need regulatory approval, but it goes much further than that. To get a trial initiated, a company needs an approved manufacturing facility to manufacture the trial drug, an approved plan from the FDA, and a large amount of funding. So, once the company announces initiation, it means that they have their ducks in a row and they’re ready to move onto the next step. This tends to excite investors, also leading to tremendous gains in the value of the stock.

Catalyst #4: Preliminary Results

While the final data analysis from any clinical trial is the most important, often times, clinical stage biotechnology companies will perform an analysis on subgroups within a clinical trial. If this data is positive, it has the potential to lead to strong gains in the value of the stock as positive preliminary data suggests a positive overall outcome will be down the line.

Catalyst #5: FDA Meetings

Once a company feels as though the clinical data provided through their studies provides efficient evidence of efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics, it will meet with the FDA to discuss the submission of a New Drug Application (NDA). There are also FDA meetings prior to clinical trial applications and throughout the process of development. Of course, if the expected path is outlined or if an accelerated path is provided, we tend to see excitement. So, when comapnies announce the outcomes of these meetings, the announcement tends to become a catalystic event.

Catalyst #6: NDA Submission

After the company feels as though it’s got all the data it needs in order to obtain approval, it will submit an New Drug Application with the FDA. Of course, this brings the company incredibly close to approval. So, this naturally excites investors.

Catalyst #7: NDA Acceptance

Once the FDA has had an opportunity to thoroughly examine the New Drug Application, it decides whether it will accept the application as is or if changes will need to be made before the application is accepted. Once the application is accepted, a PDUFA date is provided, giving investors an exact date that they can expect to see an approval or rejection. Of course, if the FDA decides that the application is complete and it will accept it, the news is exciting to investors. However, if the FDA doesn’t accept the application, we tend to see tremendous declines.

Catalyst #8: Advisory Board Meeting

The FDA has several advisory boards, each created to give the regulatory agency advise with regard to whether or not to approve a new treatment. Unanimous decisions to either approve or reject a treatment are often followed by a result that reflects these decisions. As a result, these decisions, especially when unanimous, tend to lead to strong gains or losses, depending on the final vote.

Catalyst #9: Approval Or CRL

On or before the PDUFA date, the FDA will either approve or reject the treatment that is being applied for. If the treatment is approved, it means that the company is ready to move toward commercial stages, exciting investors and sending the stock soaring. On the other hand, if the treatment isn’t approved, the FDA hands down a Complete Response Letter, or CRL. In the CRL, the FDA will explain why they cannot approve the treatment at the time. From there, it’s up to the company to either decide to scrap the asset, throwing away all of the funding and work it took to make the asset possible, or add more funding and effort to the process of bringing the asset to market. As a result, CRL announcements tend to lead to big declines.

Catalyst #10: The Transition To Commercial Stages

Once a clinical stage biotechnology company obtains FDA approval, it’s time for the company to transition into commercial stage company, meaning that it will generate revenue through the sales of its products. This happens at the point of the first product launch. So, when a product launch is announced, it acts as the 10th and final important catalyst to follow when investing in clinical stage biotechnology companies.


Note: The author of this article is Josh Rodriguez. Josh is the owner and founder of CNA Finance. He is also a partner at Modest Money. His analysis has been featured on, Yahoo! Finance, Google Finance, Google News, and many others.

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