Biotech Investing Pointers- Paying Attention to the FDA

The former vice president of Casimir Capital and managing director of Aegis Capital, James “Jimmy” Ahern serves as managing partner of Laidlaw & Company in New York. James Ahern has helped build Laidlaw into one of the world’s leading healthcare investment firms. At the firm, he raises capital and provides oversight to both private and public healthcare organizations.

Before investing in biotech, individuals need to have a clear idea of how the Food and Drug Administration (FDA) works and the potential roadblocks it could cause to biotech companies. In the most general sense, companies must prove to the FDA that a potential drug is both safe and that it actually works for its intended purpose. Proof involves the collection of a sufficient body of clinical information, which usually takes place over three phases of clinical trials. 

Most companies set goals for safety and efficacy in collaboration with the FDA. Once goals are met, the company submits a New Drug Application (NDA) and the FDA provides a date for its final decision regarding the drug. Often, an advisory committee is assembled to help the FDA decide whether or not to approve a drug. If the FDA rejects the drug, it gives the company a complete response letter (CRL), which outlines concerns. A company can reapply once these concerns are addressed, however this could involve considerable expense. 

Sometimes, FDA decisions are based on mood. During conservative periods, equivocal drugs can be rejected. However, the FDA has liberal periods during which drugs with less favorable risk-benefit profiles earn approval. Sometimes, rules are not applied as rigorously for drugs that address disease with few other options for treatment.