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Getting Into The Drug Business: From NDAs To PDUFA Dates

Getting Into The Drug Business: From NDAs To PDUFA Dates

The strongest catalysts for a pharma stock are the various milestones on the road to FDA approval for new drugs. For new investors, they’ll often see a stock rise astronomically, but, when they go to make sense of the reasons for the jump, they’re greeted with unfamiliar acronyms.

Let’s try to make some sense of them and the process a new drug goes through before approval.

Phase Trials

One news item that regularly affects the price of a stock is the different phase studies, of which there are three, aptly called Phase 1, Phase 2 and Phase 3.

Related Link: Drug Price Bubble A Result Of Decade-Long Economic Policy Issues

  • Phase 1 is to determine the safety and dosage of a new drug. It typically takes several months. About 70 percent of drugs move past this Phase and onto the next, according to the FDA.
  • Phase 2 is to determine the efficacy and side effects of a new drug. This can take several months to two years. According to the FDA, about a third of drugs studied are able to make it past Phase 2 studies.
  • Phase 3 studies can take one to four years and are designed to determine the efficacy of the drug as well as monitoring the adverse reactions to the drug. According to the FDA, between 25 and 30 percent of new drugs are able to make it past Phase 3.

The milestones a drug hits as it passes through these three discrete phases often act as catalysts for the price of the company’s stock, as well as the next step.

New Drug Application (NDA)

The company has enough information on its new drug to complete and submit a New Drug Application (NDA). Since 1938, every drug in United States hospitals and pharmacies has had a New Drug Application (NDA) submitted and approved.

According to the FDA, each NDA must show three things:

    1. The drug is “safe and effective in its proposed uses,” with the benefits outweighing the risks.
    2. The labeling is appropriate and contains all necessary warnings, side effects and ingredients.
    3. The manufacturing process and the “controls used to maintain the drug’s quality” (i.e., capsules, packaging) are able to effectively preserve the drug’s “identity, strength and purity.”

“The documentation required in an NDA is supposed to tell the drug's whole story,” according to the FDA website, “including what happened during the clinical tests, what the ingredients of the drug are, the results of the animal studies, how the drug behaves in the body, and how it is manufactured, processed and packaged.”


The Prescription Drug User Fee Act (PDUFA) was originally passed in 1992 with the purpose of providing greater funding for reviewers so that more applications could be reviewed. The acronym is most often heard in reference to PDUFA dates or the amount of time the FDA has to review an application and either approve or deny it — typically ten months.

Sometimes, the FDA will give a drug a priority designation, which brings the PDUFA date from ten months to six, essentially fast-tracking the process and shortening the amount of time before a drug can hit the market.

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