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The Reason so Many Drugs Disappoint in Phase III Trials
NEW YORK, February 28, 2007 - WallStreetIdeas.com - Anyone who follows the pharmaceutical and biotech industries has seen hundreds of similar press releases over the years; releases that describe a drug that “failed to meet its primary endpoint” in its Phase III trial, after years of highly promising and encouraging pre-clinical and clinical Phase I and II trials.
It has been a matter of speculation over the years among industry watchers as to why this has so often been the case. The drug development pathway that leads up to the pivotal Phase III trials (which are the final step before FDA approval) should provide a pretty good indication of the drugs potential. Why then do companies and their investors often face unexpected late stage surprises like those experienced recently by Pfizer (NYSE: PFE), Telik (Nasdaq: TELK), Neurocrine Biosciences (Nasdaq: NBIX) and Threshold Pharmaceuticals (Nasdaq: THLD) whose shares plunged 50% yesterday after a Phase III disappointment.
Speculation by industry watchers has varied from the conspiracy theorists version of “they new it wouldn’t work all along, but wanted to keep raising money to pay their own salaries,” to the scientific explanation of “that is just how science works – until you ramp up to truly large scale trials, you won’t know for sure.”
After having spoken to and dealt with many scientists and top executives at hundreds of biotech, pharmaceutical and medical device companies over the years we have no doubts about their sincere belief in the potential of their products to help conquer the diseases that plague humanity. Many of these industry leaders are driven by a personal need to find a cure to a disease that took a friend or loved one. While the profit motive certainly plays a role - as it should - in the industry, we believe that most close observers would grant the sincerity of the industries hopes for their development stage products. Also serving to discredit the “conspiracy theory” explanation are those pesky positive early stage results which have rarely if ever been shown to be fraudulent.
Having discounted the “conspiracy theory” of Phase III failures, the next explanation and the one that we have found most plausible over the years is that a true picture of the drugs efficacy and safety does not fully emerge until after sufficiently large scale properly constructed studies conducted during the Phase III part of the process are completed. Still, that explanation never seemed to fully explain why so many drugs disappointed after such promising Phase II data.
An early release of a study to be published on April 1 in the journal Cancer may have a major clue to this puzzle. In the study, researchers analyzed the results of 140 published drug studies and found that the studies produced with financial help from drug makers were more likely to have positive results than independent financed studies. Further analyzing the studies, the researchers found no evidence of bias, but rather found that the independent studies were more likely to be fully randomized and multi-arm placebo controlled. The researcher’s description of pharmaceutical company financed trials were fully consistent with the standard Phase II trials that tend to produce promising early stage results for drugs in development.
When the drug candidates are ready to go for final FDA approval the companies have to conduct the sort of large-scale multi-armed studies that are more like independent studies, and thus more likely to produce disappointing results. It essentially comes down to economics. Relatively inexpensive Phase II trials help to narrow down a broad range of possible drug candidates to select the ones with the greatest potential to continue on to more rigorous and far more expensive Phase III trials.
The Phase III failures are not a part of a conspiracy, they come as a natural result of the drug development process. The early stages and studies are designed to find what might work, and what might work safely, the pivotal Phase III trials are designed to go beyond what “might work” and instead prove what “does work” to the necessary scientific standard.
Occasional disappointments and setbacks are part of the game for life science investors. What makes it worthwhile are the overwhelming successes and outstanding financial returns that come from making the right decisions. It also helps to know that the evidence clearly points to an industry that is sincere in its pursuit of safe and effective drugs, products and treatments.