The FDA’s Road to Biotech Riches: Part 1
The FDA’s Road to Biotech Riches: Part 1
You’ve heard from financial expert Ray Blanco a few times during your journey with Money Revealed…
… I got the chance to interview him for my docuseries and I’ve even featured him in a few Money Revealed issues.
With an ever-burning passion for biotech stocks and the knowledge to back it, Ray is back with us once more.
This time he wants to brief you on how the Food and Drug Administration (FDA) creates a type of predictability when it comes to successfully investing in biotech stocks.
During our Money Revealed interview he stated, “In biotechnology, not every plausible theory of how to heal a disease survived the cold, hard truth of reality, clinical trials. A lot of drugs never make it. “
But he points out that there are some medical breakthroughs that “could help you build wealth that will last a lifetime.”
Today Ray goes through what he calls “Stage 1” on determining the gain potential of a biotech stock.
Let’s get right into it…
Dr. Patrick Gentempo
P.S. Stay tuned — over the next few days Ray will be back to go over Stages 2 and 3…
The FDA’s Road to Biotech Riches
Every drug and medical device in the United States has to undergo thorough testing before the FDA declares that the public can buy it. Collecting all those data can cost millions of dollars and take years.
But we can turn that bureaucracy to our advantage. You see, the FDA is a government agency. So it’s required to maintain a level of transparency. That’s not to say everything the FDA does is public or even aboveboard. It does, however, show enough of its hand to help us profit.
For instance, there are distinct stages of testing that act as gates. A company completes a test and submits its data to the FDA. If everything looks good to the FDA, it will give the company permission to move on to the next stage of testing.
Every successful test moves the drug closer to approval… and gives investors hope they may see a return on their investment.
So the key to making money from drug and biotech companies is to understand what’s happening at each stage.
From an investment angle, we can break these stages down into three broad categories: preclinical speculations… clinical catalyst plays… and superboom catalyst plays.
Here’s what you need to know about Stage 1…
Stage 1: Preclinical Speculations
The work on a new drug starts in a laboratory, where scientists try to isolate chemicals that affect an organism’s physiology.
Scientists use the vast knowledge of chemistry and physiology to pinpoint molecules that may help us fight illness.
Once a potential therapy has been identified and isolated, researchers see if it works as expected. They can’t test it on humans yet. Instead, they conduct preclinical trials on animals and cell cultures or use sophisticated modeling to determine how it interacts with living tissue.
Researchers look to make sure it’s having the therapeutic effect they’re expecting without causing noticeable harm.
Many leads fail at this early stage. But if the data are promising, the researchers will file an Investigational New Drug (IND) application with the FDA. It essentially asks for permission to begin testing the chemical on human subjects.
The FDA will look closely at the data and question the researchers. It will also look at how the researchers plan to manufacture the drug for testing — making sure the drug can be produced safely and consistently. Of course, it will also pay close attention to how the researchers plan to conduct their clinical tests.
For a small drug company, even applying for an IND can be a big deal… essentially telling the world that it might be onto something. If the company’s shares trade publicly, investors may suddenly take notice, buying the shares and causing its price to bounce higher.
However, buying stock in a company before it receives an IND is incredibly risky. If the FDA rejects the application, the company will be back to square one. Even if the company’s IND is approved, the drug still has a very long road ahead of it to get to full approval.
There are only a few situations in which I would consider buying a stock in this stage.
Specifically, when the company has other drugs that are closer to approval or I see preclinical research was performed by someone who is well-respected and has a track record of success.
On very rare occasions, the initial research may really impress me.
And that concludes Stage 1 of the process…Over the next week I’ll be back to go over Stage 2 where we will get closer to what it takes to make a profit.
To a bright future,