Biotech 101: The Road to FDA Approval

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There are two things that really get biotech stocks moving -- results from phase III clinical studies and approval decisions issued by the Food and Drug Administration. Genentech(DNA Quote), for example, has been red-hot over the last year because the firm has had unprecedented success on both fronts, leading to FDA marketing approvals for three new products: the psoriasis drug Raptiva, the allergy drug Xolair, and most important of all, the cancer drug Avastin.

The FDA's huge influence on biotech stocks is undeniable, but understanding the drug approval process isn't so easy. It shouldn't shock anyone to hear that FDA rules and procedures, like most governmental bureaucracies, aren't necessarily designed to be easily understood. But a solid understanding of the FDA approval process is essential to smart biotech investing. So, this "Biotech 101" column is for investors who are interested in learning the ins and outs of the FDA. (A previous "Biotech 101" column covering the three phases of clinical trials was published in April.)

Posting Positive

When a drug posts positive results from one or more of the pivotal phase III clinical studies, drug and biotech companies seeking to get the drug approved in the U.S. and the right to market and sell it to doctors, file the drug with the FDA.

ImClone Systems(IMCL Quote), for example, has had success since the FDA approved its cancer drug Erbitux. On the flip side, Genta(GNTA Quote) shares have tumbled because the company was forced to withdraw its cancer drug Genasense from the FDA after the agency's advisory committee voted overwhelmingly to recommend against approval.

Filing a drug with the FDA is literally a big job. Genentech's Avastin filing, for instance, was approximately 11 gigabytes in size, which equals 17 CD-ROM discs, or more than 60,000 printed pages.

Avastin is a biologic drug, which means that it's manufactured by genetically altering living cells and growing them in large vats so that they produce the drug (a protein), like miniature living drug factories. In accordance with regulatory policy, when Genentech filed Avastin with the FDA, it submitted a Biologic License Application, or BLA.