Clinical Trials present a high risk, high reward route to value creation – here's everything pharma investor need to know



The multiple phases of human clinical trials present a well-established path to take potential drugs from candidate in the lab to market-ready product – along the way there are opportunities for investors, so long as they’re comfortable with risk.


They are frequently preceded by animal studies which provide researchers a guide to safety and potential efficacy.


The trials are divided into four phases, though a drug only has to successfully negotiate three of these four stages to receive sign-off by the regulatory bodies. Here in Europe the green light is given by the European Medicines Agency (EMA), while in the US Food & Drug Administration (FDA) grants new drug approvals.


Studies are typically undertaken by specialist hospitals overseen by doctors independent of the company and the team that developed the treatment. There is a rigorous sign off procedure and close oversight of trials. This means the number of drug candidates making it out of the clinic and into first-in-man studies tends to be a trickle.


Full disclosure, what follows was nabbed from Cancer UK’s site, which is a tremendous resource, though some of the content has been re-purposed to fit our needs here.


Phase I


They are usually small studies, recruiting only a few patients (sometimes less than 20).


When laboratory testing shows that a new treatment might help treat a particular disease or ailment, phase I trials are done to find out:


  • How much of the drug is safe to give

  • What the side effects are

  • How the body copes with the drug


Patients are recruited very slowly onto phase I trials. So, although they don’t recruit many patients they can take a long time to complete.


The first few patients to take part (called a cohort or group) are given a very small dose of the drug.


If all goes well, the next group have a slightly higher dose. The dose is gradually increased with each group. The researchers monitor the effect of the drug until they find the best dose to give. This is called a dose escalation study.


In a phase I trial patients have lots of blood tests because the researchers look at how the drug affects people. They also look at how the body copes with, and gets rid of the drug.


Recorded are all side effects. The Latin phrase primum non nocere (first, do no harm) is very much the guiding principle of phase I trials; therefore, anything other than minor side-effects will likely scupper the process.


At this point, efficacy isn’t the main concern it’s called in the jargon a “secondary endpoint”; safety and tolerability are the prime focus.


*People taking part in phase I trials who have cancer often have an advanced form of the disease. They have usually had all the treatment available to them. They may benefit from the new treatment in the trial but many won’t.


Phase II


Not all treatments tested in a phase I trial make it to a phase II trial. The aim at this next juncture is to find out:


  • If the new treatment works well enough to test in a larger phase III trial

  • Which strains of illness the treatment works for (particularly pertinent in cancer)

  • More about side effects and how to manage them

  • More about the best dose to use


Although these treatments have been tested in phase I trials, they may still have side effects that the doctors don’t know about. Drugs can affect people in different ways.


Phase II trials are often larger than phase II. There may be up to 100 or so people taking part. Sometimes in a phase II trial, a new treatment is compared with another treatment already in use, or with a dummy drug (placebo).


If the results of phase II trials show that a new treatment may be as good as existing treatment, or better, it then moves into phase III.


Some phase II trials are randomised. This means some of the people taking part take the dummy drug while others receive the medication.


It isn’t know until the end of the trial which group is which. Randomised tests prevent any sort of bias by the physicians administering the treatment.


Phase III


These trials compare new treatments with the best currently available treatment (the standard of care).


These trials may compare:


  • A completely new treatment with the standard treatment

  • Different doses or ways of giving a standard treatment


Phase III trials usually involve many more patients than phase I or II.


This is because differences in success rates may be small. So, the trial needs many patients to be able to show the difference.


Sometimes phase III trials involve thousands of patients in many different hospitals and even different countries. Most phase III trials are randomised.


Phase IV


Done after a drug has been shown to work and has been granted a licence. The main reasons for running phase IV trials are to find out:


  • More about the side effects and safety of the drug

  • What the long-term risks and benefits are

  • How well the drug works when it’s used more widely


Trials covering more than one phase


Most trials are just one phase. But some trials cover more than one phase. For example, the same trial can include both phase I and phase II.


The aim of phase I might be to work out the highest safe dose of a new drug. And the aim of phase II might be to see how well that dose works. So, you may see trials written as phase I/II or phase II/III.


What does this mean for the investor?


When mentally benchmarking emerging firms, it is worth knowing that a pre-clinical drug has less than a 1% chance of success.


The figure moves to 10-15% for a phase I compound; 25-35% for phase II; around 60% for a drug entering phase III and 80% when exiting the final stage.


De-risking equals value creation. Each of the above steps are potential game changers for the growth companies behind the drugs. Industry interest rises sharply as drug candidates move closer to market.


Obviously, this is all good news for those that make well timed investment in successful drug development companies. 



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