DEFINITION of 'Food And Drug Administration - FDA'

A government agency established in 1906 with the passage of the Federal Food and Drugs Act. The agency is currently separated into five centers, which oversee a majority of the organization's obligations involving food, drugs, cosmetics, animal food, dietary supplements, medical devices, biological goods and blood products.

BREAKING DOWN 'Food And Drug Administration - FDA'

The FDA is renowned for its work in regulating the development of new drugs. The FDA has developed rules regarding the clinical trials that must be done on all new drugs. Currently, pharmaceutical companies must test drugs through four phases of clinical trials before they can be marketed to individuals. Every year the FDA monitors the testing of 3,000 new drugs on nearly 200 million people to determine their effects. In 2006, the proposed budget for the FDA was approximately $1.8 billion. The FDA is relevant for investors specifically in regards to biotech and pharmaceutical companies. FDA approval can literally make or break the stock of a small company involved in developing new drugs. It is very common to see the stock of these companies skyrocket (or plummet) as test data is released.

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