DEFINITION of 'Food And Drug Administration - FDA'

The Food and Drug Administration (FDA) is a government agency established in 1906 with the passage of the Federal Food and Drugs Act. The agency is separated into divisions that 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 known 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 medications. Pharmaceutical companies must test drugs through four phases of clinical trials before they can be marketed to individuals.

According to the FDA, the agency holds responsibility for monitoring the safe consumption of medical products, food and tobacco items worth more than $2.4 trillion. In fiscal 2016, the budget for the FDA was approximately $4.7 billion.

The FDA is relevant for investors specifically in regards to biotech and pharmaceutical companies. FDA approval can be crucial to companies that are heavily involved in developing new drugs. Without the agency’s approval, regulated products under the FDA's purview cannot be released for sale in the United States.

Ways Food and Drug Administration Approvals Influence Industry and the Market

Companies that are focused on the development and sale of new drugs can be left without key products to drive their revenue if their products fail to receive approvals. The influence the FDA wields regarding drug testing can affect the stock market. The release of test data might be seen by investors as a measure for future growth for companies that manufacture and market drugs.

The FDA is responsible for inspecting and reviewing production facilities that make items that are regulated by the agency. This includes, but is not limited to, vaccine and drug manufacturers, blood banks, food processing facilities, dairy farms, animal feed processors, and compounding pharmacies. The agency also inspects facilities where testing on animals and clinical trials are conducted. Inspections may be regularly scheduled visits to facilities already in use. The agency conducts preapproval inspections for companies that applied to market new products. Inspections may be launched “for cause” if there is an issue reported at a facility.

Imported regulated products must also be inspected by the FDA when they arrive at the border of the country.

The agency publishes announcements of product recalls in collaboration with companies and local partners. Such recalls can be the result of undeclared ingredients in the contents, which can pose risks for consumers with allergies. Contamination of products or the failure to handle the product according to safety parameters can also be the cause for recalls.  

RELATED TERMS
  1. New Drug

    New drug is an original or innovative medication or therapy that ...
  2. Drug

    A substance that cures, treats, prevents or reduces the symptoms ...
  3. Orphan Drug Credit

    The orphan drug credit helps pharmaceutical companies absorb ...
  4. Phase 4

    Phase 4 refers to the final stage of new drug testing, which ...
  5. Orange Book

    The Orange Book is a list of drugs that the U.S. Food and Drug ...
  6. Phase 1

    Phase 1 clinical studies or clinical trials are focused on evaluating ...
Related Articles
  1. Investing

    Drug Approvals Fell to Six-Year Low in 2016

    New drug approvals dropped to modest levels in 2016 following highs in 2014 and 2015.
  2. Insights

    How Pharmaceutical Companies Price Their Drugs

    Learn more about how pharmaceutical companies price drugs, why prices are often very high and why it can be difficult to settle on a suitable price.
  3. Investing

    Using DCF In Biotech Valuation

    Valuing firms in this sector can seem like a black art, but there is a systematic way to pin a price on potential.
  4. Investing

    The Risks And Rewards Of Pharma Stocks

    While pharmaceutical stocks have certain risks, big pharma companies have stable cash flows and pricing power, offering opportunities for profit.
  5. Insights

    The Industry Handbook: Pharma Industry

    Learn about the pharmaceutical industry and discover the forces that influence this highly profitable and dynamic sector.
  6. Investing

    Drug Prices: Name Brands Doubled in Last 5 Years (ESRX)

    Express Scripts' Drug Trends Report, released Monday, revealed that the average price of brand name drugs rose 16.2% in 2015, with over one third of brand name drugs seeing price increases over ...
  7. Investing

    Mylan's Breast Cancer Drug Wins FDA Advisors' Approval

    Although the FDA isn’t obligated to follow panel recommendations, it often chooses to do so.
  8. Investing

    Senator Orders Investigation of Orphan Drug Abuse

    Iowa Senator Grassley ordered an inquiry into possible abuse of the Orphan Drug Act by drug makers.
  9. Insights

    Why Drug Prices Keep Rising & How to Fight Back

    Despite pushback from politicians and disgruntled consumers, the cost of drugs keeps going up. Is there any relief on the horizon?
RELATED FAQS
  1. What are the major barriers to entry for new companies in the drugs sector?

    Find out why barriers to entry for U.S. drug companies are so high and how the Food and Drug Administration, or FDA, inhibits ... Read Answer >>
  2. How does government regulation impact the drugs sector?

    Learn about how drugs are regulated by the U.S. government as well as the role of the Food and Drug Administration during ... Read Answer >>
  3. Can your insurance company drug test you?

    Learn why drug companies conduct drug tests and how a lifestyle free of drugs and alcohol can save you big money on health ... Read Answer >>
  4. What does it mean to have orphan drug status?

    The USDA incentivizes pharmaceutical companies to develop cures for rare diseases via the Office of Orphan Product Development. ... Read Answer >>
  5. What debt/equity ratio is common for companies in the drugs sector?

    Find out more about the drugs sector, what the debt-to-equity ratio measures and what debt-to-equity ratio is common for ... Read Answer >>
  6. What is the average price-to-earnings ratio in the drugs sector?

    Learn what the average price-to-earnings ratio is for companies operating in the drugs sector and why this metric is important ... Read Answer >>
Hot Definitions
  1. Investment Advisor

    An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  4. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  5. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  6. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
Trading Center