What Is Phase 2?

Phase 2 is the second phase of clinical trials or studies for an experimental new drug. The focus of the trials in this phase is on its effectiveness. The Center for Drug Evaluation and Research, or CDER, a division of the U.S. Food and Drug Administration, oversees these clinical trials.

Phase 2 trials typically involve hundreds of patients who have the disease or condition that the drug candidate seeks to treat. The main objective of Phase 2 trials is to obtain data on whether the drug actually works in treating a disease or indication, which is generally achieved through controlled trials that are closely monitored, while safety and side effects also continue to be studied.

Key Takeaways

  • The focus of Phase 2 clinical trials is to establish a drug's effectiveness and dosage amount.
  • Phase 2 trials usually consist of studies that are double-blind, randomized, and placebo-controlled.
  • The results of Phase 2 trials can have a material impact on a company's stock price.

Understanding Phase 2

Phase 2 studies also aim to establish the most effective dosage for the drug, and the optimum delivery method. Phase 2 trials usually form the biggest stumbling block in the development of a new drug.

Phase 2 trials are typically constructed as double-blind, randomized, placebo-controlled studies. This means that some of the patients enrolled in the study will receive the drug candidate, while others will receive a placebo or a different drug. The assignment is done on a random basis and neither the participant nor the clinical investigator knows whether the participant will be receiving the drug or the placebo. This randomness and anonymity are rigorously enforced to prevent bias in the studies.

A 2016 paper by researchers estimated that the costs for conducting Phase 2 trials ranged from $7 million for cardiovascular diseases to $19.6 million for hematology. The top three line items that contributed to the overall figure were clinical procedure costs, administrative staff costs, and site monitoring costs.

Success Rate and Stock Impact of Phase 2 Trials

Phase 2 trials are considered successful when analysis of the data from enrolled participants reveals that the experimental drug works in treating the disease or indication. Patients who have received the experimental drug should have better clinical outcomes on a statistically significant basis than those who received the placebo or the alternative drug. If Phase 2 trials are successful, the drug proceeds to Phase 3 studies. 

Phase 2 studies only commence if Phase 1 studies do not reveal unduly high toxicity or other safety risks of the experimental drug. While about 30% of drugs in Phase 1 studies do not progress to the Phase 2 stage because they are not safe enough, the odds of a drug progressing from Phase 2 to Phase 3 trials are even lower—about two-thirds don't make it.

Because of the relatively low rate of success at the Phase 2 stage, market reaction to a successful Phase 2 outcome is generally rewarded with significant stock price appreciation for the company developing the drug. The degree of stock appreciation depends on a number of factors including the prevailing environment for equities in general and healthcare stocks in particular, the disease or indication that the drug aims to treat, the strength of the Phase 2 results, and price movement in the stock prior to the release of Phase 2 results.

Example of Phase 2 Trials

In December 2019, the stock price for Protagonist Therapeutics jumped by over 70% after it announced successful preliminary results for Phase 2 trials of PTG-300, a drug used to treat iron overload in blood disorders. The trials were conducted on patients with beta-thalassemia, a condition characterized by elevated iron levels in the blood. Investors were excited with the results because they indicated a potential market for the drug and suggested the possibility of finding an appropriate dosage necessary to regulate iron levels.