# Food and Drug Administration (FDA): What It Is and Does

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## What Is the Food and Drug Administration (FDA)?

The Food and Drug Administration (FDA) is a government agency that is responsible for the promotion and protection of public health. The FDA was established when the Pure Food and Drugs Act was passed in 1906. The agency has different 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.

### Key Takeaways

*   The FDA inspects and reviews production facilities that make products like food, medicine, tobacco, and other items regulated by the agency.
*   The FDA gives approval to regulated products before they can be sold in the U.S.
*   FDA has the power to recall products on the market, if necessary, for safety and other reasons.

## Understanding the Food and Drug Administration (FDA)

The Food and Drug Administration is the federal government agency assigned to protect and promote public health. This is done by assessing and assuring "the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation's food supply, cosmetics, and products that emit radiation."

The agency's other core responsibilities include:

*   Collecting data, researching, and providing the public with health-related information
*   [Counterterrorism](https://www.investopedia.com/articles/investing/061215/what-countries-spend-antiterrorism.asp) efforts through the security of the nation's food supplies and medical products

The U.S. government began monitoring the safety of agricultural products in 1848. In 1906, the federal government passed the Pure Food and Drugs Act. This established the FDA. But, it wasn't until 1930 that the name, the Food and Drug Administration, was officially adopted.  

The agency is part of the Department of Health and Human Services and has more than 18,000 employees who work in all 50 states. The commissioner oversees the agency's [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) and ensures that the Federal Food, Drug, and Cosmetic Act and other laws are executed.  

## Special Considerations

The FDA is known for its work in regulating the development of new drugs. The FDA has developed rules regarding the [clinical trials](https://www.investopedia.com/terms/c/clinical-trials.asp) 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. In the European Union, the FDA's equivalent organization is the [European Medicines Agency (EMA)](https://www.investopedia.com/terms/e/european-medicines-agency-ema.asp).

As of January 2024, the agency is responsible for monitoring the safe consumption of medical products, food, and tobacco items worth more than $3.6 trillion. In fiscal year 2023, the budget for the FDA was approximately $6.7 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](https://www.investopedia.com/terms/r/regulated-market.asp) under the FDA's purview cannot be released for sale in the United States.

> **Important**
>
> The FDA approves products in the biotech and pharmaceutical industries, and its approval or rejection of a product can have a financial impact.

## Food and Drug Administration (FDA) Approval Process

There are generally five steps involved in the FDA approval process:

1.  Discovery and development. During this phase, research takes place—typically in a laboratory. Researchers review new technologies and existing treatments while conducting tests. They may also look at new insights that let them design products.
2.  Preclinical research. This research typically occurs on a smaller scale. Drug-related research provides information on dosing and toxicity levels. Findings are used to determine whether the product qualifies for human testing.
3.  Clinical research. This involves testing the drug/product on humans. Clinical research begins at a small scale and works its way up to larger trials. Most people know this as Phase I to Phase III [clinical trials](https://www.investopedia.com/terms/c/clinical-trials.asp). Data is collected and submitted to the FDA for review.
4.  FDA review. The agency reviews all the data submitted by the company. The information provided helps the FDA decide whether the product is approved or rejected.
5.  FDA post-market safety monitoring. The FDA continues to monitor and review products after they are sold to consumers.

## Food and Drug Administration (FDA) Approvals 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](https://www.investopedia.com/ask/answers/032315/how-does-government-regulation-impact-drugs-sector.asp). 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 of 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 animal testing and clinical trials are conducted. Inspections may be regularly scheduled visits to facilities already in use.

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](https://www.investopedia.com/terms/p/product_recall.asp) in collaboration with companies and local partners.

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. Such recalls can be the result of undeclared ingredients in the contents, which can pose risks for consumers with allergies. The contamination of products or the failure to handle the product according to safety parameters can also lead to [recalls](https://www.investopedia.com/terms/p/product_recall.asp). 

## How Do I Know if a Product is FDA-Approved?

You can find out whether a product is approved by the FDA on the agency's website via its Orange Book. FDA-approved drugs are also listed on Drugs@FDA. If you want additional information, you can either email the agency at [druginfo@fda.hhs.gov](/cdn-cgi/l/email-protection#1f7b6d6a7876717970393c292b24797b7e3177776c31787069) or phone 1-888-463-6332.

## Do All Medical Devices Require FDA Approval?

Yes, all medical devices must be approved by the FDA before they can be sold or marketed to consumers.

## What Impact Does the FDA Have on Investors?

The FDA is responsible for regulating medical, cosmetic, and food products. This means it can approve or reject products that can be marketed or sold to consumers. These decisions can have a major impact on companies that produce these products. The effect often trickles down to investors. For instance, if a company is researching the efficacy of a new drug or vaccine, it must complete clinical trials with suitable results before it can be sold and used. Companies that receive approvals can see major upsides in their stocks while those that are rejected may experience losses.

## The Bottom Line

The Food and Drug Administration approves the marketing and sale of the food, pharmaceuticals, medical equipment, and cosmetics that we consume in our everyday lives. But this role doesn't just impact our day-to-day lives. It can also move markets. When a company has a promising new product ready to come to market, an FDA approval can mean big gains for the company and its investors. Similarly, a rejection can hurt the company's stock and shareholders.

> **Article Sources**
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>     
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> 4.  U.S. Food & Drug Administration. "[What We Do](https://www.fda.gov/about-fda/what-we-do)."
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>     
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>     
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>     
> 8.  U.S. Food & Drug Administration. "[Step 3: Clinical Research](https://www.fda.gov/patients/drug-development-process/step-3-clinical-research)."
>     
> 9.  U.S. Food & Drug Administration. "[A Look at the European Medicines Agency](https://www.fda.gov/animal-veterinary/animal-health-literacy/look-european-medicines-agency)."
>     
> 10.  U.S. Food & Drug Administration. "[Fact Sheet: FDA At A Glance, January 2024](https://www.fda.gov/media/175664/download)."
>      
> 11.  U.S. Food & Drug Administration. "[The Drug Development Process](https://www.fda.gov/patients/learn-about-drug-and-device-approvals/drug-development-process)."
>      
> 12.  U.S. Food & Drug Administration. "[Inspection Basics](https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/inspection-basics#:~:text=The%20FDA%20also%20inspects%3A,approval%20of%20a%20medical%20product)."
>      
> 13.  U.S. Food & Drug Administration. "[Import Program – Food and Drug Administration (FDA)](https://www.fda.gov/industry/import-program-food-and-drug-administration-fda)."
>      
> 14.  U.S. Food & Drug Administration. "[How do I find out if a drug is approved? Is there a Web site I can go to?](https://www.fda.gov/drugs/frequently-asked-questions-popular-topics/how-do-i-find-out-if-drug-approved-there-web-site-i-can-go)"