Pharmaceuticals

Pharmaceuticals are chemical compounds that are used to diagnose, treat, cure or prevent disease. Bringing a new drug to market is a lengthy and expensive process that includes several phases, including drug discovery and drug development, with the vast majority of candidate pharmaceutical compounds not surviving these phases due to toxicity or lack of efficacy. It is estimated that the process of discovering and bringing a single drug to market takes from 10 to 20 years with costs ranging from $500 million to $2 billion. The life of patent is 20 years, during which time the drug is protected, and the developer can attempt to recoup some of the development costs. The effective patent lifetime for U.S. pharmaceuticals is thus only approximately 5 years, a short period in which the company needs to recoup its research and development investments, not only for the FDA approved pharmaceutical device, but also those drugs that did not achieve successful commercialization.

During drug discovery, new chemical compounds are identified which target biological markers that affect disease. It is estimated that of every 5,000 – 10,000 new compounds that are initially screened during drug discovery, approximately 250 (2.5% - 5%) undergo preclinical testing, only five (0.05% - 0.1%) are considered to be safe for initial clinical (human) testing, and only one will actually be approved as a marketed drug.

Drug development involves assessment of the safety, toxicity and pharmacokinetics (absorption, distribution, metabolism and elimination) of the compound prior to clinical testing. In addition dosage recommendations, chemical composition, formulation and manufacturing of the drug for human use are investigated. This preclinical testing typically takes one to five years or more to complete. The Food and Drug Administration (FDA) in the US (and other regulatory bodies in other countries) review the preclinical data and based on the results, may grant permission to begin clinical testing as an Investigational New Drug (IND).

Pharmaceutical clinical testing consists of several phases, with increasing numbers of human subjects tested during each phase. Phase I clinical studies involve testing the drug on a small number of healthy volunteers (typically fewer than 100 people) to verify the safety and tolerability of the drug in humans. Phase I studies usually take from six months to one year to complete.

Phase II clinical studies take longer, approximately one to three years to complete, and are usually randomized, double-blinded studies. During phase II studies, the drug is tested on a few hundred patients who are afflicted with the disease the drug is targeted to treat. The purpose of this phase of testing is to establish that the drug is safe and effective in treating the disease. Minimum and maximum effective dose are also determined during this phase of testing.

Phase III clinical studies are usually multicenter, randomized, double-blinded trials, and involve use of the drug in several hundred to many thousands of patients with the target disease. This phase of clinical testing may last from one to four years and provides additional safety and effectiveness testing of the investigational drug.

Once a drug has successfully completed preclinical and clinical testing as outlined above, a New Drug Application (NDA) is submitted to the FDA. Regulatory review may take as long as two years or more after submission, and approval is based on substantial evidence of safety and efficacy of the drug to treat the target patient population.

Additional clinical testing may be conducted after FDA approval, including Phase IIIb and Phase IV trials, which may supplement earlier trials, investigate cost-effectiveness, compare efficacy with approved drugs, test different dosages or formulations, expand clinical indications for use or determine long-term drug effects.

Despite the hurdles involved in bringing a pharmaceutical successfully to market, the potential profits of a marketed drug can be significant. One example of a blockbuster pharmaceutical is Lyrica, a drug used to treat neuropathic pain and epilepsy whose development began at Northwestern University and took more than 15 years to reach the market. Pfizer launched the drug in 2005 and generated $1.2 billion in sales of Lyrica in 2006. A large portion of Northwestern’s royalty stream for Lyrica was purchased by Royalty Pharma in November 2007 for $700 million, making it one of the largest sales of a royalty stream for a pharmaceutical.