Discovery: The Price of Pharmaceuticals

The industry of modern medicine dreams of once-a-day cure-alls for every ailment imaginable. An orally available, minimally harmful substance that relieves a patient of their ills is the end goal of a lengthy, costly, brutally bureaucratic, scientific endeavor. Modern pharma has given society hope against infections, HIV, and many cancers. Simultaneously, the modern pharmaceutical industry has come to be one of the most profitable sectors ever. Profits from “wonder drugs” like the Gilead-developed hepatitis C treatment, Harvoni, are projected in the billions of dollars

[1]. With the majority of hepatitis C patients being of the Baby Boomer generation [2], this cost is indirectly shifted on to taxpayers through Medicare. Drug pricing routinely comes under attack by both the public at large and politicians in D.C., and currently, the poster child for high costs is the aforementioned Harvoni, which costs an estimated $94,500 for a round of treatment [3]. Gilead defends the pricing by pointing to the clinical data that shows an efficacy rate of 94-97% and some evidence of near 100% cure rate when combined with another anti-viral drug, ribavirin [4]. This, combined with the avoidance of the older pegylated interferon treatments, with their corresponding need for constant injections and harsh flu-like side effects, is claimed as a justification of the price. While the debate rages on for the foreseeable future, let’s dig into what goes into bringing a drug to market.

The first step in drug development is biological research. How does an illness or disease work against the host? What are the symptoms? What is the biochemical interaction that causes it? In some cases, this may be well-understood and studied; in others, further work needs to be done, and this is not always a process with a clear finish line. One can look to the history of cyclosporine, an immunosuppressant used for decades in organ transplants. Cyclosporine indirectly inhibits a signaling pathway in T cells by binding to one protein—cyclophilin—which, in turn, inhibits calcineurin. Cyclosporine was approved for use in 1983 after clinical studies headed by Dr. Thomas Starzl at the University of Pittsburgh [5]. The biology was not fully understood until nearly a decade later when a group led by Dr. Stuart Schreiber of Harvard and Dr. Gerald Crabtree of Stanford published results showing cyclosporine and a similar immunosuppressant, FK-506 (now known as Tacrolimus), formed a complex with a calcineurin-based signaling pathway in immune system cells [6]. Once the biology is understood to a reasonable degree, small-molecule designing can begin. There are two main approaches with drug design, the combinatorial approach (sometimes called indirect or ligand-based), where large amounts of variations on a core structure based on known binders to the target in question are tested in assays, or structure-based design built around the understanding of the biological target. Requiring specific knowledge and workflows, both approaches have their strengths and weaknesses.

Fig 1. Cyclosporine (yellow) bound to Cyclophilin A.

Fig 1. Cyclosporine (yellow) bound to Cyclophilin A.

Ligand-based design requires a team to research similar, small molecules that bind to the target. If there are known ligands, it is a matter of combinatorial chemistry to find new leads. Combinatorial chemistry is the systematic search of “chemical space”, i.e. every combination of different functional groups a team can install on the lead structure. Structure-based design requires an intimate knowledge of the target itself. For example, knowing the complete structure and active site of a targeted enzyme would be vital to designing a smaller number of potentially potent ligands. While structure-based could conceivably lead to less overall chemistry, it requires a large amount of investment upfront in structural biology research rather than in the synthetic chemistry. The benefit of structural biology over synthetic chemistry is mostly cost. If the target is understood well, the only biology to be done is in testing new compounds. Additionally, structure-based design utilizes biophysical protein-ligand simulations to provide more biological information to the medicinal chemistry team. Using these in silico, virtual screening methods are cheap and easy thanks to advances in high-throughput and high-performance computing [7]. Unfortunately, this also requires substantial knowledge of the target’s structure. If the structure is known from previous research, excellent! If not, it may take a talented team of structural biologists valuable time to elucidate.

“Virtual screening methods are cheap and easy thanks to advances in high-throughput and high-performance computing.”

Once the assays have found “hits” against the target, the compound is optimized by the team. Many factors influence an optimum compound from lipophilicity to the pKa of the compound. As oral administration is ideal, having an air-stable compound that can survive the acidic environment of the stomach and be absorbed into the body, reaching the target with few issues, while remaining active and having high bioavailability is key. The oft-cited “Rule of 5” from long-time Pfizer chemist Charles Lipinski [8] gives rules of thumb that help determine the “drug-likeness” of a compound and the likelihood of it being orally active. The four rules are:

  1. No more than 5 hydrogen bond donors;
  2. No more than 10 hydrogen bond acceptors;
  3. A molecular mass less than 500 g/mol;
  4. And a logP not greater than 5.

These rules provide a good basis for estimating how robust a compound may be in vivo. As assay information is gathered, a more complete picture of the optimal ligand is formed, and eventually, a class of promising compounds is amassed.

Gaining FDA approval is time-consuming and costly for a company and requires pharmacological and toxicological data; therefore, animal testing is commonly undertaken to measure the safety of promising drug leads. Usually, large dogs are employed and pharmacokinetic data is gathered along with tests for possible toxicities. Liver or neurotoxicities are especially worrisome as they can scuttle a drug’s hope for phase I trials. If results still seem promising, an Investigational New Drug (IND) application will be filed with the FDA. This document includes all of the clinical data gathered up until that point through animal testing as well as the planned clinical trial protocols and manufacturing information. This last category can be especially troublesome as a large amount of the possible drug is needed. Scaling up from milligrams to kilograms is a daunting proposition as the FDA is looking for proof of compound purity while a company is trying to balance that with an efficient process. If a compound has solubility issues in vivo, different delivery matrixes must be tried in order to optimize bioavailability [9].

If the IND application is approved, the lead compound is submitted for clinical trials. The three phases are distinct and focus on specific goals:

Phase I involves testing for safety issues within a small group (usually under 100 healthy volunteers). More pharmacokinetic data is gathered and possible dosing regimens are tested and verified. 35.5% of compounds that enter this phase do not move on [10].

Phase II brings in a few hundred patients with the disease in question and compares them to a control in a double-blind study. Normally, this control is either a placebo or the currently approved standard treatment. Efficacy and safety are evaluated through activity and possible side effects. Dosing regimens are optimized further in preparation for both Phase III and final approval. Phase II has the highest attrition rate with 67.6% of compounds failing to advance [10].

“Biologists, toxicologists, chemists, doctors, and other healthcare professionals work in tandem for years to prove the efficacy and safety of the compounds that keep society healthy.”

Phase III is the most expansive in terms of patient numbers, and therefore, most expensive, phase. Substantial amounts of data are collected on each patient at hundreds of testing sites across the country. With such a large number of participants, Phase III is often used as a stress test for the manufacturing process devised by the company as progress from this point forward will require a full-scale industrial production. The statistics lean slightly in the compounds favor with 60.1% of compounds succeeding [10].

There are several ways that this process can be fast-tracked by the FDA for breakthrough therapies. The fast track has been utilized in the past for HIV treatments and more recently for Alzheimer’s treatments. Compounds that receive this designation are subject to increased scrutiny in addition to more lenient regulations, such as a rolling review of the application rather than reviewing the entire application post-Phase III trials [11].

If, and only if, the compound passes all three phases, a New Drug Application (NDA) can be filed. This application involves every piece of data collected over the development cycle. As drug development takes twelve years on average, this is a monumental undertaking for both the company to gather and the FDA to analyze all of the data. The FDA will look to answer some fundamental questions from the NDA such as how safe is the drug? Is its efficacy high enough to justify any risks associated with treatment? Does the proposed label reflect the data gathered through the clinical trials? Is anything conspicuously missing? As this is a matter of public health and safety, the documentation on how to construct an NDA is extraordinarily thorough and comprises at least 14 separate sections, depending on if the compound in question is novel or a previously approved formulation seeking a new designation. If the FDA is satisfied with the NDA, the compound is approved. At this point in development, there are few hurdles left, so the approval rate jumps to 83.2% [10]. With an approved compound in hand, a company must move on to selling its latest product. An army of sales representatives is trained, insurance companies are negotiated with, and presentations are made to doctors across the country informing them of why they should prescribe it over any other available treatments.

Taking in this development cycle, the $2.6 billion or so estimate from Tufts Center for the Study of Drug Development [12] does not seem as far-fetched as it originally did. A small army of biologists, toxicologists, chemists, doctors, and other healthcare professionals work in tandem for years to prove the efficacy and safety of the compounds that keep society healthy. The FDA realizes the enormous undertaking it asks of researchers and provides market exclusivity on top of patent protection of new compounds in order to ensure profitability. A new chemical (NCE) is standardly awarded five years of exclusivity. For a previously approved compound now seeking a new label for treating a new disease, three additional years is given. A third type of exclusivity, the orphan drug (ODE), is both one of the more controversial designations and most sought after as it gives seven years of exclusivity [13] [14]. Orphan drugs are drugs for diseases with small patient populations such as rare genetic disorders. These years of exclusivity are to reward companies for their hard-work and effort in bringing a compound to market in profits. Calls for more price regulations are regular but, for better or worse, the system in place is built around the idea of consumer safety first and foremost rather than price regulation.

The FDA does indeed focus on trying to bridge gaps in treatments as evidenced by the Orphan Drug Act of 1983 that created the ODE designation above. The intent of the act was to incentivize research in areas that would not normally be profitable due to factors such as low patient numbers. Clinical trials are subsidized and tax credits may be awarded along with modifications to the normal approval process [14]. For example, a possible drug for a disease that affects less than 200,000 people is given leniency in Phase III due to a limited patient population. This same act also highlights some of the ways companies follow the letter of the law rather than the spirit. Enter the Unapproved Drug Initiative (UDI) of 2006. The UDI was conceived as a way to encourage testing of older compounds for efficacy and safety, thereby filling in gaps for treatment options and helping to remove unsafe products from the shelves [15]. Coupling the Orphan Drug Act with the UDI, URL Pharmaceuticals sought exclusivity on colchicine for treatment of gout. Colchicine was used as far back as ancient Greece but had never been through the FDA approval process. Instead, URL received exclusivity to colchicine for three years based on a review of previously collected data and some preliminary pharmacokinetic data they themselves collected. Utilizing the Orphan Drug Act, URL was able to acquire seven years of exclusivity on top of the gout exclusivity when colchicine was approved to treat familial Mediterranean fever. Consequently, the price for colchicine increased from $.09 a pill to $4.85 [16]. Many readers will recognize this as a similar tactic to the Turing Pharmaceutical incident last year involving a toxoplasmosis treatment. Many would lump Gilead’s behavior with Harvoni’s price in with Turing and URL, but that would be insulting to the contingent of researchers who worked on the science behind the scenes.

While abuse of the regulatory system does occur, it stands to reason that high drug prices are a consequence of the rigorous studies they are subjected to. While Gilead may be lambasted for the sticker price on Harvoni, pulling back the curtain to see the inner workings of development shines light on their rationale. When it takes twelve years and $2.6 billion dollars on average to bring a compound to market, some reward is needed, but how much reward is the question. Opponents lambast high prices as naked profiteering off of human suffering while a company like Gilead sees the price as recouping their investment, considering that only 19% of all programs make it through to approval [17]. The research and development costs alone for a pharmaceutical company like Pfizer, Merck, or Abbvie grow seemingly insurmountably; real drug research costs real money, and unfortunately, someone has to foot the bill.

By John Lynch


  1. Gilead Sales Soar on Hepatitis Drugs. WSJ. Dow Jones & Company; 2015.
  2. Hepatitis C: Why Baby Boomers Should Get Tested. HEPATITIS Why Baby Boomers Should Get C Tested. Centers for Disease Control and Prevention; 2015.
  3. Ledipasvir-Sofosbuvir (Harvoni). Hepatitis C Online. International Antiviral Society-USA;
  4. U.S. Food and Drug Administration. FDA approves first combination pill to treat hepatitis C. U.S. Food and Drug Administration; 2014.
  5. Starzl TE, Klintmalm GBG, Porter KA, Iwatsuki S, Schröter GPJ. Liver Transplantation with Use of Cyclosporin a and Prednisone. N Engl J Med. 1981;305: 266–269.
  6. Schreiber SL, Albers MW, Brown EJ. The cell cycle, signal transduction, and immunophilin-ligand complexes. Acc Chem Res. 1993;26: 412–420.
  7. Shoichet BK. Virtual screening of chemical libraries. Nature. 2004;432: 862–865.
  8. Lipinski CA, Lombardo F, Dominy BW, Feeney PJ. Experimental and computational approaches to estimate solubility and permeability in drug discovery and development settings. Advanced Drug Delivery Reviews. 1997;23: 3–25.
  9. Kerns EH, Di L. Drug-like properties: concepts, structure design and methods: from ADME to toxicity optimization. Amsterdam: Academic Press; 2008.
  10. Hay M, Thomas DW, Craighead JL, Economides C, Rosenthal J. Clinical development success rates for investigational drugs. Nat Biotechnol. 2014;32: 40–51.
  11. U.S. Food and Drug Administration. Fast Track, Breakthrough Therapy, Accelerated Approval, Priority Review. 2014.
  12. Dimasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: New estimates of R&D costs. Journal of Health Economics. 2016;47: 20–33.
  13. Eisenberg RS. Patents, Product Exclusivity, and Information Dissemination: How Law Directs Biopharmaceutical Research and Development. Fordham Law Review. 2002;72: 477–491.
  14. Patents and Exclusivity. U.S. Food and Drug Administration; 2015.
  15. U.S. Food and Drug Administration. Unapproved Prescription Drugs: Drugs Marketed in the United States That Do Not Have Required FDA Approval. U.S. Food and Drug Administration; 2015.
  16. Kesselheim AS, Solomon DH. Incentives for Drug Development — The Curious Case of Colchicine. New England Journal of Medicine N Engl J Med. 2010;362: 2045–2047.
  17. Scannell JW, Bosley J. When Quality Beats Quantity: Decision Theory, Drug Discovery, and the Reproducibility Crisis. PLoS ONE. 2016;11.

Further Reading

Werth B. The billion-dollar molecule: one company’s quest for the perfect drug. New York: Simon & Schuster; 1994.

Werth B. The antidote: inside the world of new pharma. New York, NY: Simon & Schuster; 2014.

Kerns EH, Di L, Kerns EH. Drug-like Properties: Concepts, Structure Design and Methods. Academic Press; 2008.

Thomas JR. Pharmaceutical Patent Law. 3rd ed. Arlington, VA: Bloomberg BNA; 2015.

Stevens E. Medicinal chemistry: the modern drug discovery process. Upper Saddle River, NJ: Pearson; 2013.

2017-12-14T13:35:25+00:00 April 22nd, 2016|