It is critically important for senior executives to have a detailed understanding of their industry. This helps them reach more informed and sometimes better decisions about many important issues, policies, and questions that frequently arise. Yet, one often reads speeches of a pharmaceutical company’s chief executive or senior company officers who may be top lawyers, financiers, or marketing experts but who do not understand the basic concepts and processes of how drugs are discovered and developed. The
various factors that influence drug discovery and development may also not be well understood. Although most companies may be operated and managed as if they make “widgets,” a pharmaceutical company must not.

Major factors that differentiate pharmaceutical companies from other companies are listed below. Some of these factors are only a matter of degree, including: (a) the long period of time required to develop and market a newly discovered drug; (b) the high degree of financial risk and uncertainty of a drug’s future, even after it is launched; (c) the large number of highly restrictive regulations that govern all aspects of a drug’s development, production, and marketing; (d) the inability to predict when the next important drug discovery will occur; and (e) the large number of variables and factors that are involved in biological experiments, technical development, and especially clinical trials. This last point means that a large number of interpretations of information is possible in many situations. Each of these critical aspects means that it is essential to have as full an understanding of the drug discovery and development process as possible. It is also important to understand the factors that relate to creating and maintaining an appropriate environment in which drug discovery will flourish.

The pharmaceutical industry shares some characteristics with many other industries, including other high-technology industries, as follows:

Many aspects of the corporate environment in which these activities take place are nuances of the corporate culture. Corporate culture shapes the strategies used by a company to develop drugs and is discussed in several other chapters of this book. This culture-strategy interaction is also discussed by Shrivastava and Guth (1985).

Many individuals, especially those who have limited time to devote to an issue or question, want to understand “the big picture.” In some circles, this cliché is as common as “the bottom line” (i.e., the overall impression or amount). The big picture obtained after looking at a pharmaceutical company includes consideration of its (a) core and other businesses, (b) overall size, (c) current and planned activities, (d) profitability, (e) approaches to drug discovery and development, and (f) current portfolio of marketed and investigational drugs.

A significant part of the “big picture” relates to profits. The Food and Drug Administration (FDA) regulations and guidelines since 1962 have required many more premarketing studies to be conducted than previously. Good Laboratory Practices and Good Manufacturing Practices regulations have also increased the costs of bringing a new drug to market. Regulations, however, are only one of many factors that have resulted in the higher prices charged for drugs. Other factors include the steadily mounting costs for laboratory equipment, clinical trials, staff salaries, and other components of drug discovery and development. As a result of increased healthcare expenditures during the 1960s and 1970s, the government reacted. It has taken various steps (e.g., encouraging generic competition, passing maximum allowable cost regulations, and providing bonuses to pharmacists who dispense generic drugs) to force drug prices down. Food and clothing prices, however, have been kept artificially high by government price support programs for agriculture and tariffs and import quotas on foreign textiles.

The major reason why pharmaceutical companies are willing to invest hundreds of millions in high-risk research is that the rates of return for the few commercially successful drugs are also high. If the rates of return are markedly diminished, as is already occurring in some countries, pharmaceutical companies will be much less willing in the future to invest their money in research. Economic analyses clearly show that, if regulations diminish profits for pharmaceutical companies on their few successful drugs below a certain minimum, the companies will reduce the investments they are willing to make in research. Without sufficient research, drug discovery will be slowed, and this will decrease the rate at which new drugs will reach the market.

An additional piece of the “big picture” is the risk from competition. Competition within the pharmaceutical industry exists on several levels. These include (a) being first to enter new therapeutic markets, (b) price and other types of competition (e.g., perceived benefits) on similar products within a single therapeutic market, and (c) manufacturing generic versions of the same drug. The evidence that supports the view that there is significant competition in the pharmaceutical industry includes (a) price flexibility on specific products; (b) instability of market share over a period of a few years; (c) high rate of corporate mergers, buyouts, and bankruptcies; and (d) licensing arrangements.

When drug discovery and development issues are being presented and discussed, numerous perspectives could be used. These include those of various groups both within and outside the pharmaceutical industry. Representative groups within the industry would include people in marketing, production, science, medical, and technical development functions. Representative groups outside the industry include patients, physicians, and regulatory agencies. Most of this book presents the perspectives of those within the industry. Nonetheless, it is useful to review briefly the overall perspective of some groups from both within and outside the industry.

The perspective about new drugs under development in groups outside the pharmaceutical industry varies widely depending on the specific drug and the specific audience. A number of generalizations, however, can be made because different groups have differing frames of reference for looking at new drugs.

Some perspectives of consumer advocates, trade associations, physicians, academicians, legislators, reporters, and other groups are discussed in Section 4 of this book.

When asked for a definition of Hinduism, one religious scholar said, “It’s simple; anyone who says he is a Hindu is one.” The reason for this statement is that Hinduism has not rejected or cast out beliefs of the past but has continued to build on them and to add new beliefs. Likewise, the processes of drug discovery are multifaceted, and new ways of finding drugs are continually being added without discarding methods of the past. Thus, some people view drug discovery primarily in terms of the new methods of biotechnology or high throughput screening, whereas others emphasize the importance of computer-assisted methods of drug discovery. Neither of these relatively new approaches is the major means of discovering novel drugs, nor are the oldest methods of random screening or haphazard trial and error that have been used for over 100 years.

The major methods of discovering new drugs today are those used during the past 50 years. The most important method is the trial-and-error empirical approach. Novel compounds called analogues are made that are similar to marketed or known drugs. Other compounds are also made that are distantly related or may be totally unrelated to marketed or known drugs. These compounds are hypothesized to have biological activity and are
then tested by empirical methods using relevant animal models. Some animal models are related to human disease. If the compound is found to have biological activity of interest, it is called a chemical lead or a lead compound. If the lead is highly active, it will stimulate chemists to make many new compounds that are chemically related to the lead compound. Eventually, a compound is hopefully found that has a sufficient number of positive qualities and few negative qualities compared to existing therapy so that it justifies additional animal studies. It is usually hoped that this compound will become a drug (one possible exception is when a company develops a “research tool” to assist its search for active compounds but realizes that this compound cannot become a marketed drug). This marks the end of the drug discovery period and the start of drug development. The compound is now considered as a candidate compound for drug development.

The processes of drug discovery are not straightforward. There is a certain amount of disorder in the system. Too much order and control are usually considered detrimental, although there should be a sound rationale underlying the activities conducted.

Many factors must be considered by scientists when choosing specific compounds to make and test. These issues as well as other methods of discovering drugs are discussed in Chapter 8. The one final method of drug discovery that must be mentioned is serendipity or accident. Mark Twain once aptly said that the greatest inventor of all was accident. Serendipity occurs both in preclinical laboratories as well as in clinical trials and in clinical practice. Observant scientists or physicians have made many such discoveries that have led to new drug uses.

Drug development is a highly complex process involving thousands of different activities. For the most part, these activities are not described in this book but may be found in references (see references and additional readings at the end of chapters). Figures 124.1 and 124.2 in the book Guide to Clinical Trials (Spilker 1991) illustrate how many of these activities are interconnected. As opposed to drug discovery, where a certain degree and type of disorder is encouraged, drug development has order, organization, and discipline as goals. Too much disorder can be highly detrimental to the process of bringing a drug to market.

After a candidate compound to be studied further as a potential drug is identified, we enter the world of drug development.
Figure 3.2 illustrates the different stages of drug discovery (i.e., Stages A to C), development (i.e., Stages D and E), and marketing (i.e., Stage F). Early activities of drug development involve an in-depth analysis of the candidate compound’s profile in additional animal studies. This period usually lasts from six to 18 months. If both the positive and negative attributes are acceptable, it means that the compound has a benefit-to-risk ratio adequate to pursue development. At that point, the candidate compound is elevated to become a project compound, which means that it will be tested in humans if it can pass other preclinical requirements. Project compounds are managed during their development by a project team whose members represent different departments within the company. In very small companies, a project team of independent consultants with at least one company representative is often assembled. This is sometimes referred to as a virtual project team.

The project compound progresses through technical development, toxicology, metabolism, and other animal studies until it receives a green light from the company, the regulatory agency, and the Institutional Review Board/Ethics Committee to be tested in humans. At the time of initial testing in humans, a project compound becomes a project drug. There are three phases of clinical trials that a drug passes through before it receives regulatory approval and may be sold as a marketed drug. In a few situations (e.g., drug for a life-threatening disease without adequate treatment or drug for a rare
disease), Phase 3 may be omitted. The clinical testing of a known drug for a new use usually begins with Phase 2 tests because the Phase 1 tests for initial safety data have already been completed.