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1 Thing You Always Wanted to Know About Drugs (but Were Afraid to Ask)

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Let's face it folks, Americans take a lot of drugs. According to recent data, more than 4 billion drug prescriptions were written in the United States in 2011, and that's only half the story. Think about the variety of nonprescription over-the-counter products that line the typical household's medicine cabinet, from pain relievers to cold remedies.

But despite this widespread use, how many of us have actually stopped to think about where all of these pills, injections, and ointments come from? Do scientists spend their time designing drugs, or do they just accidentally stumble on these discoveries?

It turns out that they do a little bit of both. In a previous article, I discussed how three life-saving medications were originally extracted from snake venom, tree bark, and Gila monster saliva. As you might have guessed, this approach largely relies on trial and error. This time, let's take a look at two more targeted approaches that pharmaceutical companies and biotechs use to discover new drugs.

Looking within
Sometimes, the best starting point is actually the human body itself. Insulin for the treatment of diabetes is a perfect example; insulin is a hormone that the body makes to transport sugar molecules into cells, but patients with type 1 diabetes aren't able to produce it naturally. For many years, diabetics were given insulin that was extracted from cattle and pigs (yes, that sounds weird, but it worked), and it took decades before more effective versions became available.

Take, for instance, Sanofi's (NYSE: SNY  ) blockbuster Lantus, which was approved by the Food and Drug Administration in 2000. This product is called an "insulin analog," meaning that its chemical structure is slightly different from natural insulin, and it acts much more slowly than its human counterpart. Scientists deliberately designed the drug that way to help patients maintain a baseline level of insulin for virtually an entire day with just one injection, rather than having to take multiple shots of normal insulin. After bringing in more than $6.6 billion in 2012 sales and comprising more than 14% of Sanofi's total revenue, it's also the company's best-selling product.

Using the body's own hormones might sound like an easy path to the discovery of new drugs, but it isn't. Not by a long shot. Just ask Novo Nordisk (NYSE: NVO  ) if you don't believe me.

Novo is trying to rival Sanofi with a long-acting insulin of its own called Tresiba. This formulation is chemically similar to Lantus, but clinical trials suggested that there could be cardiovascular side-effects associated with the treatment. In February, despite getting the green light in both the EU and Japan, Tresiba was rejected by the FDA, and the decision shaved $15 billion off the company's market cap overnight. So while natural compounds can be a good starting point for discovery, it's not always a straightforward path to market.

"Designer" drugs
For some diseases, it's not actually possible to use naturally occurring chemicals as therapies, and scientists have to start from scratch. Take a rare type of cancer called chronic myeloid leukemia, or CML, as an example. This disease is caused by an abnormal enzyme called BCR-ABL, and scientists found that the best treatment approach is to block -- or "inhibit" -- this enzyme using a small molecule. Think of the enzyme as an enormous lock and the drug as a small key that has to perfectly wedge inside of it.

A few "keys" have already been found for this enzyme, including Bristol-Myers Squibb's Sprycel and Novartis' drugs Gleevec and Tasigna, but a number of patients don't respond well to these medications. Scientists at Ariad Pharmaceuticals (NASDAQ: ARIA  ) were determined to create a new compound that could fulfill this unmet need, but instead of going to the laboratory, they turned to their computer screens.

Ariad specializes in a field called structure-based design, where they basically take a 3-D molecular picture of the enzyme they want to design a drug for and use computer programs to build virtual compounds that will fit inside the appropriate site. Then, after constructing a handful of the best candidates, they proceed to the lab and start to test compounds in cells and later in patients. This is one of the more targeted drug discovery approaches and, when it works, it can dramatically speed up the process. In the case of Ariad's CML drug, now on the market as Iclusig, this drug went from the clinic to the market in just four and a half years. That's remarkably fast considering that it's common for this process to take more than 10 years.

Once again, this might sound easy -- but like everything in drug discovery, it isn't. Ariad used a similar structure-based design approach for ridaforolimus, a cancer drug it licensed to pharma powerhouse Merck (NYSE: MRK  ) , but the drug was rejected by the FDA last year. In the face of this rejection, Merck decided to withdraw its application for EU approval, and it won't continue developing the drug for either metastatic soft tissue sarcoma or bone sarcoma. According to Merck's last quarterly report, however, the drug is back in phase 2 trials for different cancer indications, and it could prove efficacious for different types of tumors. Investors, however, won't see this drug hit the market for several years, and that's assuming Merck can get it through additional clinical trials and reapply for FDA approval.

Foolish takeaway
The approaches to drug discovery that I outlined here are just a couple that pharmaceutical companies use today. More sophisticated techniques like high-throughput screening, systems biology, and virtual screening are just a few more examples that I didn't have space to talk about in this article. However, despite all of the tools available to scientists today, the fact of the matter is that it's still very difficult to develop new drugs. It can cost upward of $1 billion to bring a new medication to market, so the next time you're eyeing an investment in the pharmaceutical space and see enormous research and development expenses on a company's income statement, take a moment to ask where this money is actually going, analyze whether the company's approach to drug discovery makes sense, and remember that it's still an unpredictable process.

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