Thalidomide was a popular anti-anxiety medicine in the 1960s until it was discovered that use of the drug in pregnant women led to extreme birth defects in their children. The aftermath of the tragedy had profound impacts on healthcare policy today and is one common justification for strict FDA guidelines. Interestingly, the drug is actually still marketed today by one of the world's largest drugmakers, Celgene (NASDAQ:CELG) -- thalidomide was the precursor to drugs like Revlimid and Pomalyst, which make up the majority of Celgene's revenue today.
 
In this episode of Industry Focus: Healthcare, Motley Fool analysts Kristine Harjes and Gaby Lapera explain the fascinating history of thalidomide, the policy impact of the tragedy, and what investors can learn from it all.

A full transcript follows the video.

This video was recorded on April 13, 2017.

Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. I'm pre-recording today with Industry Focus: Financials host, Gaby Lapera, in the studio. Hi, Gaby!

Gaby Lapera: Hey! 

Harjes: So, we don't actually know when this episode is going out, but we found an interesting topic and wanted to explore it, and I'm not going to start by saying what today's date is, because I just don't know what it is. Today's show will hopefully be really informative. It was inspired by a listener of the show whose name is Vince. He came to see us from San Diego, he was here for a cancer research conference, and came all the way down to Fool HQ, which is not actually in D.C. but in Alexandria. He came by, and he was mentioning how much he enjoys John Maxfield's, who is one of our financial analysts, history lessons on Gaby's show. A few minutes later, we also ended up talking about this drug called thalidomide, which, as it turns out, has this very long and storied history. Thank you to Vince for the idea for today, which is to basically combine those two interests of his, which were history and thalidomide and tell this story. Gaby, what do you say, let's do it?

Lapera: Yeah, definitely, I'm really excited to be here.

Harjes: Yeah, I know how much you love being on the Healthcare show.

Lapera: I really love it. For listeners who don't know this, I love the Healthcare show, and every time Kristine lets me on, it's just a special treat. For me, I don't know if it is for you. 

Harjes: Hopefully for everybody involved. I know it's very special to me as well. I will let you kick it off, then, by starting the history wherever you deem appropriate.

Lapera: OK. Today, we're talking about a drug called thalidomide, just in case you hadn't caught it the first time. A little bit of a primer on the history of the drug -- the drug was actually first developed in Germany by a company called Chemie Grünenthal -- I'm so sorry, listeners, I had to turn to look at Kristine, because I forgot that I was actually in the studio with someone, which is so rare.

Harjes: Yeah, the two of us, of all the five Industry Focus shows, tend to always be Skyping in with someone. It's sort of nice to have someone sitting right next to me.

Lapera: It really is. Let me address the other person in the room, as well as you listeners, wherever you are. So, thalidomide was first of all in Germany by a company called Chemie Grünenthal. It was first marketed as Contergan. It was originally used as an anti-anxiety medication, something to help promote sleep, and that was something that was really in demand in post-war Germany, as one might imagine. Eventually, its properties as an anti-emetic were recognized. An anti-emetic is something that helps you not vomit.

Harjes: Fancy word for not puking.

Lapera: [laughs] Yes.

Harjes: So, they figured this drug might be really useful in morning sickness, so then a lot of pregnant women started taking it.

Lapera: Exactly. Interestingly enough, there was this idea back then that morning sickness was psychosomatic, so it was just in pregnant women's heads. Turns out that's definitely not true. Do not annoy a pregnant person in your life by telling them it's all in their head. There's actually really good reasons for why pregnant people throw up. I don't know if you're interested in them?

Harjes: That seems tangential, but listeners, if you're curious, Gaby will be happy to answer that question via email. Email us at industryfocus@fool.com

Lapera: Perfect. So, they start giving this drug to pregnant women. It spread like wildfire to other countries, like the U.K. and Spain. By 1960, the drug was being sold in 46 different countries under a variety of names. The problem with thalidomide is they hadn't really done human drug testing, and they hadn't done it in pregnant women at all.

Harjes: They hadn't even done it in pregnant animals, actually.

Lapera: Yeah. It was a different time back then. And actually, as a result of this different time we're in the time we're in now. But, thalidomide has teratogenic effects, which basically means that it can cross the placental barrier and cause birth defects.

Harjes: So, in 1956, the first known instance of a child being born with thalidomide-related drug birth defects was born. This child was born with no ears. Interestingly, this was actually a daughter of an employee of the company that makes the drug. So, that was the first case of what turned out to be a lot more to come.

Lapera: It was a huge problem. It's estimated that around 24,000 babies were born with problems caused by thalidomide, and there's the potential that up to 123,000 babies were stillborn or miscarried due to thalidomide. Thalidomide has some pretty serious effects in terms of the birth defects that it causes. The one that's most recognizable is a defect called phocomelia. That comes from Latin for seal, because the babies were being born, basically, most of them were being born without any long bones, and it can manifest in a variety of ways. Sometimes, maybe, they would have the humerus and hand, or the ulna and hand, but no other bones, or maybe they would have a femur, maybe they wouldn't, but they would have flipper hands and flipper feet. Hence the word for seal in the name. And it also comes with a variety of other side effects, including ear and eye problems, just like the baby that was born without ears, gastro disorders, underdeveloped lungs, defects in the kidney and genitalia, and neural defects.

Harjes: Right. So, this clearly was a hugely problematic drug. Before they quite realized the magnitude of the problem, let's pivot to the United States, where they were trying to get this drug approved for sale in the U.S., because things were pretty different in Europe versus the U.S. They actually still are today. But, at the time, the year was 1960, there was an FDA employee named Dr. Frances Oldham Kelsey. She ended up being the one tasked with more or less approving this drug. And she was very insistent that she wanted more information. She didn't think the studies that were available were conclusive. She wanted to see more. And she got some pushback, but she really fought for this drug, and it ended up not being approved by the FDA.

Lapera: Yes. Originally, Chemie Grünenthal, what they did was they would go to other countries and try to get the partners to help them distribute the drugs. They get to the United States and talk to Smith, Kline & French, which is now GlaxoSmithKline, and GlaxoSmithKline does human testing in pregnant people. We don't 100% know what the results of those trials were. But Smith, Kline & French decided not to move forward with the drug. Then, Chemie Grünenthal moved over to another company called the William S Merrell Company, which through some weird turn of events, eventually became Sanofi. It was a bunch of mergers and acquisitions.

Harjes: These are names that are still pretty prominent today.

Lapera: Definitely. But this was far before that. That's when it got submitted to the FDA, and Dr. Kelsey got involved with it. She was pretty horrified, as Kristine said, that a lot of the testing was done just in animals, and a lot of the testing they had done hadn't actually shown any of the effects that Chemie Grünenthal said that it had. Chemie Grünenthal was marketing it as a sleep aid, and even with higher than recommended doses, people weren't falling asleep.

Harjes: Yeah. Interestingly, at the time with the FDA, you didn't actually need to prove that your drug was effective in order to get it out there on the market. All you need is to prove was that it was safe. Which was kind of also questionable, because this drug clearly wasn't safe. But, at the time, that's what the guidelines were. And because of Dr. Kelsey's insistence, the drug ended up being banned in 1962, worldwide, because people were waking up to the fact that this is so dangerous.

Lapera: Yeah. There were a couple of things that played into that. In November of 1960, two physicians in two very different parts of the world, Australia and Germany, simultaneously recognized the effects that were going on. This was around the same time that Dr. Frances Kelsey was sitting there going, "I don't trust this." News about the birth defects spread pretty quickly after that, and it started getting pulled. But it would have been available in America if it hadn't been for Dr. Kelsey.

Harjes: Right. Her insistence also led to the passing of, I'm going to have trouble pronouncing this, the Kefauver-Harris Amendment, which is also known as the Drug Efficacy Amendment, I probably should have just gone with that. Basically, that was the FDA saying, "Yeah, now you need to prove efficacy in addition to safety," and there are a whole other bunch of things that I can tell you really want to share with our listeners that were involved with that amendment.

Lapera: Yeah, definitely. Actually, one of the things I wanted to point out was, this amendment passed in 1962, which was only two years after the whole scandal broke. That's super fast in Washington D.C. time.

Harjes: It's light years. In FDA years, yeah.

Lapera: But, some of the other things that the Drug Efficacy Amendment -- I'm not even going to try with the other name -- did, was make sure that study participants had to give informed consent. People who were in the study had to know what could happen to them in the study, which was something that was not required before, which is crazy to researchers now. The FDA also could set manufacturing standards and do regular inspections of drug production facilities -- again, something that wasn't there before. It also required advertising to disclose information about side effects. So, when you're listening to the radio and someone is giving you a drug name and then at the end, they're like, "May cause blah blah blah blah," that's why, it's because of this act.

Harjes: Yeah. When you look at the list of requirements that this act enabled or required, it's kind of mind-blowing that they weren't in existence before. I don't know, I find a kind of inspirational, to think that this one woman was basically the person who spearheaded a lot of the ways that the FDA is the way that it is today.

Lapera: Yeah. I think, also, one other thing that the amendment did that is pretty good, and I think everyone would agree is great, is that it stopped companies from marketing cheap generics as brand-new brand name drugs. So, they would be like, "Yes, this pill, which has never existed before, can totally treat you way better than the generic that already exists." They can't do that anymore. They have to say it's the same thing.

Harjes: Well, that's also good. So, we have talked a bunch about thalidomide's past, and I believe we've gotten up to about 1962. But, one of the most interesting parts of this story is that it doesn't end in the 1960s. There's a pretty big turn of events that brings this drug to become a very important part of the products line of a company that we talk about all the time on the Healthcare show. That company is Celgene. How did that come about? Where do we begin?

Lapera: Post-1962, obviously not a lot of companies were interested in doing anything with thalidomide. And that makes sense. It turns out that we don't exactly 100% know how thalidomide works. But, it does turn out to work for a few different things.

Harjes: Right. The drug, we know, is something called a TNF inhibitor, which is actually what Humira is, which is the best selling drug in the world, one that I'm sure we've mentioned on the show. Basically, it's an anti-inflammatory property. There are other things that go on with the drug that we know of. For example, we know that it has certain effects in blood vessel creation.

Lapera: Yeah, it's an anti-angiogenic, which means that it inhibits the formation of new blood vessels.

Harjes: Right, angio as in blood, genesis as the first growth, angiogen. [Editor's note: The origin of angio is actually the Greek word for vessel or shell.] 

Lapera: Yeah. And that's huge with tumors and cancer, because tumors are living things, basically. What they do is hijack the body's supply of other things, like blood and nutrients, to help feed itself to grow. So if you help cut off that blood supply to the tumor, you can kind of starve it out.

Harjes: Right. So, this drug, it turns out, strangles the process by which tumors will spur the creation of blood vessels in order to get oxygen and nutrients. By strangling that process, you can starve the tumor.

Lapera: Absolutely. Do you also want to talk about leprosy, or should we continue with cancer?

Harjes: Now that you mentioned it, let's talk about leprosy. That's chronologically first, I think.

Lapera: Yeah, leprosy is actually the first legitimate use that they found for thalidomide, as opposed to any of the other uses that it was actually being marketed for before.

Harjes: For, specifically, one particular effect of leprosy, which is ENL, the acronym.

Lapera: Yeah. It's a really painful complication that can happen with leprosy, which is a skin thing. It's actually still fairly regularly distributed in Brazil. The FDA actually gave Celgene approval to use it for ENL in 1998, but it is no longer the preferred treatment for that, because there's a much safer drug on the market. In places where it's still being used to treat ENL, they're still seeing incidence of birth defects increased in that population.

Harjes: Right. So, even though we have found effective uses for thalidomide, as a pregnant woman, you still shouldn't take it.

Lapera: Yes. Actually, if you go to the Thalomid website, there is a huge box at the top with the skull and crossbones and a warning, like, "Do not take this if you're pregnant."

Harjes: Right. You mentioned Thalomid. That's actually now the brand name for thalidomide, which was approved in 2004 by the FDA for treatment of multiple myeloma, which brings us right back to blood cancer.

Lapera: Yes.

Harjes: This was a disease that had a very poor prognosis prior to approval of the drug. Celgene actually had its first profitable year basically because of Thalomid, which, ironically, most of the sales for this drug were off label, meaning not for the approved indication. There has been a good bit of controversy over whether or not they were marketing it off label, but that also seems kind of tangential to this topic. At first, ENL was the only approved indication, and Celgene got it approved for multiple myeloma. That basically spurred this franchise that, to this day, drives Celgene's profitability.

Lapera: Definitely. I believe that Thalomid peaked in 2008 with around $500 million in sales.

Harjes: Which is not that much, realistically, considering that, you look at its successors -- Revlimid, which is the big Celgene drug, that is a successor to Thalomid, it's kind of the next generation version of it. It's technically an analog, by the way, which means a similar chemical structure, but slightly different properties. So, you have Thalomid, which transformed and updated into Revlimid, which sold $7 billion worth in 2016. You also have Pomalyst, which is another next generation version of it. That one sold $1.3 billion in 2016. So, you compare those numbers to Thalomid's peak sales, and you can tell that really, the important drugs for Celgene are these newer, updated versions of it. But, it was really mind-blowing for me to look into the history of where these drugs started, because they are the most important drugs for one of the most important healthcare companies, and they have this entire storied history.

Lapera: Definitely. And without the history of thalidomide, the drug regulation environment in America would be totally different than it is now.

Harjes: Yeah. When I look at this story and I say, what can we learn, as people or investors or, we live in D.C., so we hear a lot about political policy and the FDA. And I think you're completely right, this story shows us a lot about why the FDA is the way that it is. You're hearing a lot of rhetoric now about how the FDA is too strict, and it's a huge regulatory mess, and we should let more drugs be approved because they save lives, and let's not get bogged down in paperwork. And I think this story reinforces the other side of that argument, where we -- we, [laughs], I'm not in the FDA. The FDA's job is to protect people. To require safety studies as well as efficacy studies, and to get informed consent, and all of these things that came about as a result of thalidomide, I would say are indisputably good things.

Lapera: Definitely. I agree with you. I can't imagine what it would be like if someone told me this drug would definitely help me with one thing, and then created all of these unwanted consequences, and things that I couldn't be informed about ahead of time, because the companies didn't do their due diligence. One of the things that actually came out in history of this whole discovery is that Chemie Grünenthal and a lot of the companies they partnered with really wanted to hide that this was happening.

Harjes: Yeah, which is pretty frightening.

Lapera: Yeah. It is. I know that I'm definitely a very risk-averse person, which is why I think it's great that the FDA requires all of these things, and it does take so long for drugs to come to market.

Harjes: Yeah. And I'm not going to say the FDA is perfectly efficient.

Lapera: No.

Harjes: And, certainly, this passage of the Drug Efficacy Amendment is not the 100% foundation of every rule the FDA has. It's just one tiny subsection of it. And I'm sure there are things that could be trimmed in the regulatory process. But, I think overall, when I hear this story, to me, it sounds like one of good progress.

Lapera: Yeah, definitely. I agree. Are there ways to speed the safety process and all that? Probably. But, I think, in general, it's better to be safe than sorry. 

Harjes: Yeah, well said. I think that about wraps up the episode for today. Hopefully our listeners enjoyed somewhat of a different type of episode, where we walked back through history and try to explain the way the world is today, or, at least, the FDA, based on our history lessons. Gaby, thank you so much for joining me today!

Lapera: Thanks for having me!

Harjes: It's been a pleasure. As always, people on the program may have interests in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Gaby Lapera, I'm Kristine Harjes. Thanks for listening and Fool on!

Gaby Lapera has no position in any stocks mentioned. Kristine Harjes has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.