How a Tragedy Changed How Drugs Are Sold

By Gaby Lapera and Kristine Harjes Markets Fool.com

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.

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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.

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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, butwe found an interesting topic andwanted to explore it, andI'm not going to start by saying what today's date is,because I just don't know what it is. Today's show willhopefully be really informative.It was inspired by a listenerof the show whose name is Vince. He came to see us from San Diego, he was here for acancer research conference, and came all the way down to Fool HQ, which is not actually in D.C. but inAlexandria. He came by, andhe was mentioning how much he enjoysJohn Maxfield's, who is one of our financial analysts,history lessons on Gaby's show. A few minutes later,we also ended up talking aboutthis drug calledthalidomide, which,as it turns out, has this very long and storied history. Thank you to Vincefor 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 Kristinelets me on, it's just a special treat. For me,I don't know if it is for you.

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

Lapera: OK. Today, we'retalking about a drug called thalidomide,just in case you hadn't caught it the first time. Alittle bit of a primer on the history of the drug --the drug was actually first developed inGermanyby a company called Chemie Grnenthal --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'ssort of nice to have someone sitting right next to me.

Lapera: Itreally is. Let me addressthe 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 Grnenthal. It was firstmarketed as Contergan. It wasoriginally used as an anti-anxiety medication, something to help promote sleep,and that was something that was really in demand inpost-war Germany, as one might imagine. Eventually, itsproperties as an anti-emetic wererecognized. An anti-emetic issomething that helps you not vomit.

Harjes:Fancy word for not puking.

Lapera: [laughs] Yes.

Harjes:So,they figured this drug might be really useful inmorning sickness, so thena lot of pregnant women started taking it.

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

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

Lapera: Perfect. So,they start giving this drug topregnant women. It spread like wildfire toother countries, like the U.K. and Spain. By1960, the drug wasbeing sold in 46 different countries under a variety of names. The problem withthalidomide is they hadn't really done human drugtesting, and they hadn't done it in pregnant women at all.

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

Lapera: Yeah. It was a different timeback then. And actually, as a resultof this different time we're in the time we're in now. But, thalidomide hasteratogeniceffects,which basically means that it can cross theplacental barrier and causebirth defects.

Harjes:So,in 1956, thefirst known instance of a child being born withthalidomide-relateddrug birth defects was born. This child was bornwith no ears. Interestingly,this was actually a daughter of an employeeof the company that makes the drug. So,that was the first case ofwhat turned out to be a lot more to come.

Lapera: It was a huge problem. It'sestimated that around 24,000 babies were born withproblems caused bythalidomide, and there's the potential that up to 123,000 babies were stillborn or miscarried due tothalidomide. Thalidomide has somepretty serious effects in terms of thebirth defects that it causes. The one that's mostrecognizable is a defect calledphocomelia. That comes from Latin for seal, because the babies were being born, basically,most of them were being born without anylong bones, andit 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. Andit also comes with a variety of otherside 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, andneuraldefects.

Harjes:Right. So, thisclearly was a hugely problematic drug. Beforethey quite realized the magnitudeof the problem, let's pivot to the United States, wherethey were trying to get this drugapproved for sale in the U.S.,because things were pretty different in Europe versus the U.S. Theyactually still are today. But,at the time, the year was 1960, there was anFDA employee named Dr.Frances Oldham Kelsey. Sheended up being the one tasked withmore or less approving this drug. Andshe was very insistent thatshe wanted more information. She didn't thinkthe studies that were available wereconclusive. She wanted to see more. Andshe got some pushback, butshe really fought for this drug, andit ended up not being approved by the FDA.

Lapera: Yes. Originally, Chemie Grnenthal,what they did was they would go to other countries andtry to get the partners to help them distribute the drugs. Theyget to the United States and talk toSmith, Kline & French,which is nowGlaxoSmithKline, andGlaxoSmithKlinedoes human testing inpregnant people. We don't 100% knowwhat the results of those trials were. But Smith, Kline & French decided not to move forward with the drug. Then, Chemie Grnenthal moved over toanother company called the William S MerrellCompany, which through some weirdturn of events, eventually becameSanofi. It wasa bunch of mergers and acquisitions.

Harjes:These are names that arestill pretty prominent today.

Lapera: Definitely. But this was far before that. That's when it got submitted to the FDA, and Dr. Kelseygot involved with it. She waspretty 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 Grnenthal said that it had. Chemie Grnenthal wasmarketing it as a sleep aid, andeven with higher than recommended doses,people weren't falling asleep.

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

Lapera: Yeah. There werea couple of things that played into that. InNovember of 1960, twophysicians in two very different parts of the world,Australia and Germany,simultaneously recognized the effectsthat were going on. This was around the same time that Dr.Frances Kelsey was sitting there going, "I don't trust this." News about thebirth defects spread pretty quickly after that, and it started getting pulled. Butit would have been available in Americaif it hadn't been for Dr. Kelsey.

Harjes:Right. Herinsistence also ledto 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 proveefficacy in addition to safety," and there are a whole otherbunch of things that I can tell you really want to share with our listeners that were involvedwith that amendment.

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

Harjes:It'slight years. InFDA years, yeah.

Lapera: But,some of the other things that the Drug EfficacyAmendment -- I'm not even going to try with the other name -- did, wasmake sure that study participants had to give informed consent. People who were in the studyhad to know what could happen to them in the study,which was something that was not required before,which is crazy to researchers now. TheFDA also could setmanufacturing standards and do regular inspections ofdrug production facilities -- again,something that wasn't there before. Italso required advertising todisclose informationabout side effects. So,when you're listening to the radio and someone isgiving 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. Whenyou look at the list of requirements that this actenabled or required, it'skind 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 womanwas basically the person who spearheaded a lot ofthe ways that the FDA is the way that it is today.

Lapera: Yeah. I think,also, one other thing that the amendment didthat is pretty good, andI think everyone would agree is great, is that it stoppedcompanies from marketing cheap generics as brand-new brand name drugs. So, they would be like, "Yes, this pill,which has never existed before, cantotally treat you way better than thegeneric that already exists." Theycan'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 aboutthalidomide's past,and I believe we've gotten up to about 1962. But,one of the most interesting parts of this story is thatit doesn't end in the 1960s. There's apretty big turn of events thatbrings this drug to become a veryimportant part of the products lineof a company that we talk about all the timeon the Healthcare show. That company isCelgene. How did that come about? Wheredo we begin?

Lapera: Post-1962,obviously not a lot of companies were interested in doinganything withthalidomide. Andthat makes sense. It turns out thatwe don't exactly 100% knowhowthalidomide works. But,it does turn out to work fora few different things.

Harjes:Right. The drug, we know, issomething 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 areother things that go onwith the drug that we know of. For example, we know that it hascertain effects in blood vessel creation.

Lapera: Yeah,it's an anti-angiogenic,which means that itinhibits 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 withtumors and cancer,because tumors are living things, basically. What they do ishijack the body'ssupply of other things, like blood andnutrients, to help feed itself to grow. Soif you help cut off that blood supply to the tumor, you cankind of starve it out.

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

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

Harjes:Now that youmentioned it, let's talk about leprosy. That'schronologically first, I think.

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

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

Lapera: Yeah. It's areally painful complication that can happen with leprosy, which is a skin thing. It'sactually still fairly regularly distributed in Brazil. TheFDA actually gave Celgene approval to use it for ENL in 1998, but it isno longer the preferred treatment for that,because there's a much safer drug on the market. Inplaces where it's still being used to treat ENL, they're stillseeing incidence of birth defects increasedin that population.

Harjes:Right. So,even though we have foundeffective uses forthalidomide, as apregnant woman, you still shouldn't take it.

Lapera: Yes. Actually, if you go to the Thalomidwebsite, there is a huge box at the topwith the skull and crossbones and a warning, like, "Donot take this if you're pregnant."

Harjes:Right. YoumentionedThalomid. That'sactually now the brand name forthalidomide,which was approved in 2004 by the FDA fortreatment of multiple myeloma, whichbrings us right back to blood cancer.

Lapera: Yes.

Harjes:Thiswas a disease that had a very poor prognosisprior to approval of the drug. Celgene actually had its firstprofitable yearbasically because of Thalomid, which, ironically,most of the sales for this drug were off label,meaning not for the approved indication. Therehas been a good bit ofcontroversy over whether or not they were marketing it off label,but that also seems kind of tangential to this topic. At first, ENLwas the only approved indication, and Celgene got it approved formultiple 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, youlook at its successors --Revlimid,which is the bigCelgenedrug, that is asuccessor to Thalomid, it'skind of the next generation version of it. It'stechnically an analog, by the way, which means asimilar chemical structure, but slightly different properties. So, you have Thalomid, whichtransformed and updated into Revlimid, which sold $7 billion worth in 2016. Youalso have Pomalyst, which is another next generation version of it. That one sold $1.3 billion in 2016. So, youcompare those numbers to Thalomid's peak sales, and you can tell that really, theimportant drugs for Celgene are thesenewer, updated versions of it. But,it was really mind-blowing for me to look into the history of where these drugsstarted, because they are the most important drugs forone of the most important healthcare companies,and they have this entire storied history.

Lapera: Definitely. And without the history ofthalidomide, the drug regulation environment in Americawould be totally different than it is now.

Harjes:Yeah. WhenI look at this story and I say, what can we learn, aspeople or investors or, we live in D.C., sowe hear a lot about political policy and the FDA. AndI think you're completely right, this storyshows us a lot about why the FDA is the way that it is. You'rehearing a lot ofrhetoricnow about how the FDA is toostrict, and it's a huge regulatory mess,and we should let more drugs be approved because they save lives, andlet's not get bogged down inpaperwork. And I think this storyreinforces the other side of that argument, where we -- we,[laughs],I'm not in the FDA. The FDA's job is toprotect people. To requiresafety studies as well as efficacy studies,and to get informed consent, andall of these things that came about as a result ofthalidomide,I would say are indisputably good things.

Lapera: Definitely.I agree with you.I can't imagine what it would be like ifsomeone told me this drug woulddefinitely help me with one thing, and thencreated all of these unwanted consequences, and things thatI couldn't be informed about ahead of time, because thecompanies didn't do their due diligence. One of the things that actually came out in history of this whole discovery is that Chemie Grnenthal anda 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 thatI'm definitely a very risk-averse person, which is whyI think it's great that the FDArequires all of these things, and it doestake so long for drugs to come to market.

Harjes:Yeah. AndI'm not going to say the FDA isperfectly efficient.

Lapera: No.

Harjes:And,certainly, this passage ofthe Drug Efficacy Amendment is not the 100% foundation of every rule the FDA has. It's just onetiny subsection of it. AndI'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 thesafety process and all that? Probably. But, I think, in general, it'sbetter to be safe than sorry.

Harjes:Yeah, well said.I think that about wraps up the episode for today. Hopefully ourlisteners enjoyed somewhat of a different type of episode, where we walked back through history and try toexplain 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. Asalways, people on the programmay have interestsin 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.