The history of pharmaceuticals is long in some respects, being that medicine has been around since hunting and gathering times, but the systematic exploration of chemical compounds for effective medicines has advanced significantly over the last 100 years. Still, the road from laboratory to drugstore shelf is long and perilous, and many drugs don't survive the journey. So, what does it take for a new pharmaceutical to become profitable for the company that developed it? Read on as we explore some of the most successful drugs ever introduced to the market, and examine what they have in common.

The Pill
The birth control pill was the brainchild of Margaret Sanger. Sanger hired biochemist Gregory Pincus to develop a "magic pill" that would give women more reproductive freedom. Pincus, with the help of a modest grant, discovered that progesterone inhibited ovulation in animals. He searched for a pharmaceutical lab that could help them synthesize it in an oral form for human consumption. Pincus approached G.E. Searle, requesting research support and further funding. Though Searle refused, Sanger managed to arrange alternate funding. Pincus worked with gynecologist John Rock to create a drug regime that would pass the larger human trials required for FDA approval. (Learn how to choose the best medical stocks in A Checklist For Successful Medical Technology Investment.)

The oral contraceptive gained FDA approval, but only for treating severe menstrual disorders. Searle provided the actual test pills for the trials and thus gained the patent. If Searle was going to sell the drug, the FDA decided, the label would have to give a clear warning that taking it would prevent conception.

Unsurprisingly, an epidemic of "menstrual disorders" followed. The number of women going to doctors for the relatively vague condition jumped to 500,000 by 1960. The oral contraceptive's popularity was so great that it became simply known as "the pill."

Searle, the company that refused to fund the research, was raking in more than $30 million a year in sales. This profit led the company to apply for the pill's approval as an official contraceptive. For two years, Searle's pill, called Envoid, was the only contraceptive on the market. With well over one million women on the pill, other companies began approval processes for their own versions and Searle's monopoly ended. Before the '60s were over, sales of the pill rocketed to $150 million, with Searle making an average of $25 million in profits, despite competing brands. The birth control pill, which now comes in many formulations, continues to be profitable to this day. Unfortunately, Sanger, Pincus and Rock didn't see a single penny from the sales of the pill, even though they were responsible for keeping it alive. (Find out how medical stocks stack up, read Measuring The Medicine Makers.)

Prozac was created by Eli Lilly and Company. The drug was tried as an anti-obesity agent and a treatment for high blood pressure before the company stumbled on its psychiatric use. Prozac was sold as a new kind of drug for treating general depression by controlling the levels of serotonin in the patient's brain. It was opportune timing for Prozac, as the only other drug for depression (Valium) was found to be addictive and not entirely free of unpleasant side effects.

Eli Lilly presented Prozac as the easy solution for an ever-expanding amount of ills, and patients began to ask their doctors for it by name. Even the name "Prozac" was carefully selected to attract consumers; in fact, the drug may have been one of the first medications to go to such lengths in PR. Eli Lilly's stock also rose sharply with the debut of the drug, making it one of the hottest pharmaceutical stocks of the early 1990s.

Eli Lilly used the money to buy back shares and shore up its war chest, as Prozac broke billion-dollar sales marks on a yearly basis. The sales of Prozac were strong, until a court decision caused its patent to prematurely expire in 2000. Despite competition from cheaper generic drugs, Prozac is still among the most popular antidepressants and is used by millions worldwide. (Enter the medicine market armed with knowledge, read Investing In The Healthcare Sector.)

Viagra started off as a treatment for angina and hypertension, but it had little success in combating either of these conditions. Fortunately, the drug caused an unintended biochemical reaction in male test subjects. The test subjects found that an hour after taking Viagra, they experienced an uplifting side effect. Pfizer abandoned thoughts or reformulating the drug to treat angina, and instead focused on its use as a treatment for erectile dysfunction.

This proved to be a wise decision, and within two years the company had FDA approval for its drug as a treatment for erectile dysfunction. Leading up to the impending FDA decision, Pfizer's stock price experienced a rise of its own, going up over 20% in a matter of months. Although only available via prescription, Viagra managed to earn $1 billion in sales in the first year alone. Urologists all over the U.S. suddenly found their calendars filling up, and celebrity endorsements - including Bob Dole - were helped Pfizer's marketing campaign greatly.

Pfizer saw its demographic expanding downward, from men in their 50s, to men in their 40s, then to men in their 30s, until even members of the porn industry began complaining about widespread doping problems. Pfizer now has competition in the impotency treatment sector, but Viagra continues to do a robust trade. (Learn how to stretch your medical budget further in Get Sale Prices On Health care With Discount Plans.)

A Tough Market
Publicly-traded pharmaceutical firms face more barriers than firms in other industries - their patents are short-lived, their approval process is long and the majority of their projects are unprofitable. On top of this, there is the looming shadow of shifting government policies creating legislative risks that can be difficult to predict or measure.

The fact that the top three drugs were brought to market by large drug companies should not come as a surprise. These companies had robust pipelines, a good track record of transferring pipeline products to market, and the money for PR and mass production. Small drug companies do stumble upon profitable drugs, but they are often bought out by larger firms because they lack the resources to bring these drugs to the market.

From an investing perspective, this makes small firms speculative plays, but even big firms are far from stalwart ratings. Larger firms can suddenly lose patents for drugs that make up a large part of their profits, as Eli Lilly did with Prozac. That is why the pipeline matters so much. Even with a big profitable drug like Prozac or Viagra, a pharmaceutical company must have other products coming up to guard against the expiration of its patents and lurking patent trolls.

The Bottom Line
It's not always easy to predict a drug's future. Studying societal needs and wants can help in determining what the "next big thing" will be in the pharmaceutical market. As happened with Prozac, all types of incidents can affect the field. With such an unpredictable, and often unstable, foundation, it's careful research and insight that makes the drug market financially viable.

Related Articles
  1. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  2. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  3. Savings

    Your Flex Spending Dollars: How to Use Them All

    Your flexible spending account is about to expire. Don't throw money away; here's how you can spend every cent (or roll it over).
  4. Retirement

    Getting Through the Medicare Part D Maze

    Having trouble sorting through your prescription drug coverage options? Try these solutions to finding the right Medicare Part D option.
  5. Professionals

    How Advisors Can Help Clients with Dementia

    Advisors may be called on to monitor and react to changes in their clients' mental acuity. Here's what to consider.
  6. Insurance

    Does an Insurance Plan Network Affect Your Health?

    So-called narrow networks have been criticized. But it's not necessarily true that they have a negative impact on the medical care you get.
  7. Stock Analysis

    Analyzing Rite Aid's Newest Campaign

    Learn why Rite Aid is targeting human resources managers with its new campaign warning of the dangers of flu season and the effects the flu has on production.
  8. Retirement

    No, Social Security Is Not Being Depleted

    There are a number of reasons why concerns over Social Security depletion have emerged, but there are ways you can prepare for it.
  9. Insurance

    Essential Health Benefits Under The Affordable Care Act

    Under the Affordable Care Act, certain preventive health services and these 10 essential health benefits are the minimum requirements for many health insurance plans.
  10. Insurance

    Learn About the Health Insurance Marketplace

    2016 Open Enrollment is Nov. 1 to Jan. 31. Here are five things you should know about the Health Insurance Marketplace (AKA Health Insurance Exchange).
  1. Are Flexible Spending Account (FSA) contributions tax deductible?

    The contributions you make to your Flexible Spending Account (FSA) are not tax-deductible because the accounts are funded ... Read Full Answer >>
  2. Does a Flexible Spending Account (FSA) cover Lasik?

    Flexible spending accounts (FSA) can be used to pay for qualifying LASIK procedures. LASIK is not the only laser eye surgery ... Read Full Answer >>
  3. Are Flexible Spending Account (FSA) expenses tax deductible?

    Flexible Spending Account (FSA) expenses are not tax deductible. The U.S. Internal Revenue Service (IRS) states you cannot ... Read Full Answer >>
  4. Does a Flexible Spending Account (FSA) cover acupuncture?

    A Flexible Spending Account (FSA) covers acupuncture. The Internal Revenue Service (IRS) has defined acupuncture as a qualifying ... Read Full Answer >>
  5. Do Flexible Spending Accounts (FSAs) expire?

    Flexible Spending Accounts (FSAs) do expire and are considered to be a "use it or lose it" type of plan. They are savings ... Read Full Answer >>
  6. Do flexible spending accounts (FSA) funds roll over?

    An individual can utilize an employer’s cafeteria plan of employee benefits to establish a flexible spending account (FSA). ... Read Full Answer >>

You May Also Like

Trading Center