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Marathon Pharmaceuticals Cashes Out

You may recall Marathon Pharmaceuticals, the small company that announced plans to sell a long-used steroid treatment (Emflaza, deflazacort) in the US to Duchenne muscular dystrophy patients. The price was set to go up steeply, since the company was awarded years of market exclusivity by the FDA (under their program to reward orphan-drug indications like this one).

This business model is the same one followed by a number of other small outfits (see that link above for more), and it’s infuriating. Generic drugs are off patent, by definition, and they’re supposed to be cheap. Taking advantage of regulatory loopholes and perverse incentives to jack their prices up is shameful, unproductive, and expensive. There was quite an outcry when Marathon got this approval, and last month, they abruptly sold the drug to PTC Therapeutics for c. $140 million. PTC has had plenty of trouble trying to develop its own Duchenne drug (the biggest difficulty being that it doesn’t seem to work), so now they can at least say that they have one.

There’s a milestone payment attached to the deal, with details unavailable, and you have to wonder just what will trigger it. PTC is going to have quite a time selling deflazacort after all the publicity, and insurance payers are already making noises about how they’re not going to go along (the proof that it’s better than cheap alternatives like prednisone is not very compelling). The launch will come later this year, and it’ll be interesting to see how it goes off.

Meanwhile Marathon itself appears to be about to disappear. And why not? They’ve turned a quick buck. Endpts, who have been doing a great job on this story, couldn’t find anyone who thought that the company had spent more than $70 million on the drug’s approval, and it was probably a lot less. So $140 million, plus milestones and royalties, is a nice return. But there’s more money coming than just that – the company got a priority review voucher from the FDA for bringing a rare pediatric disease drug to the market, and they can sell that on the open market. I’d guess that it could bring in another $100 million or so, under the right circumstances, so I’m sure that some sort of corporate entity will remain behind to complete that deal.

If the new FDA commissioner is looking for something to reform, he could start with the agency’s incentive structure for deals like this. It’s not easy to configure these things so that people don’t game them, but you’d have to think that we could be doing better than we are. This has been a stupid and shameful exercise all the way around.

29 comments on “Marathon Pharmaceuticals Cashes Out”

  1. biotechtoreador says:

    The specifics here are an issue: how would you do it?

    Price controls sound great to me, but if I were sick IDK I’d want drug companies to have less incentive to make a profit and make a new drug to save my life. Price controls will also decrease employment, which would suck for my chemist friends.

    Maybe separate “innovators” from non-innovators? Sounds like a good idea, but who decides what an innovation is? “I can’t define it, but I know it when I see it?”.

    I agree the current system is horrifically unfair for Americans, who de facto subsidize drugs in the rest of the world, I just don’t know how to fix it.

    1. NMH says:

      Hypothetical question, BT: Lets say the government stepped in, and the government “fixed the system” such that you can no longer short-sell (and profit) from a publicly traded biotech companies that were about to fail. Would you want this fix?

      I didnt think so.

      Any fix of the system will mean that somebody is going to lose (no longer profit), and the more powerful and influential that group of people is, the less likely the system will be fixed.

      1. biotechtoreador says:

        “such that you can no longer short-sell (and profit) from a publicly traded biotech companies that were about to fail. Would you want this fix?”

        Nope, just like I don’t want any changes that ppl can no longer go long stocks of companies that do useful work and succeed.

        This whole business of ‘FDA reform’ would be easier if someone knew what a ‘reasonable’ profit is.

        “Compiling a bunch of currently known studies shouldn’t return as much as doing a large study of your own. ”

        If no one else thought of the analysis and it ends up being a drug that helps people, then I don;t see a problem. I can’t think of an example where this has happened.

      2. Doctor Memory says:

        Answers like this are immensely frustrating to me. The current situation is the result of a “fix” to “the system”. The Orphan Drug Act was passed in 1983, well within the lifetimes of most readers here. The priority review voucher program was created in 2007. They’re not holy writ or the inevitable consequence of a free marketplace (whether such a thing be good or bad), they’re policies written by human beings no more omniscient than us, in response to only such information as they had on hand at the time.

        Drug development existed quite happily for decades before the passage of these programs. If we now think that they have (either separately or in conjunction) mostly bad effects, why is a simple repeal and return to the status quo ante such an unthinkable position?

    2. Hap says:

      I am assuming he meant specifically for accepting new trial data for generics – that if a previously generic drug is going to removed from generic status based on trial data, that the benefit to the trying entity should be proportionate to the value of the data obtained and the effort made in attaining it. Compiling a bunch of currently known studies shouldn’t return as much as doing a large study of your own.

      The devil is still in the details, but it’s an easier devil to contain, I think.

    3. Jusdoingmyjob says:

      “Americans subsidize drugs for the rest of the world”

      A point that many seem to forget.

      A lot of those cheap generic drugs, that the WHOLE world benefits from, were discovered by the American pharmaceutical industry.

      Curse the infidels!

      1. Mick Smith says:

        I can’t decide if you are being serious with “Americans subsidize drugs for the rest of the world”. If you look back at deflazacort, it appears the initial patents were granted to a European company and was widely used in many other countries before Marathon got their hands on it. No US subsidy here!

    4. TJM says:

      Price controls are stupid and terrible and will absolutely kill the market. In this case, what the FDA should do is restrict the waivers to a particular asset. If the asset doesn’t come to market (for whatever reason), the waiver is null. It can stay with the asset if say, the company or candidate is sold, but it cannot be used for anything but it’s original application.

  2. mallam says:

    Contributes to the bad reputation for all of Pharma. Certainly not creative or innovation, but clear and simple greed.

  3. Jane says:

    Trump’s argument for hiring all of these business people was that they could do better deals than the professional politicians. This seems like an ideal case to prove it. Under it takes a thief to catch a thief philosophy, perhaps it takes a business shark to find the loopholes another business shark will exploit.

    1. Barry says:

      John Kennedy hired a bunch of businessmen to fix what was wrong with the U.S. military. That’s how we alt-won the war in Vietnam.

    2. Pennpenn says:

      I wonder how many people who believed in the “set a theif to catch a theif” mentality have ended up having everything stolen by both theives. I mean, that seems like a likely outcome in this case if nothing else, because I don’t see what’s going to incentivise the the business people from just creating more and more loopholes to exploit.

  4. Barry says:

    The incentives are the system, and no timid tinkering is going to fix it. The Pharmaceutical Industry as we know it is built on our patent system. In exchange for enabling your competitors by revealing an innovation, you get a period of market exclusivity in which to recoup the costs of Research and Development. That has worked very well for many drugs, but has not proven to be a general solution.
    In all of healthcare, vaccines rank with potable water and sanitary sewers as the only bargains. But vaccines are a losing proposition for the manufacturer in the current U.S. fee-for-service model. So–as a national health priority–their manufacture has been socialized ( National Vaccine Injury Compensation Program (“Vaccine Program”) comprises Part 2 of the National Childhood Vaccine Injury Act of 1986 (“Vaccine Act”). See Pub. L. No. 99-660, 100 Stat. 3755 (1986) (codified as amended at 42 U.S.C. §§ 300aa-1 to -34). The Vaccine Act became effective October 1, 1988).
    The other conspicuous failing is antibiotics. Much as we need new antibiotics against resistant pathogens, the market mechanism doesn’t make an antibiotic program attractive. The FDA would want to limit a hypothetical novel antibiotic to the most resistant infections. Unless the price per dose were astronomical, the drug company would never recoup the costs of R&D before the patent ran out. Worse yet, pirate labs (traditionally in India or China) would put out generic versions in violation of the patent long before that date, probably spurring the development of bacterial resistance to this one, too.
    Who knew it could be so complicated? 😉

    1. zero says:

      Let the federal government run a single-payer system for prescription medication. Most pharma companies would continue to operate much as they do today, though with less money spent on advertising. There would still be conditions lacking an economic incentive for research. For these targets, offer milestone payments and buyout bounties on drugs.

      Under those rules, ‘me too’ drugs that weren’t already in development with the first approved compound would be very risky. Paying for only a single approved compound is risky and allows for long-term side effects to knock out the only available treatment, so the one that is ‘first past the post’ would not be the only one funded. Paying for another new compound when there are already several approved is generally a waste of money, though there are exceptions. Nobody would be wasting money on the hunt for a 0.01% better statin because the potential market would be zero even with patents.

      On the other hand, antibiotic research would be good money; showing candidates and progressing them through trials would earn hard cash, with a big payout on approval regardless of the potential patient population. More generally, firms would focus on conditions with no good existing compound for treatment.

      With a growing library of publicly-owned treatments, the cost of medical care would drop over time. So would the cost of providing medical aid, although most pharma companies already provide massive price cuts for aid and relief purposes. Researchers (and startups) would be able to focus on more than just the next potential blockbusters, since there would be preapproved funding for progress towards a list of targets. The industry would do a better job of treating more conditions and spend less time / energy / resources on zero-sum competition.

      Beyond that, organize a federal clinical trials agency that oversees every step of the process. Endpoints and statistical approaches would be standardized and informed by research. Sample size would be driven by data needs, not financial ability. Patient care and compensation would be federally provided. Companies would be allowed to use this resource only if they also participate in the milestone / buyout system. The single-payer system would be integrated with trial data and post-approval use data for straightforward extended tracking of drug characteristics in larger populations. Academic researchers would be able to tap into this vast collection effectively, since the data would be standardized and relatively easy to use. The group of people participating in trials would essentially become a gigantic cohort study, offering improved visibility into the group’s composition and other characteristics that would further reduce risk in the actual clinical trials.

  5. Magrinho says:

    Sad is the lack of flexible thinking as it relates to capitalism/healthcare/government. If I hear the mindless phrase “the market will figure it out” or words to that effect one more time I will vomit.

    Antibiotics are a great example where the government could have a profound impact for the greater good of society. Folks will continue to have horrible infections after routine outpatient procedures and it will continue to cost society billions of dollars. And certainly there are many other examples of unmet medical need for which there is NO financial incentive for pharma to invest.

    Generics and the abuse of existing regs is another place where the govt can have a positive role. Is the govt taking sides by giving patients free 50-year old drugs? YES! Is the govt taking sides by revoking the ill-gotten and abused priority reviews? Absolutely! The same way it is taking sides by building highways or protecting wildlife.

    1. Emjeff says:

      And this is fine, as long as you are willing to forego clinical data on off-patent compounds in orphan indications. I don’t think this audience understands what is happening here. Suppose you have a drug which is approved for hypertension and is now off-patent. Some pulmonologist, based on the mechanism of action, treats some patients with pulmonary hypertension, and sees good results, but it is a small, uncontrolled data-set. Do you want to provide an incentive for a company to actually study this compound in the new indication in two double-blind, randomized controlled trials? If so, then you better be prepared to pay something, because doing these trials, and taking the risk that they might fail, is on the company and its investors. If we don’t want/need these data, then fine, but you will never know if the drug works for the orphan indication. It really is as simple as that.

      1. anon says:

        How about we pay for it directly with tax dollars? The costs end up distributed anyway, via insurance and medicaid, and then we’re only paying for the actual cost of the benefit. I know the idea of the government developing drugs is strongly scoffed at around here, but I don’t think this qualifies as “developing a drug”. The drug has already been created, formulated, scaled up, and passed tox. The only thing that’s left is running the efficacy trials, and fits well into the NIH/academia mission anyway. The only entrepreneurial part is identifying the candidate + indication to begin with, and that can be rewarded with a price-controlled monopoly to the company making the case for the studies, since almost all the risk has been removed.

        1. Imaging guy says:

          Professor John Ioannidis also proposed that more clinical trials should be done by the government (1). This is what he wrote, “much current public funding could move from such preclinical research to useful clinical research, especially in the many cases in which a lack of patent protection means there is no commercial reason for industry to fund studies that might nevertheless be useful in improving care”.
          1) Why Most Clinical Research Is Not Useful 2016 (PMID: 27328301)

  6. David says:

    Why doesn’t the NIH or other Gov’t research outfit just conduct or contract out the research on “unproven/unstudied” generics and raffle off the reprieve from genericity” with stipulations about price/profit?

    I’d honestly prefer a gov’t monopoly where proceeds might flow back into research, care, or services (or the Fed Debt, but that’s another discussion).

    1. Anonymous99 says:

      I like this idea. There is probably a finite number of good contenders out there that can be gleaned from prescribing data. The NIH/ govt can set a floor to recoup their costs for the trial alone and company can buy the rights to sell it.

  7. Emjeff says:

    Well, apart from the fact that the U.S. is 18 trillion in the red and so where exactly will the money come from, the other significant problem is that neither the NIH nor academia have the expertise to develop drugs. There’s much more than the trial; there’s chemistry (both medicinal and formulation), tox, clin pharm, etc. Finally, the biggest reason to not do this is staring you in the face – the feds screw up every single thing they do. We are talking about this topic because an ill-defined and not-well-thought-out FDA policy, and now you want to give them more power?? Bizarre…

    1. Grumpyoldalchemist says:

      Sorry, Emjeff, but there are multiple flaws in your logic. First, your point about funding ignores that fact that the government, through Medicare and Medicaid, pays enormous amounts of money to these companies that are charging outrageous prices for these formerly generic drugs – it would be far cheaper for the government to conduct the studies. Second, it is not true that there is “much more than the trial” – these are already approved drugs so the “medicinal chemistry, formulation, tox, clin pharm, etc” have already been done. All that is lacking is a clinical trial to demonstrate efficacy for a new indication and NIH certainly has plenty of expertise in clinical trials. Your third and final point “the feds screw up every single thing they do” is demonstrably false: NIH, NSF and the other federal research funding agencies are the primary reason the US is the world’s leader in science; NASA accomplished the moon landings (arguably mankind’s greatest technological achievement), the internet was started by DARPA, the feds were heavily involved in the successful effort to wipe out smallpox (arguably mankind’s greatest medical achievement) – the list goes on and on. In fact, the clear and obvious solution to this problem is to have NIH conduct these trials and once efficacy is demonstrated allow patients to purchase the drugs from any generic supplier (and allow importation of Canadian generics if no US supplier will sell the drug at a reasonable price)

      1. Emjeff says:

        There’s always a true believer in any group. Shut your eyes to the problems at the VA, and the virtual impossibility of getting funding from NIH. Continue to pretend that the logical response to government failure is more government.

        1. Jim Hartley says:

          Emjeff, sorry, you’re not behaving rationally. Perhaps there is a better forum than this for you?

        2. anon says:

          Perhaps you’re the one believer in this case? It’s not clear to me that replacing the “let’s give a government-enforced unlimited monopoly to people who do these trials” Act with the “place these repurposing trials at the top of your queue, NIH” Act is “more government.” It will certainly cost me less, even as a taxpayer who doesn’t have the orphan disease, and it will keep the government from telling me I can only buy the drug from parasitic businessmen who have octupled the price. That’s LESS government.

  8. Mick Smith says:

    Maybe a test of ‘obviousness’ should be applied when new applications are assessed. If you discover something truly new and novel about an old compound then you should be rewarded. Just dressing up old data to make a quick $ at the expense of these patients is a complete scandal. Whoever thought allowing a ‘priority review voucher’ to be transferable was definitely having a bad day or was in the pay of somebody.

  9. Magrinho says:

    Emjeff, NIH budget in 2010 was $31 billion dollars (Wiki) so I think that there is some funding to be had.

    I would urge you to get data and think for yourself.

  10. Jane says:

    Actually, I’m not happy with either solution.

    The current reward model empowers the business parasites who are taking advantage of the system by selection the low hanging fruit i.e. the cpds that are easy and cheap and for which the new clinical trials do little in providing information useful to the general public and/or the medical establishment.

    On the other hand, having the NIH run the clinical trials seems like a disaster in the making as well. Aside from the funding issue, we’ve seen time and time again that the NIH (and other academics) are abysmal at the Development side of R&D. And while in some cases it could be as simple as a small efficacy trial in a new indication (i.e. the low hanging fruit), in other cases the situation really is a lot more complex.

    The solution is likely multi-factoral. One component of the solution could be to have an industry-academic-NIH working group subdivide the old medicines into categories.

    Category 1 – low hanging fruit i.e. the cpds for which a simple study or two can answer the efficacy and/or safety issues -> dealt with by academia or the NIH or perhaps by direct government payment to a clinical trial CRO in a pay for service model;

    Category 2 – more complex challenges requiring multiple clinical trials and/or long expensive clinical trials -> send to industry with a limited reward i.e. only the current marketing exclusivity not eligibility for anything else i.e. not eligible for a priority review voucher for bringing a rare pediatric disease drug to the market or any other type of similar award;

    Category 3 – major work required essentially redoing the entire clinical program including expensive phase III trials, which often cost hundreds of millions for many indications -> for something like this they would be eligible for marketing exclusivity (I’d even be willing to make the marketing exclusivity longer!) plus any priority review vouchers that apply.

  11. The Lunatic says:

    The key question is, do you have a better system to propose?

    Right now, the system has private capital bear the costs not just of the new efficacy trials that succeed, but also of the ones that fail. Then, the ones that succeed get to reap monopoly profits. If the capital market is reasonably efficient, the average revenue from the new monopolies isn’t going to be all that much above the average cost of running the trials. So the US public is going to pay pretty close to the actual costs of the trials, while the US government pays rather less (since it will likely be less than 100% of the US market for the resulting pills). Since the public that doesn’t have the government buy its pills is, on average, generally better-off than the rest, this amounts to a mildly progressive distribution of the costs of the efficacy testing to the (insurance companies of, and ultimately the premiums paid by) better-off. The non-US the world gets the new testing for free.

    On the other hand, assuming equal efficiency between the market and government at allocating money for the investigations (even in the absence of the financial reward to successful investigators and funding decision-makers), a government-run investigation system that left the drugs non-exclusive in the aftermath would bear 100% of the costs of the trials, presumably to be paid for by the usual progressive taxation (either now or in the future as a result of deficit spending). The non-US the world gets the new testing for free.

    So, although the mechanisms are quite dissimilar, there is no significant overall difference in the cost to the US general public under either approach. The questions then are:

    1) What is the equity of putting a heavier burden of payment on people who need the drug rather than society as a whole?

    2) What is the equity of allowing the people involved in proving the new efficacy for an existing drug to personal profit from their success?

    3) Would the government-funded system be more or less efficient at finding useful new applications for generic drugs than the current one?

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