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More on KV and Makena’s Pricing

I wanted to do some follow-up on the Makena story – the longtime progesterone ester drug that has now been newly FDA-approved and newly made two order of magnitude more expensive. (That earlier post has the details, for those who might not have been following).
Steve Usdin at BioCentury has, in the newsletter’s March 21st issue, gone into some more detail about the whole process where KV Pharmaceuticals stepped in under the Orphan Drug Act to pick up exclusive marketing rights to the drug. The company, he says, “arguably has played a marginal role” in getting the drug back onto the market.

Here’s the timeline, from that article and some digging around of my own: in 1956, Squibb got FDA approval for the exact compound (progesterone caproate) for the exact indication (preventing preterm labor), under the brand name Delalutin. But at that time, the FDA didn’t require proof of efficacy, just safety. There were several small, inconclusive academic studies during the 1960s. In 1971, the FDA noted that the drug was effective for abnormal uterine bleeding and other indications, and was “probably effective” for preventing preterm delivery. In 1973, though, based on further data from the company, the agency went back on that statement, and said that there was now evidence of birth defects from the use of Delalutin in pregnant women, and removed any of these as approved uses. In the late 1970s, warning language was further added. In 1989, the agency said that its earlier concerns (heart and limb defects) were unfounded, but warned of others. By 1999, the FDA had concluded that progesterone drugs were too varied in their effects to be covered under a single set of warnings, and took the warning labels off.

In 1998, the National Institute of Child Health and Human Development launched a larger, controlled study, but this was an example of bad coordination all the way. By this time, Bristol-Myers Squibb had requested that Delalutin’s NDAs be revoked, saying that they hadn’t even sold the compound for several years. This seems to have also been a move, though, in response to FDA complaints about earlier violations of manufacturing guidelines and a request to recall the outstanding stocks of the drug. So the NICHD study was terminated after a year, with no results, and the drug’s NDA was revoked as of September, 2000.

The NICHD had started another study by then, however, although I’m not sure how they solved their supply problems. This is the one that reported data in 2003, and showed a real statistical benefit for preterm labor. More physicians began to prescribe the drug, and in 2008, the American College of Obstetricians and Gynecologists recommended its use.

So much for the medical efficacy side of the story. Now we get back to the regulatory and marketing end of things. In March of 2006, a company called CUSTOpharm asked the FDA to determine if the drug had been withdrawn for reasons of safety or efficacy – basically, was it something that could be resubmitted as an ANDA? The agency determined that the compound was so eligible.

Meanwhile, another company called Adeza Biomedical was moving in the same direction (as far as I can tell, they and CUSTOpharm had nothing to do with each other, but I don’t have all the details). Adeza submitted an NDA in July 2006, under the FDA’s provision for using data that that applicant had not generated – in fact, they used the NICHD study results. They called the compound Gestiva, and asked for accelerated approval, since preterm delivery was accepted as a surrogate for infant mortality. An advisory committee recommended this in August of 2006, by a 12 to 9 vote. (Scroll down to the bottom of this page for the details).

The agency sent Adeza an “approvable” letter in October 2006 which asked for more animal studies. The next year, Adeza was bought by Cytec, who were bought by Hologic, who sold the Gestiva rights to KV Pharmaceuticals in January 2008. So that’s how KV enters the story: they bought the drug program from someone who bought it from someone who just used a government agency’s clinical data.

The NDA was approved by the FDA in February 2011, along with a name change to Makena. By this time, KV and Hologic had modified their agreement – KV had already paid up nearly $80 million, with another $12.5 million due with the approval, and has further payments to make to Hologic which would take the total purchase price up to nearly $200 million. That’s been their main expense for the drug, by far. The FDA has asked them to continue two ongoing studies of Makena – one placebo-controlled trial to look at neonatal mortality and morbidity, and one observational study to see if there are any later developmental effects. Those studies will report in late 2016, and KV has said that their costs will be in the “tens of millions”. So they paid more for the rights to Makena than it’s costing them to get it studied in the clinic.

That only makes sense if they can charge a lot more than the generic price for the drug had been, of course, and that’s what takes us up to today, with the uproar over the company’s proposed price tag of $1500 per treatment. But the St. Louis Post-Dispatch (thanks to FiercePharma for the link) says that the company has now filed its latest 10-Q with the SEC, and is notifying investors that its pricing plans are in doubt:

The success of the Company’s commercialization of Makena™ is dependent upon a number of factors, including: (i) the Company’s ability to maintain certain net pricing levels for Makena™; (ii) successfully obtaining agreements for coverage and reimbursement rates on behalf of patients and medical practitioners prescribing Makena™ with third-party payors, including government authorities, private health insurers and other organizations, such as HMOs, insurance companies, and Medicaid programs and administrators, and (iii) the extent to which pharmaceutical compounders continue to produce non-FDA approved purported substitute product. The Company has been criticized regarding the list pricing of Makena™ in a number of news articles and internet postings. In addition, the Company has received, and expects to continue to receive, letters criticizing the Company’s list pricing of Makena™ from several medical practitioners and several advocacy groups, including the March of Dimes, American College of Obstetricians and Gynecologists, American Academy of Pediatrics and the Society for Maternal Fetal Medicine. Further, the Company has received one letter from a United States Senator and expect to receive another letter from a number of members of the United States Congress asking the Company to reduce its indicated pricing of Makena™, and the same Senator, together with a second Senator, has sent a letter to the Federal Trade Commission asking the agency to initiate an investigation of our pricing of Makena™.
The Company is responding to these criticisms and events in a number of respects. . .The success of the Company is largely dependent upon these efforts and appropriately responding to both the media and governmental concerns regarding the pricing of Makena™.

Personally, I’m torn a bit by the whole situation. I think that people and companies have the right to charge what the market will bear for their goods and services. But at the same time, I find myself also very irritated by KV in this case, because I truly think that they are taking advantage of the regulatory framework. As I said in the last post, it’s not like they took on much risk here – they didn’t discover this drug, didn’t do the key clinical work on it, and don’t even manufacture it themselves. Their business plan involves sitting back and collecting the rent, but that’s what the law allows them to do.

In the end, if political pressure forces them to back down on their pricing, this will come down to a poor business decision. Companies should, in fact, charge what the market will bear – but KV may have neglected some other factors when they calculated what that price should be. Before setting a price, you should ask “Will the insurance companies pay?” and “Will Medicare pay?” and “Will people pay out of their own pocket?”, but you should also ask “Will this price bring down so much controversy that we won’t be able to make it stick?”

17 comments on “More on KV and Makena’s Pricing”

  1. NoDrugsNoJobs says:

    I think the lawsuit liability for this drug will be huge. Most if not all major pharma walked away from programs related to treating pregnant women because any issues with the baby can result in huge liability to the manufacturer. Birth defects and child disability is common enough but within a population of women with problems related to carrying a baby to term and the rates probably go up even more. A single successful lawsuit can result in a judgment of many millions of dollars. If the drug is used by a lot of women you can be sure that there will be lots of lawsuits. One of the first mass torts was for a pregnancy related synthetic estrogen called diethylstilbestrol (“DES”).

  2. Rick says:

    Setting aside the philosophical issues of pricing and free market capitalism, the birth defect issue is deeply troubling. From your description and the BioCentury piece, it seems that there are a lot of “cracks” through which unfavorable observations can fall. How solid are the birth defect data?
    It also seems like the number of times this drug has been handed off will inevitably create a terrible legal morass if, God forbid, any birth defect litigation does arise. KV will just point the finger at Hologic, who will point the finger at Cytec, who will point the finger at Adeza, will blame NICHD, who will stare back in blank silence. The net result would be that KV’s, Hologic’s, etc. laywers will make a lot of money, but damages will never be assesed before KV gets a chance to sell Makena to someone else (at a profit that will more than adequately cover their expenses, plus a nice multi-hundred million dollar premium). It could make sifting through the whole BP/Halliburton/Transocean finger-pointing fiasco look like an open-and-shut case.

  3. RM says:

    Derek, implicit in the “companies should charge what the market will bear” concept is the understanding that if one company is charging an excessive amount, another company can come in, charge less, and hand the unreasonable company their hat. That sort of falls apart when you have the government blocking other companies from stepping in.
    In drug approval (or other patent-related) case, we usually allow it, though, to curtail a possible drawbacks of the completely-free market … the major one of which usually goes something like “a hard working person puts in a lot of time and effort to research and develop a product, but before they can even recoup the costs of that development, a big corporation sweeps in, takes advantage of all their work (without payting them) and undercuts them on price (because they don’t have to pay for any of the R&D)” — If KV looks like one of the players in that scenario, it’s not the one exclusivity was intended to protect.

  4. Ceee says:

    Derek – KV mgmt demonstared what goes on in many companies. Mgmt does not believe in market research or in soliciting customer insights and feedback. Had they done that, they would have have known that the many stakeholders would not respond well to a $1500 price tag.
    The result is usually commercial failure of a brand/drug that has so much promise.

  5. johnnyboy says:

    Wow, what an amazingly convoluted story for that drug. Thanks for that, Derek.

  6. Ash says:

    Is this an “orphan Drug” Does anyone have information on how many women require such a treatment. They would need 150k to 175k patient treatments jsut to break even with the 1,500 per treatmetn price tag.
    I also have to agree with the liability argument. Possible litigation arising frmo birth defects could be very expensive.

  7. fyi says:

    Rates for preterm labor from Wikipedia……..
    “In Europe and many developed countries the preterm birth rate is generally 5–9%, and in the USA it has even risen to 12–13% in the last decades.”

  8. Mr. Happy says:

    “…what the market will bear”
    Thats why all those lobbyists exist in Washington…and too big to fail financial institutions…nah the predators at JP Morgan and Goldman Sachs have nothing on Kevin Trudeau when it comes to fraud.

  9. partial agonist says:

    agree with #1 on the huge liability risk.
    In the 60’s the H1 antagonist drug Bendectin was used in the USA for morning sickness. The pharma company (Merell Dow) was sued again and again for alleged birth defects, won every single case, the FDA supported them on the lack of evidence for teratogenicity, yet finally they got tired of bad press and expensive lawyers and pulled it from the market. 28 years later it is still sold in Europe and Canada. Moral- don’t try to sell anything for pregnant women.
    Years later they came out with nicotine gum and patches and wanted to have them labeled to be NOT used by pregnant women, since nicotine toxicity is known. The FDA refused, saying they don’t want preganant women smoking, and that trumps the gum or patch risk, and the company would just have to deal with any legal liability.

  10. Jill says:

    Ash, the $1,500 “per treatment” really is per DOSE. The average pregnant woman is given a 20 week course of this drug for a total cost of $30,000 per pregnancy. It is the $30,000 price tag for preventing prematurity that has women up in arms.
    I was on a non FDA approved version of 17OHP during my recent pregnancy (my son was born 11/10). My daughter, born in 2009, was premature and my doctor felt this drug was a highly effective, low risk option. My son was thankfully born full term and healthy. I believe I have 17OHP to thank.
    It is sad to me that some women will be forced to make an impossible decision between high risk for prematurity and finding $30,000 to pay for a drug that was $10/dose ($200 for an entire pregnancy) less than a year ago.

  11. BE says:

    The woman that cuts my hair had a baby 4 months early – the baby was lucky and survived. It took 3 months of the baby being in intensive care at a cost of $600,000.00 and all the bills have not been counted. That equates to around $6,500.00 a day ($1,500.00 a day just for the bed). I understand that KV is setting up a program for women who might need assistance. The FDA approval status will allow more doctors to prescribe Makena to high risk patience – potentially saving millions and millions in insurance claims. What about the cost of a couple of Tylenol when you receive them in a hospital. The astronomical pricing can be traced to the need for tort reform in this country – unnecessary and frivolous law suits and malpractice insurance not to mention the quagmire of administrative costs that exist in this country that account for 2/3rds of medical costs in this country. In my opinion, this is a fantastic drug and needs to be brought to market with the FDA stamp of approval. People need to get off KV’s back and let the process work it out. When was the last time someone was turned away for treatment after they had a serious accident – almost never! Now the system has a chance to be PROACTIVE – every week that a baby stays in the womb dramatically increases the baby’s chance for survival. Makena needs to be accessible – FDA approval will allow doctors to prescribe the treatment and minimize their risk of being sued. Doctors will also be involved in prescribing correct dosages, etc… In addition, has anyone thought about the need for profit’s in this country – maybe KV’s profits will allow the funding for new kinds of drugs that may one day cure Cancer, etc… The cost of developing new drugs is astronomical not to mention time consuming – it can take years if not decades to approve some of these drugs! Get off KV’s back and be thankful this drug is on the market and accessible with the all important FDA certification!

  12. Derek Lowe says:

    BE, you really should read some more posts around here. No one’s disputing that preventing preterm delivery is a desirable outcome. But a large number of doctors were already prescribing progesterone caproate before – a survey showed about 65% of the respondents in Ob/Gyn practices had done so during the previous year. And no one, to the best of my knowledge, was getting sued.
    FDA certification is indeed worth something – but in this case, is it worth as much as KV is charging for it? That’s the question. I say “no”, for a long-used and well-studied drug like this one, but you can certainly disagree. To me, this looks like rent-seeking, pure and simple.
    Finally, you don’t have to tell anyone around here about the cost of developing new drugs and the need for profits in the drug industry. That’s where a lot of us (including me) work. The problem here is that companies like KV do not discover new drugs. They manufacture things that other people have spent the money to discover. And in KV’s case, they’re not even manufacturing anything, having been barred by the FDA from that activity.

  13. Kieth says:

    Thanks Derek, you made a long story very interesting. None of the comments claim that KV just paid too much for the rights in the first place which, to me anyway, seems likely. Shouldn’t FDA approval protect KV from suits?
    apparently no one here thinks so and that is puzzling to this civilian.

  14. Jim says:

    The New England Journal of Medicine has a great article on the topic from the March 18,2011 edition entitled, “Unintended consequences–the cost of preventing preterm births after FDA approval of a branded version of 17OHP” by Joanne Armstrong MD, MPH.
    It will provide clearity to most of the questions on this blog.

  15. Jim says:

    The New England Journal of Medicine has a great article on the topic from the March 18,2011 edition entitled, “Unintended consequences–the cost of preventing preterm births after FDA approval of a branded version of 17OHP” by Joanne Armstrong MD, MPH.
    It will provide clarity to most of the questions on this blog.

  16. Jennie says:

    The outrage is more than justified. Premature birth affects very poor women most, meaning much of the $30,000 per pregnancy cost would have to be picked up by Medicaid. This amounts to a huge transfer — billions of dollars a year — from taxpayers to the private sector, all for a product whose efficacy was established by taxpayer-funded research and which normally costs something like $10 a dose to compound. Only in America. It was a very cynical move by an extremely shady company. KV barely survived a fraud investigation over mislabeled morphine (its pills contained twice the labeled amount) and its former CEO was just sentenced in connection with this.

  17. petros says:

    And now the FDA has thrown a large spanner into KV’s pricing strategy

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