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Business and Markets

Marathon’s Real Costs

Endpoints has done a great breakdown on the actual costs that Marathon Pharmaceuticals is likely to have incurred while bringing their wildly overpriced old generic steroid to the US market. They did no new registrational studies in the clinic, in case you’re wondering. There was a drug-drug interaction study, ADME work, that sort of thing (standard for all clinical programs) but nothing big. None of the experts consulted can make Marathon’s costs come in higher than $70 million, and it could well have been a lot less than that (one person said it could have been done for as low as $10 million).

So if you’re wondering what it costs to get a nearly 30-year-old drug, discovered by someone else, with it already being manufactured for many years now, onto the market after someone else already did all the major clinical trials for you 20 years ago, there’s a rough estimate. I can’t help but notice how close it is to what the likes of Donald Light imagine that it takes to develop a real drug from scratch, which tells you what sort of fantasy world those other estimates come from. Marathon came in with all the expensive stuff already done; they mostly had to just blow the dust off of it. My own views on this can be summed up as “pricing power should go to those who have earned it”.

The article also casts a great deal of doubt on their CEO’s statements about all the work they had to do, all the costs, and also what a great favor they’re doing the Duchenne muscular dystrophy patients as well. All crap. But hey, they’re going to rake in the cash, so who cares? I have to give them credit – they’re really caught the zeitgeist, damn it all.

31 comments on “Marathon’s Real Costs”

  1. Morten G says:

    How many more of these drugs exist though? Low-hanging fruit, right?

    I don’t get why Marathon jacked up the price though. The market exclusivity and the priority voucher in themselves would give them a big payday.

    1. Sofia says:

      Quite simply? because they could. Why collect merely low-hanging fruit when you can go about sawing down the orchard and plucking what you want from the wreckage?

    2. Mark Thorson says:

      How about nitrous oxide? Used as an anaesthetic, it’s definitely a drug. But has it had proper clinical evaluation? Is there an adverse event monitoring program in place?

      How about oxygen? I’m not talking about oxygen in the air. I’m talking about purified oxygen used, among other things, for treating victims of carbon monoxide poisoning. Also for pulmonary insufficiency. That’s a drug too.

      And what about water, used to treat dehydration? Has that been validated in proper clinical trials? It’s practically a folk medicine at this time. Whoever picks up the ball and carries it across the goal line deserves whatever reasonable compensation they can derive from the market. You want water? What’s it worth to you?

      1. Mark Thorson says:

        And don’t get me started on sterile saline. They’re injecting that stuff into people! And putting it in their eyes! On what basis? We need to get saline on a firm scientific footing!

        1. loupgarous says:

          Acetylsalicylic acid (Aspirin®) needs some real clinical study work, because safety’s a rat’s nest, and Reye’s Syndrome in teenagers hasn’t been fully characterized (we’ll hire a Chinese CRO for that study). Bayer got off easy on that one. It’s ridiculous that you can buy it for about half a cent a tablet.

    3. pjcamp says:

      The biggest issue is not why they did it, but rather the fact that they did it could well put the entire orphan drug program in serious jeopardy. This is Martin Shkreli writ large.

  2. JB says:

    $70 million or even $10 million is still a lot of money. It’s not an amount a company raises on a Series A every day. Try raising that even pitching that idea within your own company to get the project going.

    1. Anon says:

      I think we’re missing the point talking about money. Clearly the amount of money spent in any drug development program is gargantuan by any normal yardstick.

      The question should be what benefit is given to patients by spending that money and later what benefit did they recieve for the increased price.

      It seems to me that any reasonable person involved in this process should have known from the beginning that the benefit for patients was zero. That’s why people are offended, Marathon isn’t adding to the standard of care they are extracting money out of the system via an FDA loophole.

  3. Isidore says:

    Assuming a cost of $40 million (halfway point between the high and low estimates) for bringing deflazacort to market and also assuming, based on experience, that Marathon will be reimbursed with pennies on the dollar by the insurance companies, they’d need to sell between 1500 and 5000 doses to recoup their costs, and this assumes that they will not incur any additional costs in manufacturing and selling the drug, which, of course, they will, since there are salaries and other operating expenses involved, even if the cost of manufacturing the drug is small.
    A big problem with drug pricing is that companies never get paid a drug’s list price by the insurance companies. In a sense it is similar to a doctor’s bill; A visit to a specialist might be billed at $500 and the patient would be responsible for the full amount if paying out-of-pocket, but insurance reimburses the doctor at a fraction of the amount billed. The ratio of billed amount to payment by insurance may be 2-to-1 for doctors’ fees, 3-to-1 for lab tests, 4-to-1 for hospital bills, and 10-to-1 for medicines. It would be so much simpler if everyone agreed not to do this dance and billed the amount the insurance would end up paying. But, of course, the insurance companies would have to agree to pay the full amount billed. It takes two to tango.

    1. AC says:

      The previous article mentioned that Marathon will get a Priority Review Voucher which “can be sold for hundreds of millions of dollars”.

    2. cynical1 says:

      You don’t understand how health insurance works. And as someone who had to leave Medicinal chemistry and now runs a health care facility, what you are saying is just incorrect. Patients don’t pay the full amount that is charged for that service if they are self-pay or paying towards a deductible. If they are self pay, they will be charged $500 and then the amount would be adjusted for the lack of administrative fees (fighting the insurance company) to an identical self-pay rate to all self-pay. If they have a deductible, they would pay the rate that their insurance company had contracted with the provider for that service. If it is $100 reimbursement for a $500 charge, then they would pay $100 towards their deductible.

      Next, the doctor, lab, whomever has to charge the same amount for a service, lab test, medicine etc to every single carrier and it is always way above what their reimbursement will be from the insurance carrier. However, legally they are not allowed to charge a different amount to one insurance carrier than another insurance carrier. That’s why it’s always billed out at a very high rate which is then adjusted down to reflect what that particular insurance carrier will reimburse under your contract with them (or out of network). So, for those of us who have to manage the accounting, we’d love to do what you suggest. Change the laws and we would but until they are, the health care provider will always “charge” a much higher price than what they are contracted. And they will charge the exact amount for that CPT code to every insurance company. But their reimbursement rate will vary wildly from insurance to insurance to Medicare to Medicaid. And after we submit a claim we hope that the heavens align and the insurance company pays us anything instead of instantly denying the claim spuriously. We don’t operate under the profit margin which you may imagine in your mind…….

      1. Isidore says:

        You misunderstood. I actually know from speaking with friends who are medical professionals that the reasons the doctors’ bills (and I assume the labs’ and hospitals’ bills as well) are much higher than the insurance reimbursement are the ones you state. I have been covered by insurance throughout most of my working life, but when I was not I received doctors’ and dentists’ bills which I did have to pay in full; I have no idea, however, what those bills would have been (higher, I suppose, but I don’t know) if they had been submitted to my insurance instead of coming to me directly. My point, which evidently was not made clearly, was that the list price for a drug ($89K for the Marathon drug, according to reports) is never what the drug maker ends up getting from insurance.

        1. cynical1 says:

          Your point with regards to what Marathon will actually receive versus what they charge is absolutely correct. But I think the argument being made by Derek and others is more on the lines that I don’t/wouldn’t bill out $10,000 for a service that I will be reimbursed at $70-$90. Sure, I might bill out $140.00 because that covers me to not have to change anything in my billing software for years to come. But when Marathon sends out a bill for $89K, they’re getting more than they invested into the drug. Even if they get half, it’s too much.

      2. Normal says:

        Off topic but I have to push back. Many providers charge list prices to the uninsured. Quest in particular has list prices 6-8x negotiated rates and will only negotiate in poverty cases.

  4. Mike says:

    I’m not an apologist for Marathon, but a few thoughts to consider:

    – As others have mentioned, $40M isn’t chump change. And Marathon took a risk in running those trials (sure, the risk was much lower than typical NMEs). What if a new tox signal popped up? Or something wrong with ADME? That’s $40M down the drain. Would everyone feel bad for the investors if that happened? And I’m sure the VC investors were looking for a healthy return on their money (5x to 10x) or else they would have passed on the deal. Raising money to get a drug to market isn’t easy!

    – From the article “If half of all US patients are put on Marathon’s steroid, that’s at least $405 million gross a year”. That’s gross revenue. It looks like their net price is about ~60% of gross or $240M per year. And that’s not paying for manufacturing and the general costs of running the company. Let’s say all overhead is 50% (COGs, royalties, all employees [they won’t stay virtual once they start selling the drug], etc) you’ve got $120M in profit. Most big biopharma companies would pass on a program like that.

    – If we’re going to start digging into the cost of doing the R&D for a given drug, then I would caution against “the pot calling the kettle black”. How much did Pfizer spend all in to get Lipitor to market? I’m sure it was a lot less than the $13B in peak revenue a few years back. And what if a drug costs a lot more than usual to bring to market? Will everyone accept a higher cost for those drugs? Of course not, drug prices should be based on the value they provide, not the cost of bringing them to market.

    1. CH says:

      Hi Mike, just a few thoughts;

      On the first point, I think it is disingenuous to say that if a toxicity issue arose, the entire $40mm investment would immediately be lost. Part of the investment yes, but that is a risk for all drug development efforts.

      On your second point, the article states that the $405mm/year is based on the company’s net price of $54,000/year:

      “If half of all US patients are put on Marathon’s steroid, that’s at least $405 million gross a year — $33.7 million a month — based on their lower $54,000 annual net price.”

      So $405mm would be the gross revenue to the company, if they received their expected net price.

      And finally, on the third point, I personally believe it is absolutely appropriate to examine the costs of R&D, marketing, sales, manufacturing, etc. when determining an appropriate price-point for a therapeutic, particularly if the therapeutic benefit is marginal. Even if drugs were truly only priced on “value provided,” deflazacort should be quite cheap.

      1. Mike says:

        Why do you say the entire $40M wouldn’t be lost? My assumption was that the tox would kill the program entirely (I was unclear in that assumption). With no product to launch, the $40M is gone.

        I stand corrected on the peak revenue number.

        I would argue that the cost of bringing a product to market shouldn’t really impact the price it’s sold at. A lot of oncology products (some of the highest priced products out there) have relatively low R&D expenditures since the trials can be completed quickly, often with small patient populations and the FDA often lets manufacturers go straight from phase 1 to registration trials.

    2. David Antonini says:

      Sure, what if a new tox, or ADME issue popped up? What of it? Surely it hasn’t been significant enough to raise flags when the drug has been used for the last few decades. So minor, or rare at worst. The point being unlikely to harm sales much, aside from a little extra warning-label paper in cost.

      Finding nothing new, however, isn’t arguably a net loss, or completely nil/null to patients. Security about efficacy and safety isn’t bad, and some minor tox or contraindication would be good to know. Whether it’s worth a ten or hundred-fold increase in the price of a formerly cheap generic drug is very much open to question, but I think it’s unfair to say that no value is added, even if no new information is learned (merely much better confirmed).

      I’m not in the drug business, can anyone correct my reasoning? Is there really a risk of a drug like this (or say, aspirin) being completely rejected by the FDA, after decades of widespread use?

    3. Anon says:

      @ Mike

      “– From the article “If half of all US patients are put on Marathon’s steroid, that’s at least $405 million gross a year”. That’s gross revenue. It looks like their net price is about ~60% of gross or $240M per year. And that’s not paying for manufacturing and the general costs of running the company. Let’s say all overhead is 50% (COGs, royalties, all employees [they won’t stay virtual once they start selling the drug], etc) you’ve got $120M in profit. Most big biopharma companies would pass on a program like that.”

      You are completely making up the overhead. The drug used to cost $1200/year, how could the overhead possibly be half of what is accrued charging $89k/year? Even at the net price there really can’t be a good argument that overhead should exceed 2% because we already know the drug can be produced economically for $1200/year.

      1. tangent says:

        Well. Overhead counts the DTC ads, schmooze force, beneficent pharmaceutical discount card, and the C-suite bonuses for engineering all this.

      2. Mike says:

        It’s not surprising at all to have 50% overhead for a company, all in. Take a look at the profit margins for big pharma. It’s typically in the ~20-30% range. The rest is all overhead.

        You can’t compare a generic company which has razor thin margins and practically no commercial or scientific support to an R&D based biotech. Generic companies are nothing more than manufacturing companies with a little bit of regulatory support.

        1. Hap says:

          Marathon:biotech-based R+D company::Russia:Allied participant in WWII against Japan

    4. AlanG says:

      Mike asked, ” How much did Pfizer spend all in to get Lipitor to market? I’m sure it was a lot less than the $13B in peak revenue a few years back. And what if a drug costs a lot more than usual to bring to market?”

      They spent $00, that’s right ZERO. They bought Lipitor, and some other stuff which was not quite as profitable, for $90B when they acquired Warner Lambert Parke-Davis. It was the latter part of the company that developed atorvastatin in the Ann Arbor labs.

      1. Derek Lowe says:

        Well, Pfizer certainly didn’t spend any R&D money on Lipitor before then, but they did spend money: a substantial part of that $90 billion valuation was the rights to the drug.

  5. Anon says:

    Seems that the CEOs bonus and options alone will be worth more than their entire R&D investment. No value created at all, and no risk taken at all. Money just taken right out of patients pockets, and put right into the CEO and investors pockets. That’s just sick!

  6. Jim Hartley says:

    Write a simple law or a simple regulation and put some money in play and smart, and sometimes unscrupulous, people will start right to work to game the system. Which is a major driver for the complexity of laws and regulations. Read somewhere recently about the history of the US Army’s specifications for what constitutes a cherry pie. Many pages modified many times to deal with every new attempt to deliver the minimum product for the maximum dollars. Cherries were at one time optional, apparently.

    1. Anon says:

      How about a simple law like “show some basic moral judgement and human decency, or face the firing squad”?

      That should avoid any such issues!

      1. loupgarous says:

        Hap put it best – that’s what the Chinese call the “7.65mm Plan” (the “intensive transcranial lead injection regimen” is another good name for it). The problem being that the people who really deserve it are usually related to a Politburo member or very generous Party members and miss out on their dosage. But it worked wonders on two of the guys who decided babies weren’t getting enough melamine in their diet, and thoughfully put it in their formula.

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