Kyle Jahner/MEDILL NEWS SERVICE
The FDA approval for KV Pharmaceutical’s Makena proved to be a big boost to stock prices. The announcement of its price did not.
Compound Pharmacies and the Orphan Drug Act
Compound Pharmacies mix drugs to meet specific needs of a patient. The drugs are mixed locally, generally based on a doctor’s prescription. The products are not FDA-approved or monitored, but the FDA can intervene in cases when safety problems emerge.
Drugs that go through FDA approval processes are manufactured and therefore standardized. The approval process requires scientifically demonstrated safety and efficacy; if a drug fails on either count it is not approved. Approval also often includes instruction for further testing and monitoring.
Compound Pharmacies are generally regulated by states. Each dose is mixed individually, introducing greater potential for human error and quality control issues. No state or federal law explicitly prohibits compound pharmacies from mixing drugs competing with drugs granted exclusivity under the Orphan Drug Act of 1983. David Miller, executive vice president and CEO of the International Academy of Compounding Pharmacists, said on the academy’s website that the FDA can go after pharmacies acting as manufacturers, but the amount of production defining a manufacturer is ill-defined in the statute.
An orphan drug is a drug designed to treat a rare condition. The 1983 law granted companies the right to sell drugs treating a disorder affecting fewer than 200,000 people in the U.S. without manufacturer competition once approved. Designed to encourage research and investments into treatments for less-commonly found diseases, the number of drugs made to specifically treat “orphan diseases” did dramatically increase. The temporarily monopoly provides incentives to invest heavily to create
drugs to treat a wide variety of diseases.
Makena was pushed through an accelerated approval process with support from March of Dimes and the American Congress of Obstetrics and Gynecology. Both have since heavily criticized KV Pharmeceuticals for pricing of the drug.
Europe also has orphan drug policy, with the European Medicines Agency granting market access to its 27 member states. But it only gets access to the market when each state decides that its national health care system will reimburse the drug.
WASHINGTON – KV Pharmaceutical needed a win. Badly.
In 2008 the company had hefty profit margins and about twice as many assets as liabilities. Then reports of quality control issues and management negligence cropped up that fall. Investigations by the Food and Drug Administration and the Security Exchange Commission brought fines, injunctions and lawsuits, and then-CEO Mark Hermelin was sentenced to a month in jail just last month. The episode set off
a tailspin of massive financial losses. KV’s liabilities now outnumber assets 9-to-5.
But FDA-approval of Makena under the provisions of the Orphan Drug Act granted a seven-year exclusivity window for a drug designed to prevent preterm births. KV Pharmaceutical figured large returns would come with the much-anticipated treatment, one it said it committed or spent about $450 million to purchase, test, market, gain FDA approval and, ultimately, manufacture.
Instead, it turned out that the St. Louis-based company committed nearly a half-billion dollars on a drug with a generally-respected and affordable pharmacy-mixed alternative. Along the way, it priced its way into a public relations fiasco.
KV’s stock responded – at first. But after rising 800 percent in a little more than a month, the company announced a $1,500 per dose price tag on March 10. Following a public outcry that the cost was far too high, KV Pharmaceutical eventually lowered the price to $690 and introduced assistance programs to help lower-income mothers afford the 20 doses generally required.
In a letter KV Pharmaceutical sent to pharmacies, it said that the FDA would act to stop compound pharmacies from making similar drugs. The FDA denied the claim in a March 30 press release.
Pharmacies have long been mixing similar drugs with the same active ingredient to fill prescriptions at a cost of $20 per dose — and the FDA won’t stand in the way of that. KV’s exclusivity would only apply to other drug manufacturers and FDA approval.
The story underscores the unique, volatile nature of an industry with fine lines between massive risk and reward, innovation and gambling, legal and permissive, and public health and greed.
A public relations firm hired by KV Pharmaceutical said in an email interview – a phone interview request was denied – that pharmacy “drugs that are often made by hand under less stringent laws” and aren’t required to check for potency or sterility. Availability and access were also cited.
“Makena is needed, in part, because the non-FDA approved compound that has been in the market for the past decade is not nationally available, and anecdotal evidence suggests that many women do not have access to the compound at all,” the firm said.
It also emphasized that Hermelin no longer has any affiliation with the company, and that manufacturing has been contracted to Baxter Pharmaceuticals, an FDA approved facility.
The American College of Obstetrics and Gynecology, while admitting to benefits of FDA-approval, called the price drop “woefully inadequate” in a press release, saying the compounded version had “been used safely for years.”
“In fact, the evidence used to obtain FDA approval for Makena relied primarily on data obtained using the compounded product,” the release said.
The company said current studies are four times larger and 12 times more expensive than the National Institute of Health study used for FDA approval, and that the FDA required them as conditions for approval. It also maintains its programs will grant access to Makena to most women at an affordable or, in cases, no cost.
It also maintained that, given the costs of manufacturing, personnel, standardization, and overhead, manufactured Makena will always be more expensive than compounded products.
The still-high price adds burden on the health system as Congress debates substantial cuts to major entitlement programs such as Medicare and Medicaid.
Income statements show losses of $313.7 million in 2009 and $289.1 million and 2010 for KV Pharmeceutical, and$233.5 million more liabilities than assets appear on the balance sheet in the quarter ending December, 31.
The 10-Q report released in February listed “(i) the successful launch and product sales of Makena, at prices meeting the Company’s future needs and expectations” as a primary concern to keep the company viable. Five other areas are outlined, ranging from general concerns with on developing new projects, to outcomes in government investigations and litigation. No other product is mentioned by name.
An FDA spokesman said that the FDA testing only involves safety and efficacy; pricing is not a consideration. In the press release clarifying its position on compounding, the FDA said the agency prioritizes on a risk basis, and would not stop a pharmacy unless indications existed that unsafe drugs were being produced.
Since peaking over $13, the stock has slipped to $4.21, still much higher than before Makena’s FDA approval.
The March of Dimes, which had encouraged Makena’s approval and had partnered with KV Pharmaceutical for a decade, has ended its relationship with the company because of the pricing issue.
The KV Pharmaceutical’s financial problems started with an investigation in 2008 that led to the March 11, 2011 conviction of Hermelin of federal counts of distributing misbranded drugs. The company had distributed oversized and misshapen pills, ignoring internal quality control warnings and complaints from consumers. Its subsidiary, Ethex Corporation, was fined $23.4 million and ordered to return another $2.3 million to Medicare and Medicaid. Hermelin received a month in jail and $1.9 million in fines and forfeitures.
Shareholders filed a class action lawsuit against KV Pharmaceutical on December 2, 2008.