Makena & The Orphan Drug Act

This is part II, you may want to go back and read part I for some background

When my wife was a child she and her sister shared a beloved record of the the songs from the musical Annie.  At some point, one of them, I'm not sure who, left it out in the summer sun and it melted.  The fact that this story is still told, and told with no small measure of sadness, attests to just how traumatic the experience was.  This week it's another kind of orphan that has my wife upset.

She is 13 weeks pregnant with our 7th child.  She has had a spontaneous preterm delivery before.  During this pregnancy my wife and her doctor had decided she would be treated with 17P injections from week 16 through week 36. 17P is a form of progesterone and is used to prevent premature delivery.  Even at around $200 a dose when delivered in our home by a home health company, this cost seemed like a bargain compared to the cost, both monetary and emotional, of having a preemie.  At 13 weeks, we are only about 3 weeks away from the beginning of the treatment.  On Monday, I read this on one of my favorite economics blogs, Marginal Revolution:

Makena is a drug used for premature birth therapy. It’s been available off-label for a long-time but KV pharmaceuticals ran a clinical trial and applied for FDA approval under the Orphan Drug Act (ODA). Under the ODA, KV is entitled to seven years of market exclusivity, this is even stronger than a patent because it gives KV the right to exclude from the market any drugs (not just similar drugs) that treat the same condition.

Now that KV has a monopoly—enforced against compounding pharmacies by threats from the FDA—the price will rise from about $10 to a listed price of $1,500. Naturally a lot of people are outraged.

I'm not exactly outraged, but I am a little bit sad since a treatment my wife and I had put so much hope in will now be substantially more expensive.  As someone who comments on the consequences of public policy from time to time, it's not that hard for me to set aside my personal feelings for a minute and ask whether or not granting a monopoly to KV in this case makes sense, and I'm not sure that it does.

First, it is important to remember what we are NOT talking about here.  This is not a case where KV developed and brought to market some entirely new treatment that was previously unknown. The patent protection given to new drugs is a related issue, but it is not a factor in this case.  As noted in the quote above, Makena has been given off-label for a long time. This means it hasn't been approved by the FDA as treatment of the condition for which it is being prescribed (in this case preterm delivery).  Given the fact that it has been in wide use, it would seem the standard arguments about patent protection for new drugs wouldn't apply to Makena.  Here is drug researcher Derek Lowe:

What's irritating, to someone like me who works at a "find a new drug" type of company, is that these no-name generic outfits (KV in this case, URL Pharma for colchicine) are doing pretty much what critics of the industry think that we all do, all the time. That is, walk up to situations where other people have done a lot of the work, a good amount of it with public/NIH money, and step right in and profit. Now it's true that these companies have to basically run Phase II/Phase III trials to take the data to the FDA, and that's a significant amount of money. But their risks in doing so have been watered down immensely by the history of these drugs in the medical community.

So KV has some risk in that they have to perform the final series of trials and then go through the FDA approval process, but is this cost proportional to the benefit?  In this case seven years of exclusivity, and the tremendous run up in price that comes with it.  History suggests that what KV added to the Makena story may not have been that valuable to anyone other than KV since the durg had been gaining popularity as a treatment for preterm labor at least since 2003 when a study demonstrated Makena's effectiveness.

The Orphan Drug Act, under which KV has gained the exclusive rights to Makena, is a law intended to promote drug development for rare diseases.  According to the March of Dimes more than half a million babies a year are born prematurely.  Given those numbers, it's not clear to me how prematurity still qualifies as a rare disease.

Finally, there are the circumstances around the company now selling Makena at $1500/dose, KV Pharmaceuticals.  This is from the St. Louis Post-Dispatch:

Staring down at the former chief executive of KV Pharmaceutical Co. — what used to be among St. Louis' most successful companies — the federal judge portrayed Marc Hermelin as an example of capitalism gone awry.

"What I see when I see Mr. Hermelin is greed, abuse of power, recklessness," U.S. District Judge E. Richard Webber said Thursday. "He had this great company of 1,700 (employees), and once diverted, he was sending pills across the country that were twice the strength of their labels."

...By 2008, KV was considered one of the most successful publicly traded companies based in the St. Louis area. But the criminal case against Ethex resulted in a two-year shutdown of KV's production facilities and layoffs of three-quarters of its work force. Now, the drug company is hoping to revive itself with a new prenatal drug, Makena.

KV is a distressed company making a bet on Makena.  But how much does KV really have at risk?  Given the fact that 17P was in wide use and there were studies demonstrating its effectiveness, it would appear they weren't risking much.

It is still not clear if we will be able to get a compounded form of 17P or if we will have to buy Makena at the new higher price.  Even at the higher price, my wife will likely still get Makena.  It just means we will hit our out of pocket maximum this year.

If there is any shame in this situation, and I believe there is, it belongs to KV and KV alone, but it would be a mistake to ignore the government's role in this. Without federal intervention in the form of the Orphan Drug Act, women would continue to get 17P and prematurity would have an effective and low cost treatment.