Makena & Big Government

This is part III, for some background read part I & part II first.

"I'm from the government and I'm here to help."  President Reagan called these the some of the scariest words in the English language.  The newly FDA approved drug Makena is a clear example of just how right Reagan was.

My wife and I are expecting our 7th child. Since my wife has a history of premature labor, we were hoping this time around that she would be treated using a form of progesterone known as 17P.  This drug was not specifically made for treatment of premature labor, but in recent years its use for this purpose has increased following some studies demonstrating its effectiveness.  Also, 17P was relatively inexpensive, in some cases costing as little as $10/dose. Sadly, our plan has been called into doubt due to a recent development.  Under a federal law known as the Orphan Drug Act, KV Pharmaceuticals sought and won FDA approval for their version of 17P, known as Makena.  Along with this approval comes 7 years of market exclusivity (that is, only KV can sell this drug) and the announcement that KV would sell Makena for $1,500/dose.

You can read my previous post on why the moral outrage over this dramatic price increase should be directed at KV, a distressed company that saw an opportunity to get healthy with a safe bet on Makena.  But who created the conditions that allowed them to make the bet in the first place?  Clearly in this case, the answer is the federal government.

Whether or not my wife is treated with Makena, the $1,500 price tag will mean that some women who need it won't get it.  Some people will look at circumstances like these and think they require a government intervention, but it was government intervention that allowed for the price increase in the first place. Some problems are not the result of "greedy business" or "heavy-handed government," but are actually the result of these two elements combining.  The Orphan Drug Act, a federal law, allowed KV to become the sole supplier of  a drug that was widely available at a relatively low cost simply by pushing it over the finish line of FDA approval.  Many people fear, and are willing to denounce, the market distortions that come with private monopolies, why shouldn't we be just as concerned over those created through government intervention?

Even if you prefer markets over government solutions, there is no need to demonize the federal intervention in this case.  It is not at all hard to believe that the lawmakers who crafted the Orphan Drug Act did so with the best of intentions in an effort to promote drug development for rare diseases. Because these diseases affect a relatively small number of people, markets for these drugs may not be large enough to entice private investment in research and development (I'm not sure premature birth really qualifies as rare).  But the result in this case is not a victory for anyone except KV Pharmaceuticals, since they will benefit from a government granted monopoly.

Unfortunately, what should be a cautionary tale about unintended consequences and the dangers of government intervention, will likely be used to call for even further government involvement (of one from or another) in this case.  This is a response that simply boggles my mind.  The opportunity for KV to profit from the marketing of Makena was a direct result of government intervention, so now we need more intervention to try and correct what went wrong the first time around?  It kind of reminds me of that children's song about the old lady who swallowed the fly.

I believe that markets are superior to government planning when it comes to deciding what we produce as a society and how much what we produce costs.  That is not to say the government can't or won't ever be involved in markets, it will.  When we contemplate government action we need to recognize that there will be unintended consequences. Some of which we will be good at anticipating and some of which will come as a complete surprise.  Given the power of markets and the potential dangers of government intervention, there should be a very high bar for government involvement in markets and an even higher one for times when the government is going to grant monopoly powers to a private business.

The story of Makena will have a human cost.  It will be reflected in the children born too soon because their mothers never received 17P, which just a few weeks ago was widely available at a fraction of the current price.  It is also the story of a private business seeking extra profits by using the power of the government.  Finally, it is a story that will be repeated many times over whenever big business sees an opportunity to use big government as a weapon to be deployed in pursuit of profits that would never exist in a competitive market place.

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.

Makena: Public Policy & Private Consequence

I don't actually believe the universe is out to get me, but I can't help but wonder if in this case I might be forgiven if I did.

Recently a drug company known as Ther-Rx sought and received approval for the first FDA approved treatment to reduce the risk of preterm birth in pregnant women.  Ther-Rx is a wholly owned subsidiary of KV Pharmaceuticals, a St. Louis based company.  The drug will be sold under the name "Makena" and was available to be prescribed the week of March 14th.  Makena is actually alpha-hydroxyprogesterone caproate injection, prior to Ther-Rx's involvement, it was known popularly as 17P.  Among women and doctors who deal with prematurity, 17P was well known and was given to women as a weekly injection starting around the 16th week of pregnancy and continuing to the 36th week.  The announcement of FDA approval was hailed by the March of Dimes as a step forward in the prevention of premature birth, which undoubtedly helps women and babies.  Ther-Rx also announced that the price of Makena would be around $1500 a dose, so with a typically course of treatment running 20 doses over 20 weeks, the cost would approach $30,000.  A large sum of money, to be sure, but relative to the costs of treating prematurity and the potential life long health effects that can result from a preterm birth, this price may actually represent a tremendous deal.

This description of Makena reads like a medical that a local news station might slot for late in the half-hour, or a pitch to potential investors looking for a company on the cusp of taking off.  So why does the announcement of Makena make me feel like the universe is conspiring against me?  The short answer to that question is that my wife is 13 weeks pregnant, all of our children have been born early, four of them early enough to require hospitalization, and we were both counting on using 17P injections during this pregnancy to help avoid another premature delivery.

If you want to read more about our experience with premature birth and how our attitude toward family size has changed over the years (including much more personal information than I usually go into on this blog), click below.  Otherwise, in the next post (or two) I'll look at how KV came to be the beneficiary of this sudden increase in the price of 17P and the possible implications for public policy.