K-V Pharmaceutical orders a beer in last-chance saloon

When K-V Pharmaceutical, maker of the premature birth drug Makena whose price is at the centre of a storm in the US, decided last week to sue the FDA it probably thought it had no friends left to lose.

Still, when you consider that the company made a $102m net loss on sales of just $23m last year, and has $132m of debt falling due in the next 12 months, you can start to understand its desperation. With K-V capitalised at $27m but carrying a massive $552m of total debt, it seems that little short of a miracle can prevent it from going out of business.

K-V’s spat with the US regulator concerns what the company contends to be the agency’s failure to crack down on pharmacies that have been selling compounded versions of Makena at a fraction of the drug’s cost. The FDA denies not taking enforcement action, but says it will only act on a case-by-case basis – something K-V contends is at odds with its long-standing stance of prohibiting compounded drugs when FDA-approved versions exist.

On June 15 the agency revealed findings from its own studies showing that compounded Makena falls largely within potency guidelines, without major safety problems. As if there had been any doubt, this was seen as a green light for compounding.

Anomalous development

Development of Makena was unusual from the start. The drug went through the NDA procedure while relying on an investigator-sponsored study, and is basically a version of Delalutin, a premature birth preventive first approved in the 1950s but now withdrawn.

The fact Makena was given seven years of orphan drug exclusivity just added to the anomaly. This exclusivity provides the only barrier to a direct competitor, so perhaps K-V has a right to feel aggrieved that the FDA’s purported inaction has effectively allowed the Orphan Drug Act to be circumvented.

Trouble is, K-V lost the battle for the moral high ground a long time ago. Its hugely misguided pricing strategy for Makena caused any support it might have had to fall away, and turned the issue of access to safe medicines into a politically charged argument about corporate greed.

It was the fact that Makena, launched in March 2011, came with the shockingly high price tag of $1,500 per injection that compounding became an issue at all. Insurers saw little need to shell out for the drug when compounded versions cost a mere $10 or so. After an outcry K-V agreed to lower the list price to $690 the following month, but the damage had already been done.

March of Dimes, a US charity working to reduce infant mortality, severed its ties with K-V, which had been a significant sponsor. The charity, which had called for a significant reduction to the $1,500 price, says $690 is still too high. “There is not enough patient access,” a spokesperson told EP Vantage.

Averting bankruptcy

Analysts at Imperial Capital believe that current Makena patient take-up translates into some $38.5m of annual sales – a level that K-V must at least triple “to avert a bankruptcy”. They speculate that slashing Makena’s price to $200 would generate $123.6m of revenue at 40% market penetration.

A K-V spokesperson said the company had worked with payors to create a pricing structure to ensure access to Makena. He also pointed out that the company had found that the active ingredient used by compounding pharmacists most often came from unregistered manufacturing facilities in China.

The FDA told EP Vantage that it would not comment on ongoing litigation.

In the meantime, Imperial Capital believes K-V must try to renegotiate upcoming licensing payments to Hologic, Makena’s originator, which represent a large near-term liability. This might help delay the cash crunch, as might cutting operating costs. “We do not understand why K-V is conducting a [long-term] Makena clinical trial,” they wrote in a June 27 note. The trial is not due to report until 2016.

Just how much headroom there is for further price reductions, and whether these might do anything to change the FDA’s stance, are two key issues with which the company must now grapple, assuming that it is not already too late. To be sure the grim reaper is now knocking at K-V’s door.

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