The Making of Makena

In an effort to better understand how Makena gained Orphan Drug designation and why KV Pharmaceutical Company feels justified to charge $1500 per weekly injection, I have compiled the following timeline.

June 2003 – A clinical study conducted by the National Institute of Child Health and Human Development (NICHD), one of the institutes of the NIH, concludes that weekly injections of 17-α-hydroxyprogesterone caproate (17P) resulted in a 1/3 reduction in the rate of recurrent preterm delivery among women with a documented history of spontaneous preterm delivery.

May 2006 – Adeza Biomedical Corporation announced the submission of its New Drug Application (NDA) for Gestiva (17-α-hydroxyprogesterone caproate) to the U.S. Food and Drug Administration (FDA) under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, which allows for FDA approval of new or improved formulations of previously approved products.  Adeza’s NDA submission for Gestiva included data from the aforementioned clinical study.

10/23/2006 – Adeza Biomedical announced that the FDA has determined that the use of Gestiva for the prevention of preterm birth in women with a history of preterm delivery is approvable subject to the completion of an additional animal study and certain other conditions.

01/31/2007 – Adeza announced that the Office of Orphan Products Development of the FDA has granted Orphan Drug designation covering Gestiva.  If Gestiva is approved, Orphan Drug designation provides the opportunity for seven years of U.S. market exclusivity.

04/03/2007 – Cytyc Corporation announced that its wholly-owned subsidiary, Augusta Medical Corporation, merged with and into Adeza Biomedical Corporation, with Adeza continuing as the surviving corporation and as a wholly-owned subsidiary of Cytyc.

October 2007 – Results of a follow-up to the 2003 NICHD study were published.  The new NICHD study concluded that 17P seems to be safe for the fetus when administered in the second and third trimesters.

10/22/2007 – Hologic, Inc. and Cytyc Corporation announced the completion of the merger of the two companies, creating one of the largest companies in the world focused on advanced technology in women’s health.

01/22/2008 – Hologic, Inc. announced that it has entered into an agreement to sell full U.S. and worldwide rights to Gestiva to KV Pharmaceutical Company upon approval of the pending Gestiva NDA.  The purchase price to be paid to Hologic as a result of the transaction is $82 million in cash, $7.5 million of which is payable at the closing of the transaction and the balance of which is payable upon final approval by the FDA of the Gestiva NDA and the production of a quantity of Gestiva suitable to enable the commercial launch of the product.  Jack Cumming, CEO of Hologic, said, “We are pleased to complete this transaction to sell the Gestiva product line to KV Pharmaceutical. We believe women worldwide will better realize the benefits of Gestiva coming from a dedicated pharmaceutical firm. This will also allow Hologic to remain focused in our primary fields of medical devices and cancer diagnostics for women.”

01/26/2009 – KV was notified that the pending new drug application for Gestiva will not be approved by the FDA until further conditions are met.  The FDA concluded that an additional condition for approval, among others, will be that a portion of the study subjects for a post-approval clinical trial must be enrolled in the study prior to final approval.

01/11/2010 –
KV amended its agreement with Hologic.  KV paid Hologic $79.5 million plus reimbursement of expenses related to Makena and worked out a series of other payments to be made over 30 months worth a total of $120 million.

07/13/2010
– Gestiva NDA resubmitted to the FDA with data from the aforementioned 2007 NICHD study.

01/10/2011 – Hologic provided additional information requested by the FDA for the Gestiva NDA.

02/03/2011 – The FDA approved Gestiva, now named Makena, under the accelerated approval regulations.  Because the approval was based on surrogate endpoint benefits rather than on the primary clinical endpoint, additional studies are required following Makena’s approval to evaluate the drug’s efficacy in the improvement of outcomes in babies who are born to patients who received Makena.  Hologic has initiated this confirmatory study and plans to start another infant follow-up study that is will likely be completed around 2018.

In summary:

KV paid $200 million for the rights to Makena, has funded some FDA-required follow-up studies and will be funding more clinical trials over the next 7 years.  The cost of phase III clinical trials averages around $26,000 per patient, and the FDA-required post-approval study is slated to have 1,700 participants.  Therefore, I would estimate that KV’s investment in research for Makena will cost about $50 million.  So KV needs to make $250 million in profit to recoup the cost of clinical trials and the amount paid to Hologic for the rights to Makena.

Based on the price of 17P obtained from compounding pharmacies, I’ll estimate that KV can produce and distribute 17P at a cost of $20 per injection.  Then, selling Makena for The wholesale aquisition cost of Makena has been set at $1440 per injection, so KV’s net profit is around $1420 per injection – $28,400 per woman woman who uses the drug from week 16 to 36 of pregnancy.  But let’s estimate that on average, women prescribed Makena take it for 16 weeks – either because they started the treatment after week 16 or because they gave birth prematurely.  That would still come to an average of $22,720 in profit for each woman prescribed Makena.

The American College of Obstetricians and Gynecologists estimates that 130,000 – 140,000 pregnant women each year medically qualify for 17P injections.   However, it is likely that only 100,000 of the women who are medically eligible for 17P injections will actually receive a prescription for it and be able to pay for it through insurance or out of pocket.  Therefore, KV can expect to make a profit of $22,720 per prescription x 100,000 prescriptions per year = $2.272 billion per year for the next 7 years.  The time needed for KV to recoup its $250 million investment in Makena would be 5 to 6 weeks.

If anyone has better estimates of the costs of developing Makena or the profit KV is likely to make from distributing Makena, please share.  Based on my numbers, I don’t know who they think they’re kidding when they try to justify 17P’s new price tag.

[I reduced my estimate of the number of women who will be prescribed and able to pay for Makena based on the fact that about 19% of women do not have health insurance.  It is not clear to me how much money (if any) KV will make from patients who qualify for assistance through the Makena Cares Connection, which is sponsored by private donations to a chronic disease fund.  I also increased my original estimate of the cost of clinical trials funded by KV Pharmaceutical and decreased the net profit per injection of Makena from $1480 to $1420.  I’m doing my best to improve my numbers as I gather more information.  However, all these tweaks don’t change the final conclusion: it will take KV less than 2 months to recoup its investment in Makena.]

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19 Responses to The Making of Makena

  1. beruriah says:

    Thank you for this, Kristinlena.

  2. Brad Johnson says:

    Kristin, you are going on gross profits, assuming there are no other costs in making, selling, and promoting the drug. You need to know what the net profits are before you are so sure of your numbers.

    • kristinlena says:

      I estimated a net profit of $1480 per injection, given that compounding pharmacies now sell 17P for $10-$20 per injection and are able to make a net profit at this price. But if you have a better estimate of the costs of making, selling, and promoting the drug, please share.

  3. Brad Johnson says:

    Kristin, I am not the person who “ran the numbers.” I am merely asking questions before I make a judgement. We all need to have the facts and not be going off blind anger. Having said that I am watching and waiting to pass judgement if my sister is unable to get Makena or afford it !!

    • kristinlena says:

      I agree. It does no good to be uninformed and angry. This post was my attempt to sort out the history of Makena’s FDA approval and estimate the costs associated with its development and distribution.

      I do believe that KV should make money off of Makena. I want pharmaceutical companies to continue to research and develop new therapies for diseases and disorders. However, in my opinion, KV set Makena’s price tag at least one order of magnitude too high, given that the drug was available and widely used prior to FDA approval.

  4. Brad Johnson says:

    Kristin, first off I appreciate the civil dialogue. It’s a necessity that has been lost. My last point is your statement that KV will recoup their money in four weeks. How did you come up with that equation?? Just by posting that and you have enough people read it, they may take what you have posted as fact. This is why some lash out, seek to blame, and want government to step in. I for one don’t think the two Sen. from Ohio and Minnesota really know all the facts. Having said that time will tell the true story.

    • kristinlena says:

      Yes, perhaps I should have made it more clear that these are “back of the envelope” calculations.

      My 4-week estimate came from: $2.84 billion net profit per year / 52 weeks per year = $54.6 million per week. $210 million needed to recoup KV’s investment / $54.6 million per week = less than 4 weeks.

      (And just to further clarify, $1500/injection – $20 needed to produce and distribute each injection = $1480 profit per injection. $1480 profit per injection x 120,000 women per year x 16 injections per pregnancy = $2.84 billion profit per year.)

  5. Brad Johnson says:

    First off you don’t know the cost to produce the FDA version. We don’t know the gross or net profits per course of therapy. Where did you get the 120,000 patients per year? Is that based on previous years data for patients who used compounded 17P or a number the company had to estimate for business purposes? Bottom line is this….without all the facts and figures….what we have is commonly called SWAG…..scientific wild ass guess. I did my own… Take your 120,000 patients x 16 injections and let’s say 30% profit off of your 1500 cost…..takes alot longer to be profitable. Once again, my guess is as good as yours….we both don’t know the facts.

    • kristinlena says:

      130,000-140,000 patients per year was taken from this letter to Ther-Rx: http://library.constantcontact.com/download/get/file/1102667451069-188/20110311GoedekeLtr.pdf

      If you take off 20% because not all women are insured, you still get at least 100,000 women per year who should be prescribed the drug and able to pay for it through health insurance.

      No, I don’t know the cost of producing KV’s formulation of 17P injections. However, given that the active ingredient should be the most expensive ingredient and that KV will have economy of scale on their side, I would be shocked and amazed if it costs KV more to produce 17P than it costs compounding pharmacies. The main difference in cost, in my opinion, will be for the marketing that KV will have to do. That’s why I picked $20/injection as KV’s cost of production and distribution rather $10/injection.

      Really, the bottom line is that KV priced Makena based on the cost of caring for a premature baby, not the cost of developing or producing the drug. That would perhaps be acceptable but for the fact that 17P was previously commercially available at a much lower cost – the cost of producing the drug in small batches at compounding pharmacies. KV is exploiting the cost of neonatal intensive care to justify Makena’s price tag.

  6. Mike Mar says:

    Believe Kristinlinas numbers are pretty close. Even KV admits that 97.5% of the cost of the drug is profit margin. I believe that it’s closer to 99% but even assuming the 97.5% it still is obnoxious price gouging for an effective drug that had been in production since 1958. Our cost for the drug had been $10 last year when we had our 20 injections. I’ve spent about 50 hrs studying this and believe the numbers are directionally correct. Brad, at $1500/shot with 97.5% profit (likely more I believe) your anger doesn’t have to be blind..have 20/20 vision anger at KV and write KV, your senator, the media, etc.. and express this well sighted outrage! Thanks Kristinlena for your very well thought out page.

    • kristinlena says:

      Thanks for your input, Mike. I’m not pretending to be the most informed person on this subject. (I have no doubt that KV and Hologic executives claim that prize.) This is a personal blog, and I wrote this post primarily in an attempt to organize what I have learned through internet research. What I’m most uncertain of is how much KV has spent and will spend on clinical trials. I guesstimated $10 million in my post, but after thinking more about it, I have to admit that KV could easily spend twice that amount in the FDA-required post-approval clinical trial. However, given that the trial is not expected to conclude until 2018, the year that KV’s right to market exclusivity end, I have a sneaking suspicion that KV is going to invest as little as possible in the upcoming clinical trial. Regardless, even $50 million is pocket change when you’re charging $1500/shot.

  7. kristinlena says:

    Senator Sherrod Brown estimated a $3.9 billion / year profit. I doubt KV’s profit will be quite that high simply because KV is relying on insurance companies to cover Makena, and many women are either uninsured or will be denied coverage. And as I pointed out in my post, not all women will take 17P for the full 20-week course.

    http://www.usatoday.com/news/opinion/forum/2011-03-21-column21_ST1_N.htm

  8. Jim says:

    KV’s actual margin in large part depends on how well management controls their cost structure, which none of us has any control over. For arguements sake, let’s say Kristin’s gross margin or cost of goods calculation added to accompanied overhead and sales and marketing costs make total cost 10 times larger. Who cares? So it would recoup the investment in 1 year and have six more years to make a ton of money. Cost is a moot point. KV is setting the price without regard for cost; fully burdened or otherwise. KV is testing what the market will bear. Keep up the noise level because it sends a strong message that the market will not support $1500 per injection.

  9. Pharmer says:

    Great timeline and analysis. I linked it Down on the Pharm, where I compiled other info about this mess, and was beginning to form my own timeline. But you did the work already. Thanks!
    Yes the pharmaceutical companies should be able to make profit but this is ridiculous, especially for a re-introduction of an old product which required no additional R & D.

    One reason for the drive to make a very fast buck is that this drug will be priced waaay too high to be covered by Obamacare. In addition, that eventual single payer plan will have zero interest in sustaining problem pregnancies, and covering the care of preemies, and extra cases of pre-eclampsia and gestational diabetes.

    I was happy to hear that the FDA (for now) won’t be forbidding compounding of the dose forms of 17-alpha-hydroxyprogesterone caproate by individual pharmacies. Let’s see how long that lasts. And I’m looking out for the money trail……. why did the FDA initially want to grant a monopoly to this troubled drug company, K-V. ??

  10. Pharmer says:

    Oops,– forgot, you might not be happy with March of Dimes connection with this K-V Debacle, and may want to spank ’em. Link is on my blog.

  11. J J says:

    A couple noteworth points to add to this discussion. KV Pharmaceuticals does not have any type of patent on 17P and the formulation has been in the public domain for years. The only thing KV pharmaceuticals has is “Market Exclusivity” from FDA. As defined by FDA, “Market Exclusivity” is defined as “FDA will not grant permission for another Manufacturer to produce this product…”. Market exclusivity does not apply to the individual professional decision by the womans health care provider to order a compounded version of this drug or the profession decision of the pharmacist to compound this drug if it is in the best interest of the patient. This is why FDA had to come out this week with clarification to say that they will not enforce “exclusivity” in this case. There is nothing to enforce and for KV Pharmaceuticals to imply that FDA would act in their interest/benefit is not true and necessitated the action of FDA.

    Also in the recent a press release by KV Pharmaceuticals, KV tries to make a case for the safety of an FDA approved product vs compounded product. This argument is very interesting because there have been no reported problems of any compounded versions of this drug despite 100,000 doses/year for years, while KV Pharmaceuticals has a very clouded past in producing quality products despite receiving FDA approval on other products they manufactured. See this article related to criminal charges to KV’s previous CEO and jail time he received because of actions related to poor quality.

    Stay tuned to this over the next couple weeks. This topic is going to continue to be very interesting.

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