What Does the Makena Story Tell Us About the Orphan Drug Act?

Why are health care costs so high? There are many reasons, and the topic has been discussed several times on this blog.

We know that prescription drugs comprise a much larger portion of health care spending than they did in 1965, when Medicare was enacted. Certainly companies that spend millions of dollars to develop a new drug expect a return on their investment. And that’s one reason why Congress passed the Orphan Drug Act (ODA) (P.L. 97-414)  to encourage the development of drugs for rare diseases that don’t affect very many people, so that developers would have a financial incentive to invest in drugs that  might otherwise be unprofitable.

The Orphan Drug Act defines “rare disease or condition” as one that either: (1) affects fewer than 200,000 people in the United States; or (2) affects more than 200,000 people, but  there is no reasonable expectation that the cost of developing the drug and making it available will recovered from sales here.  The Congressional findings include examples of rare diseases—Huntington’s disease, myoclonus, muscular dystrophy, Lou Gehrig’s disease,Tourette’s syndrome. About one person in 10,000 has Huntington’s disease, with perhaps 200,000 more at risk of developing it. About 5,600 new cases of Lou Gehrig’s disease are diagnosed each year; at any given time, about 30,000 people are known to have the disease. When the Act was passed, it was thought that Tourette’s syndrome affected about one in 1,000 children. Several types of muscular dystrophy have been distinguished; the most prevalent affects one in 3,300 patients.

The ODA provides for several incentives to developers of orphan drugs, including grants and tax breaks. The most important incentive is seven years of market exclusivity, that is, a monopoly on the right to sell the drug in the United States for seven years from the date of FDA approval. During that period, the FDA may not even approve another version of the drug unless it is clinically superior to the “orphan.” In the ten years before the enactment of the ODA, about ten orphan drugs were developed. In the first 14 years after enactment, there were 144.

Over the years, critics have expressed concern that drug companies have abused the Act, for example, by charging extremely, perhaps outrageously, high prices for the drugs, or by “salami slicing” diseases into subsets with small enough patient populations to qualify as rare, and then obtaining multiple orphan designations for the same drug to treat essentially the same disease.   Sometimes, an orphan might be profitable because circumstances change, as when the drug developed to treat AIDS was found to be helpful to prevent the virus from developing into the full-blown disease.  But are the benefits of the ODA reserved for those who develop a new, useful treatment?

A recent court decision reflects unintended consequences of granting an “orphan drug” designation. In KV Pharmaceutical v. FDA, the court dismissed KV’s request that FDA be ordered to protect the value of the orphan drug status of its drug, Makena®, by preventing pharmacies from compounding an existing drug with the same active ingredient. KV claimed that the FDA and CMS undermined the value of the  seven-year exclusivity that came with its orphan designation.

“Preterm” babies, born after less than 37 weeks gestation, have a greater than average risk for some conditions. Early preterm birth can lead to delayed or impaired development in several areas—cognitive abilities, gross and fine motor coordination, vision, hearing, and related abilities such as attention deficit disorder or disabilities related to language, reading, or math.  So preventing preterm birth, especially very early preterm birth, has been the concern of mothers-to-be, medical professionals and drug makers, for a long time.

In 2003, the New England Journal of Medicine published the results of a federally funded clinical trial conducted at several centers: the injection of 17-P was helpful in reducing the risk of preterm birth in women carrying a single fetus who had experienced a previous preterm delivery.  In 2006, Adeza Biomedical applied for designation of 17P, named Gestiva, as an orphan drug indicated for the prevention of spontaneous preterm birth. Designation as an orphan drug was granted in January 2007.  Adeza submitted a new drug application (NDA) later that year. While the application for drug approval was pending, Adeza was acquired by Cyctyc, Inc., which, in turn, was acquired by Hologic.  A few months later, KV Pharmaceuticals bought the rights to the drug, subject to FDA approval, for $82 million.

FDA denied approval of the drug in 2009 because the evidence was not sufficiently convincing to approve it based on a single clinical trial. Hologic persuaded KV to pay $70 million of the price in early 2010 and to raise the total price to $200 million. Hologic resubmitted  the application in July 2010; the target date for approval was January 2011. In late 2010, FDA allowed the sponsor to change the name of the drug to Makena. Negotiations on the requirements for a confirmatory clinical trial and follow-up trials continued. FDA approval was granted in February 2011.

As it entered the market, KV announced that the price would be $1,500 per dose.  According to an article in the New England Journal of Medicine, the price of compounded 17-P had been less than $15. The article projected that 139,000 women per year would meet the criteria for Makena. About 10,000 preterm deliveries could be prevented, saving direct and indirect medical costs of $519 million. At the compounded pharmacy price, a course of treatment would cost about $300. The cost of preventing the preterm deliveries would be $41.7 million. But at KV’s announced price, the course of treatment would cost $29,000, and prevention of the same number of preterm births would cost more than $4 billion.

KV warned compounding pharmacies that they could no longer produce 17-P. Senator Sherrod Brown (D-Ohio) wrote both KV and the FTC objecting to “price gouging.”  FDA announced that it would exercise its discretion in enforcement and would not prosecute compounding pharmacies as long as their drugs were safe and were compounded individually for patients on their physician’s prescription. CMS notified Medicaid agencies that they could continue to cover the compounded 17-P.

KV complained that impure 17-P was being sold nationwide, so FDA announced it would test samples. In June 2012, FDA reported the results and found no issues of safety or impurities under federal standards. So KV sued the FDA to compel enforcement of its right to seven years of exclusivity. And it also sued several state Medicaid agencies because they refused to pay the price of its approved drug. It lost the lawsuit, but FDA has taken enforcement action against one drug maker.

The ODA was intended to provide  incentives to develop new drugs to treat rare diseases. Were its purposes served by giving KV the orphan designation?

Was Makena a new drug?  Not as the ordinary layperson would understand the term. In 1956, FDA approved 17-α hydroxyprogesterone caproate, sometimes called 17P or HPC, for the treatment of women at high risk of “spontaneous abortion,” i.e., miscarriage or preterm delivery. Squibb marketed the drug under the name Delalutin. It was approved for additional uses in 1972. In 2000, Bristol-Myers Squibb asked the FDA to withdraw approval because it was no longer marketing the drug. However, 17-P was available from compounding pharmacies. Doctors continued to prescribe it for their patients. And by 2005 the American College of Obstetricians and Gynecologists (ACOG) recommended 17P for women with a history of spontaneous abortion who are currently pregnant with one child.

Did 17-p treat a rare condition? That depends on the definition of “rare.” According to the Centers for Disease Control, there are about 500,000 premature births each year in the United States. That’s one in eight births. The drug was designated an orphan because it is targeted to women who have previously miscarried or delivered a baby preterm and currently are pregnant with one child. It was estimated that perhaps 150,000 women per year would meet this qualification. But it won’t be the same 150,000 women each year. Multiplied over seven years, that’s more than 1 million women. In contrast, there are 5,600 new cases of Lou Gehrig’s disease each year, and 30,000 people have it at any one time. The ODA does not distinguish between prevalence, the number of people who have a condition at any one time, and incidence, the number of people who will have the condition over a longer period.

Did orphan designation reward private research activity? The scientific support for the application was the one clinical trial funded by the federal government and a review of literature published elsewhere. The FDA required commitment to a post-marketing confirmatory trial and a follow-up study to determine whether the drug had any adverse effects on the infants. When Hologic couldn’t arrange for the trial, the NDA was denied. According to the final FDA staff review of the drug, one of the difficulties in developing the clinical trial was that 17P was perceived as the standard of care for the targeted group based on the ACOG publication. In order to satisfy the requirements of the trial, it was necessary to go outside the United States for test subjects.

Was 17-P unlikely to be profitable without the orphan designation? 21 CFR secs. 316.10 and 316.21 require the applicant to provide documentation of the basis for the assertion that the condition occurs so infrequently that there is no reasonable expectation that development and marketing of the drug would be profitable. FDA can demand to see the financial records supporting the costs the developer claims.The regulation even states that the proposed price and anticipated revenue should be included.Those issues were not addressed in the staff review.

But if the drug was not expected to be profitable, why would KV have agreed to pay $82 million for the rights, let alone committed to a total of $200 million? And it was increasingly accepted as appropriate for other women at risk of preterm delivery.

Sidelines National support Network, which serves women and families that face high-risk pregnancies, initially supported the approval of Gestiva while asking that the drug be marketed as generic. Sidelines filed a citizens petition asking FDA to revoke the orphan drug designation on the ground that the purposes of the ODA were not served. There was no need to compensate for the costs of research and development because the government had paid them. Sidelines expressed concern that the approval and designation would reduce access to a drug that had been widely available at low cost and, perhaps, discourage additional studies.

FDA denied the petition the same day that it approved Makena. It ruled that the agency had no choice but to award orphan status unless one of certain specific conditions is not met, or the application contains untrue statements of material fact or omits material information. The issue of the reasonable expectation of profit does not even come into play unless more than 200,000 people per year are expected to take the drug It could not revoke the designation for the same reasons. As to the concern that women who need the drug will lose access to it because of marketing exclusivity, FDA responded that the exclusivity is the reward the sponsor gets under the law for developing the drug. And the regulations did not distinguish among the sources of funding for the development of the drug, so it did not matter that the sponsor had made no investment in research.

The orphan drug designation is no longer simply an incentive to develop new treatments for rare conditions. There are over 100 drugs approved for common conditions that are designated as orphans for specific conditions. They include generic drugs long approved for such common conditions as asthma flare-ups, yeast infections, and seizures (see tables 1 and 3 on this page).

The exclusivity period for 17P wouldn’t reward research or development. Rather, it was the last hope for a company that has been in lots of legal trouble arising from its own activities. In 2009, FDA obtained an injunction shutting down KV’s manufacturing operations because of alleged distribution of adulterated, unapproved and misbranded drugs. The company had to shut down its factories for two years. Its former CEO, Mark Hemelin, pleaded guilty to the crime of misbranding drugs in 2011. Earlier this year, the company settled Medicaid fraud litigation by agreeing to pay $17 million to the federal government and several states. In June 2012, the 8th Circuit Court of Appeals reinstated a securities fraud action by KV’s investors. In July, it became known that top management had more than doubled their compensation between 2010 and 2011. In August, the company filed for Chapter 11 bankruptcy. Did KV earn the benefits of the orphan designation as a prize for strategic acquisition?