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FDA Rewards Drug Company for Bad Behavior at Our Expense

What’s a poor faltering drug company to do when it has been busted for misdeeds, its shareholders are up in arms and its former CEO has been fined, sent to jail and banned from the industry?  In the case of KV Pharmaceutical, the answer was to get the FDA to give the company exclusive rights to a common generic drug for expectant mothers and raise the price from $10 per treatment to $1500 – a decision which has outraged doctors, US senators, and even the March of Dimes.

On February 4th the FDA made an eyebrow-raising decision to give exclusive rights to the generic drug to KV Pharmaceutical after declaring the drug to be an “orphan drug”.  As a consequence, low-income mothers and their babies will be put in grave jeopardy and a huge financial burden will be created for the health insurance companies, private citizens, and government programs that have to pay for it

The drug, trademarked as Makena, is Hydroxyprogesterone caproate, a synthetic form of progesterone known commonly as 17P, and it has been used since 1956 to prevent premature births.  It is administered as a weekly injection, which means that the price hike for KV’s new drug could bring the total cost during a pregnancy to as much as $30,000.

Doctors say the $30,000 price tag will almost certainly deter low-income women from getting the drug, leading to more premature births. “That’s a huge increase for something that can’t be costing them that much to make”, stated Dr. Roger Snow, deputy medical director for Massachusetts’ Medicaid program. “For crying out loud, this is about making money!”

Dr. Arnold Cohen, an obstetrician at Albert Einstein Medical Center in Philadelphia, observed, “I’ve never seen anything as outrageous as this.”

The non-profit March of Dimes, which has received funding from KV Pharmaceutical and initially supported the company’s New Drug Application, sent a letter to KV “expressing our serious concern about the price of Makena.”

Two senators, Minnesota Democrat Amy Klobuchar and Ohio Democrat Sherrod Brown, want the U.S. Federal Trade Commission to investigate the price that KV Pharmaceuticals (KVA) is charging for its brand new Makena drug for high-risk pregnancies.  The senators contend that since versions of the same drug have been available from compounding pharmacies for many years at a fraction of the cost, the drugmaker is engaging in price gouging.

Senator Brown also sent a letter to KV Pharmaceutical asking the company to “immediately reconsider” its pricing. “I am deeply concerned that your company appears to be taking advantage of FDA approval at the expense of women, children and federal and state budgets,” Brown wrote. “By ratcheting up prices, fewer women will be able to afford the drug, increasing rates of preterm birth nationwide. This isn’t in the interest of children, new mothers, or taxpayers.”

Lung issues common with premature births can have lifelong repercussions with an increased propensity toward asthma, bronchitis, and pneumonia, among other early birth issues.  In the long run, because of birth complications, premature babies will need to be hospitalized for perhaps months, all at the expense of taxpayers.

The Orphan Drug Act is meant to encourage pharmaceutical companies to develop drugs for uncommon diseases and conditions.  However 17P treatments were already developed and approved and were already in use for years for a condition that is far from uncommon.

Besides declaring the drug an orphan, the FDA also raised questions by awarding exclusive rights to a company it had previously fined and sanctioned heavily.  Just this month, former KV CEO Mark Hermelin – whom the FDA had essentially banned from the industry last November – pled guilty to overseeing the sale of poorly manufactured and oversized morphine sulfate tablets and other drugs in 2007 and 2008.  He was sentenced to serve 30 days in jail, pay $1 million in fines and forfeit $900,000 in earnings.

Hermelin’s sentence comes on the heels of a long list of recalls and violations by KV Pharmaceutical and its subsidiary, Ethex.  KV production was put on hold in 2009 in the United States after the FDA cited the company for selling unadulterated and unapproved drugs.  In 2008, Ethex Corp suspended manufacturing and shipments for all products after several generic drug recalls due to mislabeled drugs.

In November, KV shareholders filed suit for being misled.  That same month, the company announced that it would be relying on a NYSE financial distress exception in order to sell stocks and secure funding to help it stay afloat.

However, with help from the FDA the company has more than rebounded. Company stock rose 131% the day after the FDA announced awarding KV exclusive rights to 17P. KV stock, which had been as low as 61 cents a share last year, ultimately reached a high of over $13.

The fine and the light jail sentence for Hermelin comes amid increased pressure from critics of the FDA and pharmaceutical companies to levy real criminal consequences against drug company executives, as opposed to simply fining the companies.  Hermelin’s fine may have been covered via stock sales by a “beneficial owner” relative.  Records show that on the third of March, Arnold L. Hermilin sold 100,000 shares of KV stock at over $10 per share.  Under federal securities law “Beneficial owner” is a term which can be used for a person who has the power to dispose of stock held in another’s name.

Not surprisingly, the backlash over the unconscionable price hike has been significant – so much that KV hired the public relations firm Golin Harris to handle the mess.  Jennifer Forst from Golin Harris writes: “Ther-Rx Corporation [a subsidiary of KV] announced the list price of Makena at $1,500 per injection. A patient’s out-of-pocket costs (co-pay) for Makena will likely be substantially less than the list price and will vary based on her health insurance provider and her insurance benefit design.” In other words, insurance, which consumers and comapnies pay for via premiums, will have to pick up the whole tab.

Though the actions against Hermelin and past actions against KV may play well with the public, one has to wonder:  On balance, did either KV Pharmaceutical or Hermelin really pay a price?

Fortunately for natural health-conscious consumers, there are natural progesterone products which are safer, effective and less costly than even the generic synthetic progesterone shots.

Sources included:

http://www.anh-usa.org/fda-turned-a-ten-dollar-treatment-into-money-maker/

http://blogs.forbes.com/davidwhelan/2011/03/11/is-kv-pharmaceutical-a-flat-out-evil-company/

http://seekingalpha.com/article/259085-kv-pharmaceuticals-under-federal-scrutiny-for-price-gouging

http://www.reuters.com/finance/stocks/insiderTrading?symbol=KVa.N

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