Marathon’s defense of pricey orphan drug getting spotlight in Congress; running a marathon is far easier, and a lot cheaper

Steve’s Take:

Marathon Pharmaceuticals LLC (Northbrook IL) caught my attention last month at the inception of an outcry when the company first announced the $89,000 price tag for its newly approved Duchenne muscular dystrophy (DMD) drug.

Frankly, I was attracted to the story by the name of the company. You see, I started running marathons in the late 70s and have basked in the narcissistic glow of this minor achievement ever since.

Eventually, I joined the vast majority of people underestimating how long it takes and how much it really costs to take a drug from the lab to pharmacy shelves. Undertaking this exercise in corporate masochism, especially when concentrating on orphan drugs, is akin to undertaking to run an ultramarathon.

Steve's Take: Developing a new orphan drug is akin to undertaking to run an ultramarathon Click To Tweet

Marathon Pharma is now “hitting the wall” as a group of US senators is examining the company’s decision to charge $89,000 in the US for an old steroidal drug that costs a fraction of that overseas (although they’re not approved here). Lawmakers are saying they’re concerned that this “exploits” patients.

Marathon is committed to ensuring that all patients who need the drug have access to it, spokeswoman Wanda Moebus said in a statement.

“During this pause in commercialization we continue to work with stakeholders in the Duchenne muscular dystrophy community on the best path forward to accomplish that important goal,” Moebus added, according to Bloomberg.

When the drug was approved in the US last month, marathon said it had conducted 17 preclinical and clinical studies to support its FDA application. The company is on record as saying it would take several years at a minimum for it to recoup its investment in Emflaza.

A group of senators, including Democrats Patty Murray, Tammy Baldwin, Cory Booker, and Al Franken just contacted Marathon CEO Jeffrey Aronin in a letter, demanding more information about Emflaza’s development costs. Citing press coverage of Emflaza’s approval and price tag, the senators are questioning whether there’s any “justification for such a dramatically high price.” As they point out, the drug, whose chemical name is deflazacort, is a decades-old steroid that’s long been available in some countries for about $1,000 a year, according to Fierce Pharma.

The senators are also concerned about potential abuses of US “orphan drug” laws because Marathon received an orphan-drug designation from the FDA for its DMD drug and the 7-year market exclusivity premium that accompanies that status.

The connection between the drug’s orphan status and DMD is that the disease is usually diagnosed in young boys, and causes progressive deterioration and weakness of the muscles, MSNBC points out. Deflazacort helps preserve muscle strength, and is thought by some physicians to produce fewer severe side effects, such as weight gain, than a similar steroid called prednisone that is sold in the US.

The Marathon letter, following a similar one sent in mid-February from Sens. Bernie Sanders (I-VT) and Rep. Elijah Cummings (D-MD), calls on the company to provide more information on how much it paid to acquire clinical trial data necessary to win FDA approval of Emflaza, expected earnings during the orphan-drug’s 7-year exclusivity period, and explanations on the discrepancy between Marathon’s estimate that 7-9% of those with DMD use deflazacort and the CDC’s estimate of 22%.

In addition to the letter sent by the eight senators to Marathon, three Republican senators also asked the US Government Accountability Office (GAO) to look into orphan drugs in general. The letter sent by Sens. Orrin Hatch (R-UT), Chuck Grassley (R-IA) and Tom Cotton (R-AR) to the Comptroller General of the GAO seeks a more in-depth look into potential abuses of the Orphan Drug Act.

Bottom line:

Skyrocketing drug prices are not a concern just for us end-users who are picking up prescriptions at our local pharmacies, but also for insurers, who typically pass the exorbitant price premiums to their members. To the insurers, it’s a matter of survival when certain drug prices are outpacing the general rate of inflation by huge multiples, Motley Fool suggests.

AWOL in this entire discussion is the eye-watering cost of what it takes to develop a drug from the starting line in the lab to the finish line tape on the shelves. For some context, Motley Fool says it’s important to understand that taking a drug from its discovery stage molecule all the way to consumers is extremely rare.

Some years ago Medscape said the ratio of researched drugs to eventually approved therapies falls between 5000-to-1 and 10,000-to-1. That’s why if the drug manages to gain FDA approval, the cumulative direct and indirect expenses are staggering.

The cost to develop a drug and coax it to full FDA approval? One billion? We wouldn’t even be in the ballpark, according to a 2014 study released by the Tufts Center for the Study of Drug Development (CSDD).

After examining 10 pharmaceutical companies and 106 randomly selected drugs that were first tested in human clinical trials between 1995 and 2007, Tufts estimated that the true cost to bring a drug to market was $2.56 billion (in 2013 dollars). This figure includes just shy of $1.4 billion in average out-of-pocket costs to the drug developer, as well as $1.16 billion in time costs, which are essentially the expected returns that investors forgo while a drug is in development.

Believe it or not, this $2.56 billion isn’t even the end of it. Tuft’s CSDD also estimated the cost of post-approval research and development at another $312 million. This involves studying approved drugs in post-approval trials, analyzing side effects, and researching new dosing methods and regimens.

These post-approval costs are a condition of approval from the FDA. Thus, the grand total is more like $2.87 billion in direct and indirect costs per approved drug. And keep in mind that this study was conducted a few years prior, so it’s quite possible total costs could be pushing past $3 billion per approved drug in 2016.

But hold on. We’re still not done with the jaw-dropping data. Tufts published a similar study 11 years prior (2003) that examined drugs first tested in human clinical trials between 1983 and 1994. Based on average out-of-pocket costs and capital costs that were around $400 million apiece, Tufts estimated drug development and approval costs at that time of $802 million (in 2000 dollars).

Adjusting this to 2013 dollars works out to $1.04 billion. This implies that drug development and approval costs have risen by 145% between both study periods, which is also consistent with the high rate of prescription-drug inflation we’ve been witnessing.
Why are drug-development and approval costs so incredibly high? It boils down to a few crucial factors.

One major reason is the aforementioned failure rate of pipeline products. Investors typically only track products that have entered clinical trials–many of which don’t make it to pharmacy shelves. So, there’s a gigantic world of preclinical, in-vivo, ex-vivo, and discovery-stage studies that are ongoing, or have failed, that need to be paid for. This nearly $2.9 billion cost factors into the reality that a very minute fraction of studied molecules are going to be approved by the FDA, and that hundreds or thousands of other studies still need to be paid for.

Time, as a function of patent exclusivity, is another crushing factor. Generally speaking, it can take an average of about a decade for a molecule to go from the discovery stage in the laboratory to an approved product on pharmacy shelves. Furthermore, the 20-year patent period on developing drugs starts ticking when human clinical trials are given the thumbs up by the FDA, not when approval occurs.

The years spent testing a developing drug on humans is a direct cost to the drug developer, but it’s also an opportunity cost, as it eats into the 20-year period of patent exclusivity. This is often why drugmakers price innovative drugs so high, since they only have a finite period before generic competition crashes the party.

If Marathon Pharma’s decision to undergo all that doesn’t make running a marathon resemble a walk in the park by comparison, I don’t know what does. And we’re talking a privately held 2008 startup, not a Roche, Novartis or Pfizer, who’ve all been there, done that, for decades.

It will be enlightening to see Marathon’s responses to this latest senatorial fishing expedition about Emflaza’s total cost of development. The ensuing reaction of the US government could permanently alter the drug-discovery incentive in our free-enterprise model here.

Update:

After being wounded by a ferocious back­lash over its plans to sell a cheap, older steroid for Duchenne mus­cu­lar dy­s­tro­phy for $89,000 a year, Marathon Phar­ma­ceu­ti­cals on Thursday (March 16, 2017) said it’s bailing.

The com­pany an­nounced that it’s sell­ing de­flaza­cort (Em­flaza) to Duchenne MD player PTC Ther­a­peu­tics (South Plainfield NJ) which has been strug­gling to get the FDA to pro­vide a se­ri­ous re­view for its own unsuccessful candidate.

Marathon is get­ting $140 mil­lion in cash and stock in the deal, along with a shot at a one-time $50 mil­lion sales bonus on the table and a roy­alty stream that will ac­count for a low-to-mid 20s per­cent­age of the rev­enue, says FiercePharma.

PTC Chief Exec Stu­art Peltz doesn’t say in the re­lease how much he plans to charge for de­flaza­cort. The com­pany’s shares plummeted 17% on the news.

Marathon summoned a tidal wave of condemnation with its pricing plans, which is con­tin­u­ing at full force with a new focus on the FDA’s role in the ap­proval. A large num­ber of Duchenne par­ents were able to buy generic de­flaza­cort over­seas for around $1,000 a year, and crit­ics saw Marathon’s move as an­other in a se­ries of price goug­ing scan­dals.

That scan­dal now belongs to PTC to cope with. Little wonder its stock hit the skids.