Saturday, May 26, 2012

The KV/Makena Price Issue Makes a NYT Article

From an article in April, "White House and the F.D.A. Often at Odds", mention of the KV/Makena pricing issue.

"[I]n February 2011, the F.D.A. approved an application from KV Pharmaceutical to sell 17P, a decades-old drug used to prevent premature births. Since KV’s version, called Makena, was the only one officially approved, the F.D.A. would normally have banned the sale of cheaper unapproved ones [since Makena] offered guaranteed safety while those made by pharmacists were riskier.

For years, pharmacists had been making unapproved versions of this injectable form of progesterone for $200 to $400 for a 20-week course. Though F.D.A. officials were then not aware of any safety complaints about the pharmacy-made 17P, they worried about repeated instances over the years when other pharmacy-made drugs had been found to lack potency or be contaminated with deadly bacteria.

Once it had won F.D.A. approval, KV announced its price — $30,000 for a 20-week treatment, a hundredfold increase.

Administration officials then stepped in to halt any effort to ban pharmacy-made versions, citing the need to check an exorbitant price increase from a drug company that suddenly found itself with a monopoly..."
This would be the rare occasion that I agree with the administration. What a stupid move by KV as well. It's generally better not to be too greedy, even if you think you have the ace in the hole or a "monopoly".

When your opponent is cornered they have a huge incentive to aggressively find a way out. Remember the story from our review of The Futures, about the Chicago futures exchanges?:
"In 1897, a trader named Joseph Leiter cornered the wheat market and trapped Philip Armour short. He offered to settle with Leiter for $4 million, but Leiter got greedy and refused. Armour broke the corner by bringing wheat to Chicago from Minnesota, using ice-breakers to keep the water open. Breaking the corner turned Leiter's paper winnings into a massive loss."
Estimates of enterprise value for KV Pharma require a large valuation for Makena in order for the equity and even sub notes to have any value. That was predicated on having a monopoly on 17p which it now looks like will never happen.

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