On Friday, as news spread about the FDA’s approval of Marathon Pharmaceuticals’ application for Emflaza (deflazacort) as an orphan drug for Duchenne muscular dystrophy, CEO Jeff Aronin went on the offensive over his plans to sell the drug at an $89,000 list price, which immediately drew scrutiny from some longtime observers of the industry.
Aronin pulled what has become a standard play out of the guide book for pharma companies facing price gouging charges. He told reporters at several publications, including the Chicago Tribune and the Wall Street Journal, that it would take years for Marathon to become profitable, considering all the R&D costs that had been sunk into deflazacort. And — like Turing founder Martin Shkreli, caught on the horns of a controversy over Daraprim pricing — he vowed that patients would be protected, with payers covering the cost.
“We had to start from scratch with the FDA,” Aronin insisted on a webinar with parents on Friday, as he assured families that their out-of-pocket costs would be “zero to low cost” while insisting that the net price to insurers was based entirely on the extensive research the company completed.
“It was a heavy lift,” he told parents, “but we did all these trials.”
Many of those trials he cited, though, probably only cost a few hundred thousand dollars. That was one piece of the puzzle, though, that was omitted from Marathon’s defense. And you won’t hear a word about it from the FDA, which actively assisted at every step, handing out valuable help by stepping up an approval for a drug that has been widely available at a tiny fraction of the cost through overseas suppliers and then capped it with a bonus that could easily turn an overnight profit for Marathon.
Just like Shkreli?
One difference that’s been pointed out between Aronin and Shkreli — who recently pointed out that Aronin and Ovation, which he sold to Lundbeck for $900 million, “invented price increases” — was that Shkreli simply hiked the price of an old drug he acquired for $55 million and protested that he needed the money from the Daraprim price hike to do more research into a better drug, while Aronin invested in a development program for a cheap, generic drug that’s been used around the world for decades to qualify for an FDA approval in the US for the first time.
The company, Aronin maintained, conducted 17 preclinical and clinical studies to get this drug, plus in-licensing two older studies. The pivotal trial was completed originally in 1995, before the sponsor abandoned it. But the CEO refused to detail the actual hard research costs. (Aronin and Marathon have also refused to respond to several requests for an interview.)
On Friday, though, Marathon went one step further with the Duchenne parents that they’ve been courting as Aronin prepped for a market launch of a drug now OK’d for DMD kids 5 and older. In a webinar, he posted a slide of the trial program for deflazacort detailing the preclinical and clinical effort.
The webinar was hosted by Parent Project Muscular Dystrophy, one of several parent groups that counts Marathon as a corporate sponsor, which also posted a link to the event.
The slide cites the two old efficacy studies they acquired along with details on 9 preclinical studies, including a monkey trial and two rat studies.
Marathon’s clinical program involved no new registrational studies, the primary driver behind R&D costs.
There were projects like a drug/drug interaction study and an ADME study (a standard absorption, distribution, metabolism and excretion study) and so on. They also started an extended access program as they put more boys on the steroid ahead of the US marketing launch.
Manufacturing costs for this drug are clearly just a fraction of what Marathon will be charging, based on the current price in the UK and Canada.
I handed the slide on to two trial experts, Bernard Munos, an Eli Lilly veteran now running InnoThink, and David Grainger, who’s founded a slate of biotechs from his base at Medicxi in London. They both ran cost estimates on what it would take to do this kind of program.
What did it really cost?
Munos and Grainger each came up with a final figure not far off from what Shkreli paid to lay his hands on Daraprim. But they have two distinctly different views of the research costs.
Munos turned to G. Sitta Sittampalam, another development vet at Lilly who has been closely involved with the Therapeutics for Rare and Neglected Diseases program at NIH’s National Center for Advancing Translational Sciences and with drug repurposing for leukemia at Kansas University Medical Center.
“From his experience,” notes Munos, “the preclinical work for Emflaza (the 9 tox studies in red on their slide) can be estimated at $5-10 million, and the clinical development program at $50-60 million.”
“The studies from the 1990s that Marathon acquired were likely cheap (<$5 million) since they were old data that had basically no value when they were acquired; and from Marathon CEO’s admission needed a fair amount of “cleanup” to be usable. That puts the entire package at $65-75 million.”
Grainger, who specializes in low-cost biotech startups, looked up the studies he could find online, ran the numbers for the whole thing, and concluded that this could all be done for much, much less. But his potential initial valuation for the company also reaches fairly close to the $55 million that Shkreli paid for Daraprim before triggering his own well-documented scheme to rip off the system.
The whole preclinical effort at Marathon, Grainger says, could be done for less than $2 million, including $600,000 for a 9-month monkey study of toxicity. The clinical program is harder to map out entirely, but if you include a maximum amount of $400,000 for a US ADME study, $400,00 for a food effect study and $720,000 for the extension study, it’s not hard to see that Marathon was looking at a small overall budget. He added, though, that it was hard to figure what the comparison study on Calcort — the drug sold in the UK — would cost, as it’s not listed on clinicaltrials.gov.
Then there was overhead. Medicxi likes to run virtual companies, and he estimates that if this was their operation, they would reserve $2 million for overhead, plus $500,000 for external regulatory assistance. “They very probably had a larger team than we would have had, though,” he adds.
“So that comes to just over $6 million in total,” he notes in a breakdown, “which feels about right to me. If someone came to Medicxi proposing to deliver that operating plan, and wanted to raise $10 million to do it, we would think that was a generous, but probably not outrageous, amount of money. If anyone told me it would cost them much more than $10 million, then I’d laugh and say you must be doing it wrong!”
“Regarding your last question, I can’t of course estimate what the license to the efficacy data might have cost. That is, as you say, a wild-card. But if Marathon had come to Medicxi with this proposal and suggested a pre-money valuation of more than $25 million we would probably have walked away. Others might be more generous, but I find it hard to believe it was more than $50 million.”
The 1% solution
To put those estimates into some added context, the pharma industry likes to use figures that show the average cost of new drug development is $2.6 billion per approved therapy, all in. Marathon’s cost for R&D — or its initial valuation — would have been significantly less than 1% to 3% of that figure, based on the estimates I obtained.
Marathon claims that its $89,000 list price will net out at around $54,000 a year after discounts. Based on their lower net estimated price, the R&D budget — based on the Munos estimate — would be the same as the cost for treating fewer than 1,400 patients over the course of 1 year, or roughly 8% of the market. If you use Grainger’s numbers, it would take fewer than 200 patients to cover a barebones R&D effort at the claimed net price.
At the list price, it would take a maximum of covering 115 patients for a year to cover Grainger’s R&D estimate, and that’s without selling the priority review voucher they obtained from the FDA with the approval — which could easily be worth far more than the entire research/overhead budget for Marathon.
Quite a few Duchenne MD parents have been turning to Masters Global in the UK for years to buy this drug — an old generic steroid standard available for decades in Canada, the UK, etc — for around $1,200 a year. But once the FDA approved it, that and other lifelines got cut off. Now, to obtain this steroid, they’ll have to use Marathon’s supply or find a way to circumvent the law.
Marathon’s price sounded like profiteering to people looking at a minimum overnight price hike of about 6000%, a close match to Turing’s 5000% price hike for Daraprim, which landed Shkreli in a Congressional spotlight. The company’s wholesale price is also uncomfortably close to the controversial 6-figure prices charged for many new cancer drugs that spent years in the clinic, with the data published in peer-reviewed publications.
“They maintain that the drug is going to be free (to families), with no out-of-pocket costs,” says Christine McSherry, an outspoken champion for Sarepta’s Exondys 51 who runs The Jett Foundation. “But it affects all of us, all of us. It impacts our premiums” and may well factor into lifetime caps on insurance coverage for a host of Duchenne families. Now Marathon is forcing them to add an $89,000 drug to a $300,000 a year drug, she adds, which “at the end of the day is a steroid.”
By her own estimate, Marathon is raising the cost of a drug that she had paid $2.04 a pill for to $148.33, a hike of more than 7000%.
“At $10,000, come on, you’re still going to make money,” says McSherry. “It puts a bad taste in your mouth.”
How big is this market?
Patient advocacy groups say that about 15,000 to 20,000 boys suffer from DMD in the US, a disease that first cripples them and then slowly kills them. Deflazacort has become a standard therapy in this group because it’s well known to be effective in boosting strength, like most steroids, with less weight gain.
According to Aronin’s presentation to Duchenne parents on Friday, deflazacort currently is only available to less than 10% of the patient population, with the rest cut off, unable to obtain the drug or required to use prednisone.
“Hopefully this is just a start,” Aronin said on Friday. “Well over 90% of patients did not have access to this drug.”
Many physicians resisted prescribing an unapproved drug, as many mothers resisted a drug without FDA approval, he claimed. “And even, unfortunately cost” was a factor. “Most patients did not have access to this drug.”
Approval was the only way to gain access to this drug, he insisted. Yes, he added, it took over 6 years, “was a burden…The reason we got this approved was that so everybody would have access to this product.” And now it will be available for low or no cost, with a secure, FDA approved safe source for the drug.
“We had to do a lot of of other studies “ to satisfy the FDA, Tim Cuniff, Marathon’s EVP of drug development told parents on Friday. The food effect study showed no effect of food on dosage. The Calcort sturdy looked at switching from the imported UK drug, and found similar blood levels with their version of deflazacort.
How about off-label patients under 5, who weren’t approved for the drug?
Cuniff repeatedly suggested that the under-5 kids could get the drug covered as well.
“We would expect that an insurer, especially for patients already on drug, would fill that prescription,” he added, explaining how the company planned to launch a trial for toddlers. “We’ll handle that on a case-by-case basis,” he added, with flexibility on compassionate use for the drug.
The blockbuster case for deflazacort
But McSherry says that figure on patients who have obtained deflazacort to date would appear to be a gross underestimate, based on her personal experience networking with the tight-knit Duchenne community. None of the parents she talks with have had the issues Marathon cited in obtaining the drug. After regularly polling Duchenne parents about deflazacort, McSherry initially estimated that 40% to 50% of the DMD kids are already on deflazacort and will now be forced to switch to Marathon’s supply, then adjusted that down to a conservative 25%.
But there’s no guarantee they can stay on deflazacort now, she adds, particularly if insurers require them to use prednisone, a generic steroid in the US that is sold for pennies a pill. And that raises big issues for patients as well, as prednisone — which is not approved for Duchenne MD – is clearly not the preferred steroid for Duchenne.
If half of all US patients are put on Marathon’s steroid, that’s at least $405 million gross a year — $33.7 million a month — based on their lower $54,000 annual net price. The total market could be worth up to a blockbuster billion dollars-plus a year in annual revenue.
Because the FDA gave them orphan status, Marathon has a 7-year exclusivity deal for deflazacort. Based on the company’s wholesale price of $89,000, that market is theoretically worth up to $12.6 billion in total through the full stretch.
The priority review voucher given by the FDA with the approval — in recognition of its rare disease status — would cover all of Marathon’s R&D costs instantly, even if it doesn’t come anywhere near to fetching the top $350 million price AbbVie paid for one of these vouchers in 2015.
Deflazacort won’t bring in all the high-end money. But based on expert estimates, they have the potential to blow past their research investment with just a few months worth of revenue when it’s all up and running.
That’s something, though, you’ll never hear from Marathon.
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