The scoop: Marathon’s R&D pro­gram for Duchenne MD drug like­ly came in at a bar­gain base­ment price

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.

Marathon Slide

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.

Chris­tine Mc­Sh­er­ry

“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.

5AM Ven­tures: Fu­el­ing the Next Gen­er­a­tion of In­no­va­tors

By RBC Capital Markets
With Andy Schwab, Co-Founder and Managing Partner at 5AM Ventures

Key Points

Prescription Digital Therapeutics, cell therapy technologies, and in silico medicines will be a vital part of future treatment modalities.
Unlocking the potential of the microbiome could be the missing link to better disease diagnosis.
Growing links between academia, industry, and venture capital are spinning out more innovative biotech companies.
Biotech is now seen by investors as a growth space as well as a safe haven, fuelling the recent IPO boom.

Hal Barron, GSK via YouTube

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