Much has been said about KV Pharmaceuticals recently, and the comments haven’t been particularly kind. A blog post at Forbes questions whether KV Pharma is a “flat-out evil company” and that’s pretty much the consensus of everyone who has written about them lately. No arguments here. The short story: They got approval from the FDA earlier this year to market and sell Makena, used to prevent preterm labor in women who have had a previous premature birth. Until now, the drug has been available as a generic from compounding pharmacies for roughly $10 – $15 per shot. Now that KV Pharma has a monopoly on selling it, they have raised the price to $1500 per shot. Over the course of a pregnancy, that could amount to $30,000 for a medication that used to total a few hundred dollars.
KV Pharma has big plans for Makena. They want to increase their sales force to 150 people now that they have the exclusive lock on the drug, and they anticipate significant revenue growth from Makena over the next few years. Although the drug had been available as a generic for years, it was approved by the FDA for sale by KV Pharma the first week in February. Prior to that, KV Pharma’s stock price (KVA) had been hovering around $2 – $3 a share. As soon as they got the FDA approval for Makena, their share price started climbing sharply, rising to more than $13/share last week. Of course, the PR backlash since word got out about the drug’s pricing has taken a toll, and their share price has dropped steadily this week.
KV Pharma appears to be banking their financial future in large part on the fact that they won FDA approval to market a drug that was developed by the National Institutes of Health (tax dollars at work). KV Pharma does not have any sunk costs in R&D for Makena, which is often the reason pharmaceutical companies give for charging high prices for medications.
The company has said that they will subsidize the cost of the drug for families earning less than $100,000/year. But doctors note that even families that earn $100,000/year might not be in a position to spend $30,000 on medication during a pregnancy. And a more pressing problem is the fact that when the shots are needed, time is of the essence. If a family puts off getting the shots while they wait to see if they are approved through the subsidy program, it might be too late to prevent preterm labor.
Health insurance carriers will now have to determine what to do about Makena. Will they cover the sky-high cost and raise premiums to pay for it? Will they designate it as a high-level drug and only pay a portion of the cost? Will they opt to not cover it at all? Most Americans have health insurance. And while most people are relatively unaware of the actual cost of the health care services they receive, they tend to be quite aware of how much they are paying in health insurance premiums, how much their copays and deductibles are, and how much they have to pay when a service isn’t covered by their health insurer. KV Pharma is obviously trying to make as much money as they possibly can by selling Makena. But in doing so, they leave health insurance carriers with no good options: anything the carriers do will likely be poorly perceived by insureds, many of whom will have no information about the backstory regarding the price hike for Makena.
Over the last several years, most of the major health insurance carriers in Colorado have increased the out of pocket portion that an insured has to pay for prescriptions. Most individual policies now have prescription deductibles, and a lot of carriers have designated very expensive drugs as a separate tier that requires a percentage copay from the insured, rather than a flat amount. And of course, premiums continue to climb. The Makena story is an example of why this happens, and it has nothing to do with health insurance carrier profits. When insureds see their health insurance premiums skyrocket again, where do you think they will point their finger?