Economic Cause and Effect and Makena

If the FDA didn't exist, pregnant women who wanted to reduce their risk of preterm birth could go to a pharmacy and have hydroxyprogesterone caproate, a synthetic steroid hormone, compounded at a cost of $10 to $20 per dose.

The FDA does exist and the reason, purportedly, is that we need the FDA to make sure that the medicines we consume have been proven to be both safe and effective. Not everyone agrees with this rationale, so the FDA needs the teeth of the law behind it. These laws say that only medicines that have been proven save and efficacious can legally be marketed. However, many drugs are used off-label (outside the approved usage) or are too old or too obscure to have been subjected to the FDA's requirements. To reward pharmaceutical companies that take such "square peg" products through the FDA's approval process, a multi-year marketing exclusivity is granted. The FDA encourages this behavior because these "square peg" products cast doubt on the whole rationale for the FDA.

Of course, the FDA's approval process takes time, costs enormous amounts of money, and is risky. Those companies that successfully negotiate the challenge and receive an effective monopoly act rationally and charge more, usually a lot more, than those companies that didn't incur the costs and had to face aggressive competitors.

These higher prices are normally concealed by circumstances, but sometimes they are present for all to see. When a new drug navigates the FDA approval process, there are usually no existing unapproved products with which to compare and hence the high price of the new drug has no standard of comparison. Occasionally, everything is laid bare for us to see.

KV Pharmaceutical developed a version of hydroxyprogesterone caproate with the brand name Makena. After investing in the drug's development and successfully receiving the desired FDA approval and seven years of marketing exclusivity (as an "orphan drug"), KV priced Makena like so many other branded drugs at $1,500 per injection. Had there been no compounding market at about $15 per injection, virtually no one's sense of propriety would have been ruffled and perhaps no one would have even noticed.

People--and Congress--did notice and, once outraged, pressured the FDA, which is at its heart a political organization, to resist taking enforcement actions against the remaining compounders of hydroxyprogesterone caproate. Well, if the police don't enforce a law, it effectively doesn't exist. With Makena's market exclusivity exposed as a charade, KV is suing the FDA, like it should, because the FDA has given de facto approval to the compounded products. KV played by the rules but the FDA didn't oblige.

While I am forced to question KV's judgment for pricing Makena so high initially--the price has since been lowered to $690--the situation with Makena is played out monthly, minus our ability to see it so clearly. And what we are seeing in this case is economic cause and effect. The cause is the FDA's rules and the effect is high drug prices. Rarely can we see the story play out so clearly. But be assured, it does. Drug prices are much higher as a result of the FDA's rules.

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