The next bend up in the cost curve: Rising prices for old proven drugs?

A anesthesiologist friend sent me the note below. If accurate, as this doctor says, "The expense of the surgical robot will pale in comparison to the coming tsunami of overpriced drugs!"  I'm hoping some full-time health care reporters take a look, as this seems to be a major story that has been neglected.

A short while ago, our office-based OR discovered it could not get neostigmine* from our usual suppliers but could find only an exorbitantly expensive "new" one. I emailed back and forth with the company whose product we used to use and all they could tell me was "per FDA regulations we can no longer market this drug."  The price we had to pay went from a few dollars to over $160/vial.   So I did a little digging and found out the following:

This relates to an FDA initiative to get "unapproved drugs" off the market.  Sounds like a great idea, right?  Well, these unapproved drugs are the ones we've been using safely for decades and were grandfathered in to not needing to go through the FDA approval process that started in the early 1960s.  So . . . some drug companies have realized that they can jump through the hoops to get one of these drugs approved, at which point all other companies' version of the drug is now "unapproved" and cannot be sold.

The same thing has happened with colchicine, which has gone from 5 cents/pill to $5/pill, and all kinds of other drugs are in this pipeline, e.g. epinephrine, and it's only a matter of time before the same will happen to atropine, calcium, bicarb, ephedrine, etc.  This is an unmitigated disaster for healthcare spending.

The initiative is described on Bloxiverz.com (the "new approved" version of neostigmine) (not "new improved") under the "FDA Initiative" tab.  [And here's the link to the FDA site.]

I did a little sleuthing and found this article on Medscape from last year.  The story set forth there is that the unapproved supplies of neostigmine were becoming scarce:

Bloxiverz is the first FDA-approved version of neostigmine, which has been on the market as unapproved, grandfathered products under the Food, Drug, and Cosmetic Act of 1938. Flamel expects to launch Bloxiverz in July 2013 in 0.5 and 1.0 mg/mL strengths.

The cost difference between the branded and generic version remains to be seen.

"Based on our marketing experience, we believe that hospitals will welcome the addition of Bloxiverz as an FDA-approved version of neostigmine," Mike Anderson, Flamel's chief executive officer, said in statement.

He noted that unapproved versions of neostigmine have been in "short supply for nearly a year, which may add to the need for a reliable source of FDA-approved product."

I'm not sure, but this document appears to be the summary of the drug company's proposal to have its version of neostigmine approved.  (The timing of the report seems just right, but the company's name is deleted from the document.)  Sure enough, the agency mentions that the drug has been in use since the 1930s and that there is no reason to doubt its efficacy. The report seems to be one of "the hoops" mentioned by my friend.

So, the question is why the unapproved version was in short supply. There seems to be a correlation with knowledge by other companies that an approved version is on the way.  Look at this article from an investment analyst:

[The FDA guidelines are such] that it will typically remove unapproved product from the market in approximately one year from the approval date of an NDA (5/31/2013) led many investors to believe that the FDA had notified the companies privately that they had to wind down inventories and prepare to leave the market entirely at some future date. This was cleared up today for me, when I learned that Cardinal Health, a distributor of West-Ward Pharmaceuticals' unapproved formulation of neostigmine, had updated its National Drug Code information to indicate that neostigmine methylsulfate supplied by West-Ward would no longer be available for marketing after September 30, 2014. 

So, while Mr. Anderson correctly noted the shortage, his firm's filing, was in essence, the cause of the shortage.

The investment analyst offers his prognostication of the financial benefit of this change in market conditions:

I believe that this new information is clear public evidence that the neostigmine competitors to Flamel's BLOXIVERZ were told to cease marketing of their products by the end of September. From channel checks, I estimate that there was approximately six weeks of inventory of unapproved product in the channel and as much as six weeks of inventory in-process at the two unapproved manufacturers. As this inventory is wound down, I would expect Flamel's BLOXIVERZ, as the only remaining player, to continuously gain this share, and I conservatively project more than 50% share by September 1 and close to 100% share by the end of that month. 

While I may be off a few weeks on the timing of the inventory drawdown, I am pretty certain that Flamel's BLOXIVERZ will be the only neostigmine product on the market after September 30th and that the product is truly transformational for the company, as the drug should drive annual earnings power of $1.00-$2.00 per share beginning in the fourth quarter and in 2015 and 2016. Based on my discussions with industry experts and a review of drug pricing during periods of market dominance, I believe that BLOXIVERZ could generate revenues of approximately $150 million in 2015 and more than $200 million in 2016, with peak revenues of $250 million later that year.

Neostigmine methylsulfate is used to reverse the muscular blocking agents following surgical procedures that require anesthesia. It is a critical drug that must be used, and therefore does not require much of a selling effort, and Flamel is able to sell the drug with just two employees, who are mainly responsible for order entry and supply management. As such, margins are quite high in the 65-70% range, after manufacturing costs and royalties tied to previous owners of a Flamel subsidiary of 20%.

I imagine there is some good reason for the FDA's unapproved drug regulations, but it is hard to imagine that no one in the federal government understood the potential cost impacts of this policy direction.

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* Per Wikipedia: Neostigmine is used to improve muscle tone in people with myasthenia gravis and routinely in anesthesia to reverse the effects of non-depolarizing muscle relaxants such as rocuronium and vecuronium at the end of an operation, usually in a dose of 25 to 50 μg per kilogram.