Wednesday, December 18, 2013

Making Money from Pigs

Many drugs are made from animals. I want to talk about one made from the pituitary glands of slaughtered pigs. It's called H.P. Acthar Gel and is made by Questcor Pharmaceuticals. The drug has been around since 1952; a division of Armour & Company, the meatpacking company, developed the drug as a way to get more revenue from the meatpacking business. The drug, known as Acthar was used to treat infantile spasms, also known as West syndrome, a rare, sometimes fatal epileptic disorder that generally strikes before the age of 1. The patient's cost of the drug was $40. Because it was a very different FDA in those days, Armour did not need to run clinical trials and label could state that the drug could be used to treat about 50 diseases. The drug was used only for very rare cases.

In 2001 Questor bought the rights to the drug for $100,000 and a small royalty on sales. The company made two major changes in the marketing of the drug. It increased the price per vial from $1,650 to $23,000 (it is now $28,000) and started selling it for diseases other than infantile spasms. Based on the labeling approved in the 1950s by the FDA, the company sold the drug as treatment for multiple sclerosis, nephrotic syndrome and rheumatologic conditions, even though there is little evidence that Acthar is more effective for those other conditions than alternatives that are far cheaper. 

The new marketing ideas have worked out very well for Questor. Sales of Acthar, which accounts for essentially all of Questcor’s sales, totaled nearly $350 million in the first nine months this year, up 145 percent from the period a year earlier. In the same period, Questcor’s earnings per share nearly tripled, to $2.12. In the five years after the big Acthar price increase in August 2007, Questcor shares rose from around 60 cents to about $50, in one of the best performances of any stock in any industry.

Questcor is a very imaginative company. Most people cannot afford Acthar and rely on their private insurance policy to do so. However, these policies usually require what is a fairly healthy co-payment, for example, $5,000 for drug purchases of $100,000 or so. Some kind people have started foundations whose purpose is to help people with the co-payment. One of these foundations, Chronic Disease Fund, just about specializes in the diseases addressed by Acthar. And guess what? Questor makes large donations to this fund. But, in a certain sense, the company is discounting its product as it supplies the co-payment. So, instead of a $100,000 sales it makes a $95,000 sales. Without the foundation it probably would have mad no sale.

The word 'pig' is not only used to identify the animal that supplies the basic ingredient for Acthar.

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