Bankrupt KV Pharma Goes After States for Money

Bankrupt KV Pharma Goes After States for Money

August 8th, 2012 // 2:34 pm @

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At the same time that KV Pharmaceutical was preparing long-threatened bankruptcy papers, the besieged drugmaker also filed a pair of lawsuits against two state Medicaid programs for failing to cover their controversial Makena treatment for premature births. The lawsuits, which were filed against Georgia and South Carolina, followed a lawsuit filed last month against the FDA for failing to prevent some compounding pharmacies from offering lower-cost versions of Makena (see here).

KV Pharma “has been unable to realize the full value of its most important product, Makena because of a lack of enforcement of the orphan drug marketing exclusivity granted to K-V for Makena by the FDA,” KV ceo Greg Divis says in a statement. “The lack of enforcement has also led certain state Medicaid agencies to impose barriers to access to Makena on low-income pregnant women at high risk for recurrent preterm birth, despite those states’ legal obligation to cover FDA-approved drugs.”

The lawsuits are just the latest attempt by KV Pharmaceutical to salvage the Makena franchise, which looked like a sure moneymaker after the FDA approved the treatment early last year under the Orphan Drug Act. Shortly afterwards, though, both the drugmaker and the agency came under fire after the price was set at $1,500, compared with $10 to $20 a week for compounded versions of a med that has been used for decades.

In response, the FDA took the unusual step of deciding not to prevent compounders from compounding. Normally, the FDA would have banned the sale of older, unapproved drugs, and KV, in fact, had already sent letters to compounders threatening legal action. The FDA decision not to pursue enforcement actions against compounders, unless there was a safety issue, signaled White House concern about publicity over cost since a federal agency had allowed a monopoly to develop.

By filing suit against the FDA, KV is charging that the agency is denying its right to incentives under the law, notably the Orphan Drug Act, and failing to uphold the Food, Drug & Cosmetic Act when it comes to going after compounders. Similarly, the drugmaker believes Georgia and South Carolina violated the Social Security Act and has been using “sham restrictions” to denying women on Medicaid access to Makena. In both cases, KV seeks preliminary injunctions (you can read the lawsuits here and here, and the requests for preliminary injunctions here and here).

Meanwhile, KV continues to have its detractors. Also last week, a health care services provider and several physicians filed a friend-of-the-court brief supporting the FDA in the litigation filed by KV. Alere Women’s and Children’s Health argues that compounding is a critical part of the medical system and that approving a drug under the Orphan Drug Act does not preclude permitted compounding under the law (here is the brief).

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As we noted last week, despite the looming bankruptcy, the KV board still felt compelled to award ceo Greg Divis with a hefty raise in compensation. His total pay package doubled to $976,270, which included option awards of more than $204,000, a $130,000 discretionary cash bonus and $638,750 in salary, according to a proxy filed with the US Securities and Exchange Commission. The payout includes vacation and holiday pay, repayment of deferred salary plus 20 percent and an increase in salary reflecting his promotion to ceo. Last year, his total pay was $385,102; in 2010, it was $525,505 (see here).

The statement announcing the bankruptcy noted that the move is “intended to provide KV with the time needed to continue to conduct our business and restructure our financial obligations as we continue our efforts to ensure that all clinically-indicated patients have access to Makena.” There was no mention of restructuring his compensation, though.


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