Last year, I wrote about KV Pharmaceutical's (KV.A, KV.B) potential turnaround following the launch of its new drug, Makena. Makena is the first and only FDA-approved treatment indicated to reduce the risk of pre-term birth in women with a singleton pregnancy and who have a history of singleton spontaneous pre-term birth.
Despite winning FDA approval for the product, KV's initial pricing for Makena drew so much negative publicity that the company lowered the price of the drug. In addition to cutting the price by more than half, KV also initiated a comprehensive patient assistance program and patient access program to ensure that both insured and uninsured patients are able to access Makena.
These measures proved insufficient, however, as the FDA decided not to enforce KV's exclusivity for the drug. Instead, the FDA announced that it would not stop pharmacies from compounding the active ingredient in Makena. The decision was based solely on the price of the drug and its accessibility, instead of any safety or efficacy -related issues. This level of intervention in the pricing of a new product was unprecedented for the FDA and the pharmaceutical industry.
This past Friday, the FDA issued an updated statement regarding the compounded versions of hydroxyprogesterone caproate, which is the active ingredient in Makena. Included in this statement was the agency's response to KV's submission of independent testing of compounded 17P drug formulations and API. The FDA tested 16 samples of hydroxyprogesterone caproate API, which they collected themselves, and found that all 16 passed the potency and total purity tests in the Makena NDA. However, all 16 failed the Makena NDA's limit for unidentified impurities.
The agency also tested the 13 samples that KV had collected from eight pharmacies. They found that one of the samples had insufficient potency, but all 13 met the standard in the Makena NDA for total purity. Additionally, two of the 13 samples failed to meet the standard for unidentified impurities in the Makena NDA.
Although these findings are obviously very important to consider in terms of the public's safety, I do not believe they are the key points to focus on in terms of KV's stock. Instead, I believe the key takeaway from this statement is found later in the statement:
Compounding large volumes of drugs that are copies of FDA-approved drugs circumvents important public health requirements, including the Federal Food, Drug, and Cosmetic Act's drug approval provisions. Consumers and health professionals rely on the Act's evidence-based drug approval process to ensure that drugs are safe and effective. For that reason, one factor that the agency considers in determining whether a drug may be compounded is whether the prescribing practitioner has determined that a compounded product is necessary for the particular patient and would provide a significant difference for the patient as compared to the FDA-approved commercially available drug product.
FDA emphasizes that it is applying its normal enforcement policies for compounded drugs to compounded hydroxyprogesterone caproate.
(Bold emphasis added)
This clarification by the FDA, in addition to a statement previously issued by the American College of Obstetricians and Gynecologists in support of the Makena reimbursement, may open the door for KV Pharmaceutical to sign contracts with more state Medicaid programs, as well as gain preferred access with private insurers. This would have a huge impact on KV's revenue and earnings, and the market already seems to be starting to be factoring in this news.
Following the announcement on Friday, the stock increased over 16% in after-hours trading. Considering the 25% move the stock experienced on the day that Makena received FDA approval, as well as the 94% move on the day the FDA confirmed it would be conducting its own analysis of compounded hydroxyprogesterone caproate products, investors and traders may want to keep an eye on KV Pharmaceutical's stock in the coming days and weeks.
Disclosure: I am long KV.A.
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