Entering text into the input field will update the search result below

Why Retrophin Is Justified In Hiking Thiola's Price

Sep. 10, 2014 2:14 PM ETTVTX
US Investor profile picture
US Investor's Blog
348 Followers
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Retrophin( RTRX ), Inc. is a fully integrated biopharmaceutical company focused on the development, acquisition and commercialization of therapies for the treatment of serious, catastrophic or rare diseases. On May 30, 2014 Retrophin entered into a trademark license and supply agreement with Mission Pharmacal for Thiola (tiopronin). Thiola is a FDA approved drug used for treating Cystinuria. Cystinuria is a rare disease that affects 20,000 patients in US. Cystinuria is characterized by formation of cysteine stones in kidneys, ureter and bladder.

Today Retrophin increased the price of Thiola 20 times, from $1.50 to $30 per pill. The detractors fail to understand the economics of rare and ultra-rare diseases. First let me walk you through this issue with an analogy. Let us take a coastal town of Miami that has a population of 400,000. If you had 1000 cops maintaining Law and Order with a total budget of $100 million, you average about $250/resident and $100,000/cop. Now assume Miami has coastal rescue team of 10 people with budget of $5 million. The rescue team uses a couple of helicopters and other equipment. In a rare event of a perfect storm that happens once or twice a year, the rescue team saves couple of lives. The cost of a rescue mission for a life saved will run into hundreds of thousands of dollars. If you compare this with $250/resident cost, it'll appear atrocious. Does society complain about the high costs of maintaining the coastal rescue team? Absolutely not! The reason is, any one of us could be in that situation in sea and need rescuing. The society is willing to absorb the cost.

Thiola is not a drug that can be used by millions of Americans. Unlike a popular drug like Crestor, the costs of trials, FDA submission, marketing etc. cannot be spread over a large population. You need the rare disease population to absorb all the costs. Until the arrival of Questor & Retrophin, the small companies that catered to rare and ultra rare disease patients underpriced the drug and failed to recoup the costs. The economics of their underpricing has resulted in those companies stopping production and abandoning the patients at time of need. If you read any of the rare diseases forum, one recurrent complaint is the poor availability of drugs. If you are a Cystinuria patient, you need to take the drug every day. If you miss the dose even for a day, it results in painful kidney stones that need to be operated. Just imagine the high costs of operation, the pain and inconvenience.

So, Why Retrophin is justified in hiking Thiola's price?

They had made a commitment to ensure steady supply. They are pouring back substantial money to use it for new indications and create more awareness. Let us consider Retrophin's other orphan drug Chenodal. Chenodal is used for treating Cerebrotendinous Xanthomatosis, a lipid storage disorder. If you take a moment to watch this video, you'll notice that many doctors and patients are unaware of the disease. In some cases, it takes a decade to find the underlying issue. Companies like Retrophin need to spend substantial amount of money and effort to create awareness. In the end, it results in lowering the costs for unnecessary hospital visits and procedures. The price hike pays for itself in the long run. It also funds the R&D for Retrophin's pipeline.

Analyst's Disclosure: The author is long RTRX.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You