Acthar Gel (repository corticotropin injection) was the centerpiece of Mallinckrodt plc’s $5.6 billion acquisition of Questcor Pharmaceuticals Inc. in 2014 but also triggered alarm bells in some quarters for its fast-growing price. Those concerns – and the acquisition of global rights to a competing adrenocorticotropic hormone (ACTH) drug, Synacthen Depot, also through Questcor – came home to roost when Mallinckrodt agreed to pay $100 million to settle antitrust allegations by the Federal Trade Commission (FTC) and five states.
The complaint alleged that the specialty pharma, based in Staines-upon-Thames, U.K., with U.S. headquarters in St. Louis, benefited from a monopoly over Acthar – a purified preparation of ACTH and the only version of the drug approved in the U.S. – by illegally acquiring U.S. rights to develop Synacthen Depot. The product, a synthetic melanocortin peptide, is available in more than 40 countries to treat conditions such as infantile spasms and as a drug of last resort to treat serious medical conditions such as nephrotic syndrome, multiple sclerosis and rheumatoid disorders. Synacthen is used as a diagnostic test for adrenal insufficiency.
Questcor closed its transaction to acquire Synacthen and Synacthen Depot from Novartis Pharma AG and Novartis AG in June 2014, gaining rights to develop, market, manufacture, distribute, sell and commercialize Synacthen in all but 13 countries outside the U.S. in which Novartis had previously granted rights to a third party. Questcor’s takeover by Mallinckrodt was completed four months later.
Acthar was known to have little competition in the pipeline, save RE-034 (cosyntropin), a long-acting synthetic analogue of ACTH formulated with zinc that was in phase III development by New York-based Retrophin Inc. to treat infantile spasms, also known as West syndrome, a form of epilepsy that can cause brain damage if not controlled. (See BioWorld Today, Dec. 20, 2013.)
In 2014, Retrophin filed a lawsuit accusing Questcor of violating antitrust laws by monopolizing certain therapeutic drug markets – notably Synacthen, the synthetic fragment of Acthar. According to the suit, Retrophin had offered Novartis $16 million for the product but was outbid at the 11th hour by Questcor, at $135 million, which the pharma accepted. Retrophin claimed that Questcor’s primary intent was to eliminate a competitive threat.
In a 2015 SEC filing, Retrophin disclosed that it settled the lawsuit after Questcor paid $15.5 million in exchange for a mutual release of claims by the two companies.
On a conference call with analysts, Mark Trudeau, Mallinckrodt’s president and CEO, said the company has worked “diligently to de-risk the legacy Questcor overhang issues surrounding Acthar when we acquired it, including resolving the various investigations and legal cases that we inherited.” He cited the Retrophin suit and the FTC settlement as major steps in that process.
Trudeau also defended the company’s handling of Acthar and synthetic ACTH and kicked much of the responsibility for the pricing of Acthar – which the FTC alleged rose from $40 per vial in 2001 to more than $34,000 per vial today – back to Questcor.
Questcor acquired the rights to Acthar from Aventis (now Sanofi SA, of Paris) in 2001. In 2013, prior to Mallinckrodt’s takeover of Questcor, the product generated $761.3 million in revenues – up more than 49 percent from the previous year. (See BioWorld Today, April 8, 2014.)
At the time of the Questcor acquisition, Piper Jaffray analyst David Amsellem called the transaction “gutsy” and “value-driving” for Mallinckrodt but acknowledged that Questcor “has certainly been a lightning rod and easily the most controversial story in the broader pharma space.”
Even so, “whether one believes these controversies have been manufactured or are based on reasonable inquiry, it is evident to us that there is no concrete evidence that Questcor’s business practices, in a broader sense, deviate from standard practice” by pharma firms, Amsellem added.
SYNACTHEN DEPOT: ‘REASONABLE BARRIERS TO ENTRY’
Asked during Thursday’s conference call whether FTC scrutiny of Mallinckrodt’s ownership of both Acthar and Synacthen Depot stemmed from the ongoing scrutiny on biopharma drug pricing, Trudeau acknowledged that “there does seem to be some confusion in the marketplace about what Mallinckrodt has done on pricing,” calling the company’s pricing approach to Acthar “very modest” and “consistent with our corporate pledge”: to create the best possible health care at the lowest possible cost for the greatest number of people.
“The pricing actions that were taken previously, under Questcor’s ownership, happened more than a decade ago,” Trudeau said. “What we’re looking at is equating the cost of the drug to the value delivered. That’s why we position the drug as refractory therapy for the sickest of the sick patients in many of these indications.”
Options for such patients, when they exist, often require invasive procedures or expensive hospitalizations, making Acthar “cost-effective,” Trudeau said. “In fact, we’ve published data now that demonstrates that there are cost offsets by positioning Acthar for those particular patients.”
Last year, Mallinckrodt presented data suggesting that use of Acthar reduced the use of biologics and other medications by patients treated for rheumatoid arthritis, reduced inpatient and outpatient costs as well as outpatient services by individuals with relapsed multiple sclerosis and reduced per-patient-per-month hospitalizations, length of stay, hospital outpatient department visits and physician office visits – compared with IVIG plus rituximab (Rituxan, Roche AG) or rituximab alone – for individuals with dermatomyositis and polymyositis. The data were collected from retrospective, observational studies.
Trudeau said Mallinckrodt was committed to the ongoing collection of such health economic information, which “has enabled us to go into payers, position the drug appropriately and get open access to our drug on now almost 60 percent of commercial covered lives,” he maintained, noting that Acthar typically is used for acute or periodic therapy rather than for chronic care.
“The fundamental approach is to position this drug for patients that are highly refractory where their alternatives are few and those alternatives are likely to be more costly than Acthar and to demonstrate the value of Acthar in those particular patients,” Trudeau explained.
But Mallinckrodt hasn’t been a passive player when it comes to pricing. Acthar accounted for $1.037 billion in 2015 sales – a 36 percent increase over revenues in the full year prior to Questcor’s acquisition.
The 2021 consensus sales estimate is $1.58 billion, according to Cortellis Competitive Intelligence.
Measured in those terms, the FTC settlement amounted to about 35 days worth of Acthar sales for Mallinckrodt, which has a market cap of about $5.2 billion.
Alaska, Maryland, New York, Texas and Washington, which joined the FTC’s complaint, will receive $10 million from the $100 million judgment and an additional $2 million to cover attorney’s fees and costs.
Mallinckrodt currently derives no U.S. revenue from Synacthen Depot, and the company said resolution of the complaint will have no impact on net sales.
At face value, investors liked the outcome. Although the company’s shares (NYSE:MNK) fell to a one-year low of $42.67 Wednesday after word of a settlement leaked, the stock partially recovered to close at $46.53 and opened higher Thursday after full details were disclosed, eking out a gain of $1.59, to finish at $48.12.
The settlement, in which Mallinckrodt admitted no wrongdoing, favors the company in other ways, as well. Mallinckrodt agreed to license Synacthen Depot to Marathon Pharmaceuticals LLC, of Northbrook, Ill., for development and potential commercialization in two indications – infantile spasms and nephrotic syndrome – including exclusive rights to the Synacthen trademark in the U.S.
Mallinckrodt retained rights to continue manufacturing and marketing Synacthen Depot in other countries where it previously held rights and to continue to develop the product in the U.S. outside the indications licensed to Marathon. Last year, the FDA granted Mallinckrodt’s request for a fast track designation for an investigational new drug application for Synacthen Depot to treat Duchenne muscular dystrophy (DMD). The company is completing a phase I study in healthy volunteers and plans to advance the agent this year into a proof of concept trial. Its goal is to position the product in DMD as a follow-on to standard-of-care corticosteroids and, perhaps, a first-line treatment.
Ironically, Marathon also is advancing its lead candidate, the glucocorticoid deflazacort (previously MP-104), in DMD. Two new drug applications – one for an immediate-release tablet formulation (6 mg, 18 mg, 30 mg and 36 mg) and one for an oral suspension formulation (22.75 mg/mL) – are under priority review by the FDA, with a decision expected next month. (See BioWorld Today, Aug. 31, 2016.)
Morningstar analyst Michael Waterhouse predicted Marathon would offer little competition to Acthar in the two licensed indications, writing in an update that “we’re leaving our fair value estimate and no-moat rating for Mallinckrodt unchanged” following the FTC settlement.
“While licensing Synacthen Depot to Marathon Pharmaceuticals in these indications theoretically increases the risk of long-term competition on Mallinckrodt’s largest product, Acthar Gel, we do consider high development costs and regulatory hurdles – including necessary clinical trials and questionable safety of synthetic forms of adrenocorticotropic hormone – for Synacthen Depot as reasonable barriers to entry for eventual competition,” Waterhouse added.
Piper Jaffray’s Amsellem agreed, writing in a hot comment that “Synacthen in someone else’s hands is hardly a major long-term threat to Acthar.”
But Mizuho Securities analyst Irina Koffler suggested that, ultimately, Mallinckrodt must look beyond Acthar.
“We think it will ultimately take business development activity and continued execution to return the stock to a stronger growth trajectory,” she wrote in a flash note. “In spite of attractive valuation, MNK remains a ‘conspiracy theory’ story until it can further diversify away from Acthar.”