KV Readies For End-Of-March Makena Launch

Born-again women's specialty pharma renegotiates debt, completes $32 million PIPE, hires 95 new sales reps and sets up a dedicated customer support center for the newly approved drug to prevent preterm birth.

KV Pharmaceutical Co. expects to receive broad coverage for its pre-term birth drug Makena despite a hefty price tag, because of the high costs to payers of pre-term births, execs said during a Feb. 14 investor call.

Makena (alpha hydroxyprogesterone caproate), formerly known as Gestiva, was approved Feb. 3 for prevention of pre-term birth in women carrying only one baby who have a history of spontaneous pre-term birth with singleton pregnancies. The synthetic hormone is administered in weekly injections to mothers starting between 16 and 20 weeks gestation and continuing until 37 weeks or birth (Also see "KV's Gestiva Reemerges With New Name, Makena, And A Long-Sought FDA Approval" - Pink Sheet, 7 Feb, 2011.).

The firm is preparing for launch by the end of March by KV's branded drug subsidiary Ther-Rx Corp., which has added 95 sales reps to the existing team of 55 in preparation.

The injections, which will be distributed through specialty pharmacies and specialty distributors, are priced at $1,500 each, CEO Greg Divis said during the call. On average the company expects that a patient will receive 15 to 20 injections, for a total of $22,500 to $30,000. Divis sized the eligible patient population at about 140,000 women a year.

Because pre-term birth is so costly to health plans - the March of Dimes put the average first-year medical costs for a pre-term birth at around $51,000 in 2008 - KV expects both commercial payers and state Medicaid programs will cover and reimburse Makena, Divis said.

For patients still in need of help paying for the drug, KV has established a "comprehensive financial assistance program" that covers both uninsured and insured patients based on income eligibility requirements, he explained. Through the Makena Care Connection, women with household incomes up to $100,000 will be eligible for financial assistance, a range that covers about 85% of U.S. households, he said.

Makena Care Connection also will coordinate treatment support, such as educational information, home health care service and scheduled treatment reminders, and the service will make sure prescriptions are processed rapidly and that vials are delivered reliably, added Scott Goedeke, Ther-Rx senior VP of marketing and market access. The company has a decade of experience and "extensive relationships" with approximately 2,200 maternal fetal medicine specialists and about 18,000 obstetricians, Goedeke said.

Watson Pharmaceuticals Inc. is closely following the Makena launch with its own pre-term birth drug, Prochieve, in mind. Positive top-line Phase III results were recently announced and partner Columbia Laboratories is planning an NDA filing in the second quarter. Prochieve targets a different patient population, though there is some overlap: while Makena is for women with a previous pre-term birth, Prochieve is for women with short cervix, regardless of previous births.

During Watson's Feb. 15 earnings call, Fred Wilkinson, executive VP for global brands, commented on how the Makena launch was helping with market research and paving the way for Prochieve. "It really helps aim some of the pricing strategies that we are out testing right now and helps us set up the marketplace so that we can effectively market this once we are approved," he said.

"Returning To Stability" And Financing The Launch

KV has been working its way out of trouble on several fronts, and the Makena approval looks like it could be the turning point on the road back to stability, though the near-term financial picture is far from clear and almost entirely dependent on that launch.

During the KV call, Tom McHugh, chief financial officer, confirmed an announcement earlier in the day that the company had secured $32 million via a private investment in public equity. The PIPE transaction involves the sale of about 10 million shares of KV's Class A stock for $3.25 a share to a group of institutional investors, for a total of $32 million.

KV also announced that it had reworked its existing agreement with US Healthcare I and II, affiliates of New York-based Centerbridge Partners, with a commitment for a $130 million multi-draw facility, primarily tied to Makena performance, that would flow as $15 million in March and May and $10 million each in the next four months. The agreement also includes 7.5 million additional warrants to US Healthcare at $1.62 per share.

The firm said it took advantage of an exception in New York Stock Exchange policy that requires companies to seek shareholder approval before entering those transactions because the delay caused by seeking approval would "seriously jeopardize the financial viability of the company."

In November, the company announced it had secured financing commitments of up to $120 million under an agreement with US Healthcare I and US Healthcare II. The secured debt financing package included a fully-funded $60 million bridge loan and a commitment to provide a multi-draw term loan after certain conditions were met, including approval of Makena (Also see "KV Official Is Excluded From Government Programs, The First Under OIG's New Guidance" - Pink Sheet, 17 Nov, 2010.).

The reworked agreement includes an extended payment schedule that spreads the $60 million due March 20 out over three $20 million payments. Of the $32 million from the PIPE, the first $20 million will go to make the first payment to US Healthcare, while the remaining funds will go mostly toward the Makena launch, McHugh said.

In addition, the company recently renegotiated payments with Hologic Inc., from which it agreed to purchase Makena in 2008. In January, after FDA announced a delay in action on the Makena NDA that could have stretched to April of this year, KV renegotiated its payment arrangement with Hologic. Under the arrangement KV would have had to pay a total of $90 million in the first 15 months following approval, but instead it will pay $25 million, McHugh said. KV already made a $12.5 million payment to Hologic upon the approval to complete transfer of Makena to KV.

McHugh said the company also has amended the payment schedule on fines levied by the Department of Justice in 2010 after its generics subsidiary Ethex Corp. pled guilty to two felony charges of failing to inform FDA of manufacturing problems with prescription drugs. The company was fined $23.4 million plus $2.3 million in restitution to Medicare and Medicaid and took an administrative forfeiture of $1.8 million (Also see "KV Pharmaceutical To Decide Whether To Retain Generics Business After Settling Manufacturing Cover-up Charges With DoJ" - Pink Sheet, 8 Mar, 2010.).

The company also is working "rapidly" to get caught up on delinquent quarterly filings with SEC for FY 2011, McHugh said. KV expects to have the three 10-Qs filed within the next 60 days, and be ready to close its fiscal 2011 on March 31 with a 10-K filing in mid-June, McHugh said.

KV got behind on filings while it was unraveling mismanagement problems revealed by FDA and SEC investigations of improper practices (Also see "KV Pharmaceutical Pledges To Improve Finances, But NYSE Demands Action" - Pink Sheet, 26 Jun, 2009.).

McHugh also said the company would be monetizing non-core assets, but the execs declined to elaborate. The company has said it would divest its generics business, renamed Nesher Pharmaceuticals, but offers to date have "been below the company's expectations with regard to upfront value," CEO Divis said. The ANDA assets held by Nesher have value, and the company will continue to prepare the most commercially attractive of them while also looking for a divestiture opportunity, he said.

-Shirley Haley ([email protected])