Revolt Against Sky-High Drug Prices Prompts a Pioneer to Cash Out
Sticker shock over $89,000 muscular-dystrophy treatment from Marathon Pharmaceuticals and shame campaign against CEO led to hasty sale
Entrepreneur Jeffrey Aronin said a few years ago he hoped to eventually sell Marathon Pharmaceuticals LLC, which he controls and runs, for billions of dollars, according to a person who heard the comment. Some employees have said they now expect him to shut down the company.
His deflated ambition is a sign of the increasingly hostile reaction to drug companies that specialize in sharply raising the prices of old medications. Mr. Aronin did that over and over again for 15 years, most recently after Marathon won approval in February to sell a drug for muscular dystrophy in the U.S.
Marathon set the price at $89,000 a year. Some families were paying about $1,200 a year to buy the drug, a steroid called deflazacort, from an online pharmacy in the U.K. and have it shipped to the U.S.
Instead of conducting large clinical trials to test its safety and effectiveness, which might have cost tens of millions of dollars, Marathon spent about $370,000 to license data produced in earlier clinical trials.
It took only a month for sticker shock to cascade into criticism from families of patients with Duchenne muscular dystrophy, a rare and fatal condition that primarily strikes young boys, a shame campaign from congressional lawmakers in both parties and then a surprise deal by Marathon to sell the treatment to another company.
Marathon has no other revenue-generating products and is looking to sell its other drug assets, two people familiar with the matter said.
Mr. Aronin declined to comment for this article. In response to questions, Marathon spokeswoman Wanda D. Moebius said in an email that the Northbrook, Ill., company is “proud of our success in securing FDA approval for Emflaza,” the drug’s new brand name. “We will continue to manage the legacy matters of Marathon Pharmaceuticals.”
Analysts expect the new owner of the drug, PTC Therapeutics Inc., to charge less than Marathon had planned but far more than deflazacort’s price in foreign countries, where it is approved for other conditions but not muscular dystrophy.
PTC will announce its price and launch plans next week, said Jane Baj, a spokeswoman for the South Plainfield, N.J., company.
It’s too soon to tell if Marathon’s fast retreat has damaged the long-term viability of the business model of sharply raising the prices of drugs. Other companies that have used a similar strategy include Valeant Pharmaceuticals International Inc. and Horizon Pharma PLC.
Mr. Aronin, 49 years old, has defended Marathon’s pricing for deflazacort, partly by noting that Marathon had to conduct more than a dozen small studies to test the drug’s safety and absorption in the body. The company has declined to say how much it spent on those studies.
According to Marathon, getting the drug approved in the U.S. helped patients because otherwise insurers wouldn’t pay for deflazacort. The drug isn’t a cure but helps improve muscle strength, the FDA said in a statement announcing the approval. Duchenne muscular dystrophy affects about 12,000 boys in the U.S., most of whom die in their 20s and 30s.
“Jeff truly sees himself as bringing innovative treatments to patients,” said a person who has worked with Mr. Aronin. Mr. Aronin is Marathon’s chairman and chief executive and owns a large stake in the company.
For years, big price increases for niche drugs often got little public attention, says Richard Evans, founder of SSR LLC, an investment research firm in Stamford, Conn. One reason is that the market for those drugs is small compared with those of blockbusters produced by pharmaceutical giants.
As companies got more aggressive, though, insurers grew resistant and sometimes refused to pay the sharply higher prices. The practice also prompted congressional investigations and hearings into companies such as Valeant and Turing Pharmaceuticals LLC, the firm formerly run by onetime hedge-fund manager Martin Shkreli.
“Once they started doing it routinely, it started getting attention, and the rest is history,” says Mr. Evans, a former drug-industry executive.
Mr. Aronin, the owner of an $11 million mansion in the Chicago suburb of Highland Park, Ill., overlooking Lake Michigan, started his first drug company in 2000. He has described the strategy of that company, Ovation Pharmaceuticals Inc., as resurrecting drugs neglected by bigger companies because of their tiny sales.
“If some of these products were with Big Pharma they would probably sit on a shelf,” Mr. Aronin told the Chicago Tribune in 2002.
Ovation was open about boosting prices on drugs it acquired. As Ovation was in the process of buying six drugs from Merck & Co. in 2005, Ovation looked for a partner to market the drugs outside the U.S.
In a presentation shown to potential partners, Ovation said it had acquired a rare-disease drug from Abbott Laboratories in 2003 and then “immediately repriced the product from $289/vial to $1,950/vial” in the U.S. In about two years, Ovation upped the price of another Abbott drug, the barbiturate Nembutal, from about $18 a vial to $133 a vial, the presentation said.
The presentation also showed that Ovation planned to increase U.S. prices on the drugs being acquired from Merck by an average of about 500%. Such drugs presented a “high margin business opportunity,” partly because they were “under priced,” according to a copy of the presentation reviewed by The Wall Street Journal.
After completing the acquisitions, Ovation raised prices of five of the drugs by an average of 1,360% and kept the price for one about the same, according to data from Truven Health Analytics, part of International Business Machines Corp. Abbott declined to comment.
In 2009, Ovation sold itself for $900 million to Danish drugmaker H. Lundbeck A/S. Mr. Aronin got about $60 million from the sale, based on his stake of about 7%, according to a person familiar with the matter. A private-equity firm owned most of the rest of Ovation.
Marathon was established in 2008 and had offices in the Chicago suburb of Deerfield, Ill., according to an archived version of the company’s website. Marathon was led at the time by Robert S. Altman, who was listed as the company’s founder. He couldn’t be reached for comment.
That year, Marathon bought two barbiturates and a diarrhea medication and soon raised their prices twofold to fivefold, according to data from Truven.
Mr. Aronin began working at Marathon in 2012, according to his LinkedIn profile, which also calls him the company’s founder.
In 2013, Marathon bought two injectable drugs from Hospira Inc.: Nitropress, a roughly 40-year-old treatment for extremely high blood pressure, and Isuprel, a drug for slow heart rates that came on the market in 1956. Marathon then raised their prices by 3,500% and 350%, respectively. Hospira was later acquired by Pfizer Inc.
In 2014, Marathon’s pricing practices drew scrutiny from lawmakers. After receiving complaints, staff members for Rep. Elijah Cummings (D., Md.) started looking into the price increases on Nitropress and Isuprel.
Marathon’s drugs became part of a broader investigation by Mr. Cummings and Sen. Bernie Sanders, a Vermont independent. Mr. Aronin refused to provide much of the information requested by congressional investigators, according to two people familiar with the matter.
Mr. Aronin also declined to attend a November 2014 hearing organized by Messrs. Cummings and Sanders, citing travel outside the U.S., said a spokeswoman for Sen. Dick Durbin (D., Ill.). Mr. Aronin’s absence was noted with an empty chair and a placard with his name on it.
According to a transcript of the hearing, Mr. Cummings criticized Mr. Aronin for significantly raising the price at Ovation for a heart drug that treats premature babies. “Today, Mr. Aronin is CEO of a new company called Marathon Pharmaceuticals, and they apparently use the same business model,” Mr. Cummings said.
Marathon’s chief executive was shaken by having his name called out at the Senate committee hearing, according to a person familiar with the matter. He soon said privately that he planned to sell the heart drugs.
In February 2015, Valeant paid $350 million to acquire the two heart drugs and five other drugs from Marathon. Valeant raised prices on the heart drugs threefold and sixfold the same day.
Valeant declined to comment. After criticism, Valeant said last year it wouldn’t raise the prices further and would offer rebates to all U.S. hospitals.
Marathon began pursuing deflazacort as a Duchenne treatment in 2013. Some people who worked with Mr. Aronin said the move made perfect sense given Mr. Aronin’s previous success. Other people were surprised that Mr. Aronin decided to pursue the controversial strategy again, especially given how he reacted to criticism about the heart drugs.
The company didn’t do the late-stage clinical trials needed to win FDA approval to market deflazacort. That step usually is the costliest part of drug development and often cited by companies as a justification for their prices.
Instead, Marathon paid universities, researchers and the Muscular Dystrophy Association to license data from studies of the drug in Duchenne patients conducted in the 1990s, according to interviews with the researchers.
The day that the FDA approved deflazacort for sale in the U.S., Marathon announced it would charge 70 times more than what many families had been paying to buy the drug from the U.K. A similar generic drug sold by several companies in the U.S. typically costs less than $10 a month, but some doctors think it has more side effects than deflazacort.
Some Duchenne families were pleased that Mr. Aronin had made it far easier to get deflazacort but were horrified at the steep cost.
“Jeff Aronin is a terrific guy, but it’s hard to put yourself in the shoes of these families,” said Pat Furlong, president of a Duchenne foundation. Her two sons died of the disease. “Maybe they came in using a model that they used sometime back and were successful with, and said: ‘This will work again.’”
Messrs. Cummings and Sanders sent Mr. Aronin a letter requesting details on the price and urging him to lower it. Sen. Tom Cotton (R., Ark.) called Marathon’s pricing “nothing short of outrageous.”
Lawmakers from both parties questioned whether Marathon took advantage of a special FDA approval program for rare-disease drugs. The program grants seven years of market exclusivity before generics can be approved.
Rep. Robert Aderholt (R., Ala.), chairman of a House subcommittee that oversees funding of the FDA, said Marathon’s price increase might be a sign that companies “have found a way to game the system.”
An FDA spokeswoman declined to comment on Marathon but said the agency is reviewing its processes for identifying so-called orphan drugs, which affect small numbers of people, to make sure the program “is functioning in the most efficient way possible.”
Researchers who originally studied deflazacort as a Duchenne treatment and sold their data to Marathon also were shocked. “We did not know that the price would be sky-high,” said Robert C. Griggs, a neurologist at the University of Rochester School of Medicine and Dentistry.
Four days after Marathon announced the $89,000-a-year price, the company posted on its website a 1,000-word “open letter to the Duchenne community” from Mr. Aronin.
“We hear and understand your concerns around the price,” Mr. Aronin wrote. He said Marathon was “pausing our commercialization efforts in order to meet with Duchenne community leaders and explain our commercialization plans, review their concerns, discuss all options, and move forward with commercialization based on the resulting plan of action.”
Ms. Furlong read the letter aloud at a meeting in Washington of Duchenne parents, who had gathered to meet with lawmakers and advocate for research and new drugs. Catherine Collins, a parent at the meeting, said Marathon’s pricing was “predatory” and “gross.”
The backlash kept growing. The Pharmaceutical Research and Manufacturers Association, a trade group, said Marathon’s actions were “not consistent with the mission of our organization.” Marathon resigned from the group in April. Executives at other drug companies feared an industrywide crackdown by Congress.
Mr. Aronin’s brother, Greg Aronin, a former Johnson & Johnson lobbyist hired by Marathon, defended the company in meetings with congressional staff members. His trip to Mr. Aderholt’s office “did not go well,” said a person familiar with the matter.
Staffers for Sen. Charles Grassley (R., Iowa) asked Marathon for published studies comparing Emflaza to cheaper steroids, but “that hasn’t come in,” said a spokeswoman for Mr. Grassley.
Marathon soon began talks with PTC to sell Emflaza, according to Shane Kovacs, PTC’s chief financial officer. When the sale was announced in March, Mr. Aronin said in another open letter to the Duchenne community that the deal was “the best path forward.”
He wrote that it “is a great honor to have been able to work with you to improve the lives of patients and by extension their families.”
According to people familiar with the matter, Mr. Aronin seemed to have concluded that the negative publicity was insurmountable. He decided to sell despite reservations from a Marathon executive who favored trying to ride out the controversy.
The Emflaza sale was completed in April. Marathon got $140 million in cash and stock, plus more than 20% of the drug’s future sales and a potential $50 million payment.
