How to make the FDA your friend… just posted an interview with Dennis Purcell of Aisling Capital and while reading it, a comment by Dennis caught my eye:

So the clinical trials, the understanding of FDA regulations, the patent protection all came together for us. We made about a 15x return on Adams.

The “Adams” he’s talking about is Adams Laboratories, Inc., the company that brought you Mucinex and this guy..

Mr. Mucus

Aisling Capital had invested in Adams Laboratories and that 15x return came about when Reckitt Benckiser (a maker of a number of OTC healthcare products) acquired Adams Laboratories for 2.3 billion dollars in 2007.  So what made Mucinex and Adams Laboratories so valuable?  Mucinex is nothing special, just an extended-release version of the drug guaifenesin, an expectorant (it helps loosen mucus so you can expel it) that has been on the market for decades.  This isn’t a “new” drug by any means and it makes you wonder, is there really that much value in an over-the-counter cold medicine?  If you read the press release about the acquisition, you should carefully note this part:

Mucinex, the No.1 OTC expectorant in the USA, is a long-acting guaifenesin product and the only FDA approved 12-hour expectorant.

Hmm…. the only FDA approved 12-hour expectorant?  What’s going on here?  Well, after a little digging a very interested story came to light (I got much of the background from this excellent Harvard Law paper by Tammy Muccio).

First, we need a little context concerning drug regulation laws in the US (I’ll try to keep it short and to the point): The Food, Drug and Cosmetic Act (FDCA) was first passed in 1938 as a means to ensure that consumers were not exposed to unsafe (you guessed it) foods, drugs or cosmetics.  The regulations only concerned unsafe drugs, not ineffective drugs.  It wasn’t until 1962 that the FDCA was amended and drugs were required to be both safe and effective.  Great, right?  Well, now the problem was, what should we do with all the drugs that were currently on the market that don’t have efficacy data?  To address that question, the FDA decided to initially grandfather these drugs and in the meantime initiated the Drug Effectiveness Study Implementation (DESI) program which would examine the available data and hopefully help the FDA classify the drugs as either safe and effective or not (not a small task in the least).  For OTC products, the FDA initiated the “OTC Monograph Program” in which the FDA evaluated current OTC ingredients for safety and effectiveness on a class-by-class basis.  If you were an OTC drug manufacturer, you could continue to sell your product as long as you registered with the FDA and complied with the monograph and manufacturing standards.  It wasn’t a perfect solution, but considering the task at hand, it was a pretty good compromise.

Fast-forwarding to 1983, E-Ferol, an unapproved IV preparation of vitamin-E for premature babies results in the death of a number of newborns.  This reinvigorated the FDA and made them take a second look at all those grandfathered drugs, guaifenesin included because, at the time, it was a Category III drug (“insufficient data to establish safety and efficacy”).  Eventually in 1989, guaifenesin was moved to Category I (“generally recognized as safe and effective and not mis-branded”).  So everything is fine, right?  Not quite.  A few years later the FDA got on a new kick and started targeting extended-release drugs of all kinds (and with good reason).  Guaifenesin extended-release products were now on the FDA radar.

At this point in time, Adams Laboratories entered the scene.  In 2000, they submitted an NDA for extended-release guaifenesin and in July 2002 it was approved and made available OTC (they also got a patent for their formulation).  Shortly after approval, they requested that the FDA remove all of the “unapproved” extended-release guaifenesin products from the market and subsequently, the FDA sent out 66 Warning Letters to all of Adams Laboratories’ competitors that stated “either get an ANDA or stop selling your product.”  Honestly, what more could you ask for than to have the government come in and shutdown every single one of the your competitors?  Just to put this in context, take a look at what a 2006 10-Q filing from Adams Laboratories had to say:

Based on data from IMS Health—NPA TM , we estimate that, for the 12 months ended June 30, 2003, there were approximately 10.5 million prescriptions filled for long-acting, single-ingredient guaifenesin products. After November 2003, we believe that a majority of prescriptions written for long-acting, single-ingredient guaifenesin resulted in OTC sales of our Mucinex SE product. Humibid SE is now also available to meet this demand in a maximum strength formulation.

Basically, Adams Laboratories saw a huge Rx and OTC market, created a couple products, got FDA approval and then eliminated all of their competitors using the heavy hand of FDA regulators.  Wow.  The amazing part is, the FDA didn’t even bat an eye at this maneuver.  Here is what a director from the FDA’s CDER group said in 2007 about the FDA’s continued enforcement against unapproved extended-release guaifenesin products:

“Today’s action is another example of our commitment to ensure all drugs marketed in the United States that require FDA approval have that approval,” said Steven K. Galson, M.D., M.P.H., director of the FDA’s Center for Drug Evaluation and Research (CDER). “This benefits consumers because drugs that skirt the approval process may be unsafe, may not work, and often have inadequate labeling or are improperly manufactured.”

So it all starts to make sense at this point.  Adams Laboratories simply figured out how to help the FDA with their goals (getting unapproved drugs off the market) and at the same time turn a profit.  Pretty remarkable if you ask me.

As a final point, I’ll leave you with this:  If you think this is a smart business model to emulate, tread carefully.  A few other companies have tried the same thing.  URL Pharma did it with colchicine (Colcrys) and most recently, KV Pharmaceuticals did it with a progesterone (Makena) and it didn’t turn out quite so well.  A quick google search will give you the story on those drugs.  I think the window closed a long time ago on this business model.

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