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Compounding Practice At Center of Lawsuit

A Goliath in the biotech industry is suing San Diego drugmaker Imprimis Pharmaceuticals, alleging the company is selling new drugs without regulatory approval. Imprimis said the claims are bogus and a move by the biotech giant to quash competition.

The lawsuit was filed by Allergan Plc, the multibillion dollar pharmaceutical company with a litigious history. In separate lawsuits, the company is making the same allegation against two other businesses.

Lawsuits in the pharmaceutical industry are common, but most revolve around patent infringement. This lawsuit makes no such claims. Instead, Allergan contends that Imprimis is competing unfairly by exploiting a regulatory loophole that exempts the company from new drug regulations.

The lawsuit highlights the ongoing debate among drugmakers about what constitutes a “new drug,” and how these medicines should be regulated.

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The Compounding Controversy

Allergan’s beef is with some of the drugmakers called “compounding pharmacies,” which includes Imprimis. Historically, compounders were small pharmacies that combined or altered the ingredients of an existing drug to meet the needs of an individual patient. A doctor would write a prescription for a special formulation to be made, and then the compounder (often housed within hospitals) would create the drug on-demand. For example, a pharmacist might make a pill into liquid form for patients who can’t swallow pills.

High drug prices and shortages in the market have spurred compounders to grow beyond small pharmacies into a whole new category of drugmakers. Now, large outsourcing facilities like Imprimis are manufacturing compounded drugs in bulk. In short, they take popular drugs and tweak the formulation to better suit a specific population, and then sell the drug in direct competition to the original drugmaker, often undercutting the patent holder’s prices.

“Compounders can take drugs that are off patent and use them in new ways,” said Mark Baum, CEO of Imprimis. “That’s what compounding is all about — using old things doctors are familiar with to meet unmet patient needs.”

Compounded drugs are not approved by the U.S. Food and Drug Administration (FDA), and they don’t have to be because they’re not considered “new drugs.” That means compounders can avoid the lengthy and expensive process of regulatory approval, which really annoys drugmakers such as Allergan who have spent hordes of cash on clinical trials to get FDA’s stamp of approval.

“Conducting clinical trials to prove safety and effectiveness is time-consuming and expensive — and economically risky, as some trials are not successful and those drugs are not approved,” Allergan states in the complaint. “Flouting the entire system of pre-market approval for drugs allows Imprimis to avoid those costs and risk and instead take its desired products to market without established safety or efficacy.”

Quality in Question

Fred Defesche is one such executive whose company has to shoulder the costs of regulatory approval, and he sees Imprimis as both unfair competition and a danger to patients. As the CEO of Beloteca Inc., a generics company in San Diego, Defesche said he’s seen chemical suppliers deliver lower quality ingredients to companies when they know the drug won’t be going through regulatory review.

“These compounded products are often made from cheaper, lower quality materials,” Defesche said. He added that the products may also have lower concentrations of active ingredients, making them less effective.

In fact, the FDA makes the potential risks associated with such drugs quite clear.

“Compounded drugs made using poor quality practices may be sub- or super-potent, contaminated, or otherwise adulterated,” its website reads. “Additional health risks include the possibility that patients will use ineffective compounded drugs instead of FDA-approved drugs that have shown to be safe and effective.”

‘Not All Compounders Equal’

Baum said the notion that Imprimis’ drugs are potentially dangerous is unfounded.

“The idea that we’re just cooking up drugs in the back of Hodad’s is just crazy,” he said.

The company is subject to the Drug Quality and Security Act, which requires outsourcing facilities like Imprimis to undergo FDA inspections and meet certain manufacturing standards. That law enacted after a 2012 scandal involving the New England Compounding Center, in which the compounder’s unsterile steroids were linked to 64 deaths and more than 750 cases of fungal meningitis.

Now, compounding facilities have to be checked regularly, and Imprimis’ facility underwent a rigorous inspection this summer. Allergan in its lawsuit lists a handful of recent FDA actions against Imprimis, including citations for unsanitary conditions at two of its manufacturing facilities. Imprimis says it didn’t own one facility when the flaws were discovered and that other deficiencies have been resolved to the FDA’s satisfaction.

“The problem is that not all compounders are created equal,” Baum said. “Those companies that have made the headlines have given compounding a really bad name. We’re a public company and we have to do everything the right way.”

Allergan said it’s suing Imprimis, in part, to protect patients.

“Biopharmaceutical companies like Allergan have a duty to put the safety of their patients first,” the company said in a statement. “We have brought suit against companies that we believe stand in stark contrast to that commitment.”

The lawsuit, filed in United States District Court, seeks an injunction against Imprimis, preventing the company from continuing “unlawful and unfair business practices.” Allergan also seeks damages and other monetary relief incurred from unfair competition.

Baum contends taking out competition is Allergan’s main motivation. In Imprimis’ most recent conference call with investors, Baum made public the company’s plans to spin out a new company called Surface Pharmaceuticals.

This new firm would develop a portfolio of dry eye drugs that would directly compete with Allergan’s second biggest revenue driver, a dry eye drug called Restasis.

“Allergan’s product is incredibly expensive, and it stings patients’ eyes,” Baum claims.

Surface’s version of the drug would be similar to Restasis sans the burning sensation. And, it would come with a cheaper price tag, according to Imprimis.

“That’s a big problem for Allergan,” Baum said. “There’s fundamentally no difference between their drug and what we’re making. Allergan believes wrongly that they may be able to squash our ability to get that deal done.”

Regardless of Allergan’s motivations, the $74 billion company is a true Goliath compared with Imprimis, a pennystock with a market cap of $33 million. Baum, a litigator by training, said he feels confident that Imprimis can defend itself against Allergan’s lawsuit.

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