United States Senate
`PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
`Committee on Homeland Security and Governmental Affairs
`Rob Portman, Chairman
`Tom Carper, Ranking Member
`
`COMBATTING THE OPIOID CRISIS:
`THE PRICE INCREASE OF AN OPIOID
`OVERDOSE REVERSAL DRUG AND THE COST
`TO THE U.S. HEALTH CARE SYSTEM
`
`STAFF REPORT
`
`PERMANENT SUBCOMMITTEE ON
`INVESTIGATIONS
`
`UNITED STATES SENATE
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 1
`
`

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`COMBATTING THE OPIOID CRISIS:
`THE PRICE INCREASE OF AN OPIOID OVERDOSE
`REVERSAL DRUG AND THE COST TO
`THE U.S. HEALTH CARE SYSTEM
`
`TABLE OF CONTENTS
`
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`EXECUTIVE SUMMARY ................................................................................................... 1
`The Subcommittee’s Past Investigations ......................................................................... 6
`Findings of Fact and Recommendations .......................................................................... 8
`I. BACKGROUND ......................................................................................................... 12
`A. The Opioid Epidemic ................................................................................................. 12
`1. Deaths from Opioid Overdoses ............................................................................... 13
`2. Economic Toll of the Opioid Crisis ......................................................................... 14
`3. Prescription Opioids ................................................................................................ 14
`4. The Rise of Illicit Opioids ....................................................................................... 15
`i. Heroin ................................................................................................................... 16
`ii. Fentanyl and Other Illicit Synthetic Opioids...................................................... 17
`B. The Role of Naloxone ................................................................................................. 18
`1. Development and FDA Approval of Naloxone ....................................................... 18
`2. Naloxone Administration ........................................................................................ 19
`3. Naloxone Brand Names .......................................................................................... 20
`i. Kaleo, Inc.’s EVZIO .............................................................................................. 20
`ii. Adapt Pharma’s Narcan ....................................................................................... 22
`iii. Generic Naloxone ................................................................................................. 22
`C. The Commercial Health Care Market in the United States .................................... 23
`1. Patient Assistance Programs and Coupons ........................................................... 24
`2. Pharmacy Benefit Managers .................................................................................. 24
`3. Federal Government Funded Health Care Programs ........................................... 26
`i. Medicare Part D ................................................................................................... 27
`ii. Medicaid ................................................................................................................ 28
`iii. The Department of Veterans Affairs ................................................................... 29
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`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 2
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`iv. The Department of Defense and TRICARE ........................................................ 30
`II. KALÉO DEVELOPED THE FIRST TAKE-HOME NALOXONE AUTO-
`INJECTOR FOR OPIOID OVERDOSE .................................................................... 32
`A. Kaléo Developed an Auto-injector for Naloxone and Branded the Product as
`“EVZIO” ...................................................................................................................... 32
`B. Kaléo Set the Initial Price of EVZIO at $575 ........................................................... 33
`C. Kaléo Commissioned Outside Pricing Studies for EVZIO ....................................... 37
`1. Two Pricing Consultants Advised Kaléo to Price EVZIO around $300 and
`Offer Additional Discounts ..................................................................................... 37
`2. Kaléo Commissioned a Study for Pricing EVZIO at $575 ..................................... 39
`D. Kaléo Contracted with Pharmacy Benefit Managers to Sell EVZIO ...................... 42
`1. Express Scripts........................................................................................................ 43
`2. CVS Caremark ........................................................................................................ 45
`III. KALEO INCREASED THE WHOLESALE ACQUISITION COST OF EVZIO
`FROM $575 TO $3,750 AND CHANGED ITS DISTRIBUTION MODEL .............. 46
`A. Kaléo Increased the Price of EVZIO from $575 to $750 .......................................... 46
`B. Kaléo Hired Consultants Todd Smith and Ben Bove to Change its Distribution
`Model .......................................................................................................................... 47
`1. The Distribution and Pricing Model used by Horizon ........................................... 47
`2. Messrs. Smith and Bove Established Novum Pharma.......................................... 49
`C. Kaléo Hired Messrs. Smith and Bove to Change the Way EVZIO Is
`Distributed ................................................................................................................. 50
`1. Kaléo established a pilot program for the new distribution model ....................... 50
`2. Kaléo Cited Barriers to EVZIO in the Traditional Pharmaceutical Market ........ 52
`D. The Kaléo Board of Directors Approved Moving to the New Distribution Model ... 53
`E. The Elements of Kaléo’s New Distribution Model for EVZIO ................................. 54
`1. Kaléo Increased the Price of EVZIO to $3,750 ...................................................... 56
`2. Kaléo Increased EVZIO’s Price to $4,100 When it Launched EVZIO 2.0 mg ...... 57
`3. The Distribution Model Sought to Reduce the Prior Authorization
`Paperwork Burden on Health Care Providers ....................................................... 58
`4. Kaléo Used a Hub for a Portion of its Prescriptions through the New
`Distribution Model .................................................................................................. 60
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 3
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`F. The Number of Prescriptions Filled for EVZIO Increased ...................................... 61
`I. Messrs. Smith and Bove were Compensated Based on the Success of the
`Distribution Model they Helped Install .................................................................... 62
`G. Kaléo Ended its Relationship with Messrs. Smith and Bove .................................. 65
`IV. PHARMACY BENEFIT MANAGERS RESPONDED TO KALEO’S PRICE
`INCREASE BY EXCLUDING EVZIO FROM FORMULARIES ............................. 66
`A. CVS Added Narcan to its Formulary and Ended Coverage of EVZIO .................... 66
`B. Express Scripts Allowed Plans to Impose a Cheaper Alternative to EVZIO and
`Then Replaced it with Narcan .................................................................................. 68
`1. Express Scripts Allowed its Member Plans to Impose Step Edits before a
`Patient Received an EVZIO .................................................................................... 68
`2. Express Scripts Excluded EVZIO from its Formulary .......................................... 70
`3. Express Scripts Sued Kaléo .................................................................................... 70
`4. Kaléo’s Payments to Express Scripts ..................................................................... 71
`V. THE COST OF KALÉO’S PRICE INCREASE ON GOVERNMENT FUNDED
`PRESCRIPTION DRUG PROGRAMS ..................................................................... 74
`A. Medicare Part D ......................................................................................................... 74
`B. Medicaid ..................................................................................................................... 78
`C. Department of Veterans Affairs ................................................................................ 82
`D. Department of Defense TRICARE Health Care Program ....................................... 83
`VI. CONCLUSION........................................................................................................... 85
`ANNEX ............................................................................................................................... 86
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 4
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`

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`COMBATTING THE OPIOID CRISIS:
`THE PRICE INCREASE OF AN OPIOID OVERDOSE
`REVERSAL DRUG AND THE COST TO
`THE U.S. HEALTH CARE SYSTEM
`
`
`
`EXECUTIVE SUMMARY
`
`Over the last four years, the Subcommittee has conducted several extensive
`investigations on the opioid epidemic and the federal government’s response to the
`crisis. As part of that broader effort to examine the opioid crisis and its impact on
`the American people, the Subcommittee conducted a case study investigation into
`the cost of naloxone, the prescription drug used to revive individuals who overdose
`on opioids. This report documents the Subcommittee’s findings from that
`investigation, and specifically how one pharmaceutical company – kaleo, Inc. –
`exploited the opioid crisis by increasing the price of its naloxone drug EVZIO by
`more than 600 percent (from an initial price of $575 per unit to $3,750 and then
`$4,100 eleven months later), resulting in more than $142 million in charges to
`taxpayers in just the last four years.
`
`Kaléo raised the price of EVZIO in February 2016 and launched its new
`distribution model planning to “[c]apitalize on the opportunity” of “opioid overdose
`at epidemic levels” and a “well established public health crisis.” As part of its new
`distribution model, the company’s sales force focused on ensuring doctor offices
`signed any necessary paperwork (called prior authorizations) for the EVZIO
`prescription to be filled and covered. This included paperwork indicating that
`EVZIO was medically necessary, which ensured the drug would be covered by
`government programs like Medicare and Medicaid for the Wholesale Acquisition
`Cost, less any patient copays, despite the fact that less costly alternatives exist.
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`The opioid crisis continues to grip our country. The Department of Health
`and Human Services’ 2018 National Survey on Drug Use and Health found that
`11.4 million Americans misused opioids last year, while 2.1 million Americans
`suffered from opioid disorders. At the same time, the Centers for Disease Control
`and Prevention (“CDC”) found that 72,000 Americans died from drug overdoses in
`2017 – more overdose deaths in just one year than the total number of American
`casualties during the entire Vietnam War. The majority of those overdose deaths—
`49,068 individuals or 68 percent—involved opioids.
`
`
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`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 5
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`The Impact of the Opioid Crisis. As opioid related deaths increase, so do the
`economic costs to the country. One recent study found the cost of the opioid crisis
`exceeded $1 trillion from 2001 to 2017.1 Opioid-related health care costs are also on
`the rise and estimated to be $215.7 billion over the last 16 years.2 This total
`includes the cost of emergency room visits, naloxone, and other indirect health costs
`associated with opioid abuse.3 As the death toll increased, so did the cost of one
`important drug that reversed the effect of an opioid overdose: “EVZIO”
`manufactured by the Richmond-based pharmaceutical company kaleo, Inc. (“kaléo”).
`
`The crisis has hit the state of Ohio particularly hard. The Ohio Department
`of Health estimates that 4,854 individuals died in 2017 from drug overdoses;
`fentanyl caused 70 percent of those overdoses deaths. The financial burden on Ohio
`is staggering. An impact analysis of Lorain County, Ohio, with a population of
`300,000, found that the opioid crisis cost the county nearly $200 million in 2016.4
`These costs spanned a broad spectrum, including lost wages ($138.8 million); health
`care ($42.9 million); criminal justice ($7.2 million), child and family assistance ($4.5
`million); and treatment and prevention ($5.4 million). Tragically, Lorain County
`has an opioid overdose rate that is 2.5 times higher than the national average.5
`
`The opioid epidemic continues to enact a heavy toll in Delaware, as well. At
`least 39 Delawareans died in August of this year, the highest monthly death total
`since the epidemic began.6 This total is 1.5 times more than the previous high,
`which occurred just this past April.7 Overall, CDC data from 2015 and 2016
`indicated that the increases in opioid-related deaths in Delaware are among the
`highest in the country. However, these death totals may not show the full extent of
`the problem given the increased use of naloxone to reverse opioid
`overdoses. Hospital records examined by the CDC show that total opioid overdoses
`in Delaware – including those reversed successfully through the administration of
`naloxone – increased at a higher rate than they did in any other state examined but
`one.8 In 2017, there were just over 2,700 documented naloxone administrations by
`first responders in the state.9 According to the Delaware Department of Justice,
`“Delaware’s opioid overdose death statistics would be substantially worse if not for
`
`1 Altarum, Economic Toll of Opioid Crisis in U.S. Exceeded $1 Trillion Since 2001 (Feb. 13, 2018),
`https://altarum.org/news/economic-toll-opioid-crisis-us-exceeded-1-trillion-2001.
`2 Id.
`3 Id.
`4 Altarum, Community Assessment of the Opioid Crisis in Lorain County, Ohio (Dec. 20, 2017),
`https://altarum.org/sites/default/files/uploaded-publication-files/Lorain-County-Community-
`Assessment_Executive-Summary.pdf.
`5 Id.
`6 DEL. DEP’T JUSTICE, ADDRESSING SUBSTANCE USE DISORDER IN DELAWARE: FOURTH ANNUAL
`UPDATE AND PLAN FOR FUTURE ACTION 1 (Oct. 10, 2018), https://attorneygeneral.delaware.gov/wp-
`content/uploads/sites/50/2018/10/2018-DOJ-Opioid-Report.pdf.
`7 Id.
`8 Id.
`9 Email from Delaware Office of Emergency Medical Services to Subcommittee staff (Sept. 26, 2018).
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 6
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`the expanded use of naloxone.”10 Delaware states costs associated with the opioid
`crisis may number close to $1.4 billion.11
`
`The FDA Approved Naloxone. The need to reverse opioid-related overdoses
`and save lives has never been more important. The Food and Drug Administration
`approved a drug called naloxone in 1971 to counteract the effects of an opioid
`overdose. Naloxone is administered three ways: (1) intravenously by a medical
`professional; (2) via an intranasal plunger delivered into one of the patient’s
`nostrils; or (3) via a needle injection into the patient’s muscle or fat. The more
`quickly an overdose victim receives naloxone, the more effective the drug is in
`countering the effects of the overdose.
`
`While naloxone is available in generic form, two branded products exist for
`take-home use by untrained individuals in the case of an overdose: (1) Adapt’s
`nasal spray branded as “Narcan” and (2) kaléo’s auto-injector branded as “EVZIO.”
`
`EVZIO is an auto-injector device that provides verbal instructions that talk
`the user through using EVZIO on an overdose victim. EVZIO went to market in
`July 2014 at $575 per unit, which includes two auto-injectors and a training device.
`Since its introduction, kaléo has increased EVZIO’s price to $750 in November of
`2015; $3,750 in February of 2016; and finally to its current cost of $4,100 in
`January 2017 for an increased dosage of naloxone. Narcan is available at a cost of
`$125, which also includes two doses.
`
`Despite Advice to Price EVZIO Lower, Kaléo Set the Wholesale Acquisition
`Cost at $575. In July 2014, kaléo took EVZIO to market with a Wholesale
`Acquisition Cost (“WAC”) of $575. The WAC is the price of a drug prior to any
`discounts, rebates, or other price reductions the manufacturer agrees to with
`purchasers. Kaléo set the price at $575 despite two drug-pricing consultants
`recommending an initial WAC between $250 to $300. In that price range, one
`consultant believed EVZIO could “own the naloxone market.” That consultant went
`on to work with Adapt to price Narcan at $125 per unit. At that price, Narcan
`replaced EVZIO on at least two pharmacy benefit manager (“PBM”) formularies as
`the preferred take-home naloxone product.
`
`
`
`10 DEL. DEP’T JUSTICE, ADDRESSING SUBSTANCE USE DISORDER IN DELAWARE: FOURTH ANNUAL
`UPDATE AND PLAN FOR FUTURE ACTION 1 (Oct. 10, 2018), https://attorneygeneral.delaware.gov/wp-
`content/uploads/sites/50/2018/10/2018-DOJ-Opioid-Report.pdf.
`11 Matthew P. Denn, The Many Costs of Delaware’s Opioid Crisis, DE BUS., May/June 2018, at 26
`available at http://www.dscc.com/delawarebusiness.html; Brittany Horn, What heroin costs
`Delaware – in lives and money, DE ONLINE, Dec. 29, 2017,
`https://www.delawareonline.com/story/news/local/heroindelaware/2017/11/29/what-heroin-opioids-
`cost-delaware/842267001/.
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 7
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`

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`Another study commissioned by kaléo about market access found that the
`medical industry responded favorably to EVZIO due to its life-saving potential, but
`had public health concerns about the drug regarding overuse and misuse. These
`concerns and the availability of a generic for $16 would likely lead to health
`insurance plans requiring prior authorizations before a plan would approve a
`patient receiving EVZIO. Prior authorizations meant fewer patients filling
`prescriptions. Instead of heeding the advice of industry experts, kaléo took the drug
`to market at $575. At that price, despite being a seemingly innovative product,
`EVZIO failed to develop a market.
`
`Kaléo Hired Consultant Todd Smith. The traditional pharmaceutical
`distribution model through PBMs and health plans was not working for EVZIO. In
`an effort to circumvent the traditional pharmaceutical market and go directly to the
`patient, kaléo contacted consultant Todd Smith. Mr. Smith, and his partner Ben
`Bove, were known for taking drugs to market outside the traditional model of
`contracting with PBMs and insurance plans. The distribution model Mr. Smith
`used involved dramatically increasing the WAC of a drug – something he had a
`track-record for doing. For example, at Horizon Pharma, Mr. Smith raised the price
`of an arthritis medication called Duexis that combined ibuprofen and an acid
`reducer from $140 for a bottle of 90 pills to $2,400 a bottle in 2013. Mr. Smith’s new
`distribution model worked. Horizon earned $290 million in revenue in 2014
`following its implementation.
`
`Kaléo worked with Mr. Smith to implement his model for EVZIO. Following
`a successful pilot program, kaléo put the new distribution model into effect and
`raised the price of EVZIO to $3,750 in February 2016. Kaléo launched the new
`model planning to “[c]apitalize on the opportunity” of “[o]pioid overdose at epidemic
`levels” and “a well established public health crisis.”
`
`Kaléo Increased the Price of EVZIO More Than 600 Percent Under New
`Distribution Model. As part of the new distribution model, the company’s sales
`force focused on ensuring physician offices signed any necessary paperwork or prior
`authorizations for the EVZIO prescription to be filled by the pharmacist and
`covered by a health plan. This included paperwork establishing that EVZIO was
`medically necessary, triggering coverage without first trying a cheaper option
`(called a “step edit”) for commercial plans and coverage by government programs
`like Medicare and Medicaid for the WAC, less any patient copays.
`
`Kaléo asserted the model expanded access since a patient received EVZIO
`whether their insurance covered it or not. Kaléo self-insured prescriptions not
`covered by health plans giving the patient the EVZIO at no cost. For these patients,
`kaléo paid the cost of goods and any associated fees. The cost of a unit of EVZIO
`(two auto-injectors and a training device) amounted to roughly $174, which included
`$52 in manufacturing, $29 in overhead, and $93 in “obsolescence.” For commercial
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 8
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`

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`patients with insurance coverage, kaléo paid any associated copays. Either way,
`the commercial patient received EVZIO for $0.
`
`The model relied on patients with insurance coverage to subsidize patients
`without coverage. Thus, the need to raise the price to $3,750 and, eventually, 11
`months later to $4,100. Kaléo said insurance covers around 26 percent of EVZIO
`prescriptions for commercial patients and they give away the remaining 74 percent.
`
`The Plan Worked. Kaléo saw a noticeable increase in the number of
`prescriptions filled. From July 2014 to June 2015, working through PBMs, only
`4,769 prescriptions were filled. Following the implementation of the new
`distribution model and price increase to $3,750, the company reported 66,327
`prescriptions filled from February 2016 to January 2017. Overall, the fill rate for
`EVZIO went from 40 percent to up to 81 percent.
`
`The distribution model also included kaléo ending its contracts with PBMs
`and health plans for both commercial and Medicare Part D drug coverage. This
`ended any administrative fees paid by kaléo, but also any rebates kaléo paid that
`reduced the cost of EVZIO. Kaléo also ended its participation in the Medicaid
`program on March 31, 2017. The effect of ending these contracts resulted in both
`Medicare and Medicaid paying more for EVZIO.
`
`The Cost to Taxpayers under Medicare and Medicaid Skyrocketed. The sales
`for EVZIO in the first quarter of 2017 showed kaléo’s dependency on government
`health care programs. While Medicare and Medicaid were only 24 percent of the
`units sold that quarter (2,522 units), the two programs were 75 percent of net sales
`($7.94 million). Commercial plans were 66 percent of units sold (7,127 units) with
`net sales of $2.61 million. The Medicare program was paying an average of $3,522
`per EVZIO unit with Medicaid paying an average of $2,412. At the same time, the
`commercial plans were only paying an average of $367 per EVZIO. Government
`health care programs were subsidizing the broader distribution of EVZIO.
`
`
`With kaléo’s new distribution model in place, the cost to Medicare continued
`to skyrocket. Under the traditional pricing model in 2015, Medicare Part D paid
`$1.9 million for 3,162 units of EVZIO—for an average of $609 per unit. When kaléo
`switched to Mr. Smith’s model in 2016, Medicare Part D paid $37.6 million for
`11,360 units of EVZIO—for an average of $3,310 per unit. In 2017, the cost to the
`program for EVZIO rose to $57.2 million for 14,861 units with an average cost of
`$3,852 per unit. By taking EVZIO out of the traditional pharmaceutical market,
`kaléo capitalized on Medicare Part D’s market-based design to control costs through
`competition. Despite Medicare paying over $142 million for EVZIO since July 2014,
`kaléo has still not earned a profit in over four years of the drug being on the market.
`
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 9
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`

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`While kaléo ended its participation in Medicaid, the program continued to be
`charged for EVZIO, but outside the program’s statutory savings mechanisms.
`Medicaid claims for EVZIO processed in 2018 by two of the country’s biggest PBMs
`were on average above the WAC ($4,368 for CVS and $4,145 for Express Scripts).
`Kaléo stated it created its patient assistance program to replace its Medicaid
`participation, which provides EVZIO at no cost to qualifying patients.
`
`Kaléo paid Mr. Smith’s consulting firm over $10.2 million for around two
`years of work to install this new distribution system. The rate was based on
`revenue generated by the new distribution model.
`
`Kaléo’s more than 600 percent price increase of EVZIO not only exploits a
`country in the middle of an opioid crisis, but also American taxpayers who fund
`government-run health care programs designed to be a safety net for our country’s
`elderly and most vulnerable.
`
`The Subcommittee’s Past Investigations
`
`This investigation continues the Subcommittee’s examination of various
`facets of the opioid crisis. In the 114th Congress, the Subcommittee began its
`review of the crisis by examining the federal government’s efforts to address opioid-
`related fraud and abuse in Medicare Part D. That program serves nearly 35 million
`senior citizens and seven million Social Security disability benefit recipients. In
`connection with that review, the Subcommittee also examined the anti-opioid abuse
`efforts of six of the nation’s largest health insurance companies—both in their
`commercial insurance business and in their role as Medicare Part D plan sponsors.
`That investigation resulted in a bipartisan report titled Combatting the Opioid
`Epidemic: A Review of Anti-Abuse Efforts in Medicare and Private Health
`Insurance Systems.
`
`During the current 115th Congress, the Subcommittee expanded its review of
`the opioid crisis by investigating how illicit opioids like fentanyl were shipped into
`the United States from China through international mail. The Subcommittee held
`an initial oversight hearing on May 25, 2017, titled Stopping the Shipment of
`Synthetic Opioids: Oversight of U.S. Strategy to Combat Illicit Drugs, at which
`representatives from the Postal Service, the Postal Service Office of Inspector
`General, the State Department, Customs and Border Protection, and UPS testified.
`Eight months later, on January 25, 2018, the Subcommittee held a second hearing
`and issued a bipartisan report titled: Combatting the Opioid Crisis: Exploiting
`Vulnerabilities in International Mail. On October 24, 2018, the president signed
`into law the Synthetic Trafficking & Overdose Prevention Act (or “STOP Act”),
`legislation designed to assist law enforcement to identify and stop fentanyl being
`shipped into the United States.
`
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 10
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`Next, the Subcommittee turned to the rising cost of the opioid antagonist
`naloxone, a prescription medication used as an emergency treatment to counteract
`overdoses by blocking opioids’ effects on the brain. The Subcommittee has
`specifically focused its investigation on the initial pricing and subsequent price
`increases of EVZIO, a branded naloxone auto-injector produced by kaléo.
`
`As part of its investigation, the Subcommittee reviewed more than 170,000
`documents and conducted over 20 interviews, including interviews with individuals
`from kaléo, Express Scripts, CVS Caremark, the Centers for Medicare & Medicaid
`Services, the Department of Veterans Affairs, and the Department of Defense. The
`Subcommittee also interviewed individuals from consulting companies that advised
`kaléo on pricing issues, including D2 Consulting and Insight Strategy Advisors. All
`entities and individuals complied with the Subcommittee’s requests for information,
`documents, and interviews.
`
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 11
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`Findings of Fact and Recommendations
`
`Findings of Fact
`
`
`(1) Two industry experts suggested kaléo price EVZIO between $250
`and $300 and offer discounts and rebates. Dean Erhardt of D2
`Consulting suggested EVZIO should have a wholesale acquisition cost
`(“WAC”) of $300 per unit (two auto-injectors). At that price, he believed
`EVZIO could “own the market.” Mr. Erhardt went on to help Adapt
`Pharma price its naloxone nasal spray, Narcan, at $125, which resulted
`in Narcan replacing EVZIO on at least two PBM formularies as the
`preferred naloxone product. Another industry expert, Insight Strategy
`Advisors (“ISA”), recommended a list price of $250 per unit.
`
`(2) A study on market access at a $575 WAC raised concerns about
`prior authorizations due to public health issues and the
`availability of a generic option. Kaléo commissioned another study
`by ISA on how the market would react to a $575 WAC. That ISA study
`found that public health concerns and a cheaper generic alternative ($16)
`would likely lead to prior authorizations before a patient could receive
`EVZIO. Prior authorizations meant fewer prescriptions would be filled.
`Despite these findings, kaléo took EVZIO to market with a WAC of $575.
`
`
`(3) Kaléo contracted with PBMs, which control the majority of
`prescription drug sales, to distribute EVZIO. Even though kaléo
`contracted with several PBMs (including CVS and Express Scripts) and
`had a seemingly innovative product, kaléo failed to generate sales. Kaléo
`stated this was due to plans requiring prior authorizations before filling
`the prescription or the patient failing at a cheaper alternative therapy
`(called a “step edit”) before being eligible for EVZIO.
`
`(4) Kaléo hired consultants Todd Smith and Ben Bove, who
`implemented a new distribution model that included raising the
`price of EVZIO to $3,750, and 11 months later to $4,100. Messrs.
`Smith and Bove previously executed this pricing model at Horizon
`Pharma where they raised the price of a bottle of arthritis medication
`from $140 to $2,482. They did the same at Novum Pharma raising the
`price of a skin gel from $189 to $7,968. The distribution model employed
`a sales force charged with encouraging prescribers to route prescriptions
`through specialty pharmacies, which handle any prior authorization
`paperwork for insurance coverage, including paperwork establishing that
`the drug is medically necessary. A prior authorization triggers coverage
`without a step edit for commercial plans, but also for government
`programs like Medicare and Medicaid.
`
`Opiant Exhibit 2135
`Nalox-1 Pharmaceuticals, LLC v. Opiant Pharmaceuticals, Inc.
`IPR2019-00694
`Page 12
`
`

`

`(5) Following the price increase, CVS and Express Scripts both
`excluded EVZIO from formularies, which meant client insurance
`plans no longer covered the drug. Both PBMs went on to end
`contracts with kaléo for commercial coverage. This meant kaléo no
`longer paid administrative fees or rebates to the PBMs. Around the same
`time, Adapt Pharma introduced Narcan at $125 per unit (two doses),
`which became the preferred naloxone drug by the two PBMs.
`
`
`(6) The new distribution model worked. EVZIO fill rates jumped from
`39 percent to up to as much as 81 percent.
`
`
`(7) While kaléo said its new model focused on commercially covered
`patients, the majority of its initial revenues were from Medicare
`and Medicaid. For example, in the first quarter of 2017, Medicare and
`Medicaid were only 24 percent of units sold (2,522 units), but 75 percent
`of net sales ($7.94 million). Commercial plans were 66 percent of units
`sold (7,127 units) and 25 percent of net sales ($2.61 million). Medicare
`paid an average of $3,522 per unit; Medicaid paid $2,412; and commercial
`plans paid $367.
`
`
`(8) The cost of EVZIO to the Medicare program increased
`exponentially. The program paid increasing amounts for EVZIO
`totaling $142,259,003 since July 2014:
`
`
`Estimated Amounts Charged to Medicare for EVZIO
`Year
`Units
`Total
`Rebates
`Sold
`Paid
`
`Total
`Cost to
`Part D
`$148,602
`$1,329
`$149,931
`$1,927,777
`$84,611
`$2,012,388
`$40,709,738 $3,097,845 $37,611,893
`$60,615,963 $3,369,131 $57,246,832
`$45,846,395
`$522,496
`$45,323,899
`
`Average
`Cost per
`Unit
`$558
`$609
`$3,310
`$3,852
`$3,355
`
`266
`2014*
`3,162
`2015
`11,360
`2016
`14,861
`2017
`13,509
`2018**
`*July 2014 to De