KV v FDA-Alere Amicus

Case 1:12-cv-01105-ABJ Document 9 Filed 07/24/12 of 7

EXHIBIT A

Case 1:12-cv-01105-ABJ Document 9-1 Filed 07/24/12 Page 1 of 2

Amici Physicians

John P. Elliott, M.D. Medical Director – Women’s Hospital Saddleback Memorial Medical Center Laguna Hills, California

and

Clinical Professor, Department of OB/GYN University of Arizona Medical School Tucson, Arizona Michael Gordon, M.D. Center for Maternal Fetal Care San Antonio, Texas Michael Moretti, M.D. Chairman, Department of Obstetrics & Gynecology New York Medical College/Richmond Program Staten Island, New York

and

Chairman, Department of Obstetrics & Gynecology St. Vincent’s Medical Center Staten Island, New York Jack Graham, M.D. Clinical Faculty, Associate Attending Department of Obstetrics and Gynecology The University of Texas Southwestern Medical School Dallas, Texas

Sue Palmer, M.D. Maternal Fetal Medicine Houston, Texas

Kenneth Higby, M.D. Center for Maternal Fetal Care San Antonio, Texas Peter S. Sanfilippo, M.D. Comprehensive Care Medical Staten Island, New York Stephen Jones, M.D. Christus Schumpert Health System Shreveport, Louisiana Phillip Shubert, M.D. Mt. Carmel St. Ann’s Maternal Fetal Medicine Westerville, Ohio Christopher Lang, M.D. Mt. Carmel St. Ann’s Maternal Fetal Medicine Westerville, Ohio

Dr. Michael Ruma Perinatal Associate of New Mexico 6100 Pan American East Fwy NE Albuquerque, NM 87109


EXHIBIT B


APPENDIX 1


APPENDIX 1

Amici Physicians

John P. Elliott, M.D. Medical Director – Women’s Hospital Saddleback Memorial Medical Center Laguna Hills, California

and

Clinical Professor, Department of OB/GYN University of Arizona Medical School Tucson, Arizona Michael Gordon, M.D. Center for Maternal Fetal Care San Antonio, Texas Michael Moretti, M.D. Chairman, Department of Obstetrics & Gynecology New York Medical College/Richmond Program Staten Island, New York

and

Chairman, Department of Obstetrics & Gynecology St. Vincent’s Medical Center Staten Island, New York Jack Graham, M.D. Clinical Faculty, Associate Attending Department of Obstetrics and Gynecology The University of Texas Southwestern Medical School Dallas, Texas

Sue Palmer, M.D. Maternal Fetal Medicine Houston, Texas

Kenneth Higby, M.D. Center for Maternal Fetal Care San Antonio, Texas Peter S. Sanfilippo, M.D. Comprehensive Care Medical Staten Island, New York Stephen Jones, M.D. Christus Schumpert Health System Shreveport, Louisiana Phillip Shubert, M.D. Mt. Carmel St. Ann’s Maternal Fetal Medicine Westerville, Ohio Christopher Lang, M.D. Mt. Carmel St. Ann’s Maternal Fetal Medicine Westerville, Ohio

Dr. Michael Ruma Perinatal Associate of New Mexico 6100 Pan American East Fwy NE Albuquerque, NM 87109


APPENDIX 2


983525.1

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA

K-V PHARMACEUTICAL COMPANY, THER-RX CORPORATION,

Plaintiffs,

v.

DAVID A. COOK, in his official capacity as Commissioner of the Georgia Department of Community Health and, JERRY DUBBERLY, MD, in his official capacity as Division Chief of the Medicaid Division of the Georgia Department of Community Health

Defendants.

))))))))))))))))))))

Case No. _____________

COMPLAINT AND APPLICATION FOR PRELIMINARY INJUNCTION

John E. Floyd (GA 266413) Manoj S. Varghese (GA 734668) BONDURANT, MIXSON & ELMORE LLP 1201 W. Peachtree Street, N.W. Suite 3900 Atlanta, GA 30309 Telephone: (404) 881-4100 Facsimile: (404) 881-4111 [email protected] [email protected]

Margaret “Peg” Donahue Hall, Esq. (TX 05968450) SNR DENTON US LLP 2000 McKinney Avenue, Suite 1900 Dallas, TX 75201-1858 Telephone: (214) 259-0900 Facsimile: (214) 259-0910 [email protected] pro hac vice application pending

Case 1:12-cv-02491-CAP Document 1 Filed 07/17/12 Page 1 of 51Case 1:12-cv-01105-ABJ Document 9-4 Filed 07/24/12 Page 2 of 52

983525.1

Drew Marrocco, Esq. (DC 453205) SNR DENTON US LLP 1301 K Street, NW, Suite 600, East Tower Washington, DC 20005 Telephone: (202) 408-6400 Facsimile: (202) 408-6399 [email protected] pro hac vice application pending Stephen D. Libowsky (GA 451965) SNR DENTON US LLP 233 South Wacker Drive, Suite 7800 Chicago, IL 60606 Telephone: (312)-876-8000 Facsimile: (312)-876-7934 [email protected]

Attorneys for Plaintiffs


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GLOSSARY OF TERMS

Term Meaning

17P hydroxyprogesterone caproate — the active ingredient used in Makena®

API active pharmaceutical ingredient

CMO care management organization

CMS Centers for Medicare & Medicaid Services

DCH Georgia Department of Community Health

FDA United States Food and Drug Administration

FDCA Federal Food, Drug, and Cosmetic Act

GMP good manufacturing practice standards promulgated by FDA

HHS United States Department of Health and Human Services

MDRA Medicaid Drug Rebate Agreement

NDA New Drug Application


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This case involves Georgia Medicaid’s refusal, in flagrant violation of

federal law, to cover the only Food and Drug Administration (“FDA”) approved

drug for pregnant women with a rare, but severe, condition causing life-threatening

spontaneous preterm birth. Although an FDA-approved drug has been available

since March 2011 and thousands of women in Georgia seek treatment for this

condition each year, on information and belief, Georgia has not approved payment

for any vials of the medication for any Medicaid patients. This denial of medical

care to the poor and vulnerable is not only unlawful, but it is in defiance of

statements recently issued by the two lead federal agencies — FDA and Centers

for Medicare & Medicaid Services (“CMS”) — regarding states’ legal obligation

to cover the FDA-approved drug and to stop supporting the unlawful preparation

of compounded copies of the drug that are not customized to meet the special

medical needs of individual patients.

Plaintiffs KV Pharmaceutical Company (“K-V”) and its wholly-owned

subsidiary Ther-Rx Corporation (“Ther-Rx”) (together, “KV”) hold the exclusive

rights to market and sell Makena® (sterile injections of hydroxyprogesterone

caproate) – the only U.S. FDA-approved drug in its therapeutic category. KV

seeks a preliminary and permanent injunction prohibiting the defendants, in their

official capacities as officials of the Georgia Department of Community Health


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(“DCH”), from using sham restrictions (1) to deny women on Medicaid in Georgia

who have high-risk pregnancies access to Makena® — women already burdened

with the many difficulties and costs associated with at least one other preterm

child, and (2) to direct these underprivileged pregnant women and their clinicians

to use unapproved (and, hence, much cheaper) compounded preparations or to

forego treatment for their condition altogether.

DCH is violating the drug-access provisions of Title XIX of the Social

Security Act, 42 U.S.C. § 1396a et seq. (hereinafter “the Medicaid Act”), it is

paying for violations of the Federal Food, Drug, and Cosmetic Act’s drug-approval

requirement (21 U.S.C. § 355(a)), and its actions are contrary to the best interests

of Medicaid beneficiaries in Georgia, in violation of 42 U.S.C. §§ 1396r-8 and

1396a(a)(10). These unlawful actions by Georgia, and similar unlawful actions by

other states, have placed KV on the verge of financial failure. KV is almost

entirely dependent upon sales of Makena® and has significant and imminent

payment obligations related to its investment in the drug. Georgia is a large state

with a significant Medicaid population; thus, Georgia’s failure to cover Makena®

has contributed substantially to the company’s looming potential failure.

Further, because KV holds the exclusive rights to market and sell this

important product, the injunctive and declaratory relief sought herein is necessary


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to ensure that Georgia women on Medicaid have the same chance to improve the

health of their unborn children as is afforded to women with private insurance.

I. Introduction

1. Preterm birth is a terrible medical condition, which often has life-long

ramifications for the child, his or her family, and the affected health care,

educational, and social security systems. This condition plagues the United States

and the state of Georgia. And, sadly, it affects the already vulnerable poor even

more than the general population. In fact, in a widely acclaimed report published

by the March of Dimes in May 2012 — Born Too Soon: The Global Action Report

on Preterm Birth — the United States ranked an abysmal 131st in the world (12

preterm births per 100 births), below countries such as Somalia and Afghanistan.

2. Each year, in the state of Georgia, thousands of pregnant women on

Medicaid are at risk of having a preterm birth. Preterm birth is especially

troublesome in Georgia, which received a grade of “F” from the March of Dimes

in 2010 because of its 13.4 percent rate of premature births. These women and

their unborn children are at significant risk of severe negative health care

outcomes, and the very high costs that go with them. Prematurity costs the United

States more than $26 billion annually, a large portion of which is borne by

Medicaid, which covers an estimated 50 percent or more of the Makena®-eligible


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patients. The March of Dimes reports that the “[m]edical costs of a preterm baby

are much, much greater than they are for a healthy newborn.” Citing a report

published by the Institute of Medicine (2006), the March of Dimes noted that the

cost of preterm birth in the United States was at least $26.2 billion in 2005, an

average of $51,600 per infant born prematurely, and that the average first-year

medical costs were about 10 times greater for a preterm infant ($32,325) than for a

full-term infant ($3,325).

3. Since March 2011, a new FDA-approved drug called Makena® has

been available. Makena® has been shown through regulated clinical studies to

reduce the risk of preterm birth in women who have: (i) a pregnancy in which a

single baby develops in the uterus (a “singleton pregnancy”) and (ii) a history of

singleton spontaneous preterm birth. Unfortunately for these women and their

families and despite the State’s poor record in preventing preterm births, on June 1,

2011, Georgia Medicaid instituted a so-called “prior authorization” policy that

denies Medicaid beneficiaries access to this critical drug (the “Makena® prior

authorization policy”). Defendants have directed Medicaid beneficiaries to accept

treatment with non FDA-approved compounded formulations or forego treatment

altogether.


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4. Compounded formulations are not generic drugs. Like Makena®,

FDA-approved generic drugs are regulated to be manufactured in accordance with

strict FDA good manufacturing practice (“GMP”) standards. Compounded

preparations, by contrast, are not required to be made in compliance with those

standards. Moreover, as FDA has repeatedly cautioned, compounded preparations,

including compounded hydroxyprogesterone caproate, have never been studied for

clinical effectiveness and safety, and they lack an FDA finding of “manufacturing

quality.”1

5. Since March 2011, FDA has consistently informed the public that

FDA-approved drugs, such as Makena®, “provide a greater assurance of safety and

effectiveness than do compounded products.”2 More recently, FDA has become

1 FDA, Questions and Answers on Updated FDA Statement on Compounded Versions of hydroxyprogesterone caproate (June 29, 2012), available at http://www.fda.gov/newsevents/newsroom/pressannouncements/ucm310215.htm (last visited July 15, 2012), a true and correct copy of which is attached hereto as Exhibit 1. 2 FDA, Updated FDA Statement on Compounded Versions of hydroxyprogesterone caproate, (June 15, 2012), available at http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm308546.htm (last visited July 1, 2012), a true and correct copy of which is attached hereto as Exhibit 2; see also FDA, FDA Statement on Makena, (Mar. 30, 2011), available at http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm249025.htm (last visited July 1, 2012); a true and correct copy of which is attached hereto as Exhibit 3; Fiscal Year 2012 Budget Request for FDA: Hearing Before the Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies, 112th Cong. 10 (Mar. 17, 2011)(Statement of Margaret A.


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more direct in its statements. On June 29, 2012, in Makena®-specific Questions

and Answers (the “June 29 Makena® FAQs”), FDA stated: (1) when “there is an

FDA-approved drug that is medically appropriate for a patient, the FDA-approved

product should be prescribed and used,” and (2) that the compounding of any drug,

including hydroxyprogesterone caproate, should not exceed the scope of traditional

pharmacy compounding. Ex. 1. FDA explained that compounding is appropriate

only:

to produce a drug tailored to an individual patient’s particular medical needs, based on a valid prescription from a licensed medical practitioner. For example, compounding may occur if a patient needs a medication to be produced without a dye or preservative due to an allergy, or needs a medication in a liquid or suppository form because the patient cannot swallow a pill.

Id. (emphasis added). FDA went on to state that it:

may take enforcement action against pharmacies that compound large volumes of drugs that are essentially copies of commercially available products and for which there does not appear to be a medical need for individual patients to whom the drug is dispensed.

Hamburg, M.D., Commissioner of the U.S. Food And Drug Administration, Department Of Health And Human Services), a true and correct copy of which is attached hereto as Exhibit 4; FDA, FDA Statement on Makena, (Nov. 8, 2011), available at

http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm279098.htm (last visited July 1, 2012), a true and correct copy of which is attached hereto as Exhibit 5.


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Id. (emphasis added). In the June 29 Makena® FAQs and in a statement it released

on June 15, 2012 (the “June 15 FDA Statement”), FDA stated that the agency

looks to see “whether the prescribing practitioner has determined that a

compounded product is necessary for the particular patient and would provide a

significant difference for the patient as compared to the FDA-approved

commercially available drug product.” Exs. 1 & 2.

6. Also on June 15, CMS issued a companion statement (the “June 15

CMS Statement”) that cross-referenced the June 15 FDA Statement and reminded

states that they must cover Makena® in compliance with federal law and “without

imposing unreasonable conditions.”3

7. Despite the directives of CMS and FDA, DCH has refused to remove

the unreasonable conditions it imposes on access to Makena® in violation of

federal law. DCH’s refusal makes it necessary for Plaintiffs to seek this Court’s

intervention for a preliminary injunction and a final judgment: (1) declaring that

DCH’s policy regarding Makena® violates the requirements of the Medicaid Act

and ordering DCH immediately to rescind the June 1, 2011 changes to its policy;

(2) declaring that DCH must defer to treating healthcare practitioners’ clinical


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judgment and cover Makena® without unreasonable restrictions or conditions; (3)

declaring that DCH may cover and pay for compounded hydroxyprogesterone

caproate only where the treating physician documents that his or her patient has a

specific medical need for a compounded variation rather than Makena®; (4)

declaring that DCH must ensure that all Medicaid care management organizations

in Georgia make Makena® available to their Medicaid beneficiaries without

unlawful restrictions or conditions; (5) declaring that DCH must ensure that all

Medicaid care management organizations in Georgia limit their coverage of

compounded hydroxyprogesterone caproate to those situations where the treating

physician demonstrates that his or her patient has a specific medical need for a

compounded variation rather than Makena®; and (6) ordering all ancillary relief

necessary to allow clinically-eligible Medicaid beneficiaries in Georgia access to

Makena®, including an order that DCH notify all relevant persons of the court-

mandated changes regarding its coverage of Makena®.

3 CMS, Updated FDA Statement on Compounded Versions of hydroxyprogesterone caproate, June 15, 2012, a true and correct copy of which is attached hereto as Exhibit 6.


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II. The Parties

A. Plaintiffs K-V and Ther-Rx

8. Plaintiff K-V is a corporation organized under the laws of the state of

Delaware, and maintains its principal place of business at 2280 Schuetz Road, St.

Louis, Missouri 63146. K-V advertises, sells and distributes its drugs through

Ther-Rx. Under Medicaid law, K-V is considered a pharmaceutical manufacturer

and distributor, and holds the rights to Makena® and its regulatory approval by

FDA. K-V has committed over a quarter of a billion dollars to acquire and develop

Makena® and to bring it to market with FDA approval.

9. Plaintiff Ther-Rx is a corporation organized under the laws of the

state of Missouri, is a wholly-owned subsidiary of K-V, and is a pharmaceutical

distributor. Ther-Rx has its principal place of business at the same address as K-V.

For ease of reference, Plaintiffs K-V and Ther-Rx are referred to herein

collectively as “KV.”

10. KV is a participant in the Medicaid program. K-V’s wholly-owned

subsidiary Ther-Rx has entered into a Medicaid Drug Rebate Agreement

(“MDRA”) with the Department of Health and Human Services (“HHS”).

Through that agreement, KV provides significant rebates to the Medicaid program

for prescriptions written for Medicaid beneficiaries. In return, KV’s FDA-


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approved drugs, including Makena®, must be covered by state Medicaid agencies,

including DCH.

11. Because KV is almost entirely dependent on sales of Makena® to

generate income, DCH’s so-called prior authorization policy has caused KV to lose

significant revenue it would have received from sales of Makena® in Georgia –

revenue that is very much needed to sustain the company’s operations. As a result,

and unless injunctive relief is ordered, KV’s available cash will be depleted within

a few months, KV may cease to exist, and Makena® may no longer be available to

pregnant women.

B. Defendants

12. Defendant David A. Cook currently serves as the Commissioner of

the Georgia Department of Community Health, with an office at 2 Peachtree

Street, NW, Atlanta, Georgia 30303-3159. In that capacity, Mr. Cook oversees the

Medicaid Division of DCH, the government agency of the state of Georgia that

administers the state’s Medicaid program. Mr. Cook is being sued in his official

capacity.

13. Defendant Jerry Dubberly, MD currently serves as the Division Chief

of the Medicaid Division for DCH, with an office at 2 Peachtree Street, NW,

Atlanta, Georgia 30303-3159. In that capacity, Dr. Dubberly directs the


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administration of Georgia’s Medicaid program. Dr. Dubberly is being sued in his

official capacity.

14. Defendants Mr. Cook and Dr. Dubberly have taken, or are otherwise

responsible for, the actions challenged here.

III. Jurisdiction and Venue

15. This case arises under the Supremacy Clause of the United States

Constitution. U.S. Const. art. VI, cl. 2. Jurisdiction in this Court is founded upon

28 U.S.C. § 1331, which affords original jurisdiction of all civil actions arising

under the Constitution, Laws or Treaties of the United States, including the

Supremacy Clause of the United States Constitution. Preliminary and permanent

declaratory and injunctive relief are authorized by 28 U.S.C. §§ 2201 and 2202,

Rules 57 and 65 of the Federal Rules of Civil Procedure, and the inherent equitable

powers of this Court.

16. Venue in this district is proper under 28 U.S.C. § 1391(b) because

Defendants reside in this judicial district and a substantial part of the events or

omissions giving rise to the claims occurred in this district.


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IV. Allegations Common To All Counts

A. The Medicaid Act Significantly Restricts States’ Ability to Deny Coverage of FDA-Approved Medications

1. Federal Requirements for Drug Coverage.

17. Medicaid is a joint federal-state program established by Congress in

1965 for the purpose of providing medical assistance to underprivileged

Americans. The federal agency responsible for administering the Medicaid

program is CMS. As part of HHS, CMS promulgates regulations and policy

guidance governing the administration of the Medicaid program.

18. Although states are not required to participate in the Medicaid

program, if a state chooses to participate in the program, it must comply with the

requirements of the Medicaid Act.

19. Section 1396a(a)(10) of the Medicaid Act requires each participating

state to make certain services available to all individuals who are covered by the

state’s Medicaid plan. Sections 1396a(a)(10), 1396a(a)(54), and 1396d(a)(12)

authorize states to voluntarily cover specified services, including outpatient

prescription drugs. Where a state chooses to provide outpatient prescription drug

services, those services become part of the state plan, and are subject to all

applicable requirements of federal law.


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20. The Medicaid Act’s provisions governing coverage of outpatient

drugs generally require state plans to provide coverage for the “medically

acceptable indication” of any “covered outpatient drug.” 42 U.S.C. § 1396r-

8(d)(1)(B)(i). “Covered outpatient drugs” are those drugs (1) that may be

dispensed only upon a prescription and (2) that have been approved for safety and

effectiveness as a prescription drug under the Federal Food, Drug, & Cosmetic Act

(“FDCA”). 42 U.S.C. § 1396r-8(k)(2)(A). The term “medically accepted

indication” includes any use approved under the FDCA. 42 U.S.C. § 1396r-

8(k)(6). Compounded preparations, which are not FDA-approved, are not

“covered outpatient drugs”.

21. Federal Medicaid law (Section 1396a(a)(19) of the Medicaid Act) also

requires state plans to provide Medicaid services “in a manner consistent with . . .

the best interests of the recipients.”

2. Georgia is Required to Cover Makena® Prescriptions.

22. CMS recently reminded Georgia and other states that Makena®, which

was approved by FDA in February 2011 and is subject to an MDRA, is a “covered

outpatient drug” under the Medicaid Act, and therefore must be covered.4

4 See Ex. 6 (“We would like to remind States of their responsibility to cover FDA approved products, such as Makena, that qualify as covered outpatient drugs under the Medicaid drug rebate program.”)


983525.1

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23. The Medicaid Act’s drug rebate program requires manufacturers and

distributors, such as KV, that wish to participate in the Medicaid program to enter

into a written MDRA with the Secretary of HHS “on behalf of the states.” 42

U.S.C. § 1396r-8(a)(1). The MDRA, in turn, requires KV to pay a rebate

(currently in the amount of 23.1 percent) to every participating state on all of its

covered outpatient drugs paid for by Medicaid. Id.

24. In return for KV entering into the MDRA, federal law requires the

states, including Georgia, to provide coverage of all of KV’s covered outpatient

drugs, including Makena®, under their state plan. 42 U.S.C. § 1396a(a)(54)

(providing that a state plan that “provides medical assistance for covered outpatient

drugs” must “comply with the applicable requirements of Section 1396r-8”). DCH

has recognized that Makena® is a “covered benefit under the Medicaid Fee-for-

Service pharmacy program.”5

25. Likewise, DCH must ensure that Care Management Organizations

(“CMOs”) with whom it has contracted comply with federal law. 42 C.F.R. §

438.210 provides that contracted services provided by a CMO must be furnished in

an amount, duration, and scope that is no less than the amount, duration, and scope

5 DCH, Makena Position Statement, a true and correct of which is attached hereto as Exhibit 7.


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for the same services furnished to beneficiaries under fee-for-service Medicaid. 42

C.F.R. § 438.206 requires DCH to ensure that all services under the State Medicaid

plan are available and accessible to enrollees of any CMO.

26. The Medicaid Act does allow states in very limited circumstances to

exclude, i.e., refuse to pay for a “covered outpatient drug.” 42 U.S.C. § 1396r-

8(d)(1)(B). Georgia’s exclusion of Makena®, however, does not fall into any of the

narrow statutory exclusion categories. It is, after all, the only FDA-approved drug

(and, hence, the only “covered outpatient drug”) in its therapeutic category.

Therefore, Georgia must make the medication available to Medicaid beneficiaries.

3. Compounded Preparations are Neither FDA-Approved Nor Covered Outpatient Drugs.

27. Both prior to and since the approval of Makena®, pharmacists have

made compounded preparations using hydroxyprogesterone caproate, commonly

referred to as “17P”, the active ingredient in Makena®. Importantly, compounded

preparations of 17P are not approved as generic versions of, and are not

pharmaceutically equivalent or bioequivalent to, FDA-approved Makena®.

28. FDA recently defined “compounding” as “the combining or altering

of the ingredients of a drug by a licensed pharmacist to produce a drug tailored to

an individual patient’s particular medical needs, based on a valid prescription from

a licensed medical practitioner.” Ex. 1.


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29. Thus, compounded preparations are intended to be individually

prepared, not manufactured, let alone manufactured under FDA’s GMP standards.

As a consequence, and as FDA has repeatedly stated, compounded products are

vulnerable to variability from dose to dose, which variability may manifest itself

through different levels of potency, purity and sterility. According to FDA,

compounded versions of 17P, in contrast to Makena®, do “not undergo the same

premarket review and thus lack an FDA finding of safety and efficacy and lack an

FDA finding of manufacturing quality.” Ex. 1. Such products lack FDA approval

of the process by which they are produced, and they are not labeled in accordance

with the stringent FDA requirements applicable to Makena®.

30. In March of 2011, FDA Commissioner, Margaret Hamburg, M.D.,

testified before Congress to the importance of Makena®’s approval, and stated as

part of the reason for that importance concern about the safety of compounded

17P: “I think it is important and an advance that we have an FDA-approved drug to

prevent pre-term pregnancy and all of its consequent serious medical concerns for

both mother and infant. And while the drug had been available through

compounding, . . . compounding as a practice has been associated with serious

health risks . . . .” Ex. 4 at 10 (emphasis added).


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31. However, less than two weeks later, on March 30, 2011, FDA

publicly stated that, “to support access” to hydroxyprogesterone caproate injection,

it was not going to apply to compounded versions of 17P its longstanding

enforcement policy regarding compounding when an FDA-approved drug is

available in the market. Under that policy, FDA typically clears the marketplace to

remove compounded copies of an FDA-approved drug and allows compounding

only in those limited circumstances where there is a documented medical need for

the compounded variation, i.e., where the treating physician determines that a

patient has a medical need for a compounded variation of the FDA-approved drug

because the FDA-approved drug is clinically inappropriate for the patient. Ex. 3.

32. Many state Medicaid agencies, including DCH, used FDA’s March

30, 2011 statement to justify their actions in unlawfully substituting their judgment

for the medical judgment of physicians, directing or requiring their beneficiaries to

use unapproved and cheaper compounded 17P, and thereby creating, over time, a

new “access” problem different from the one originally mentioned by FDA.

Specifically, in many states, including Georgia, women on Medicaid have been

unable to gain access to FDA-approved Makena®.

33. After KV met with FDA and CMS and explained the issue of denial

of Makena® to Medicaid patients in Georgia and other states, FDA issued a new


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statement on Makena® on June 15, 2012. As FDA explained in its June 15

statement, compounded preparations, including 17P, “are not FDA approved” and

“do not undergo premarket review nor do they have an FDA finding of safety and

efficacy.” Ex. 2 at 2. To the contrary, FDA noted that “approved drug products,

such as Makena, provide greater assurance of safety and effectiveness . . .” Id. at

1. The agency also reminded the public of the limits on lawful compounding: (1)

“[c]ompounding large volumes of drugs that are copies of FDA-approved drugs

circumvents important public health requirements, including the Federal Food,

Drug, and Cosmetics Act[] . . .” and (2) “[t]he compounding of any drug, including

hydroxyprogesterone caproate, should not exceed the scope of traditional

pharmacy compounding.” Id. at 2. Subsequently, on June 29, 2012, FDA also

stated that it “does not consider compounding large volumes of copies, or what are

essentially copies, of any approved commercially-available drug to fall within the

scope of traditional pharmacy practice.” Ex. 1.

34. The June 15 FDA statement explained again, and consistent with

FDA’s longstanding policy, that the scope of traditional compounding includes the

situation where “the prescribing practitioner has determined that a compounded

product is necessary for the particular patient and would provide a significant

difference for the patient as compared to the FDA-approved commercially


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available drug . . .” Ex. 5. The most common such situation is where a patient has

an allergy to an ingredient in the FDA-approved product or cannot tolerate the

form of the FDA product, i.e., cannot swallow a pill. FDA repeated these

statements in the June 29 Makena® FAQs. Ex. 1.

35. As FDA explained in the June 29 Makena® FAQs, “Makena was

approved based on an affirmative showing of safety and efficacy” and the

premarket review included a review of the manufacturing process, the source of the

active pharmaceutical ingredient (“API”) used, and adherence to GMP standards.

Ex. 1. Specifically, Makena® is manufactured in a GMP-compliant manufacturing

facility that is inspected by FDA. The approved manufacturing process uses API

made in another FDA-compliant API manufacturing facility that is regularly

inspected by FDA and by European Union health authorities to FDA-approved

specifications. By the end of the approval process, KV had invested or committed

over a quarter of a billion dollars in bringing Makena® to market, including more

than $80 million in research and clinical trials.

36. Improper compounding can and does (with some frequency) result in

contaminated, ineffective (sub-potent), or too-potent products. Government tests

by FDA and state Boards of Pharmacy have found that significant percentages –

often in the 20 percent to 33 percent range – of numerous types of compounded


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products failed quality tests, primarily due to “potency” failures (i.e., too much or

too little active ingredient in the compounded product).

37. The safety, effectiveness, and quality of compounded 17P have not

been studied and are therefore unknown. None of the commercially available

compounded 17P formulations have been used in any randomized clinical trial and

none have any supporting effectiveness, safety, or stability information that have

been reviewed by FDA.

38. Further, on information and belief based on extensive investigation,

much if not all of the API used in compounded 17P comes from non-FDA

approved or regulated factories in China, the country where drug manufacturing

facilities exporting to the United States are least inspected by FDA.6

39. In testimony before Congress, FDA stated:

FDA remains immensely concerned about unapproved, imported pharmaceuticals whose safety and effectiveness cannot be assured

6 A GAO Report found that as of 2009, China had the highest percentage (88%) of drug manufacturing establishments known to FDA that may never have been inspected. See U.S. Government Accounting Office, Drug Safety: FDA Has Conducted More Foreign Inspections and Begun to Improve Its Information on Foreign Establishments, but More Progress Is Needed, GAO-10-961 (Sept. 2010), (Table 2) at 18, available at http://www.gao.gov/new.items/d10961.pdf (last visited July 11, 2012).


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because they originate outside the closed legal structure and regulatory system we are fortunate to have in the United States.7

40. FDA’s concerns are legitimate and are borne out by testing of

compounded 17P. At KV’s request, independent laboratories tested 10 samples of

17P API.8 Seven of the suppliers were original manufacturers of the API and

located in unapproved facilities in China. The remaining three suppliers, based in

the United States, were identified as “resellers” of API that, on information and

belief, also originated in China. In addition, the independent laboratories tested 30

vials of compounded 17P prepared by 30 different compounding pharmacies from

15 states.9

41. The independent laboratories evaluated the API samples and

compounded 17P vials - against United States Pharmacopeia (“USP”) standards

7 Testimony of Randall W. Lutter, Ph.D., Acting Deputy Commissioner for Policy at the U.S. Food and Drug Administration before the Subcommittee on Interstate Commerce, Trade and Tourism, Senate Committee on Commerce, Science and Transportation (Mar. 7, 2007), available at http://www.fda.gov/NewsEvents/Testimony/ucm154233.htm (last visited July 11, 2012).

8 See Press Release, K-V Pharmaceutical Company, Independent Laboratory Testing Demonstrates Important Quality Differences Between FDA-Approved Makena® and Compounded 17P Formulations (Nov. 8, 2011), available at http://www.kvpharmaceutical.com/news_center_article.aspx?articleid=353 (last visited July 11, 2012).

9 Id.


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and the more rigorous FDA quality standards for Makena® to assess potency,

chemical impurities, and drug identity.

42. 80% of the API samples failed the impurity specifications FDA set for

Makena®; 50% failed the USP minimum potency standard; and one contained no

active ingredient at all (instead, it contained glucose that was made to look like

hydroxyprogesterone caproate).10

43. Of the samples of finished dosage form, 27% failed to meet the USP

potency standards. The samples’ potency ranged from just 57% to 252% of the

labeled potency. In addition, 53% had levels of unknown purities that exceeded

FDA impurity standard required for Makena®. Thus, two-thirds of the

compounded 17P vials failed to meet at least one USP requirement or at least one

FDA quality standard required for Makena® for potency and/or purity.11

44. KV submitted to FDA the results of the laboratory testing and

supporting documentation. Upon careful review of the independent laboratory

testing that KV provided, including chain of custody, storage, and laboratory

procedure, FDA issued a statement confirming that “there is variability in the

10 Id.

11 Id.


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purity and potency of both the bulk APIs and compounded hydroxyprogesterone

caproate products that were tested.”12

45. In June of this year, FDA published findings of its own study which

noted that 100% (16 of 16) of the API samples procured and tested by FDA failed

Makena®’s standards for unidentified impurities. FDA also found potency and

unidentified impurity issues in compounded 17P finished goods samples.

According to FDA requirements, if Makena® were to have these deficiencies, it

would be considered adulterated.13 FDA's testing of the compounded 17P samples

provided by the Company also confirmed variability in potency and purity.

46. Healthcare professionals and their Medicaid patients have no ability:

(i) to assess the potency, safety, or quality of compounded 17P; (ii) to assess the

quality of the people or facilities that produce the API used in compounded 17P or

the quality of those that produce the compounded 17P itself; or (iii) to assure

12 See U.S. Food and Drug Administration, FDA Statement on Makena (Nov. 8, 2011), available at http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm279098.htm (last visited July 15, 2012).

13 See FDA, Guidance for Industry, Investigating Out-of-Specification (OOS) Test Results for Pharmaceutical Production, available at http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm070287.pdf (last visited July 11, 2012).


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themselves that the compounded product being injected into any given pregnant

woman was prepared, stored and transported in a proper manner.

47. As a result, and faced with growing evidence that compounding

pharmacies and state Medicaid agencies alike were disregarding the June 15

statements, FDA spoke again in the June 29 Makena® FAQs: “[i]f there is an

FDA-approved drug that is medically appropriate for a patient, the FDA-

approved product should be prescribed and used.” Ex. 1 (emphasis added). To

leave no room for doubt, FDA reiterated in the same June 29 Makena® FAQs:

when an FDA-approved drug is commercially available, the FDA recommends that practitioners prescribe the FDA-approved drug rather than a compounded drug unless the prescribing practitioner has determined that a compounded product is necessary for the particular patient and would provide a significant difference for the patient as compared to the FDA-approved commercially available drug product.

Id. (emphasis added).

48. In August 2010, CMS announced that compounded products should

not be considered “covered outpatient drugs” under the Medicaid program.14 At

the time, CMS reaffirmed its position that Medicaid coverage of compounded

therapies is limited to “extemporaneous[]” prescriptions where no commercially

14 See Centers for Medicare & Medicaid Services, Medicaid Drug Rebate Program Notice, CMS Release No. 155 (Aug. 11, 2010), at 4, available at


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available drug is medically appropriate. Id. Thus, consistent with FDA law and

policy, CMS has limited Medicaid coverage of compounded products to those that

are made pursuant to a documented individualized need for the compounded

product in place of the FDA-approved, commercially available drug.

49. The June 15 CMS Statement cross-referenced the June 15 FDA

Statement, reiterated the need to limit compounding of 17P to the traditional scope

of compounding (i.e., customized to meet the need of an individual patient for

whom the FDA-approved drug is medically inappropriate) and reminded states of

their legal obligation to cover Makena® without unreasonable restrictions.15

50. DCH’s so-called Makena® prior authorization policy does not limit the

use of compounded 17P to “extemporaneous” compounding that is customized to

meet the needs of particular patients who have the condition for which Makena® is

meant to treat but for whom Makena® is medically inappropriate. In fact, it does

not attempt to limit the compounding of 17P at all. Rather, DCH ignores federal

http://www.dhs.state.or.us/policy/healthplan/guides/pharmacy/cms_releases/cms_rel155.pdf (last visited July 15, 2012). 15 In July 2011, CMS also clarified that compounded drugs are not “covered outpatient drugs” subject to section 1927(d) of the Medicaid Act. See Centers for Medicare & Medicaid Services, Medicaid Drug Rebate Program Notice, CMS Release No. 158, (July 13, 2011), at 1, available at http://www.dhs.state.or.us/policy/healthplan/guides/pharmacy/cms_releases/cms_rel158.pdf (last visited July 15, 2012).


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law and the recent and repeated public statements of the lead federal agencies by

effectively requiring the use of compounded 17P (or nothing) instead of the FDA-

approved drug.

B. DCH’s Makena® Prior Authorization Policy is Unlawful Because it Operates as an Exclusion.

1. The State’s Requirements for Coverage of Makena®

51. The state of Georgia voluntarily chooses to participate in the Medicaid

Program and to provide a prescription drug benefit. Although DCH concedes that

Makena® is a “covered benefit,” in practice it effectively refuses to cover Makena®

by imposing undue and unachievable conditions on access to it.

52. As described in more detail below, a state may condition coverage of

covered outpatient drugs on a “prior authorization” if the state meets certain

requirements in 42 U.S.C. §§ 1396r-8(d)(1)(A), 1396r-8(d)(5). However, a state

may not use a prior authorization policy to bar access to an otherwise covered drug

where there is no FDA-approved alternative, as is the case here.

53. On June 1, 2011, DCH issued a “Makena PA Summary” (the “PA

Summary”), which states that to obtain prior authorization for Makena®, the


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beneficiary must have a history of at least one preterm birth “and be unable to

obtain or not able to use compounded hydroxyprogesterone”.16

54. In its “Makena Position Statement” DCH acknowledges that

Makena® is a “covered benefit under the Medicaid Fee-for-Service program,” but

discourages providers from prescribing it: “Medicaid Division encourages

providers to rely on their prior success with compounded [17P] when making

decisions for their patients.” Ex. 7. In addition, DCH invited pharmacies and

physicians to contact the Pharmacy Unit for “assistance with locating a

compounding pharmacy.” Id.

55. DCH’s policy places further unlawful and insurmountable obstacles

between Medicaid patients and Makena®:

As a matter of policy, the Medicaid Division will require prior authorization for any prescription for Makena™. The physician will be required to demonstrate the medical necessity of the manufactured product, Makena™, over the compounded [17P] product to obtain a prior authorization.

Id. (emphasis added).

16 See Makena PA Summary, a true and correct copy of which is attached hereto as Exhibit 8 (emphasis added). In addition, the beneficiary must be between ages 16-43 and have a confirmed pregnancy with one fetus with a gestational age between 16 weeks, 0 days and 20 weeks, 6 days.


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56. These requirements — that a beneficiary (i) show that she is “unable

to obtain” compounded 17P; and (ii) demonstrate the “medical necessity” of

Makena® over compounded 17P preparations — turn the federal regulatory scheme

on its head by preferring unapproved drugs of unknown composition and produced

by unknown and unapproved processes over the only FDA-approved drug for this

condition.

57. DCH’s provision that a patient may obtain Makena® if she shows that

she is unable to obtain compounded 17P is a sham because it requires a showing

that cannot be made. There are many compounders throughout Georgia (and mail

order compounders located in other states) that are willing and able to compound

17P and provide it to physicians and patients in Georgia. Because Medicaid

beneficiaries can always obtain an unapproved compounded 17P preparation, the

so-called “prior authorization” is, in operation, a drug formulary exclusion, and is

an attempted end-run around state’s obligation under federal law to “cover” FDA-

approved drugs.

58. Similarly, the requirement that a patient demonstrate “medical

necessity” for the use of Makena® over compounded preparations is a further

unlawful refusal to reimburse for a covered outpatient drug – notwithstanding the

fact that federal law requires DCH to provide Georgia beneficiaries services “in a


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manner consistent with . . . the best interests of the recipients” and the fact that

FDA has made it clear on multiple occasions that Makena® is more reliable,

effective, safe and of requisite overall quality, than are unapproved compounded

versions of 17P.

59. In addition, Georgia’s policy is the direct opposite of FDA’s position

that in determining “whether a drug may be compounded,” one shall consider

“whether the prescribing practitioner has determined that a compounded product

is necessary for the particular patient and would provide a significant difference

for the patient as compared to the FDA-approved commercially available drug

product.” Ex. 2 at 2 (emphasis added). Indeed, on June 29, FDA went further by

stating that practitioners should “prescribe the FDA-approved drug rather than a

compounded drug unless the prescribing practitioner has determined that a


significant difference for the patient as compared to the FDA-approved

commercially available drug product.” Ex. 1 at 1.

60. Thus, whereas FDA and Medicaid law require a showing of medical

necessity for the unapproved, compounded product, DCH policy requires such a

showing for the FDA-approved product.


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61. DCH has provided no standards for establishing such “medical

necessity,” and no guidance is available for physicians to understand what proof or

documentation is necessary. It is also unclear how a patient could prove she

cannot use compounded 17P or that it is ineffective for her. This policy suggests

that a woman on Medicaid must first try compounded 17P preparations, have them

“fail” by going into early labor and risking or having a preterm birth, before

Georgia will consider approving coverage of the FDA-approved product. In short,

she probably would have to have a third high-risk pregnancy to be eligible for

Makena®. Plainly, such a policy unecessarily endangers the health of the unborn

children of women in Georgia who are eligible for Makena®. Georgia has rendered

federal law requiring coverage meaningless by the imposition of arbitrary and

insurmountable barriers to access to Makena®.

62. DCH has also entered into contracts with CMOs to facilitate the

delivery of Medicaid health benefits to the Medicaid-eligible population in

Georgia. Each CMO must comply with federal Medicaid laws and regulations and

DCH is ultimately responsible for ensuring such compliance.

63. Both federal regulations DCH’s contracts with its CMOs require that

DCH ensure that its CMOs comply with federal law. 42 C.F.R. § 438.210

provides that each contract DCH has with a CMO must require that services


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provided by the CMO be furnished in an amount, duration, and scope that is no

less than the amount, duration, and scope for the same services furnished to

beneficiaries under fee-for-service Medicaid. 42 C.F.R. § 438.206 requires that

DCH ensure that all services under the State Medicaid plan are available and

accessible to enrollees of any CMO. DCH’s Amended and Restated Contract

Between the Georgia Department of Communicated Health and Care Management

Organization for Provision of Services to Georgia Families (the “Model Contract”)

states:

“The Contractor agrees that all work done as part of this Contract is subject to CMS approval and will comply fully with applicable administrative and other requirements established by applicable federal and State laws and regulations and guidelines…and assumes responsibility for full compliance with all such applicable laws, regulations, and guidelines…”17

The Model Contract also obligates DCH to monitor CMO compliance with

federal Medicaid laws: “DCH will comply with, and will monitor the

17 See Amended and Restated Contract Between the Georgian Department of Community Health and Care Management Organization for Provision of Service to Georgia Families (the “Model Contract”), ¶ 27.2.1, available at: www.dch.georgia.gov/vgn/images/portal/cit_1210/27/43/164261788CMO_Restatement_12-General.pdf (last visited July 14, 2012).


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Contractor’s compliance with, all applicable State and federal laws and

regulations.”18

64. On information and belief, several CMOs have denied prior

authorization requests for Makena® in violation of the Medicaid Act. Despite their

obligation to do so, DCH has failed to adequately monitor these CMOs to ensure

that they are not violating federal laws by unlawfully denying prior authorization

requests for Makena®.

2. Georgia’s Use of a Prior Authorization Requirement is Unlawful

65. Under the Medicaid Act, a state may impose a reasonable prior

authorization procedure to require a provider to go through certain procedural steps

before getting access to a particular drug. Historically, prior authorization

requirements have been used to ensure the medical appropriateness and safety of a

drug for a particular beneficiary and to avoid harms such as drug-drug interaction,

therapeutic duplication, overuse by beneficiaries and, occasionally, off label

prescribing by practitioners. A prior authorization program may provide for

“conditions of coverage” based on satisfaction of approriate medical criteria.

18 Id. ¶ 2.2 (emphasis added).


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66. DCH’s “prior authorization,” is not a mere “procedural hurdle” or

“condition of coverage” that must be met to obtain Makena® — it has been

structured to exclude coverage for Makena® entirely. By setting up a condition

precedent that cannot be met (i.e., inability to obtain compounded 17P or

undefined “medical necessity”), and that is unrelated to clinical criteria for use of

Makena®, Georgia’s “prior authorization” requirement acts as an impermissible de

facto exclusion of Makena® from DCH’s drug formulary in favor of unapproved,

injectible compounded products of unknown potency, safety, and quality.

67. Georgia’s Makena® prior authorization policy is, in reality, an attempt

to exclude coverage for Makena® without adhering to the formulary provisions of

the Medicaid Act, which prohibit a formulary exclusion of an FDA-approved drug

unless the drug “does not have a significant, clinically meaningful therapeutic

advantage in terms of safety, effectiveness or clinical outcome, over other drugs

included in the formulary.” 42 U.S.C. § 1396r(d)(4)(C). For example, if there are

certain covered drugs that each treat a particular condition, such as elevated blood

cholesterol, the Medicaid Program need not cover all of them. But, if a certain

drug has a meaningful therapeutic advantage over other covered drugs, it must be

included in the formulary — cost is irrelevant in that circumstance.


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68. A lawful formulary creates one or more tiers of preference among two

or more therapeautically equivalent covered outpatient drugs. A lawful formulary

restriction cannot exist where there is only one FDA-approved drug, however,

because formularies cannot involve anything other than covered outpatient drugs,

compounded preparations are not covered outpatient drugs.

69. Where, as here, there is no existing FDA-approved drug that is an

alternative to Makena®, there is no lawful basis to exclude Makena® from the state

formulary. Title 42 U.S.C. § 1396r-8(d)(4)(C) requires the inclusion of covered

outpatient drugs in a formulary, unless a permissible exclusion applies.

C. Georgia’s Policy Unlawfully Supplants the Medical Judgment of Practitioners.

70. On information and belief, of the approximately 2,500 to 3,000

Medicaid recipients in Georgia who have been eligible to receive Makena® since it

became available, DCH has not approved any vials of the medication for any

Medicaid patient.

71. Notwithstanding the apparent hurdles to obtaining approval, KV is

generally aware of at least 79 Makena® prescriptions written by healthcare

providers in Georgia for their Medicaid patients that have, on information and

belief, been denied coverage by DCH despite the prescribing physicians’ decisions

to try to show medical necessity. The physicians writing these prescriptions


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undoubtedly were discouraged from writing additional prescriptions in light of the

categorical denials they received from DCH.

72. On information and belief, there are many more physicians in Georgia

who would prefer to prescribe and obtain Makena® for their patients because of the

assurance of safety and efficacy that accompanies an FDA-approved drug, but are

discouraged from even trying to do so by DCH’s requirements of “medical

necessity” and unavailability of compounded 17P.

73. This state of affairs is evidenced by the fact that Makena® is

prescribed in much larger numbers by providers in states that do not have an

impermissible prior authorization process. For example, KV estimates that in

Florida, approximately 3,100 Medicaid patients are eligible for Makena®. Since

October 2011, 521 Medicaid patients have been prescribed Makena® and 429 vials

have been provided to Medicaid patients in Florida (compared to two vials

provided to Medicaid beneficiaries in Georgia during a longer period in which

Makena® was available).

74. DCH’s Makena® prior authorization policy, based solely on cost,

unlawfully overrides the clinical judgments of practitioners who believe that

Makena® is medically necessary or preferable for their patients.


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D. DCH Has Ignored Recent Statements Issued by FDA and CMS.

75. DCH’s Makena® prior authorization policy is inconsistent with FDA’s

June 15 statement reiterating the greater assurance of safety and efficacy of

Makena® as compared with compounded 17P formulations, and stating that large-

scale compounding of drugs that are “copies” of FDA-approved drugs goes

beyond “the scope of traditional pharmacy compounding” and “circumvents

important public health requirements. . .” Ex. 2 at 2.

76. DCH also continues to ignore CMS’s June 15 statement reminding

states of their responsibility to cover FDA-approved products, such as Makena®,

that qualify as covered outpatient drugs under the Medicaid drug rebate program.

CMS cautioned states that any prior authorization procedures for such drugs must

be administered in accordance with Section 1927(d) of the Social Security Act, 42

U.S.C. § 1396r-8, without imposing unreasonable conditions. Ex. 6.

77. On June 19, 2012, two business days after FDA and CMS statements,

Joseph Auci, a National Account Director for Ther-Rx, sent an email to Defendant

Dr. Jerry Dubberly to inform him and DCH of the June 15, 2012 FDA and CMS

statements. Mr. Auci sent the email in the hope that it would cause DCH to re-

open a dialogue with KV regarding Makena®, a dialogue that had long been shut

down by DCH. Toward that end, Mr. Auci offered to work with the state of


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Georgia to assist it in providing access to Makena®, and offered a substantial rebate

on the product for Georgia Medicaid patients.

78. Dr. Dubberly rejected the offer, and responded, “I believe the [FDA]

statement affirms our current position on this matter.”

79. On June 22, 2012, Scott Goedeke, Senior Vice President of Marketing

for Ther-Rx, sent a detailed follow up email to Dr. Dubberly seeking further

explanation of his seemingly indefensible position.

80. Dr. Dubberly responded in less than one hour, as follows: “There is

really nothing to explain. We will not be entertaining any policy or coverage

changes as a result of the release. Have a great weekend.”

81. Efforts to resolve Georgia’s continuing violation of Medicaid law and

FDA and CMS policies just prior to the filing of this suit were also fruitless.

82. Thus, despite the June 15 statements by FDA and CMS, DCH has no

intention of removing the unreasonable and unlawful conditions imposed by its

prior authorization policy. If a preliminary injunction is not entered, DCH will

continue to deny Georgia’s Medicaid beneficiaries access to the only FDA-

approved drug to treat their condition, and will compel them to take an unapproved

compound of uncertain origin, quality and potency — or no drug for their

condition at all.


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E. Harm to Plaintiffs and the Public Resulting From DCH’s Policy.

83. KV has invested or committed over a quarter of a billion dollars to

acquiring Makena®, obtaining approval for it, and bringing it to market as an

“orphan drug” that would enjoy seven years of market exclusivity under the

Orphan Drug Act.19 Makena® is KV’s most signficant product, and was expected

to account for the vast majority of KV’s projected revenue during the remaining

Makena® exclusivity period.

84. KV’s survival as a going concern is now dependent on Makena®’s

success in the marketplace. KV’s June 14, 2012 SEC disclosures include a

prominent reference to substantial doubt regarding KV’s ability to continue as a

“going concern,” and KV’s independent auditor opined that it is probable that KV

will cease to exist within 12 months.

85. KV has engaged financial advisors and outside counsel to explore

strategic alternatives, including the possibility of restructuring its debt. Unless

Georgia and other states begin covering Makena® as required by law, (and thereby

give KV’s creditors a reason to believe that KV is likely to be able to meet its

19 The Orphan Drug Act of 1983’s seven year exclusivity period is meant to incentivize pharmaceutical companies to expend the large amounts of time and money necessary to obtain FDA approval of, and to comply with FDA post-approval requirements applicable to, drugs that address relatively small patient populations.


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financial obligations if given more time), KV will not be able to attract new capital

at a cost that is reasonable, and is likely to exhaust its working capital within 3 to 6

months and be forced to file for bankruptcy protection before then.

86. However, due to unreasonable prior authorization policies such as

Georgia’s, KV’s revenue from sales of Makena® is far below what it should be.

87. Absent a preliminary injunction, KV will be irreparably harmed

because, absent immediate action by the Court to address Georgia’s actions, KV

will be unable to maintain its operations and meet its financial commitments.

88. Medicaid beneficiaries will also be irreparably harmed because if

DCH’s policy continues in force, the health and safety of women with high-risk

pregnancies and their unborn children will continue to be subjected to the

significant, avoidable risks posed by compounded 17P products as compared to the

FDA-approved Makena®.

89. Absent a preliminary injunction, DCH will continue to ignore federal

regulations and the recent directives of FDA and CMS. It is certainly in the public

interest that state agencies such as DCH act in compliance with the statutes they

are governed by and administer.

90. Plaintiffs have no adequate remedy at law to make themselves whole

for the injury to KV’s business resulting from DCH’s prior authorization policy.


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They cannot recoup past, present or future sales from the state and, without a

reversal of Georgia’s policies, Plaintiffs are unlikely to be in existence for the

length of time a trial on the merits would take to complete.

91. Accordingly, Plaintiffs need preliminary and permanent declaratory

and injunctive relief.

V. Counts

A. Count I (Violation of §§ 1396r-8(a) and (d)(1)(A) of the Medicaid Act and the Supremacy Clause of the United States Constitution; Seeking Injunctive and Declaratory Relief)

92. Paragraphs 1 through 91 of this Complaint are incorporated by

reference as if set forth fully herein.

93. Section 1396r-8(a) of the Medicaid Act provides that a state must

provide access to and coverage for the “covered outpatient drugs” of a

manufacturer that has entered into a Medicaid Drug Rebate Agreement with HHS,

subject to certain limitations. 42 U.S.C. § 1396r-8(a).

94. Makena® is a “covered outpatient drug” as defined in Section 1396r-

8(k), and is subject to a Medicaid Drug Rebate Agreement executed between Ther-

Rx and HHS. DCH has agreed that Makena® is a covered drug.

95. None of the bases for excluding coverage of a “covered outpatient

drug” set forth in § 1396r-8(a) apply to Makena®.


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96. DCH’s PA Summary purports to establish a prior authorization policy

as to Makena®.

97. DCH’s Makena® prior authorization policy as written and

implemented serves as an exclusion of Makena®, rather than as a “condition of

coverage.” No legitimate prior authorization policy, other than to ensure that the

clinical criteria for use are met, could lawfully be conducted in these

circumstances, given that Makena® is the only FDA-approved drug for its

approved indication.

98. As a result of DCH’s Makena® prior authorization policy, a Medicaid

beneficiary generally cannot obtain the FDA-approved Makena® even if the

beneficiary’s provider believes it is in his or her patient’s best interests.

99. Therefore, DCH’s Makena® prior authorization policy violates section

1396r-8(a) of the Medicaid Act, which requires DCH to provide access to “covered

outpatient drugs.”

100. Plaintiffs KV and Ther-Rx have been, are being, and will continue to

be, irreparably harmed by DCH’s violation of section 1396r-8(d)(1)(A) of the

Medicaid Act.


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B. Count II (Violation of § 1396a(a)(19) of the Medicaid Act and the Supremacy Clause of the United States Constitution; Seeking Injunctive and Declaratory Relief)

101. Paragraphs 1 through 91 of the Complaint are incorporated by

reference as if set forth fully herein.

102. Section 1396a(a)(19) of the Medicaid Act requires that any state

participating in the Medicaid program “provide such safeguards as may be

necessary to assure that eligibility for care and services under the plan will be

determined, and such care and services will be provided in a manner consistent

with simplicity of administration and the best interest of the recipients.”

103. DCH’s refusal to provide coverage for an FDA-approved drug for its

stated indication and DCH’s policy that Medicaid beneficiaries be treated with an

unapproved, non-FDA-regulated substitute made through an inherently variable

process or have no treatment at all for their condition is not in the best interest of

the Medicaid beneficiaries for whom Makena® is indicated.

104. DCH’s Makena® prior authorization policy is not based on any clinical

or medical evaluation of a particular patient’s needs, but, instead, is based solely

on the lower cost of compounded 17P. Thus, the prior authorization operates to

deny Medicaid beneficiaries access to the most reliably effective, safe and high-

quality product, FDA-approved Makena® — indeed, the only FDA-approved drug


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for women at high risk of preterm birth and the consequent infant deaths or long-

term illnesses that are associated with this condition.

105. DCH’s Makena® prior authorization policy results in the state

overriding the medical judgments of Medicaid beneficiaries’ physicians.

106. Accordingly, DCH is not providing care and services in a manner

consistent with the best interests of Georgia’s Medicaid recipients, and is in

violation of section 1396a(a)(19) of the Medicaid Act.

107. Plaintiffs KV and Ther-Rx have been, are being, and will continue to

be, irreparably harmed by DCH’s violation of section 1396a(a)(19) of the

Medicaid Act.

VI. Relief Requested

WHEREFORE, Plaintiffs respectfully request that this Court, pursuant to the

Supremacy Clause, 28 U.S.C. §§ 1331, 28 U.S.C. §§ 2201 and 2202, and Rules 57

and 65, Fed. R. Civ. P.:

a) Issue preliminary and permanent relief that:

(1) Enjoins DCH from further implementing its Makena®

prior authorization policy;


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(2) Enjoins DCH from denying coverage for any prescription

of Makena® made by a health care provider for its

indicated use;

(3) Requires DCH to provide written notice to those whose

prescriptions were denied since June 1, 2011 that they

can obtain Makena® if it is needed for its approved

indication;

(4) Requires DCH to provide written notice to all health care

practitioners whose prescriptions of Makena® since June

1, 2011 have been denied, that Makena® is now covered

and that DCH no longer applies the unlawful obstacles to

coverage that it previously applied;

(5) Requires DCH to take all steps necessary to ensure that

CMOs and all of DCH’s agents or other parties under its

power or acting by or under its authority or on its behalf

provide coverage for any prescription of Makena® made

by a health care provider for its indicated use;

(6) Prohibits DCH from covering and paying for

compounded hydroxyprogesterone caproate except where


983525.1

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the treating physician documents that his or her patient

has a specific medical need for a compounded variation

rather than Makena®;

(7) Requires that DCH ensure that all Medicaid CMOs limit

their coverage of compounded hydroxyprogesterone

caproate to those situations where the treating physician

documents that his or her patient has a specific medical

need for a compounded variation rather than Makena®;

(8) Requires DCH to take all steps necessary to ensure that

notice of this change in the prior authorization policy is

communicated to all affected individuals, including

providing a notice in the same manner its prior policy

was communicated.

b) Issue a judgment declaring that:

(1) DCH acted in violation of the Medicaid Act by

subjecting Makena® to an impermissible prior

authorization process structured with the intent and effect

of excluding access by Medicaid beneficiaries to this

FDA-approved “covered outpatient drug”;


983525.1

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(2) DCH’s requirement that physicians obtain a prior

authorization for prescriptions of FDA-approved

Makena® while reimbursing for compounded substitutes

for the indicated treatment violates the Medicaid Act;

(3) DCH must cover Makena® in accordance with Ther-Rx’s

Medicaid Drug Rebate Agreement when it is prescribed

by a health care practitioner for his or her Medicaid

patient who has the condition for which Makena® is

indicated, and must take all steps necessary to ensure that

CMOs and all of its agents or other parties under its

power or acting by or under its authority or on its behalf

do likewise;

(4) DCH may cover and pay for compounded

hydroxyprogesterone caproate only where the treating

physician documents that his or her patient has a specific

medical need for a compounded variation rather than

Makena®; and

(5) DCH must ensure that all Medicaid CMOs limit their

coverage of compounded hydroxyprogesterone caproate


983525.1

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to those situations where the treating physician

documents that his or her patient has a specific medical

need for a compounded variation rather than Makena®.

c) Grant such other and further relief as the Court may deem just and

proper.

Dated: July 17, 2012 Respectfully submitted, s/ John E. Floyd John E. Floyd (GA 266413) Jeffrey O. Bramlett (GA 075780) Manoj S. Varghese (GA 734668) BONDURANT, MIXSON & ELMORE LLP 1201 W. Peachtree Street, N.W. Suite 3900 Atlanta, GA 30309 Telephone: (404) 881-4100 Facsimile: (404) 881-4111 [email protected] [email protected] Margaret “Peg” Donahue Hall, Esq. (TX 05968450) SNR DENTON US LLP 2000 McKinney Avenue, Suite 1900 Dallas, TX 75201-1858 Telephone: (214) 259-0900 Facsimile: (214) 259-0910 [email protected] Pro hac vice application pending


983525.1

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Drew Marrocco, Esq. (DC 453205)

SNR DENTON US LLP 1301 K Street, NW, Suite 600, East Tower Washington, DC 20005 Telephone: (202) 408-6400

Facsimile: (202) 408-6399 [email protected]

Pro hac vice application pending

Stephen D. Libowsky (GA 451965) SNR DENTON US LLP 233 South Wacker Drive, Suite 7800 Chicago, IL 60606 Telephone: (312)-876-8000 Facsimile: (312)-876-7934 [email protected]



APPENDIX 3


983479.1

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K-V PHARMACEUTICAL COMPANY, THER-RX CORPORATION,

Plaintiffs,

v.

DAVID A. COOK, et al., Defendants.

)))))))))))

Case No. _____________

MOTION FOR PRELIMINARY AND PERMANENT INJUNCTION

Pursuant to Rule 65 of the Federal Rules of Civil Procedure, Plaintiffs K-V

Pharmaceutical Company and Ther-Rx Corporation (collectively, “KV”) seek

preliminary and permanent injunctive relief from Defendants David A. Cook, in

his official capacity as Commissioner of the Department of Community Health

(“DCH”), and Jerry Dubberly, M.D., in his official capacity as Division Chief of

the Medicaid Division of DCH.

Plaintiffs seek to enjoin the defendants from (i) directing Medicaid

beneficiaries to use non-FDA approved compounded copies of a drug meant for

pregnant women with a rare, but severe, condition that can cause life-threatening

spontaneous preterm birth and (ii) denying these women access to Makena®, the


983479.1

- 2 -

only drug approved by the U.S. Food & Drug Administration (“FDA”) to treat

their condition. The actions sought to be enjoined are in clear violation of federal

Medicaid laws.

Preterm birth is a serious condition that affects the well-being of both

mothers and their babies and is associated with exorbitant health care costs. The

problem is particularly acute in Georgia, which has a 13.4% preterm birth rate and

received a failing grade for preterm health from the March of Dimes in 2010.

Plaintiffs hold the rights to, and distribute, Makena®. When Makena® was

approved as an orphan drug in February 2011, the FDA Commissioner lauded its

approval, stating that “it is important and an advance that we have an FDA-

approved drug to prevent preterm pregnancy and all of its consequent serious

medical concerns for both mother and infant.”

Despite the exceptionally high rate of preterm births and particular need for

an FDA-approved drug in Georgia, DCH has instituted an impermissible prior

authorization program that acts as a complete barrier to Makena® for pregnant

women in the state’s Medicaid program. In a transparent effort to avoid having to

cover the cost of Makena®, the DCH policy requires a patient to show that she is

either unable to obtain a cheaper, non-FDA approved compounded product or that


983479.1

- 3 -

she has a “medical need” that requires use of the FDA-approved drug over the non-

FDA approved compounded product.

Likelihood of Success on the Merits

DCH’s preauthorization requirements — that a beneficiary (i) show that she

is “unable to obtain” compounded 17P (the active ingredient in Makena®); and (ii)

demonstrate the “medical necessity” of Makena® over compounded 17P

preparations — turn the federal regulatory scheme on its head by preferring

unapproved drugs of unknown composition and produced by unknown and

unapproved processes over the only FDA-approved drug for this condition.

Plaintiffs are substantially likely to succeed on the merits because Makena®

is a “covered outpatient drug” under the Medicaid Act, is subject to a Medicaid

Drug Rebate Agreement, and there is no FDA-approved alternative (compounded

products are not FDA-approved). Thus, federal law requires Georgia to cover

Makena®. 42 U.S.C. § 1396r-8(a). In violation of this federal law, DCH’s policy

excludes virtually all access to the FDA-approved drug and acts as an

impermissible formulary exclusion.

Access to Makena® is denied by DCH’s policy because there are

compounders throughout the state (as well as mail order compounders outside the

state) that are willing and able to create compounded products at any time.


983479.1

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Moreover, by requiring a showing of medical necessity for Makena® over

compounded 17P without any guidance as to what that “need” could be based on,

DCH effectively supplants its judgment for the medical judgment of the treating

physician. Although couched as a “prior authorization,” it is not; prior

authorizations are not permitted under federal law to be used in such a restrictive

and exclusionary manner.

Plaintiffs’ records show that in practice, since February 2011, DCH has not

approved a single prescription of Makena®. Georgia’s at-risk pregnant women on

Medicaid have been treated with non-FDA approved compounds or, where their

physicians are reluctant to prescribe a non-FDA approved product, nothing at all.

In addition to violating the drug access provisions of the Medicaid Act,

DCH’s prior authorization policy violates section 1396a(a)(19), which requires

state plans to provide care and services “in the best interests of the recipients.”

Since DCH directs the use of unapproved compounded products when an FDA-

approved drug is available, Medicaid beneficiaries’ best interests are clearly being

ignored.

In addition to violating the letter and spirit of the Medicaid Act, the DCH

program is in direct conflict with FDA’s recent pronouncement: “[i]f there is an

FDA-approved drug that is medically appropriate for a patient, the FDA-approved


983479.1

- 5 -

product should be prescribed and used” and the Centers for Medicare and

Medicaid’s (“CMS”) directive that all states cover FDA approved drugs and that

they cover Makena® without imposing “unreasonable conditions.”

Irreparable Harm to Plaintiffs

Plaintiffs are being irreparably harmed by DCH’s violation of federal law

because not only does the Eleventh Amendment preclude any recovery of losses

from Georgia, but DCH’s policy (along with the policies of several other states)

threatens KV’s continued existence. In fact, auditors have predicted that if KV’s

financial situation does not improve immediately; KV will cease to exist as soon as

August 2012. Makena® is KV’s primary product. However, due to these unlawful

prior authorization programs, KV has lost significant revenue from sales of

Makena® during the exclusivity period granted to orphan drugs and cannot cover

the cost of developing the drug and ongoing research & development and operating

expenses. KV’s stock price has dropped dramatically, KV is unable to attract

investors and unless immediate action is taken by the Court, KV will run out of

cash before this case ends. KV’s impending demise, in addition to the potential

harms to Medicaid beneficiaries from being denied access to the FDA-approved

drug for their condition, clearly outweighs the added expenditure Georgia will


983479.1

- 6 -

need to make in order to act in the best interests of its Medicaid recipients and to

comply with federal law.

The Public Interest

Injunctive relief is in the public interest because it would bring the state into

compliance with federal law and enable the state to provide an underprivileged

portion of its population access to an FDA-approved drug that may significantly

improve outcomes for the lives of pregnant women and their unborn children.

Injunctive relief would also allow doctors to exercise their independent medical

judgment as to what is best for their patients. The public interest strongly favors

providing Georgia’s most vulnerable population the healthcare that they are

entitled to under federal law.

Accordingly, Plaintiffs respectfully request that a preliminary and permanent

injunction be issued enjoining DCH from continuing to deny Medicaid

beneficiaries access to Makena® through its prior authorization program and

requiring DCH to comply with the Medicaid Act. A Proposed Order is submitted

herewith.


983479.1

- 7 -

Dated: July 17, 2012

Respectfully submitted, s/ John E. Floyd John E. Floyd (GA 266413) Jeffrey O. Bramlett (GA 075780) Manoj S. Varghese (GA 734668) BONDURANT, MIXSON & ELMORE LLP 1201 W. Peachtree Street, N.W. Suite 3900 Atlanta, GA 30309 Telephone: (404) 881-4100 Facsimile: (404) 881-4111 [email protected] [email protected]

Margaret “Peg” Donahue Hall, Esq. (TX 05968450) SNR DENTON US LLP 2000 McKinney Avenue, Suite 1900 Dallas, TX 75201-1858 Telephone: (214) 259-0900 Facsimile: (214) 259-0910 [email protected] Pro hac vice application pending

Drew Marrocco, Esq. (DC 453205)

SNR DENTON US LLP 1301 K Street, NW, Suite 600, East Tower Washington, DC 20005 Telephone: (202) 408-6400

Facsimile: (202) 408-6399 [email protected]

Pro hac vice application pending


983479.1

- 8 -

Stephen D. Libowsky (GA 451965) SNR DENTON US LLP 233 South Wacker Drive, Suite 7800 Chicago, IL 60606 Telephone: (312)-876-8000 Facsimile: (312)-876-7934 [email protected]



983479.1

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CERTIFICATE OF SERVICE

I hereby certify that I have this day electronically filed Motion for

Preliminary and Permanent Injunction and all supporting documents with the Clerk

of Court using the CM/ECF system and certify that I will cause a true and correct

copy of the foregoing to be served with the Complaint.

This 17th day of July, 2012 s/ John E. Floyd John E. Floyd


983477.1


K-V PHARMACEUTICAL COMPANY, ) and THER-RX CORPORATION, ) ) Plaintiffs, ) ) v. ) Case No.: ________________ ) DAVID A. COOK, et al., ) ) Defendants. ) )

MEMORANDUM IN SUPPORT OF APPLICATION FOR PRELIMINARY INJUNCTION

__________________________________________________________________

John E. Floyd (GA 266413) Manoj S. Varghese (GA 734668) BONDURANT, MIXSON & ELMORE LLP 1201 W. Peachtree Street, N.W. Atlanta, GA 30309 Telephone: (404) 881-4100 Facsimile: (404) 881-4111 [email protected] [email protected]

Margaret “Peg” Donahue Hall, Esq. (TX 05968450) SNR DENTON US LLP 2000 McKinney Avenue, Suite 1900 Dallas, TX 75201-1858 Telephone: (214) 259-0900 Facsimile: (214) 259-0910 [email protected] pro hac vice application pending Drew Marrocco, Esq. (DC 453205) SNR DENTON US LLP 1301 K Street, NW, Suite 600, East Tower Washington, DC 20005 Telephone: (202) 408-6400

Case 1:12-cv-02491-CAP Document 2-2 Filed 07/17/12 Page 1 of 33Case 1:12-cv-01105-ABJ Document 9-5 Filed 07/24/12 Page 11 of 43

983477.1

Facsimile: (202) 408-6399 [email protected] pro hac vice application pending Stephen D. Libowsky (GA 451965) SNR DENTON US LLP 233 South Wacker Drive, Suite 7800 Chicago, IL 60606 Telephone: (312)-876-8000 Facsimile: (312)-876-7934 [email protected]



983477.1

i

TABLE OF CONTENTS

GLOSSARY OF TERMS ........................................................................................ iii

INTRODUCTION ..................................................................................................... 1

FACTUAL BACKGROUND .................................................................................... 4

I. Preterm Birth. ........................................................................................ 4

II. FDA Approval of Makena®. .................................................................. 5

III. Georgia’s Unlawful Restriction on Patients’ Access to Makena®. ............................................................................................... 6

IV. Makena® and Compounded Versions of 17P Are Not Equivalent. ............................................................................................. 8

V. KV’s Effort to Engage With DCH. ..................................................... 10

VI. KV’s Financial Condition. .................................................................. 11

ARGUMENT ........................................................................................................... 11

I. Standard for Injunctive Relief. ............................................................ 12

II. Plaintiffs Have a Substantial Likelihood of Success on the Merits. .................................................................................................. 12

A. Federal Law Requires Georgia to Cover Makena®. ................. 12

B. DCH’s Prior Authorization Program Imposes Unreasonable Conditions on Access to Makena®. ................... 14

C. None of the Medicaid Act’s Exclusions Apply Here. .............. 15

1. DCH’s Policy Acts as an Impermissible Formulary Restriction. ...................................................................... 16

2. Georgia’s Exclusion of Makena® Is Not a Valid Prior Authorization. ........................................................ 19


983477.1

ii

D. Defendants’ Restrictions on Access to Makena® Violate Section 1396a(a)(19) of the Medicaid Act. .............................. 21

III. Plaintiffs Will Be Irreparably Harmed If Injunctive Relief Is Denied.................................................................................................. 23

IV. Injunctive Relief Will Not Result In Greater Harm To Georgia. ....... 24

V. Injunctive Relief Is in the Public Interest. ........................................... 25

CONCLUSION ........................................................................................................ 25


983477.1

iii

GLOSSARY OF TERMS

Term Meaning

17P hydroxyprogesterone caproate — the active ingredient used in Makena®

API active pharmaceutical ingredient

CMO care management organization

CMS Centers for Medicare & Medicaid Services

DCH Georgia Department of Community Health

FDA United States Food and Drug Administration

FDCA Federal Food, Drug, and Cosmetic Act

GMP good manufacturing practice standards promulgated by FDA

HHS United States Department of Health and Human Services

MDRA Medicaid Drug Rebate Agreement

NDA New Drug Application


983477.1

1

INTRODUCTION1

K-V Pharmaceutical Company (“K-V”) and Ther-Rx Corporation (“Ther-Rx”),

the owners of Makena®, the only FDA-approved drug that treats a rare, but severe,

condition which can cause spontaneous preterm birth ask the Court for injunctive relief

against the Georgia Department of Community Health (“DCH”) to prevent DCH

officials from continuing to deny this critical drug to pregnant women on Medicaid

(for ease of reference, Plaintiffs K-V and Ther-Rx are referred to herein collectively as

“KV”). This refusal to provide required medical care to the poor and vulnerable is not

only unlawful, but flies directly in the face of recent warnings by the two lead federal

agencies—the U.S. Food and Drug Administration (“FDA”) and Centers for Medicare

& Medicaid Services (“CMS”)—regarding states’ legal obligation to cover FDA-

approved drugs. Further, DCH is preventing Plaintiffs from recouping their significant

investment in making this safe and reliable drug available to at-risk pregnant women.

Without immediate relief, DCH’s unlawful acts (combined with those of other states)

threaten Plaintiffs’ financial existence.

The Medicaid Act requires DCH to cover and pay for “covered outpatient

drugs.” Although Makena® is a covered outpatient drug, DCH has devised and is

1 Plaintiffs rely upon and incorporate by reference herein the allegations set forth in their Complaint and the Declarations and Exhibits filed herewith.


983477.1

2

attempting to hide behind a sham prior authorization policy that systemically denies all

prescriptions for Makena®. DCH’s policy has been so effective that Plaintiffs’ records

show the agency has not paid for any vials of Makena® since it was launched.

Despite receiving written prescriptions for Makena®, DCH overrides the medical

judgment of Georgia physicians and forces those on Medicaid to use cheap,

compounded formulations that are not subject to Food and Drug Administration

(“FDA”) approval or to use nothing at all—an untenable choice those with private

insurance are generally not required to make. Compounds are not generic drugs: they

are not made using FDA’s rigorous good manufacturing practices (“GMP”) standards;

and, as FDA recently noted, “[c]ompounded drugs do not undergo the same premarket

review and thus lack an FDA finding of safety and efficacy and lack an FDA finding

of manufacturing quality.”

On information and belief, nearly all of the active pharmaceutical ingredient

(“API”) used by US compounders comes from factories in China. At Plaintiffs’

request, independent laboratories tested ten samples of Chinese API for compounded

17P and 30 samples of US-compounded 17P in finished dosage form. The majority of

tested API samples failed at least one of the specifications FDA set for Makena®, and

one contained no 17P at all. Of the finished compounded samples, the majority failed

at least one of the specifications FDA set for Makena®, including unacceptable potency


983477.1

3

and/or impurities—in an injectable drug intended for women with high-risk

pregnancies.

Under federal law, compounds cannot be used as cheaper substitutes for an

FDA-approved, commercially available drug. If an FDA-approved drug is available,

compounding may be used only for the limited purpose of meeting the specific medical

need (e.g., as an allergy to an ingredient) of a particular patient for whom the FDA-

approved drug is medically inappropriate. DCH has turned this long-standing legal

structure on its head by openly soliciting and paying for unrestricted unlawful

compounding and failing to cover FDA-approved Makena®.

Because Georgia and other states effectively continue to refuse to cover

Makena®, on June 15, 2012, the two affected federal agencies—FDA and CMS—

issued two separate but related statements specific to Makena®. FDA cautioned that:

FDA-approved drugs, such as Makena®, “provide a greater assurance of safety and effectiveness than do compounded drugs”;

Compounded copies of Makena® are appropriate only in limited circumstances – e.g., when a treating physician determines that a patient has a specific medical need for a compounded variation as opposed to the FDA-approved drug; and

Compounding large volumes of drugs that are copies of an FDA-approved drug “circumvents” important public health requirements under FDA law.

CMS, in turn, reminded states that they must cover Makena® in compliance with

federal Medicaid law and “without imposing unreasonable conditions.”


983477.1

4

Despite these directives, DCH informed KV that it will not change its policy.

The open defiance of federal law appears to have prompted FDA to issue yet another

statement on June 29. FDA did not mince words: “if there is an FDA-approved drug

that is medically appropriate for a patient, the FDA-approved product should be

prescribed and used.”

The inability of Georgia’s underprivileged women to access FDA-approved

Makena® requires immediate intervention by this Court—not only because DCH is

violating federal law, but also because its unlawful conduct (along with that of other

states) has put Plaintiffs into a dire financial position that threatens their existence, and

thus threatens the ability of women to ever obtain Makena®.

FACTUAL BACKGROUND

I. Preterm Birth.

Prematurity costs the United States more than $26 billion annually, a large

portion of which is borne by Medicaid, which covers an estimated 50% or more of the

Makena®-eligible patients. See Declaration of Michael Jozwiakowski (“Jozwiakowski

Decl.”) ¶ 2. On average, the cost of a preterm birth in the United States is

approximately $51,600; and, the average medical costs for a preterm infant’s first year

of life are about 10 times greater ($32,325) than for a full-term infant ($3,325). Id. ¶ 3.

Georgia is no exception. Thousands of pregnant Medicaid women in Georgia are at


983477.1

5

risk of having preterm births. In fact, the March of Dimes gave Georgia an “F” in

2010 in view of its 13.4% rate of preterm birth. See Declaration of Thomas McHugh

(“McHugh Decl.”) ¶ 21.

II. FDA Approval of Makena®.

The FDA-approved Makena® (sterile injections of hydroxyprogesterone

caproate) on February 3, 2011, as an orphan drug under the Orphan Drug Act of 1983.

McHugh Decl. ¶ 8. Makena®’s orphan drug status entitled Plaintiffs to a seven-year

exclusivity period, which is intended to reward pharmaceutical companies for the

extraordinary time and money necessary to obtain FDA approval for drugs that are

vital, but benefit relatively small patient populations. 21 U.S.C §§ 360bb(a)-360cc(a).

KV invested or committed over a quarter of a billion dollars to bring Makena® to

market. McHugh Decl. ¶ 10.

Prior to FDA approval of Makena®, women with a history of spontaneous

preterm singleton birth had two options: use unapproved, non-federally regulated

compounded formulations of hydroxyprogesterone caproate (“17P”) or nothing at all.

See Declaration of Scott Goedeke (“Goedeke Decl.”) ¶ 10. Although versions of

compounded 17P are made with versions of the same active pharmaceutical ingredient

(“API”) used in Makena®, compounded 17P is not a generic version of Makena®.

Jozwiakowski Decl. ¶¶ 14-15. Like Makena®, generic drugs are manufactured under


983477.1

6

rigorous FDA-mandated good manufacturing practices standards. Id. Compounds are

not; they are made by processes that are neither regulated nor approved by FDA; and

those processes can give rise to unknown variability in purity, potency and even

sterility. Id. ¶¶ 14-16.

Makena® is both FDA-approved and covered by a Medicaid Drug Rebate

Agreement (“MDRA”) between Ther-Rx and the U.S. Department of Health & Human

Services (“HHS”). Goedeke Decl. ¶¶ 8-9. It is considered a “covered outpatient drug”

under the Medicaid Act. States must cover and pay for “covered outpatient drugs” that

are subject of an MDRA. 42 U.S.C. §§ 1396r-8(a)(1), (k)(2).

III. Georgia’s Unlawful Restriction on Patients’ Access to Makena®.

DCH concedes that Makena® is a “covered benefit.” McHugh Decl. at Ex. 10.

On June 1, 2011, however, DCH issued a “Makena PA Summary” (the “PA

Summary”) that instituted unachievable prior authorization requirements for Makena®.

McHugh Decl. at Ex. 9. To obtain Makena®, a treating physician must “be unable to

obtain or not able to use compounded hydroxyprogesterone.” Id. (emphasis added).

Because versions of compounded 17P are available directly or by mail, this so-called

preauthorization “condition” essentially precludes Medicaid beneficiaries from ever

accessing Makena®. Goedeke Decl. ¶ 12. Indeed, DCH expressly invited pharmacies


983477.1

7

and physicians to contact its Pharmacy Unit for “assistance with locating a

compounding pharmacy.” McHugh Decl. at Ex. 10.

In its “Makena Position Statement,” DCH “encourages providers to rely on their

prior success with compounded [17P] when making decisions for their patients.”

McHugh Decl. at Ex. 10. DCH further states:

As a matter of policy, the Medicaid Division will require prior authorization for any prescription for Makena. The physician will be required to demonstrate the medical necessity of the manufactured product, Makena, over the compounded [17P] product to obtain prior authorization.….

Id. (emphasis added). DCH provides no indication or guidance regarding what would

be sufficient to show “a need” for Makena® over compounded 17P.

KV estimates that, since the FDA approval of Makena®, approximately 2,500 to

3,000 Medicaid patients in Georgia have been eligible for Makena®. McHugh Decl. ¶

21. Despite DCH’s policy, physicians have attempted to prescribe Makena® to 79

Medicaid patients in Georgia. Id. However, DCH has overridden physicians’ medical

judgment (plaintiffs records show no approvals of Makena®) and likely caused many

physicians to give up trying to get Makena® for their patients. See Declaration of Dr.

Lawrence Robillard.


983477.1

8

IV. Makena® and Compounded Versions of 17P Are Not Equivalent2.

In testifying before Congress in March 2011, FDA Commissioner, Margaret

Hamburg M.D., drew a sharp distinction between FDA-approved Makena® and

compounded 17P:

I think it is important and an advance that we have an FDA-approved drug to prevent preterm pregnancy and all of its consequent serious medical concerns for both mother and infant. And while the drug has been available through compounding….compounding as a practice has been associated with serious health risks….

Goedeke Decl. ¶ 16 (emphasis added). On November 8, 2011, the FDA stated: we remind physicians and patients that before approving the Makena new drug application, FDA reviewed manufacturing information, such as the source of the API used by its manufacturer, proposed manufacturing processes, and [KV’s] adherence to current good manufacturing practice. Therefore, as with other approved drugs, greater assurance of safety and effectiveness is generally provided by the approved product than by a compounded product.

Id. ¶ 17 (emphasis added). On June 15, 2012, the FDA reiterated that:

. . . approved drug products, such as Makena, provide a greater assurance of safety and effectiveness than do compounded products. Before approving the Makena [New Drug Application (“NDA”)], FDA reviewed manufacturing information, such as the source of the API used by its manufacturer, proposed manufacturing processes, and the firm’s adherence to current good manufacturing practice.

Id. ¶ 18 (emphasis added).

2 Even if they were equivalent, coverage is required for the FDA-approved product.


983477.1

9

FDA highlighted that compounded products are not FDA-approved and warned

that “compounding large volumes of drugs that are copies of FDA-approved drugs

circumvents important public health requirements . . .” Id. ¶ 19. Under FDA’s normal

policy as to compounded drugs, the compounding of drugs, including 17P, “should not

exceed the scope of traditional pharmacy compounding.” Id. at Ex. 8. Compounding

is appropriate only where the “prescribing practitioner has determined that a


significant difference for the patient as compared to the FDA-approved commercially

available drug product.” Id. ¶ 21.

Also on June 15, 2012, CMS issued a companion statement on Makena®:

We would like to remind States of their responsibility to cover FDA approved products, such as Makena, that qualify as covered outpatient drugs under the Medicaid drug rebate program. Any prior authorization procedures for such drugs must be administered in accordance with Section 1927(d) of the Social Security Act, without imposing unreasonable conditions.


Faced with open defiance of the FDA and CMS June 15 statements, on June 29,

FDA got right to the point: “when an FDA-approved drug is commercially available,”

practitioners should “prescribe the FDA-approved drug rather than a compounded drug

unless the prescribing practitioner has determined that a compounded product is

necessary for the particular patient and would provide a significant difference for


983477.1

10

the patient as compared to the FDA-approved commercially available drug product.


Despite these federal statements, DCH continues to impose unreasonable

conditions on access to Makena®. McHugh Decl. ¶¶ 16, 21.

V. KV’s Effort to Engage With DCH.

On February 15, 2012, KV wrote Defendant Cook a letter explaining the

significance of FDA approval, how the DCH prior authorization policy is inconsistent

with federal law, and reminding DCH of its obligation to provide access to covered

outpatient drugs. Goedeke Decl. ¶ 26. DCH did not reply. Id.

On June 19, 2012, KV contacted DCH again, drew the agency’s attention to the

two June 15th statements, and requested the opportunity to address Makena® coverage

with DCH. Goedeke Decl. ¶ 27. Defendant Dr. Dubberly, the Division Chief of

DCH’s Medicaid Division, inexplicably responded that the FDA’s June 15, 2012

statement actually “affirms our current position on this matter.” Id. When KV

requested an explanation, Dr. Dubberly stated there was nothing to explain: “[DCH]

will not be entertaining any policy or coverage changes as a result of the [FDA]

release.” Id. ¶ 28. Evidently, Dr. Dubberly saw no need to address the CMS statement

or explain why a policy effectively barring access to Makena® is reasonable.

Additional attempts to resolve this dispute have likewise failed.


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11

VI. KV’s Financial Condition.

KV’s loss of revenue from the lack of use of Makena® by Medicaid patients in

Georgia (and other states) threatens to cripple the company. McHugh Decl. ¶¶ 21-23.

Potential future sales of Makena® account for the vast majority of KV’s projected

revenue. Id. ¶ 22.

Without Court intervention to address unlawful Medicaid restrictions on

Makena®, KV’s current cash will continue to be rapidly depleted and the company’s

survival threatened. Id. ¶¶ 22-24. KV’s June 14, 2012, SEC disclosures include a

prominent reference to substantial doubt regarding KV’s ability to continue as a “going

concern,” and KV’s independent auditor opined that it is probable that KV will cease

to exist within 12 months. Id. ¶ 25.

ARGUMENT

DCH has effectively turned Medicaid drug coverage law on its head by denying

underprivileged pregnant women access to FDA-approved Makena® (a “covered

outpatient drug”) and directing them, instead, to unapproved compounded products

(which are not covered outpatient drugs). Taken in concert with the actions of several

other states with large Medicaid populations, this end-run around federal Medicaid law

is economically crippling Plaintiffs.


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I. Standard for Injunctive Relief.

To succeed on a motion for a preliminary injunction, Plaintiffs must show: (a) a

substantial likelihood of success on the merits; (b) irreparable injury will be suffered

unless the injunction is issued; (c) the threatened injury to the moving party outweighs

any injury to the non-moving party; and (d) the injunction would not be adverse to the

public interest. See BellSouth Telecomms., Inc. v. MCIMetro Access Transmission

Servs., LLC, 425 F.3d 964, 968 (11th Cir. 2005). Here, all factors overwhelmingly

support granting Plaintiffs’ application.

II. Plaintiffs Have a Substantial Likelihood of Success on the Merits.

A. Federal Law Requires Georgia to Cover Makena®.

Medicaid is a joint federal-state program that was established to provide medical

assistance to financially needy patients, including pregnant women. See 42 U.S.C.

§ 1396a(a)(10). Any state participating in the Medicaid program must comply with the

Medicaid Act and its implementing regulations. Martes v. Chief Executive Officer of

S. Broward Hosp. Dist., No. 11-12464, 2012 WL 2161280, at *1 (11th Cir. June 15,

2012).

Section 1396r-8 of the Medicaid Act outlines a state Medicaid agency’s legal

obligations to cover outpatient prescription drugs. Edmonds v. Levine, 417 F. Supp. 2d

1323, 1326 (S.D. Fla. 2006). Pursuant to § 1396r-8, “covered outpatient drug[s]” are

drugs that are dispensed only upon a prescription and that have been approved for


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safety and effectiveness by the FDA under the Federal Food, Drug, & Cosmetic Act

(“FDCA”). 42 U.S.C. § 1396r-8(k)(2)(A). To receive payment for “covered

outpatient drugs,” manufacturers must enter into an MDRA with HHS and pay the

various states rebates (of at least 23.1 percent) on the sale of outpatient prescription

drugs to their respective Medicaid beneficiaries. 42 U.S.C. § 1396r-8(a); Pharm.

Research & Mfrs. of Am. v. Walsh, 538 U.S. 644, 652 (2003). In return, a state must

provide coverage under its state plan, unless a specific statutory exclusion or restriction

applies. 42 U.S.C. § 1396a(a)(10),(54); 42 U.S.C. § 1396r-8(a); Walsh, 538 U.S. at

652.

There is no dispute that Makena® is a “covered outpatient drug” covered by an

MDRA. Goedeke Decl. ¶¶ 8-9. It follows, therefore, that DCH is required to cover

Makena®, subject only to the limited statutory exceptions described below. 42 U.S.C.

§ 1396r-8(k)(2)(A).

Unlike Makena®, compounded versions of 17P are not “covered outpatient

drug[s].” The FDA has not reviewed or approved any version of compounded 17P

either as a branded or generic drug. Jozwiakowski Decl. ¶ 15. In August 2010, CMS

clarified that Medicaid will cover compounded products under very limited

circumstances only, i.e., when they are made extemporaneously for a particular patient

who is unable to take the corresponding FDA-approved drug. See Goedeke Decl. ¶¶


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22-23. This position was confirmed in the June 15 CMS statement as to Makena® and

compounded 17P. Id. ¶ 24.

B. DCH’s Prior Authorization Program Imposes Unreasonable Conditions on Access to Makena®.

DCH’s prior authorization program is transparently set up to block physicians

who seek coverage for Makena®. Because no Medicaid patient can actually meet

DCH’s “prior authorization” conditions, the process is in reality a de facto and

improper formulary exclusion.

The requirement that a patient be “unable to obtain” an unapproved

compounded 17P product before she can be considered for Makena® is farcical. Many

compounders in Georgia (and mail-order compounders elsewhere) are willing and able

to provide compounded 17P. Goedeke Decl. ¶ 12. Consequently, this requirement

acts as a complete bar to access to Makena® and puts Defendants in clear violation of

the requirement that Georgia cover FDA-approved Makena®.

With respect to the requirement that a patient show that she is “not able to use”

compounded 17P or that she has a “medical necessity” for Makena® over compounded

17P, DCH has not provided any standards or criteria as to when it would consider

Makena® “medically necessary” over the compounded product. It is unclear how a

patient (or her doctor) could establish she cannot use compounded 17P (or that it is

ineffective for her) without going into early labor while using compounded 17P. Such


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a requirement unnecessarily endangers the health of the unborn child and, as a public

policy, is unconscionable.

FDA approval is based on specific FDA findings that a drug is effective and safe

for its intended indication(s). To require Medicaid beneficiaries to demonstrate they

are entitled to FDA-approved products when federal law mandates they receive them is

patently unreasonable.

In addition, in violation of FDA law and policy, DCH, by mandating universal

usage of compounded 17P, is encouraging unrestricted compounding not customized

to meet the need of an individual patient who has the conditions for which Makena® is

indicated but for whom Makena® is medically inappropriate. As FDA stated on June

15, the compounding of 17P “should not exceed the scope of traditional pharmacy

compounding”—namely, to meet the specific medical need of a particular patient.

Goedeke Decl. at Ex. 8. Given FDA’s reminder that unrestricted compounding

“circumvents important public health requirements,” DCH’s policy is “unreasonable”

within the meaning of the CMS June 15 statement. Goedeke Decl. at Exs. 8, 12.

C. None of the Medicaid Act’s Exclusions Apply Here.

The Medicaid Act specifies five bases pursuant to which states may exclude,

i.e., refuse to pay for, “covered outpatient drugs”: when they (1) are not prescribed for

a “medically accepted indication”; (2) are either listed in the statute or subsequently


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determined by HHS regulation to be subject to clinical abuse or misuse; (3) are

excluded pursuant to an agreement between the manufacturer and the state; (4) have

been excluded pursuant to a drug formulary,3 provided that the state takes a set of

procedural steps specified at 42 U.S.C. § 1396r-8(d)(4); or (5) are prescribed in

quantities that exceed the refill limits imposed by the state. 42 U.S.C. §§ 1396r-

8(d)(1)(B)(i)-(iv), (d)(6). As one federal court has stated:

The statutory scheme is carefully constructed in such a way to precisely circumscribe the only methods by which a state may remove a Medicaid eligible drug from coverage and prevent it from either arbitrarily removing a drug or adopting its own ad hoc procedure for removing a drug from coverage.

Edmonds, 417 F. Supp. 2d at 1330-31. DCH’s Makena® policy does not meet any of

the permissible exclusion criteria set forth above.

1. DCH’s Policy Acts as an Impermissible Formulary Restriction.

Congress was careful to distinguish a prior authorization process from a drug

formulary. “A prior authorization program established by a State under paragraph (5)

is not a formulary . . .” 42 U.S.C. § 1396r-8(d)(4). DCH’s policy, however, acts as a

3 See U.S., ex rel., Foster v. Bristol-Myers-Squibb Co., 587 F. Supp. 2d 805, 809 (E.D. Tex. 2008) (“‘For the uninitiated, a formulary is a list of medications for which an HMO provides coverage.’ Formularies come in a variety of shapes and sizes. . . ‘Because a drug’s inclusion on an [HMO’s] formulary can dictate prescription choices for patients covered by [HMOs], drug manufacturers seek to secure inclusion on [HMO] formularies as well as favorable placement within those formularies through financial rewards, including rebates, to [HMOs].’” (quoting J.B.D.L. Corp. v. Wyeth-Ayerst Labs., Inc., 485 F.3d 880, 884 (6th Cir. 2007)).


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de facto—and unlawful—formulary exclusion of Makena® without having met any of

the requirements for such an exclusion. In fact, DCH’s Makena® prior authorization

procedures contain exactly the kind of unreasonable prior authorization conditions

CMS warned against. See Goedeke Decl. at Ex. 12.

A lawful formulary must: (1) be developed by a committee comprised of

physicians, pharmacists, and others appointed by the Governor; and (2) include the

“covered outpatient drugs” of any manufacturer that has entered into and complied

with an MDRA. 42 U.S.C. §§ 1396r-8(d)(4)(A)-(B). Obviously, neither of those

requirements have been met by DCH.

A state may exclude a “covered outpatient drug” from a formulary only if there

is a written finding that the excluded drug “does not have a significant, clinically

meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome

of such treatment for such population over other drugs included in the formulary.” Id.

§§ 1396r-8(d)(4)(C)-(D); Pharm. Research & Mfrs. of Am. v. Meadows, 304 F.3d

1197, 1207 (11th Cir. 2002) (as compared to a prior authorization program, a

formulary could have the more stringent consequence of excluding coverage for

certain covered outpatient drugs only if certain clinical criteria are adhered to).

No other “covered outpatient drug” has a “clinically meaningful therapeutic

advantage” over Makena®. Therefore, Makena® cannot be excluded from any


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formulary. Indeed, a formulary requires two or more therapeutically equivalent

covered outpatient drugs. Here, for reducing the risk of pre-term birth in pregnant

women with a prior pre-term birth, there is only one “covered outpatient drug” –

Makena®. Because compounded 17P products are not covered outpatient drugs, they

cannot be included in a formulary. Nor could DCH plausibly contend that an FDA-

approved drug has no “meaningful therapeutic advantage” over unapproved, non-

federally regulated compounded products. Indeed, although compounded 17P was

available when FDA was reviewing the application for approval of Makena®, Goedeke

Decl. ¶ 10, FDA designated the NDA for Priority Review, Jozwiakowski Decl. ¶ 6. “A

Priority Review designation is given to drugs that offer major advances in treatment, or

provide a treatment where no adequate therapy exists.” Id. at n.9. Thus, FDA

considered Makena® a “major” advance on compounded 17P and/or considered

compounded 17P inadequate therapy.

Finally, a state is not permitted to base a formulary restriction on economics or

price when no other drug on the formulary has a “meaningful therapeutic advantage.”

Meadows, 304 F.3d at 1201. The Medicaid Act limits the criteria for formulary

restrictions to clinical (i.e., medical) justifications. Id. at 1203. DCH’s exclusion of

Makena® is based solely on price. Thus, DCH has purported to effectuate an improper


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formulary-like exclusion of Makena® without satisfying any of the statutory criteria for

an exclusion.

2. Georgia’s Exclusion of Makena® Is Not a Valid Prior Authorization.

In contrast to “excluding” a drug, Section 1396r-8(d)(1)(A) of the Medicaid Act

allows a state to require that a healthcare provider obtain prior authorization from

Medicaid before administering a particular drug. Prior authorizations are strictly

procedural, and may be used only to “condition,” but not to “exclude” coverage.

Edmonds, 417 F. Supp. 2d at 1329.4 Prior authorization requirements generally are

used as a means for implementing elements of a drug-utilization program to ensure the

medical appropriateness and safety of a drug for a specific beneficiary, and to avoid

harms such as drug-drug interaction, therapeutic duplication, over-prescribing by

providers, and overuse by beneficiaries. They also have been used to inform providers

about more cost-effective or therapeutically advantageous alternatives. Meadows, 304

F.3d at 1208 n.9.

DCH’s program is specifically designed to exclude coverage of Makena®. As

the Edmonds court stated:

4 As Justice O’Connor explained in Walsh, “[p]rior authorization is, by definition, a procedural obstacle to Medicaid beneficiaries’ access to medically necessary prescription drugs covered under the Medicaid program.” 538 U.S. at 685 (emphasis added).


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While [State Medicaid] may condition drug coverage for medically accepted indications upon certain prior authorization procedures being followed, the agency may not exclude coverage, i.e., deny reimbursement, for a covered drug under these subsections pursuant to the type of prior authorization program established by the state. To do so clearly violates the federal act.

417 F. Supp. 2d at 1336 (emphasis in original). Georgia’s program excludes coverage

of Makena® in exactly the manner the Edmonds court said “clearly violates the federal

act.” Id.

In Meadows, the Eleventh Circuit determined a state program was a valid prior

authorization because “approval of the prescribing doctor’s first choice drug is

guaranteed in 100 percent of all cases, provided only that he or she make [a telephone

call.]” 304 F.3d at 1198. “[T]he state may try to persuade a doctor to use an

alternative drug, but ultimately the doctor retains the final word on use of the drug.”

Edmonds, 417 F. Supp. 2d at 1329 (emphasis added). The prior authorization program

at issue in Meadows was held to be valid precisely because it did not exclude any drug

from coverage. Meadows, 304 F.3d at 1208.

In Edmonds, the Court distinguished between a formulary and a prior

authorization program, and explained that one of the factors for distinguishing between

the two was “who retains the final authority with regard to coverage of a Medicaid-

eligible drug.” 417 F. Supp. 2d at 1330. The court was clear that in the case of a prior

authorization, “the prescribing doctor retains the authority to override any suggestions


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made by the state pharmacist”; but in the case of a formulary, the state retains the last

word as to whether a drug will be covered. Id. at 1329. As the court explained:

the state can require a prescribing doctor seek approval of a particular drug as a condition of Medicaid coverage. Ultimately, though, the doctor retains the authority to override any suggestions made by the [State] and obtain approval of, and eventual reimbursement for, the doctor’s first choice drug. However, under the formulary prior authorization program, a prescribing doctor may ask the state to cover a Medicaid-eligible drug that has been excluded from the formulary, but ultimately, the state can deny the request for coverage, meaning it is the state which retains the final authority over coverage of non-formulary drugs.

Id. at 1330 (emphasis/bolding added; italics in original).5

Here, the DCH policy provides no deference to a physician’s view as to when

Makena® would be considered “medically necessary.” Given that virtually no

Makena® prescriptions have been approved in Georgia, it is clear DCH uses its

unfettered discretion systematically to deny coverage of and access to Makena®.

D. Defendants’ Restrictions on Access to Makena® Violate Section 1396a(a)(19) of the Medicaid Act.

DCH’s policies also conflict with Section 1396a(a)(19) of the Medicaid Act,

which requires a state plan to:

[P]rovide such safeguards as may be necessary to assure that eligibility for care and services under the plan will be determined and such care and

5 Indeed, Edmonds allowed coverage for off-label use (i.e., use for which FDA has not approved the drug at issue); here, DCH is denying coverage even for Makena’s® FDA-approved use, instead favoring a non-FDA approved drug.


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services will be provided, in a manner consistent with simplicity of administration and the best interests of the recipients.

42 U.S.C. § 1396a(a)(19) (emphasis added). The analysis in Grier v. Goetz is

instructive: “a prior authorization regime must not severely curtail access to

prescription drugs, as that may violate the best interests of Medicaid recipients...” 402

F. Supp. 2d 876, 905 (M.D. Tenn. 2005) (citing Walsh, 538 U.S. at 655)).

In addressing a claim under section (a)(19) that states should not be permitted to

deprive Medicaid beneficiaries of FDA-approved drugs, the First Circuit stated, “the

possibility that first-choice drugs will not be readily approved where second-choice

inferior alternatives exists concerns us.” Pharm. Research & Mfrs. of Am., v.

Concannon, 249 F.3d 66, 78 (1st Cir. 2001), aff’d sub nom, Pharm. Research & Mfrs.

of Am. v. Walsh, 538 U.S. 644 (2002). The First Circuit ultimately upheld the program

under review because it concluded that Medicaid patients were not being denied any

“first-choice” drugs. Id. Here, DCH plainly is denying beneficiaries coverage of a

“first-choice” drug.

DCH’s denial of coverage here is based on perceived (short term) cost savings

to Medicaid. “[B]udgetary considerations may not be the sole basis for a [Medicaid

related decision] . . .” Rite Aid of Pa., Inc. v. Houstoun, 171 F.3d 842, 856 (3d Cir.

1999). This is an additional reason to hold DCH’s policies unlawful.


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III. Plaintiffs Will Be Irreparably Harmed If Injunctive Relief Is Denied.

DCH’s (and other states’) refusal to cover Makena® threatens KV’s economic

survival. The threat of corporate extinction is a well-established form of irreparable

harm and warrants immediate injunctive relief. Doran v. Salem Inn, Inc., 422 U.S.

922, 932 (1975) (a substantial loss of business and perhaps even bankruptcy

sufficiently meet the standards for granting interim relief); see also Roland Mach. Co.

v. Dresser Indus., Inc., 749 F.2d 380, 386 (7th Cir. 1984) (“A damages remedy can be

inadequate [if] the damage award may come too late to save the plaintiff’s business.”).

Under present circumstances, sales of Makena®, on which KV is highly

dependent, cannot generate the cash KV needs to meet its ongoing cash operating

expenses and the material, near term payment obligations KV faces beginning in

August 2012. McHugh Decl. ¶ 27. Makena®—as stated in the Declaration of KV’s

Chief Financial Officer—is KV’s only hope for survival. Id. ¶ 22.

KV cannot recoup its ongoing losses from the state even if a Court determines

that the defendants unlawfully restricted access to Makena® because the Eleventh

Amendment “precludes an award of retroactive payment by a federal court.” James v.

Richman, 465 F. Supp. 2d 395, 407 (M.D. Pa. 2006), aff’d 547 F.3d 214 (3d Cir.


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2008).6 Thus, injunctive relief is the only means by which KV’s injury can be

redressed. See Temple Univ. v. White, 941 F.2d 201, 215 (3d Cir. 1991); see also Cal.

Pharmacists Ass’n v. Maxwell-Jolly, 596 F.3d 1098, 1113-14 (9th Cir. 2010) (citations

omitted), vacated and remanded on other grounds 132 S.Ct. 1204 (2012), (finding that

“Medicare providers” had suffered irreparable harm where “they will lose considerable

revenue through the reduction in payments that they will be unable to recover due to

the State’s Eleventh Amendment sovereign immunity”).7

IV. Injunctive Relief Will Not Result In Greater Harm To Georgia.

If relief is granted, Georgia would be required to pay (as it is legally required to

do) the state portion of the cost of providing Makena®. This “harm” is far outweighed

by the risk of survival KV faces from Georgia’s (and other states’) refusal to cover

Makena®. This type of irreparable harm tips the scales in favor of KV’s position. See

Guidance Endodontics, LLC v. Dentsply Int’l, Inc., 633 F. Supp. 2d 1257, 1279

6 See also Temple Univ. v. White, 941 F.2d 201, 215 (3d Cir. 1991) (“[T]he Eleventh Amendment bar to an award of retroactive damages against the Commonwealth . . . clearly establishes that any legal remedy is unavailable and that the only relief available is equitable in nature”); W. Va. Univ. Hosps., Inc. v. Rendell, No. 1:cv-99-1684, 2009 WL 3241849, at *14 (M.D. Pa. Oct. 2, 2009) (finding irreparable harm “[i]n light of the absolute bar on damages imposed by the Eleventh Amendment…”); see also Edelman v. Jordan, 415 U.S. 651, 678 (1974). 7 In any event, “[d]epending on circumstances, evidence of price erosion, loss of market share, loss of profits, loss of research opportunities, and possible layoffs may constitute irreparable harm.” Research Found. of State Univ. of N.Y. v. Mylan Pharm., Inc., 723 F. Supp. 2d 638, 658 (D. Del. 2010).


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(D.N.M. 2008) (“Guidance . . . stands on the brink of bankruptcy and going out of

business. The scales thus already tip in Guidance’s favor.”).8

V. Injunctive Relief Is in the Public Interest.

Requiring DCH to provide pregnant women on Medicaid and at high risk for

preterm birth access to an effective and safe treatment obviously is in the public

interest. The “primary purpose of Medicaid is to enable states to provide medical

services to those whose ‘income and resources are insufficient to meet the costs of

necessary medical services.’” Concannon, 249 F.3d at 75; 42 U.S.C. § 1396. The

public has a significant interest in being assured that DCH is meeting that standard.

See Edmonds, 417 F. Supp. 2d at 1342 (“the public interest would be advanced by

[DCH’s] compliance with the outpatient prescription drug coverage requirements of

the Medicaid Act.”).

CONCLUSION

For the foregoing reasons, Plaintiffs’ Application for a Preliminary Injunction

should be granted.

Respectfully submitted this 17th day of July, 2012.

8Moreover, as the Edmonds court stated in granting preliminary relief, “the harm to Plaintiffs of being deprived of essential medical services outweighs any harm to the state…”. Edmonds, 417 F. Supp. 2d at 1342. Here, the denial of relief to KV is, in essence, denial of access to an important therapy for Medicaid beneficiaries.


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Margaret “Peg” Donahue Hall, Esq. TX Bar No: 05968450 SNR DENTON, US, LLP 2000 McKinney Avenue, Suite 1900 Dallas, TX 75201-1858 Telephone: (214) 259-0900 Facsimile: (214) 259-0910 [email protected] Stephen D. Libowsky GA Bar No: 451965 SNR DENTON, US, LLP 233 South Wacker Drive, Suite 7800 Chicago, IL 60606 Telephone: (312) 876-8000 Facsimile: (312) 876-7934 [email protected]

s/ John E. Floyd_________________ John E. Floyd (GA 266413) Jeffrey O. Bramlett (GA 075780) Manoj S. Varghese (GA 734668) BONDURANT, MIXSON & ELMORE LLP 1201 W. Peachtree Street, N.W 3900 One Atlantic Center Atlanta, GA 30309 Telephone: (404) 881-4100 Facsimile: (404) 881-4111 Drew Marrocco, Esq. DC Bar No: 453205 SNR DENTON, US, LLP 1301 K Street, NW Suite 600, East Tower Washington, DC 20005 Telephone: (202) 408-6400 Facsimile: (202) 408-6399 [email protected]



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CERTIFICATION REGARDING COMPLIANCE WITH LOCAL RULE 7.1 Pursuant to Local Rule 7.1(D), this Memorandum was prepared using Times

New Roman, 14-point font.


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CERTIFICATE OF SERVICE

I hereby certify that I have this day electronically filed this MEMORANDUM

OF LAW IN SUPPORT OF APPLICATION FOR PRELIMINARY

INJUNCTION with the Clerk of Court using the CM/ECF system and certify that I

will cause a true and correct copy of the foregoing to be served with the Complaint.

This 17th day of July, 2012 s/ John E. Floyd_____________


KV v FDA-Alere Amicus

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