Schering-Plough Letter - Limitations on
Contraceptives
May
15, 2008
Jimmy Mitchell, R.Ph., M.P.F ., M.S.
Director
Office of Pharmacy Affairs
Health Resources and Services Administration
Department of Health and Human Services
5600 Fishers Lane, Parklawn Building
Mail Stop 10C-03
Rockville, Maryland 20857
Re: Allocation for Desogen®
Dear Mr. Mitchell:
We are writing to keep you apprised of
recent developments affecting sales to
340B covered entities of Desogen®,
a widely used oral contraceptive product
manufactured by Organon, a part of the
Schering-Plough. In order to avoid shortages
or other market disruptions that would
otherwise occur in the near future, as
a result of application of the 340B program's
"penny-price" policy to sales
of this drug, Schering-Plough has initiated
an allocation system for distribution
of Desogen® that would apply both
to wholesalers and to direct purchasers.
Following a model that we understand to
have been approved by your Office last
year in connection with sales of another
contraceptive product marketed by a different
manufacturer, we have attempted to address
the Desogen® situation on a proactive
basis, through an allocation system that
applies equally to 340B covered entities
as well as to all other commercial purchasers
of the drug. We hope that this product
allocation system will avert distribution
imbalances that otherwise will predictably
occur, and will both avoid potentially
detrimental impact on patients, and assure
fairness to all purchasers of our product.
Desogen®, which has been marketed
by Schering-Plough since November of 2007,
is a covered outpatient drug subject to
340B discount pricing when purchased by
eligible "covered entities,"
as defined in Section 340B(a)(4) of the
Public Health Service Act. Beginning in
the second quarter of 2008, Schering-Plough
calculates that the unit rebate amount
(URA) for Desogen will exceed the drug's
Average Manufacturer Price (AMP). Consequently,
under HRSA policy, the applicable 340B
ceiling price will be one cent. Especially
since the shelf-life of the product is
reasonably long (three years), the availability
of Desogen® to 340B purchasers at
a "penny price" will naturally
lead to anticipatory buying patterns and
"stock-piling" of product by
340B entities. Availability of an unlimited
volume of the product to 340B entities
at a penny price, moreover, could create
incentives for improper diversion of excess
supply that can be purchased cheaply and
resold or otherwise utilized for non-patients
of 340B facilities.
Indeed, Schering-Plough has already noticed
a significant upward trend in the volume
of Desogen® purchased by 340B covered
entities during April, and has been contacted
by wholesalers concerned about stock availability.
Moreover, we estimate that approximately
48% of the sales of this product are already
made to 340B covered entities, so the
340B penny pricing is certain to have
a very substantial impact on the marketplace.
We believe we must act now to avoid a
situation in which some purchasers are
unable to obtain Desogen® for their
patients because others, taking advantage
of an exceptionally low price, will seek
to buy product in excess of their patients'
current needs.
Distribution System
Schering-Plough has informed its wholesalers
that, until further notice, the allotments
of Desogen® they receive for distribution
will be based on the average quarterly
volume of sales to that wholesaler during
2007 (the "base year"). Schering-Plough
has also confirmed with its wholesalers
that product is to be equitably distributed
to 340B entities as well as other commercial
customers based upon the volume of their
historical purchasing of the drug, i.e.,
based on their average volume of quarterly
purchases of Desogen® during the base
year For each direct sales customer who
purchased the product from Schering-Plough
for the period designated as the base
year, we have calculated the customer's
average quarterly volume of Desogen®
purchases during that time, and have used
this historical purchasing data to allocate
a maximum amount of future, quarterly
product sales to the customer.
Customers who qualify as 340B entities
will receive identical treatment to other
commercial entities under this system.
No purchaser will be subjected to a minimum
purchase requirement, or any impediment
to the operation of normal product distribution
channels. Customers may order Desogen®
directly from Schering or through a wholesaler,
just as they have done prior to allocation.
Orders will be filled on a first-in-first-out
basis, with total quarterly sales to each
customer limited to the volume of product
it has been allocated, consistent with
historical purchasing in the base-period.
Where a customer did not purchase Desogen®
during the base period, we will work with
that customer to determine an appropriate
allocation.
It should be noted that, unlike the situation
we understood to exist respecting penny-price
340B sales of Yasmin during certain quarters
of 2007, we anticipate that the price
of Desogen® to 340B entities is likely
to remain at one cent (or only very marginally
higher) for quite some time. This is because
340B pricing for the drug has been, and
in all likelihood will continue to be,
dramatically affected by the new CMS rule
regarding the calculation of AMP and Best
Price for brand name products that have
authorized generic versions. The allocation
system we propose to institute, therefore,
may be necessary on a long-term basis
in order to maintain equitable distribution
of product to Desogen purchasers.
Conclusion
In order to protect patients from negative
consequences, it is critical to prevent
shortages or other distribution imbalances
that may deprive some pharmacies or facilities
of sufficient product to supply their
patients' needs. Schering-Plough has concluded
that an allocation program must be implemented
immediately in order to assure equitable
and appropriate distribution of Desogen
within the existing market, and to avoid
stockpiling of product by some purchasers
to the detriment of other purchasers and
patients. We are confident that the allocation
program we propose will result in equitable
and non-discriminatory treatment of 340B
entities, and hope we will have OPA's
full support and approval in implementing
that program.
Should you have any questions or concerns
about the allocation program for Desogen®
sales, we hope that you will contact us
at your earliest convenience. We would
be happy to speak with you by telephone,
or to meet with you in person, about this
topic whenever such a conference or meeting
can be arranged. As we have explained
above, we have attempted to proceed in
this matter in a manner consistent with
OPA policy, as indicated by its apparent
approval of similar measures instituted
by Bayer in a similar situation that created
risks of product shortage. We will keep
you apprised of any further developments
that might alter the present situation
with respect to Desogen®; and we thank
you for your time and attention to this
letter.
Sincerely
David L. Ralston
Senior Legal Director |
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