THE doctor was dumbfounded: a drug that used to cost $50 was now selling for $28,000 for a 5-milliliter vial.
The physician, Dr. Ladislas Lazaro IV, remembered occasionally prescribing this anti-inflammatory, named H.P. Acthar Gel, for gout back in the early 1990s. Then the drug seemed to fade from view. Dr. Lazaro had all but forgotten about it, until a sales representative from a company called Questcor Pharmaceuticals appeared at his office and suggested that he try it for various rheumatologic conditions.
"I've never seen anything like this," Dr. Lazaro, a rheumatologist in Lafayette, La., says of the price increase.
How the price of this drug rose so far, so fast is a story for these troubled times in American health care — a tale of aggressive marketing, questionable medicine and, not least, out-of-control costs. At the center of it is Questcor, which turned the once-obscure Acthar into a hugely profitable wonder drug and itself into one of Wall Street's highest fliers.
At least until recently, that is. Now some doctors, insurance companies and investors are beginning to have doubts about whether the drug is really any better than much cheaper alternatives. Short-sellers have written scathing criticisms of the company, questioning its marketing tactics and predicting that its shareholders are highly vulnerable.
That Acthar is even a potential blockbuster is a remarkable turn of events, considering that the drug was developed in the 1950s by a division of Armour & Company, the meatpacking company that once ruled the Union Stock Yards of Chicago. As in the 1950s, Acthar is still extracted from the pituitary glands of slaughtered pigs — essentially a byproduct of the meatpacking industry.
The most important use of Acthar has been to treat infantile spasms, also known as West syndrome, a rare, sometimes fatal epileptic disorder that generally strikes before the age of 1.
For several years, Questcor, which is based in Anaheim, lost money on Acthar because the drug's market was so small. In 2007, it raised the price overnight, to more than $23,000 a vial, from $1,650, bringing the cost of a typical course of treatment for infantile spasms to above $100,000. It said it needed the high price to keep the drug on the market.
"We have this drug at a very high price right now because, really, our principal market is infantile spasms," Don M. Bailey, Questcor's chief executive, told analysts in 2009. "And we only have about 800 patients a year. It's a very, very small — tiny — market."
Companies often charge stratospheric prices for drugs for rare diseases — known as orphan drugs — and Acthar's price is not as high as some. Society generally tolerates those costs to encourage drug companies to develop crucial, possibly lifesaving drugs for these often neglected diseases.
But Questcor did almost no research or development to bring Acthar to market, merely buying the rights to the drug from its previous owner for $100,000 in 2001. And while the manufacturing of Acthar is complex, it accounts for only about 1 cent of every dollar that Questcor charges for the drug.
Moreover, the tiny "orphan" market soon became much bigger. Before long, Questcor began marketing the drug for multiple sclerosis, nephrotic syndrome and rheumatologic conditions, even though there is little evidence that Acthar is more effective for those other conditions than alternatives that are far cheaper. And the company did so without being required to prove that the drug actually works. That is because Acthar was approved for use in 1952, before the Food and Drug Administration required clinical trials to show a drug is effective for a particular disease. Acthar is essentially grandfathered in.
Today, only about 10 percent of the drug's sales are for infantile spasms. The new uses, Mr. Bailey has told analysts, represent multibillion-dollar opportunities for Acthar and Questcor, its sole maker.
The results have been beyond even the company's wildest dreams. Sales of Acthar, which accounts for essentially all of Questcor's sales, totaled nearly $350 million in the first nine months this year, up 145 percent from the period a year earlier. In the same period, Questcor's earnings per share nearly tripled, to $2.12. In the five years after the big Acthar price increase in August 2007, Questcor shares rose from around 60 cents to about $50, in one of the best performances of any stock in any industry.
But in September, the shares plummeted after Aetna, the big insurer, said it would no longer pay for Acthar, except to treat infantile spasms, because of lack of evidence the drug worked for other diseases. The stock now trades at $26.93.
Peter Wickersham, senior vice president for cost of care at Prime Therapeutics, a pharmacy benefits manager that has found the drug is possibly being overused, says the huge increase in Acthar's price for patients "just invites the type of scrutiny that it's received."
Questcor, meanwhile, has disclosed that the United States attorney's office in Philadelphia is investigating its marketing practices. The company hasn't been accused of wrongdoing.
Mr. Bailey, Questcor's C.E.O., defends his company's practices. He says that when Questcor raised Acthar's price, it did not initially intend to market the drug for other uses. It simply responded to demand. "Nobody predicted this," he said. "Nobody."
He also says that Questcor isn't competing with low-price alternatives, but that it is marketing the drug as a treatment when those alternatives fail. Used that way — for instance, as a last chance to avert kidney failure — insurers are still paying for the drug at least 85 percent of the time, he says.
Still, given that Questcor is now pursuing billion-dollar opportunities far beyond the treatment of infantile spasms, is the high, orphan-drug price still justified?
"We could lower the price and make less money," Mr. Bailey says, "and then we would be sued by our shareholders."
Whatever the case, one group of shareholders has done pretty well for itself. Over the last two years, as the company's share price mainly soared, Questcor insiders have sold more than $100 million of stock.
THE story of Questcor's wonder drug begins in Rochester, Minn. It was there, at the Mayo Clinic, that Dr. Philip S. Hench spent more than 20 years searching for what he called Substance X.
Dr. Hench, a rheumatologist, hypothesized that the body could make a compound that stilled the immune system's attacks on the joints of people with rheumatoid arthritis.
It turned out that another Mayo researcher, Dr. Edward C. Kendall, had isolated six hormones made by the adrenals, the small glands atop the kidneys that are chiefly responsible for releasing stress hormones. When a few patients were injected with one of the hormones in 1948, their symptoms subsided.
But that hormone, now known as cortisone, was then hard to synthesize. So Dr. Hench thought of injecting another substance that would stimulate the body to produce its own cortisone and othersteroid hormones. That substance was adrenocorticotropic hormone, or ACTH, which is made by the pituitary gland.
Dr. Hench obtained some ACTH from the Armour meatpacking company, which was extracting it from pigs as part of an effort to develop markets for leftover animal parts. (Its big success was Dial soap, introduced in 1948.)
When ACTH was injected into the first arthritis patient in February 1949, the results were as good as with cortisone, spurring a huge spike in demand for animal glands. By 1950, thousands of patients, not only those with arthritis but also those with gout, lupus, ulcerative colitis and many other diseases, had been treated with either cortisone or ACTH.
That year, Dr. Hench, Dr. Kendall and a third scientist were awarded the Nobel Prize in medicine.
In 1952, Armour won approval from the F.D.A. for H.P. Acthar Gel, or "highly purified" ACTH mixed with gelatin (another animal byproduct) to make it last longer in the body and require fewer injections. The label said the drug could be used to treat about 50 diseases.
But by the 1980s, drug companies had learned to synthesize steroids like prednisone, and those became the treatment of choice. In 1995, when the F.D.A. found numerous quality control problems at the factory manufacturing Acthar, the drug's owner at the time, Rhône-Poulenc Rorer, decided to discontinue the product rather than invest in manufacturing improvements.
That decision provoked an outcry from some patient groups and pediatric neurologists, who said the drug was the best treatment for infantile spasms. So Rhône-Poulenc, which became Aventis after a merger, continued to make a limited supply that was rationed to treat only infantile spasms or severe flare-ups of multiple sclerosis. With Aventis losing several million dollars a year on the drug, on sales of only about a half-million dollars, the company looked for a way out.
It sold the drug in 2001 to Questcor for $100,000 as well as a 1 percent royalty on annual sales over $10 million. At the time, Questcor, formed by a merger of two small companies in 1999, was losing money and looking for drugs to market. With help from Aventis, Questcor set up its own, somewhat more modern manufacturing through a contractor on Prince Edward Island, Canada.
Questcor immediately raised the price of Acthar to $700 a vial, from $40, and the price rose gradually after that. By the end of 2006, Acthar sales were about $12 million a year, but the company was still losing money.
In May 2007, James L. Fares, left as chief executive and was replaced, initially on an interim basis, by Mr. Bailey, who had joined the board a year earlier. A mechanical engineer by training, Mr. Bailey had retired in 2000 from a 10-year run as chief executive of Comarco, a military contractor and telecommunications concern.
Three months later, Questcor announced the huge price jump, aimed at repositioning Acthar as a specialty drug. The move prompted protests from parents and pediatric neurologists.
"It made us so sick to the stomach — just the fact that something like that could happen overnight with a drug my child needed to live," says Christina Culver of Colorado Springs. "It's just like someone saying, 'I'm going to charge you for oxygen now.' "
Ms. Culver's son Tyler was in the hospital, being treated for infantile spasms, just as the price increase hit. Tyler was due to leave the hospital, and Ms. Culver and her husband, Randy, were to continue the injections at home. Then the Culvers' insurer, Blue Cross Blue Shield, refused to pay the new high price. After a storm of publicity, the insurer backed down.
Questcor, however, hasn't, and has continued to raise the price, now at more than $28,400 a vial. Insurers generally pay for Acthar because it is considered the best treatment for infantile spasms. They also tend to pay for other approved uses if cheaper drugs have been tried first. And Questcor has carefully executed the orphan-drug playbook. Patients who cannot pay are given the drug free. The company helps with insurance co-payments, to make sure that a patient's inability to make a co-payment doesn't stand in the way of the drug being used and the insurer paying $28,000 a vial.
In other words, Questcor shifts the cost onto insurance companies while staving off consumer protests. It has a staff of 30 people who do nothing but work on insurance reimbursements — about one staff member for each of the roughly 30 prescriptions it gets in a typical day for all uses.
Questcor executives argue that with the free drug program and the ample supply, patients have better access to Acthar now than when it was cheaper and often in short supply.
"We believe we've been good stewards of this product," Mr. Bailey says.
Dr. Lawrence Brown, a neurologist at the Children's Hospital of Philadelphia and the president of the Child Neurology Foundation, says of Questcor: "They have gone out of their way to help every kid who needs the medicine to get it quickly and efficiently."
This year, the foundation awarded its first corporate citizenship award to Questcor. Dr. Brown says Questcor's donations — the amount has not been disclosed — to the foundation didn't influence the award.
STILL, the price remains a sticking point.
At Children's National Medical Center in Washington, "we've been instructed not to hospitalize a child with spasms unless the authorization has been procured to pay for it," said Dr. Phillip L. Pearl, chief of child neurology. In practice, however, no child has been turned away.
Dr. Shaun Hussain of Mattel Children's Hospital in Los Angeles said that the studies showing Acthar to be better than far cheaper steroids used too low a dose of steroids.
At his hospital, he reported at a medical meeting this month, 18 of 30 babies were successfully treated with two weeks' worth of a high-dose oral steroid. Only the 12 who did not respond were switched to Acthar, with five of them successfully treated.
Given that the steroids cost $200 for each baby, compared with about $125,000 for Acthar, the approach saved more than $2 million. "We have to look at the cost to the health care system," Dr. Hussain said.
Mr. Bailey says the new price was set to make the company viable based solely on sales for infantile spasms. Executives assumed at the time that the high price would preclude other uses.
But to Questcor's surprise, he says, some prescriptions continued to trickle in to treat the periodic flare-ups that plague people with multiple sclerosis.
So Questcor began hiring sales representatives to promote the drug for that use. Then it hired a sales force to promote the drug as a treatment for nephrotic syndrome, a kidney injury that can lead to kidney failure. In June, it began selling to rheumatologists.
For all these diseases, there are cheaper alternatives. Oral prednisone, which might be used for some rheumatological diseases, can cost $10 a month. Intravenous steroids, used to treat multiple sclerosis flares, cost several hundred dollars.
Because Acthar was approved for these conditions decades ago, Questcor has not had to do large clinical trials to show that the drug works. It has paid for some small studies, mainly by individual doctors, who then publish a paper that the sales force can present to doctors.
The study that justified calling on rheumatologists involved five patients with rare conditions, all of them treated by a single doctor. All the patients had much improvement on Acthar after failing to benefit from more standard therapies, the doctor, Todd Levine, said in a Questcor conference call.
Still, it appears that at least a couple of small studies that may have raised questions about the drug have been suspended.
"From my standpoint it just didn't work," said Dr. Sungchun Lee, a Phoenix nephrologist who stopped a small study testing Acthar as a treatment for nephrotic syndrome. "I think they were O.K. with me stopping because we weren't getting the results," he said.
Another study that was terminated sought to determine whether multiple sclerosis patients who did not have a good response to steroids should be treated with either another round of steroids or with Acthar. The study was halted midway through "to analyze data," according to the summary of the trial on the federal clinical trial database.
A negative result could have jeopardized already growing sales for multiple sclerosis. The company says the trial fell hopelessly behind its goal in recruiting patients.
Given the scarce data, and the high price, most doctors do not use Acthar for multiple sclerosis, nephrotic syndrome or rheumatology.
"It's absurd," says Dr. Douglas R. Jeffery, a multiple sclerosis specialist in Advance, N.C. "There's never a clinical setting where I can justify spending $23,000 to treat an M.S. relapse."
But some doctors say Acthar can be effective in cases that are not well treated by steroids. They say that there is emerging evidence that Acthar does more than just stimulate the body to produce its own steroids.
"It really looks like the ACTH does bring something different to the table that standard steroids don't," said Dr. Ben W. Thrower, director of the multiple sclerosis institute at the Shepherd Center, a hospital in Atlanta. Dr. Thrower, who is a paid speaker for Questcor, said his institute had tried Acthar for about 60 of its 3,000 patients, ones who did not respond to steroid treatment. Acthar made the symptoms subside in about half of them.
GIVEN Acthar's price, Questcor does not need many prescriptions to make a good business. A course of treatment for nephrotic syndrome can run $250,000, while a shorter treatment for a multiple sclerosis relapse typically costs $40,000.
Questcor sales representatives who are lucky enough or skillful enough to have a big prescriber in their territory can reap bonuses of $50,000 a quarter, according to former employees of the company.
Executives are paid well, too. In 2009, Mr. Bailey hired his daughter Kirsten Fereday as director of business analytics and evaluation, a job that paid $275,000 in cash and stock last year.
Mr. Bailey and Steve Cartt, Questcor's chief operating officer, say the company's marketing has been aboveboard and that the company is now starting to sponsor more studies. "This wasn't possible until the drug was financially viable," Mr. Bailey said.
Patients report mixed results. Sharon Keller of Austin, Tex., who has nephrotic syndrome, tried Acthar after two other drugs had not worked. But she stopped, she says, because side effects including mood swings and weight gain were "much worse than I'd ever experienced."
"I almost had to fight with my doctor not to push it on me," Ms. Keller, 59, says. She says her insurer was charged $130,000 for her drug, including a vial she did not use. "I have a Cadillac in my refrigerator," she says of that leftover vial.
ONE big uncertainty hanging over Questcor is competition. As an old drug without patent protection, Acthar would seem to be a sitting duck for generic rivals. And other versions of ACTH have been sold in the past.
Yet Questcor is now arguing that its studies show that Acthar, despite the "highly purified" in its name, actually contains other substances from the pig pituitary glands that account for some of its effectiveness. The company does not intend to say what those other ingredients are, thus making it extremely hard for a generic company to copy Acthar.
"Coca-Cola is not going to tell you what Coke contains, either," Mr. Bailey says.
Whether such an argument will work remains to be seen. Even if it does, competitors could still sell other forms of ACTH. Novartis, which sells a synthetic version called Synacthen in Europe, has applied for a United States trademark, a sign that the drug might be brought to this country.
A small Maryland company, Cerium Pharmaceuticals, recently won orphan-drug designation from the F.D.A. for Synacthen to be used to treat infantile spasms. But that does not necessarily mean that Cerium has the rights to the drug or intends to market it.
Cerium is run by Gregg Lapointe, a former Questcor board member. He declined to comment for this article.
Still, Synacthen, or other versions of ACTH, might have to go through lengthy trials before being approved, and would have to be approved for one disease at a time.
So there is at least a chance that Questcor might maintain its high-priced dominance for a long time. In the meantime, the company plans to systematically expand the marketing of the drug to treat other diseases, starting with those already on the label.
Given that Acthar has many potential uses, Mr. Bailey says, Questcor sees no reason to come up with other drugs. The company has been buying back its stock, helping to underpin the price, and recently said it would start paying a dividend.
"We'll take it where it goes," Mr. Bailey says of Acthar. "It's taken us to places we never expected."