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Imprimis Pharmaceuticals is disrupting the compound pharmaceutical industry, a segment of health care that’s undergoing significant regulatory upheaval. The company’s line of ophthalmology drugs could reduce or eliminate the need for post-surgical eye drops. Its approach is drawing support from many, including Dr. Richard Lindstrom, who serves on the company’s board.
Tom Salemi: Hi, everyone, welcome to the OIS Podcast. This is Tom Salemi. I’m your host. Happy to be here with another tale of innovation. This particular story will take us to the compound pharmacy industry. It’s an area we really haven’t talked about at all on the Podcast. And we’ve focused a lot on medtech and on biotech and pharmaceuticals of course larger ophthalmic companies. But this is a space that is actually going to be seeing a lot of disruption that’s been brought on by regulatory changes that were required, unfortunately, after a very tragic occurrence in 2012: an outbreak of fungal meningitis killed 64 people. The deaths were tied to contaminated epidural steroid injections made at a business called the New England Compounding Center. The deaths actually led to charges being leveled against executives at that company. But on a larger scale, the compound pharmacy industry, which really had flown under the radar, got a great deal of attention from Congress and from the FDA. In fact, in 2013, Congress passed the Drug Quality and Security Act, which introduced a whole new level of regulatory oversight. The industry is now adjusting to that, and with that is coming disruptive entities like our guest today, Imprimis Pharmaceuticals. CEO Mark Baum is working to build a portfolio of products in ophthalmology and also urology, based upon the formulations or reformulations proposed by physicians in both areas. So today we’re going to talk to Imprimis about their business, about the compound pharmacy industry, and about the changes that are coming to the ophthalmology industry. Please have a listen.
TS: Mark Baum, welcome to the Podcast.
Mark Baum: Thank you, Tom. I’m happy to be speaking with you.
TS: Mark, we profile a lot of different type of innovative approaches to healthcare on this show. A lot of them are technical, medtech oriented, obviously in the pharmaceutical space. You’re representing a company, Imprimis, today. You’re CEO, one that’s bringing innovation to an area that hasn’t really seen much innovation, the compound pharmacy industry. Can you tell us a little bit about the company and where you fit in the ophthalmology space?
MB: So compounding has always been the smallest, and I like to say, the red-headed stepchild of the pharmaceutical business. You have branded drug companies and generic drug companies, and there’s all these compounded drug companies, and it’s been a highly fragmented, multi-billion-dollar industry for quite a long time, dominated by small mom and pops, multi-generation businesses that are all around the country, you know, Minneapolis to Miami, all across the country. And what we’re really doing, the way that we play is we are bringing novel formulations. So we’re really focused on proprietary formulations that are either patented or patent pending, that you would otherwise really take through a 505b2 process. So these are well characterized, FDA approved, generic drugs that we use in a new way, or that we deliver in a new way. The difference is that we don’t take the risk of going through a clinical development program. Instead, we make them available through compounding pharmacies and soon outsourcing facilities that we own so that we can get to market rapidly and hopefully, and this is part of our vision, is to lower the cost of these therapies to the healthcare economy, while at the same time producing beautiful returns for our shareholders.
TS: Why the focus in ophthalmology?
MB: Ophthalmologists – we focus in areas, so whether it’s – in any area, we think about the types of physicians that are going to prescribe our formulations. And if you do market research, physicians like ophthalmologists and urologists, the folks that we market to, ophthalmologists in particular, I think the data shows that over 9 out of 10 ophthalmologists in the United States regularly prescribe compounded formulations. So when they think about the opportunity to prescribe a compounded formulation, it’s not something that they say, Oh, no, this is not FDA approved, and they have a ton of questions about it. They have a ton of questions no matter what, but they certainly are more comfortable with compounded formulations than other physician groups.
TS: And how do you come upon the ideas for your formulations? Do they come from the physicians themselves primarily? Or do you have other sources of innovation?
MB: So our model is really what we call a bottoms up approach as opposed to a top down, where most pharmaceutical companies’ ideas are generated from brainiac scientists and folks who really have not clinically interacted with a patient. Of course, there are always exceptions. But every one of our formulations comes from the clinical interaction between a physician and a patient. It’s a patient who has received a compounded formulation prescribed for him or her by their physician, and they’ve had a great experience, and the physician has seen a great outcome. We get access to those formulations, we vet them, we want to make sure that we can get IP wrapped around those formulations, and that we can validate that clinical experience. Because it’s one thing if it works in the inventor’s office. We want to make sure it works outside of the inventor’s office. And then of course today, these days, everybody is concerned about whether they can get paid for what they produce, and so we look at those issues as well. But our source of innovation is mainly physicians, although we have worked with other compounding pharmacists who have great ideas. And sometimes it’s a combination of the two.
TS: And do you usually maintain some sort of royalty relationship with the creator? Or how does that work?
MB: We do. I mean after we vet the formulation and we’ve looked into the IP issues and the market issues, size of the market issues and the issues concerning getting paid and others, we will hopefully reach an agreement with the inventor, and typically they’ll maintain some sort of royalty structure post deal as we effect a commercial plan.
TS: And how do you vet the ideas in a clinical way? I know the compounding pharmaceutical industry is really – it’s flown under the radar largely, as you mentioned earlier, until recent unfortunate events led to the passage of the Drug Quality and Security Act in 2013. I mean that’s really focused or shone a bright light on this industry. What are you able to do on a clinical basis to vet reformulation ideas and to ensure they’re safe, and to get them out into market and do it in an affordable way?
MB: It’s a great question. So we don’t – we have to be very careful about what we say and don’t say. And we really don’t do a lot of talking about what our formulations do. We don’t have labels like you would with an FDA approved product. But there is this tremendous body of data about what triamcinolone does, for example, which is one of the components of one of our ophthalmology formulations. Doctors know what moxyfloxacin is, which is another component. And so we don’t need to tell physicians, ophthalmologists in particular, what to do with triamcinolone or moxyfloxacin. These are active pharmaceutical ingredients that they have used numerous ways over many decades, in most cases. So they’re quite comfortable with a compounded formulation. The key, I think, for the physician is buying from a trusted supplier, buying from a trusted source. And that really gets to this NECC tragedy and some of the recent regulatory challenges that have taken place as a result. And what we’ve really positioned ourselves as is an A+++ player in the compounding space, a company with a national presence, a company that can ship into all of the largest states and soon to be all 50 states. And a company that’s operating at a totally different quality standard than many sterile compounders have historically. So that’s what we bring to the table. And what’s exciting is that with the passage of the Drug Quality and Security Act, there have been new incentives created by Congress for companies like ours to actually register with the FDA and to make our formulations in FDA registered facilities. That is happening. It’s coming. We’re building a state of the art facility in Roxbury, New Jersey right now, and very soon we’re going to be making our key formulations from an FDA registered outsourcing facility under GNP processes. So that’s exciting for us, it’s exciting for the customers. It’s all as a result of this horrible tragedy in New England. But I think it’s great for customers and it’s just really good for everyone. And we’re really pleased to be a part of that increased quality standard that I think the market is demanding.
TS: Can you take just a second and kind of recap us all on what happened with the New England Compounding Pharmacy group, and the problems that grew from the that, and what the regulatory changes mean for the compounding pharmacy industry going forward? Is it just better inspection or what is different? What do you do differently now than you might have been able to do, or companies like yours might have been able to do prior to the passage of the Drug Quality and Security Act?
MB: Before the DQSA, you had mom and pop compounding pharmacies that really were not – I’m really talking about sterile compounding. These are small players that were shipping for what’s called office use. So they didn’t have an individual prescription for an individual patient. They were just kind of shipping out massive quantities, and in the case of New England Compounding, a specific steroid that did not have a preservative in it, and obviously there was a terrible outbreak of meningitis, and dozens and dozens of people lost their lives as a result of this irresponsibility. What I’ve always said is that just because someone does it absolutely wrong doesn’t mean that a player like Imprimis and other responsible players can’t do it right. And I think that’s what we’ve demonstrated now, I think. Just for example, in the cataract surgery space, physicians have prescribed one of our key formulations now over 70,000 times. And so that’s exciting. And we have a really great team that’s building these formulations for us. So we think things can be done in the right way. What the DQSA does though, is it creates an incentive for companies like Imprimis to register as an outsourcing facility. So they created this new thing, Congress did, called an outsourcing facility. And they said, hey, if you register with the FDA, you allow the FDA to inspect your facility, you make things to GMP and you make only a certain number of things that we’re going to put on a list, and you don’t make other things that we’re going to put on a negative list, so we’ll put out the positive and the negative list, that you’ll be able to ship interstate. So you can actually make formulations to scale, and ship them in all 50 states, and you will not need an individual patient’s prescription. Now Tom, that’s a very, very short summary of a fairly complicated law, so and it’s certainly nuanced. But that’s an exciting opportunity for us to be able to ship interstate without a prescription. You’ll submit to FDA inspection, which we love, by the way. We love the fact that the FDA is going to make sure that everybody is playing by the highest standards. That’s great for everybody. The issue is going to be, and this really goes to the heart of your question, what in the heck can you make in one of these things. And so far, the FDA has been fairly liberal in what you can make and cannot make. But we think that over the next 12 to 24 months it’s going to become better defined in terms of what you can and can’t make. And that’s when things will get really interesting. Because frankly, if they’re really restrictive and they only allow you to make very, very few things in these FDA registered facilities, it’s going to cause folks like us to go back to doing things the old way. And God forbid, you know, we play by the highest standards, but God forbid someone doesn’t, and other folks can get hurt. So I think the FDA is incented to really liberally allow folks to make as many things as possible in an FDA registered facility. We hope that’s what happens. But it’s still up in the air.
TS: We’re going to take a break right here from this tale of innovation to remind you that your story needs to be told at an upcoming OIS conference. So our next one is on November 12 in Las Vegas. You can still go to OIS.net and fill out a presenting application, presenting company application, and get your story told at an upcoming conference. We’d love to hear from you and hope you’ll be part of our event. Now back to this interview with Mark Baum.
TS: How does CMS view these? Do they get involved at all? Is there any kind of reimbursement? Or is it just the prices are so low that they just include it in the payment for any procedure that’s done? Or is there a separate code for these medications?
MB: You’re talking about our Dropless formulations?
TS: Yeah, that’s a good point. Let’s get into specifics. Talk a bit about what you offer in ophthalmology since this is the OIS Podcast. And after describing your portfolio, how does this sort of fit into the entire cataract procedure? Is this something that there is a separate reimbursement for? Is it something that patients pay out of pocket? Who pays for the products that you make?
MB: Yeah. So our goal with every one of our formulations, as I said, is to solve pain points for the physician, the patient, and really the healthcare system altogether. So right now we think there’s a tremendous opportunity, and I think we’re proving that with the gain in our market share that we’ve experienced since we launched, that there’s general dissatisfaction with eye drops. Folks don’t like eye drops. The patients don’t, the physicians don’t. They’re expensive. I mean my wife prescribed some eye drops for me. She’s a physician. And I paid at CVS for an NSAID, an antibiotic and a steroid, and one of them was a generic, I have a receipt from CVS for $421 out of pocket. That’s a lot of money for most people. So and as I said, one of them was a generic. So very expensive. Who likes putting eye drops in their eyes? I think the data shows that I think a majority of patients don’t even get them in their eyes, right? So tremendous opportunity to deliver the medicine in a different way. And we have a formulation that physicians have prescribed. It’s an injectable. It’s injected at the end of a cataract surgery. It takes 5 seconds. And a lot of folks now know about it. Of course, our market research, when we started, I think no one had ever heard of us. I think one out of over 150 docs had actually heard of Dropless. But now I think our marketing shows that over 75% of the ophthalmologists in the US know about Dropless. But it’s delivered as a single injection at the end of the cataract procedure. And time after time, at the podium of large eye meetings, you know, the biggest in the United States, docs talked about the great outcomes that they’ve received with this injectable. That technology, the technology that allows the corticosteroid and the antibiotic to actually be mixed together into the suspension to make it injectable, is the core technology that we own. Well, that core technology allows for multiple APIs to mix together in a way that’s tunable so we can actually tune the particle sizes up or down, depending on the application that the physician requests. And it can be delivered as an injectable at the end of the cataract procedure. So great formulation. We’ve had terrific success with it so far. The business is growing beautifully, week after week, month after month. And by the way, it’s happening in spite of the fact that we get absolutely zero support from CMS. So right now physicians are actually paying for it out of their pocket. So that’s the kind of efficiency it adds to their practice. We have docs that are using Dropless. They promote Dropless cataract surgery, Dropless cataract therapy, our trademarks in their markets in Phoenix and in Minneapolis, all over the United States. Philadelphia. And they’re winning business from their competitors because they offer Dropless. The patients now know about Dropless. So it’s really exciting. Other physicians tell us that their ability to convert what is a traditional Medicare cataract surgery to a premium formula, a premium service is much higher when they offer Dropless in conjunction with a multi-focal lens, for example. So the physicians are using a low cost investment in Dropless as a way to make more money and provide a terrific product for their patients. So it’s really exciting. And right now, the teacher is in effect paying for the students’ school books. You know, the physicians are paying out of pocket. But we hope that in the future that CMS says, Holy smokes, these patients are going out of pocket – you know, the average Medicare patient is going out of pocket a lot of money, depending on their plan, of course, to pay for these eye drops. And not only are they going out of pocket, but gee whiz, we’re spending a ton of money ourselves at CMS. And I know CMS. They definitely care about saving money, and so when I think that they see the opportunity to save a significant amount of money, we think there’s an opportunity to save over a billion dollars a year just on cataract surgery. We think that’s going to hopefully cause them to give us some support, or at least allow patients to have the choice to pay for Dropless cataract surgery, Dropless therapy.
MB: But to kind of complete the answer, we also have used our technology now to launch a drop family of formulations. So we now have what we call LessDrops. Once again, we took the same technology and we have used it to combine an NSAID, a steroid, and an antibiotic in one bottle. So for example, the three bottles that I paid $421 for, and we don’t compare the two because they’re totally different, obviously. One’s an FDA approved formulation and ours is compounded. But we do have a formulation that is a steroid, an antibiotic and an NSAID that we sell for $60. And it’s being prescribed and I don’t know, sometimes I think the physicians are using it like Tabasco sauce. I mean it’s selling really, really well, thank goodness, being prescribed well. So it’s being used not only in cataract surgery procedures, but also in Lasik procedures as well. So that’s exciting. So that’s really our ophthalmology offering: topical formulations and injectables.
TS: And what, going forward, what sort of business opportunity is there for you as a company? You mentioned the roll up potential early on. This isn’t an area that’s drawn a lot of interest from investors yet or from innovators as well. Yet I see you’ve got Dick Lindstrom on your board, and he is no stranger to innovative concepts and ideas. So that leads me to think that there are some big changes afoot and that Imprimis has some big plans going forward.
MB: Yeah. First of all, Dick’s tremendous, and I’m really pleased that we have the opportunity to work together at the board level. What a great clinician and what a great reputation. And he’s made a great impact on our board. But you’re right. There is a trend, and as I said at the beginning, this third leg of the pharmaceutical’s still this compounding leg. I think it’s about to have instead of a negative light being shined on it is what happened after NECC. I think there’s a positive light that’s about to be put on compounding because the Drug Quality and Security Act has created this opportunity for outsourcing facilities to come into being. And we’re making that investment. We are going to be an FDA registered facility. So when we talk about quality and we talk about products that our competitors make in a GMP environment, we’re going to also talk about our products, our formulations that are made in a GMP environment. And that is tremendously exciting for the purchasers, the prescribers, and the ultimately the users to have the benefit of that kind of quality environment. And that’s where compounding’s going. And I think you’re going to also see a lot more visibility into how big this business is. There’s a company called Pharmedium, which is one of the largest players in the compounding space. They are – they just filed last week an S1 registration statement to go public. They’re a multi-hundred-million-dollar revenue company. And people are going to know about compounding through that IPO that’ll happen here pretty soon. Of course Diplomat has been a fabulously successful stock. DPLL is their symbol. And they do a lot of compounding. And I think there are a couple of private equity backed companies that will likely go public that are very large compounding and specialty pharmacy companies that you’ll see do IPOs maybe this year, if not early next year. So a lot of positive light being shined on the industry, what it’s capable of, and I think the financial community is going to get a better idea of what the opportunity is here real soon.
TS: Great. Well, I’m glad we had the chance to hear that story here on the Podcast. And look forward to tracking your progress going forward.
MB: Thanks so much, Tom. I appreciate the opportunity to tell our story.
TS: Thanks, Mark Baum for joining us today and for shedding some light on the compound pharmacy industry. It’s an area undergoing great disruption, and it’s going to be interesting to see what emerges from all those changes. Thank you all for listening to this tale of innovation, and don’t forget if you want to tell your story at our upcoming OIS conference, go to ois.net, fill out a presenting company application, and you could appear on the stage at an upcoming event. And of course if you want to be in the audience to see these great stories being told and to hear the conversations between ophthalmology’s leaders, executives from Alcon and Google and of course Allergan and others, go to ois.net to register to attend our OIS conference on November 12. And we’ll see you in Las Vegas.