A family-run drug maker faces tough choices to stay afloat in the Shkreli era

PLAINSBORO, N.J. — Not too many drug makers have a decommissioned nuclear reactor outside their front door. But not too many companies are like Jacobus Pharmaceuticals, either.

Even as the drug industry charged ever higher prices for specialty medications, the family-run company has for two decades given away its entire supply of a drug used to treat a rare autoimmune disorder. And in an era when pharma companies are building ever more showy and sleek headquarters, Jacobus occupies comfortably worn offices decorated with murals of cows — and stores equipment in the old reactor, to save money.

“They’re like the anti-Shkreli,” said Dr. A. Gordon Smith, a neurology professor at the University of Utah School of Medicine, who prescribes the company’s free drug for his patients.

But now, abruptly, Jacobus is being yanked into the modern era.

The company, run by David Jacobus and his daughter Laura, is facing its first real competition from a generic. That’s forced it to boost the price on its top-selling product, an antibiotic that treats an itchy rash, by 157 percent.

Meanwhile, another competitor is seeking federal approval to sell a slightly modified version of a drug that Jacobus has been handing out free to 200 patients with Lambert-Eaton myasthenic syndrome, or LEMS. Eager to maintain its hold on the medication, Jacobus rushed to complete a clinical trial to build its own case in front of federal regulators. If it gets the OK, the company will soon start charging patients who have previously gotten the drug for free.

The tumult makes Jacobus an interesting case study about the pressures on drug makers in the era of Martin Shkreli. He’s the brash hedge-fund manager who made headlines by buying a decades-old medication, hiking the price 5,000 percent, plastering his face on social media as critics howled — and then bragging that he should have raised the price higher still.

By contrast, Jacobus has turned one of its three core products into a charitable program, making the drug just to give it away free to LEMS patients.

“Of course, we want to make money,” Laura Jacobus said. “This is not a groovy socialist enterprise. But we also want to meet unmet medical needs. This is about being responsible.”

Opting to give away a drug for free

Jacobus got into the LEMS market by accident.

More than 20 years ago, the company was approached by several doctors on behalf of the Muscular Dystrophy Association, which was funding researchers who hoped to produce a finished drug for a study. David Jacobus agreed to manufacture an experimental product.

The resulting drug proved effective for patients with LEMS, which is characterized by muscle weakness in the limbs. Jacobus Pharmaceuticals was willing to continue production, given that patients were benefiting.

Yet this was a tiny market and, at the time, drug companies did not typically charge the huge sums of money that are now commonplace for treatments of rare disorders. So the revenue potential seemed quite small.

And in order to sell the drug, which is called 3-4 Dap, at any price, the company would have had to invest in expensive clinical trials in order to win marketing approval from the Food and Drug Administration. That, in turn, might have required Jacobus to set a higher price than the father-daughter team felt comfortable charging.

“As a society, we have to be willing to pay something for our medicines, but not tens or hundreds of thousands of dollars,” Laura Jacobus said.

“We had to choose,” she added.

So the company opted to provide the drug to LEMS patients for free through a federal program called compassionate use.

A jump into the rare disease market

For years, the approach worked.

But several years ago, BioMarin Pharmaceutical won the right to sell a slightly modified version of the drug in Europe. In 2012, BioMarin licensed it to Catalyst Pharmaceuticals, which hopes to enter the US market.

Since LEMS is a rare disease, Catalyst won an “orphan designation” from the FDA, which means it can have an exclusive right to sell its drug in the US for seven years — once it receives marketing approval from the agency. But doctors and patients worry that Catalyst could charge a high price and prevent Jacobus from giving away its medication.

Catalyst declined to discuss a projected price, but argues more patients would have access to the treatment if it wins FDA approval. It estimates the US market at about 3,000 patients, far more than the 200 who have been receiving LEMS for free from Jacobus.

All this happened against the backdrop of soaring interest by the pharmaceutical industry in rare diseases such as LEMS.

The patient population for rare diseases is by definition small, but the market bears sky-high prices. For instance, the cystic fibrosis medicine Kalydeco is priced at nearly $287,000 a year, and the specialty cholesterol medication Juxtapid costs $367,000 a year, according to Truven Health Analytics.

Pushed by the Catalyst move, Jacobus decided to jump in to this highly lucrative market.

It launched clinical trials, racing against Catalyst to win FDA approval for the LEMS drug. If it wins approval, it would start marketing — and selling — the drug that it had long treated as a purely charitable program.

Last month, Jacobus got good news: The FDA refused to accept Catalyst’s marketing application.

It’s unclear when the agency will make a decision about Jacobus’s application.

Maneuvering to fend off generics

While giving the LEMS drug away, Jacobus had sustained itself with sales of an antibiotic called Dapsone, which is used to treat an autoimmune condition that results in a chronic, itchy skin rash. The medicine generated $12.7 million in sales in 2014. (Jacobus also markets Paser, which is a backup treatment for tuberculosis, but it’s a tiny product, yielding just $55,000 in sales that same year.)

Dapsone kept the company afloat. So when a competitor recently won FDA approval to sell a generic Dapsone, Laura Jacobus faced a difficult choice.

Needing to ensure a revenue flow, she authorized the first price hike in years. It took effect last month: A 30-day supply of the 25-milligram tablet jumped from $26.50 to $68.46.

In another maneuver — common in the pharmaceutical industry, though it may sound sneaky — Jacobus also began putting out its own generic version of Dapsone, and arranged for another company to sell it. The system lets Jacobus capture some of the revenue that would have gone to the competing generics maker.

“This drug is our backbone,” said Laura Jacobus. “We have no choice.”

Updating documents by hand

Agonizing over such decisions is not the only thing that makes Jacobus unusual.

Located just a few minutes from Princeton, a bustling college town in central New Jersey, the company may as well be a world away.

The facility can only be reached by driving along a lengthy stretch of preserved woodlands. The Jacobus name does not appear anywhere, not even on the outside of its building, where some 50 people work.

And the company’s headquarters is a drab, decades-old affair. The manufacturing equipment is state-of-the-art, but the cluttered offices and research labs bring to mind a middle school, not a modern pharmaceutical company.

The vibe is decidedly low-key, too.

Murals of cows — the property once housed a dairy farm — decorate the walls. Tacked to a hallway bulletin board are small pieces of paper with inspirational quotes from George Merck, who ran the big drug maker that bears his family name, and Andy Warhol, the avant-garde artist. “The idea is not to live forever,” the Warhol quote reads. “It is to create something that will.”

The most startling feature, though, is an 87-foot-high conical dome located just a few yards from the main entrance. Once a nuclear reactor that was used for isotope production and research, the structure was decommissioned and deemed safe years ago by federal authorities. In keeping with a frugal corporate philosophy, Jacobus uses the dome to store equipment.

“It’s perfectly safe. Do you think the FDA would allow us to manufacture product nearby if it weren’t?” asked Laura Jacobus, a guarded woman who is also something of an anomaly herself in the pharmaceutical world.

Jacobus, 53, wears jeans to work. Her business card does not mention her title. She updates various internal documents by hand, rather than rely on computers.

And she doggedly maintains the lowest of profiles in an industry that thrives on winning recognition for its profits and cures.

“She’s a shy person,” said Dr. Donald Sanders, a Duke University researcher who worked with the Jacobus family when they first developed their LEMS drug and, more recently, helped design the clinical trial that was submitted to the FDA. “She’s not obligated to any investors to reveal what their company does.”

Despite all the tumult, Laura Jacobus has few regrets about how she’s run her business.

“We’ve tried to do good,” she said. “And we’ve been able to support a lot of patients for all these years.”