Market Barriers to the Development of Pharmacotherapies for the Treatment of Cocaine Abuse and Addiction: Final Report. Case Study 3: Clozapine



Drug Overview

Clozapine is a tetracyclic dibenzodiazepine antipsychotic agent marketed by Sandoz Pharmaceuticals under the trade name Clozaril in the U.S. and Leponex in the rest of the world. It is part of a class of drugs known as "atypical antipsychotic agents" which do not exhibit the typical extrapyramidal side-effects of antipsychotic agents including acute dystonia, rigidity, tremor, and akathisia. Clozapine has been used to treat schizophrenia, nonschizophrenic psychotic states, depression, neuroses, and behavioral disorders (Ereshefsky 1989). Clozapine has demonstrated remarkable results in treating patients with schizophrenia, particularly those who were previously treatment-resistant. Unfortunately, clozapine has been associated with an elevated rate (2% of all patients taking clozapine) of agranulocytosis characterized by a sharp decline in white blood cells making the patient more susceptible to potentially fatal infections. As a result, the FDA required that a comprehensive case-management system be used by all providers who dispense clozapine to ensure that patients' white blood cell counts are monitored weekly. The use of clozapine was also restricted to three sub-populations: (1) treatment-resistant patients with schizophrenia (approximately 10-20% of patients with schizophrenia), (2) patients who cannot tolerate the extrapyramidal symptoms of conventional anti-psychotics, and (3) patients with evident tardive dyskinesia that is not suppressed. (Tardive dyskinesia is characterized by involuntary repetitive movements of the facial, buccal, oral, and cervical musculature. Unlike most anti-psychotics that cause tardive dyskinesia in 15-20% of patients, clozapine has not been found to cause tardive dyskinesia.) (Ereshefsky 1989). Clozapine therapy must be initiated in an inpatient setting, to ensure the safety of the patient by titrating the dosages to reduce the risk of agranulocytosis. As described in this case study, the risk of agranulocytosis and the need for stringent and expensive patient monitoring was a major barrier to market penetration.

Market Overview

Approximately 1% of Americans (2.4 million people) are afflicted with schizophrenia, and between 10 - 25% (approximately 250,000) of these patients receive little or no benefit from conventional anti-psychotics (Cruzan 1989). Sandoz estimated that of these, approximately 33% (60-80,000) would respond to clozapine therapy (Pink Sheet 1991). Although patients with schizophrenia represent only a small portion of the U.S. population, they account for almost 25% of all inpatient beds used for any medical treatment in the U.S. The schizophrenia pharmacotherapy market is estimated at $1.1 billion annually and includes haloperidol, the most widely prescribed antipsychotic drug, clozapine, risperidone (approved in 1993), olanzapine, perphenazine, among others (FDC Reports 1997).

In addition to having a relatively small patient population, the market for drugs for schizophrenia shares a number of other characteristics with the substance abuse population. For example, both markets share Medicaid as a primary payer, a state-run treatment system, and a patient population that often has trouble with activities of daily living. For the schizophrenia market, approximately 90% of schizophrenia patients in the U.S. are Medicaid recipients, many are treated in state-run hospitals, and patients with schizophrenia are more likely to be non-compliant with pharmacotherapy than patients without schizophrenia (In the case of schizophrenia, non-compliance is attributed to the fact that patients with schizophrenia do not understand their condition). The similarities of the markets make the inclusion of a case study on a treatment for schizophrenia especially pertinent to the development of pharmacotherapies for substance abuse.

Key Issues from the Case Study

As much of the initial research and clinical development of clozapine was conducted outside the U.S. and funded by Sandoz, the clinical development issues are less relevant to U.S. R&D efforts. Rather, clozapine's post-regulatory and marketing periods are more relevant segments of this case study, in light of the FDA's novel regulatory requirement of a patient monitoring system and prohibitively high cost of clozapine treatment which severely impeded sales despite high clinical demand. These issues were resolved only through legal action involving the Food and Drug Administration (FDA), the Federal Trade Commission (FTC), the Health Care Financing Administration(now known as Centers for Medicare and Medicaid Services(CMS)) (HCFA(now known as CMS)), and providers such as the Department of Veterans Affairs (VA) Hospitals who demanded a lower cost of clozapine distribution.

The development of clozapine relates to the development of pharmacotherapies for substance abuse because a private pharmaceutical company invested its own money to develop a drug despite a small market. The fact that Sandoz marketed clozapine to a worldwide market helped to lower the barrier of small market size. However, the drug faced a significant market penetration barrier in the U.S. and Canada when sales of the drug were linked to an expensive patient monitoring system. Once distribution of the drug was separated from the patient monitoring system, sales of clozapine in the U.S. doubled. This case study provides an example of how a tightly controlled drug delivery system and a high price can impede market penetration.

Product History and Development Timeline

Clozapine was developed in Eastern Europe by the Wander division of Sandoz Pharmaceuticals. Clozapine's clinical development can be divided into essentially two phases, or "attempts." The first "attempt," depicted in Figure 30, began with clozapine's discovery and synthesis in 1952, and ended in 1975, when clozapine was withdrawn from worldwide markets after an outbreak of clozapine-associated agranulocytosis.

Clozapine was first patented in the late 1950s in Switzerland. European clinical trials began in 1962. Clozapine was first patented in the U.S. on November 10, 1970. U.S. clinical trials began in 1972, 10 years later after the European trials. From 1973 until 1975, clozapine was marketed for the treatment of schizophrenia in 22 countries (in Europe, Asia and Africa) under the trade name Leponex.

Figure 30: Timeline for Clozapine Development, Part I

Figure 30: Timeline for Clozapine Development, Part I

Figure 31: Timeline for Clozapine Development, Part II

Figure 30: Timeline for Clozapine Development, Part I  Figure 31: Timeline for Clozapine Development, Part II

In 1975, clozapine was withdrawn from the world market after 16 cases of clozapine-associated agranulocytosis resulted in 8 fatalities in Finland (Anderman 1977). Other cases of clozapine-associated agranulocytosis and fatalities were reported to a lesser extent in other countries. Compassionate use of clozapine was allowed in research settings from 1976 to 1982. In 1981, as providers developed stricter patient monitoring systems, the sales volume of clozapine began to increase.

The second "attempt" at the clinical development of clozapine began in 1984, after an FDA advisory committee approved further U.S. clinical development of clozapine, as shown in Figure 31 (above).

U.S. phase III clinical trials recommenced in 1985 and the U.S. NDA was approved in 1989. The FDA approval stipulated that Clozaril (U.S. trade name) be sold only with a patient monitoring system to prevent fatalities due to agranulocytosis. In February 1990, Sandoz introduced Clozaril in conjunction with the Clozaril Patient Management System (CPMS) to promote the monitoring of patients' white blood cells to identify and control cases of agranulocytosis. Pricing of Clozaril in connection with the CPMS triggered marketing resistance to the drug, as described below. In December 1990, 33 states and the District of Columbia filed suit against Sandoz claiming that the company was "price-fixing" by limiting the sale of a highly desired product for a limited patient population through a monitoring system that was prohibitively expensive, and which could be provided by health care providers less expensively.

The remainder of this case study will discuss in detail the events after clozapine entered the U.S. market, and how the resulting bundling issues were resolved.

Clinical Development and Product Positioning Issues

The product history and clinical development of clozapine is not directly pertinent to the case study, as most of the clinical development occurred in Europe. There were very few barriers to diminish the intent of Sandoz to develop their antipsychotic drug. From initial clinical trials, the drug demonstrated improved efficacy over competing products without the same extent of extrapyramidal side-effects. The main barriers faced by Sandoz arose from marketing issues in the U.S. associated with the CPMS.

Product Marketing Strategy and Sales

When clozapine was approved by the FDA in 1989, the agency required that the drug be distributed with a patient monitoring system. The FDA had several reasons to require a patient monitoring system including: (1) a high incidence of a potentially fatal adverse reactions, (2) the inability to identify in advance patients who will suffer the reaction, (3) the probability that the risk of death can be substantially reduced by weekly testing and monitoring, (4) FDA's experience that physicians do not always comply with label recommendations for relatively burdensome testing and monitoring, and (5) an unusual patient population that cannot be relied on to take responsibility for regular testing (Peck 1990).

Sandoz implemented a novel marketing tactic of selling clozapine exclusively through the CPMS in conjunction with Caremark, a division of Baxter, and Roche Biomedical Laboratories, which tied distribution of the drug to weekly white blood cell monitoring. The drug and the CPMS were bundled at a price of $172 dollars per week, which resulted in a cost of approximately $9,000 (1990 dollars) per patient per year making clozapine therapy approximately 8 to 15 times more expensive than therapy with traditional anti-psychotics (Tokarski 1990). Clozapine was sold primarily to state mental health hospitals, the VA hospitals, and state Medicaid programs. Sandoz was criticized for charging so much for a drug that was desperately needed for a relatively small group of patients whose treatment was funded almost entirely through taxpayer dollars, via Medicaid.

Sandoz had several reasons to justify the high cost of the drug in conjunction with the CPMS, including: (1) to recover research and development costs, (2) to cover the costs of the monitoring system, (3) to ensure financial stability with the U.S. patent for clozapine set to expire only 4 years after market approval, and (4) to reduce the chances that Sandoz would be subjected to liability suits due to cases of agranulocytosis resulting from improper monitoring.

This marketing strategy created a significant price barrier to rapid diffusion of the product. By July 1990, only 5 months after clozapine was introduced in the U.S., the VA hospitals stopped providing clozapine to patients because of the restrictive cost (Tokarski 1990). By December 1990, almost 1 year after clozapine was introduced, only 7,100 patients (of a target market of 250,000) were taking clozapine. The poor distribution of a needed drug and provider lawsuits prompted the federal government, through legal and regulatory activity, to force Sandoz to separate the drug from the patient management system.

As shown in the graph below, in less than one year after Sandoz separated the drug from the patient management system and HCFA(now known as CMS) mandated that clozapine be included on state Medicaid formularies, sales of clozapine in the U.S. doubled. Sales of clozapine have been increasing since 1991, despite increasing competition. In 1993, clozapine enjoyed a worldwide sales growth of 60%. In 1993, Janssen's risperidone (Risperdal) entered the market as the second atypical antipsychotic, creating stiff competition for clozapine. In 1996, clozapine's worldwide growth was 17% with 1.7 million worldwide prescription sales and a 7% share (based on number of annual prescriptions) of the total market. In comparison, Risperdal captured 14.2% of the world market in 1996, with a 69% increase in prescriptions. Haldol and haloperidol generics are still the most popularly prescribed anti-psychotics with 18.8% of the worldwide market and 3.1 million prescriptions (Pharmaceutical Approvals Monthly 1996).

Policy Interaction in Product Development and Distribution

The key legal issue surrounding Sandoz's marketing strategy was that the FDA required a patient management system, but they did not require that Sandoz should control the only patient management system thus creating a distribution monopoly and limiting the supply of the drug (Peck 1990). In August 1990, the FDA clarified their labeling requirements to explain that any patient monitoring system could be used with the drug as long as the system maintained certain standards to ensure patient safety (Peck 1990). Despite protests from provider groups such as the American Medical Association (AMA) and the American Pharmaceutical Association (APhA) who felt that pharmaceutical companies lacked the authority to credential pharmacy or medical practice, the FDA required Sandoz to be responsible for registering alternative patient monitoring systems (Martin 1991, Hospital and Community Psychiatry 1991).

In January, 1991, Sandoz separated the sale of clozapine from the monitoring system, which lowered the cost of the drug alone to $4160 per patient per year, provided that the supplier had their own patient monitoring system registered by Sandoz. Also at this time, Sandoz began a public relations advertising campaign in USA Today and the Wall Street Journal declaring that they had made no profit on Clozaril, and with the patent expiration date only 4 years away, were almost guaranteed not to make a profit. In May, 1991, HCFA(now known as CMS) ordered state Medicaid programs to cover the cost of clozapine. In June, 1991, the FTC pronounced that Sandoz had violated antitrust laws by requiring patients to enroll in an exclusive and extensive blood monitoring program. In 1992, Sandoz reached a $20 million settlement with the provider groups. Despite these lowered market barriers and the lower cost of clozapine, as of 1996 only 11,000 patients were receiving clozapine in the U.S..

Likely Future of the Product

Recently, the FDA Psychopharmacologic Drugs Advisory Committee unanimously recommended that after 6 months blood monitoring could be reduced to every two weeks and voted 7-3 to allow monitoring after 1 year of therapy to be voluntary. The FDA based their decision on a national registry study which showed that the risk of agranulocytosis is greatest in the first few months of therapy. This ruling will expand the market for clozapine treatment to include patients who did not use clozapine because of the monitoring requirements and will make treatment less expensive. Because the rate of agranulocytosis is low and can be identified and controlled, clozapine may yet become a popular first-line therapy (Pink Sheet 1997).

Clozapine faced a few other significant market barriers, all associated with the required patient monitoring that may be reduced now that the monitoring requirements have been lowered. These barriers included patient reluctance to use clozapine because of the required monitoring which was time consuming, involved needles, and required them to go to the doctor on a weekly basis (Boodman 1993). As the monitoring restrictions are reduced, more patients may be willing to try clozapine, potentially as a first-line therapy.

Clozapine's U.S. market exclusivity ended in 1995. Clozapine served as the first model of an antipsychotic agent without extrapyramidal side-effects, and thus spawned research into the newer classes of atypical anti-psychotics entering the market today. Since the introduction of clozapine, several atypical anti-psychotics have entered the market increasing competition. These products, e.g., risperidone, hope to demonstrate the same clinical efficacy as clozapine without the side-effects. Although clozapine has not reached its market potential of 250,000 patients, further clinical research based on second generation clozapine products that do not have a potentially fatal risk factor may be more successful in penetrating the market.


Clozapine had great clinical promise when first introduced in Europe in the 1960s. Once the potentially fatal side-effect of agranulocytosis was properly managed, the demand for clozapine rose but not to the level of initial expectations. The major market barrier to the success of clozapine in the U.S. was the prohibitively high cost of the associated patient monitoring system. This is the key issue of this case study that could be a potential market barrier for the development of cocaine pharmacotherapies in the future.