Study suggests orphan drug legislation might be too successful

Print 07 November 2016
Nuala Moran / BioWorld

LONDON – A study by U.K. academics shows that orphan drug legislation designed to incentivize investment in treatments for rare diseases is generating products so profitable that investment in broader indications is being stifled.

According to an analysis of 83 publicly quoted companies, which together market nearly 200 orphan drugs, compared to control companies matched by size, country and R&D investment, orphan drugs companies are five time more profitable and have a 10 percent to 15 percent higher market valuation.

Niche drugs are commanding high prices and all of the world's 10 most expensive drugs are orphans, with Alexion Pharmaceuticals Inc.'s Soliris (eculizumab), for treating atypical hemolytic uremic syndrome and paroxysmal nocturnal hemoglobinuria, heading the list, at more than $400,000 per year.

"Although these [10 drugs] are prescribed to fewer patients, their high prices can result in revenues equivalent to traditional blockbusters," said Dyfrig Hughes, professor of pharmacoeconomics, and co-director of the Center for Health Economics & Medicines Evaluation at Bangor University, Wales.

Almost one-third of drugs approved for rare diseases now exceed $1 billion in annual sales. The global orphan drugs market is expected to reach $176 billion by 2020, accounting for 19 percent of prescription drug sales.

The mean price of the top 100 orphan drugs by sales in 2014 was more than six times higher than a comparable sample of non-orphan drugs, at $137,782 per patient, per year vs. $20,875.

As Hughes and his co-author Jannine Poletti-Hughes, lecturer in accounting and finance at Liverpool University, pointed out, in addition to premium pricing, owners of orphan drugs get incentives, including seven years of market exclusivity in the U.S. and 10 years in Europe, with the possibility of further extensions for pediatric use.

Small companies developing orphan drugs get access to science advice from regulators, reduced or waived regulatory fees, and tax credits.

Those incentives have paid off, with the FDA approving 503 treatments for rare diseases since the orphan drug legislation came into effect in 1983, compared to fewer than 10 in the decade before. Orphan drugs accounted for 21 of 45 new innovative drugs approved by the FDA in 2015.

The EMA has authorized 123 orphan drugs since the European legislation was enacted in 2000.

The analysis, published in PLOS One, shows not only are orphan drug companies more profitable, their profits have historically increased by 11 percent for each additional orphan drug that reaches the market.

For Hughes, who has acted as an external expert for the EMA's Committee of Orphan Medicinal Products, incentives have tipped the balance, allowing companies to make excessive profits. "This may have had the adverse and unintended consequence of directing R&D resources away from other areas of unmet clinical need, such as antibiotics," he said.

The study compared 86 companies with orphan drug approvals in Europe, the U.S. or both, with 258 control companies, showing orphan drug marketing authorization holders have a 9.6 percent higher return on assets than non-orphan drug companies.

Those finding are in contrast to previous studies which suggested orphan drug companies are less profitable and less valuable than other pharma companies. Those studies attribute that to higher R&D expenses decreasing the net profit margin.

Rather than costing more, Hughes claims, discovering and developing orphan drugs costs less, and that is a key reason orphan drugs companies are higher value and more profitable. "Phase III clinical trials of orphan drugs, for instance, are less expensive than non-orphan drug trials, at an average of $95 million vs. $219 million, per product approved," he said.

In addition, 38 percent of orphan drugs have been repurposed from other indications, eliminating discovery research overheads, accelerating time to marketing authorization and increasing the chance of securing approval.

"Following authorization, the cost of marketing is comparatively small because the target population of physicians and patients are themselves so small," said Hughes.

Reflecting the spirit of the legislation – with its aim of providing treatments for rare diseases for which there are currently no therapies – neither public nor private reimbursement bodies have much leverage in negotiating prices for orphan drugs. And in Europe, orphan drugs are subject to less intensive health technology assessments.

While the analysis can be said to illustrate orphan drug legislation is a success, it also suggests the system is not sustainable. As Hughes pointed out, common diseases increasingly are being classified as multiple rare conditions, each eligible for orphan designation.

He suggested a distinction could be made between drugs for specific use in one condition, for example a gene therapy for a particular inherited disorder, and those used in a number of conditions. "Gleevec [imatinib] for instance, has EMA orphan status for seven different cancers," Hughes noted.

A further corrective would be to link market exclusivity to revenues. In Europe, individual countries can trigger a review of the profitability of individual products to limit the monopoly to six, rather than 10 years, allowing other companies to enter the market sooner.

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