Product Development

Making Orphan drug prices work for society

Guest commentary: how external forces could drive down the high prices of Orphan drugs

The Orphan Drug Act worked too well. It didn’t just stimulate development of therapies for rare diseases, it reoriented huge swaths of the industry to the pursuit, all attracted by the high prices and product margins. But the high prices Orphan drugs command aren’t sustainable. The question is whether lower prices will be imposed on industry from the outside or whether innovation in business models can provide savings for patients while maintaining superb margins for companies.

Today, nearly 60 percent of medicines approved by the CDER branch of the FDA are Orphan drug approvals. Twenty years ago the opposite was true - pharmaceutical companies were focused almost solely on medicines for common and chronic diseases.

The purpose of the Orphan Drug Act, which President Reagan signed in 1983, was to spur drug development for diseases that were largely being ignored because the economic incentives weren’t there. The cost of development, coupled with low sales expectations, made rare diseases uninteresting from an investment perspective.

“Today’s predominance of Orphan medicines was not the anticipated outcome of the act.”

Tim Shannon, Canaan

Today’s predominance of Orphan medicines was not the anticipated outcome of the act.

What changed? The shift was catalyzed by the new regulatory landscape, and by advances in genetics that made precision medicine possible.

But the biggest factor by far was price.

Companies have attributed their high prices to the astronomical costs of R&D, yet Orphan Drug designation gives them efficiencies that dramatically cut the time and patients required.

This benefit has not translated into lower costs for patients. On the contrary, Orphan Drugs command higher prices than their non-Orphan counterparts.

What would the value to society look like if the reverse were true and drugs that benefited from the pathway were priced lower, or at least significantly lower than they currently are?

As innovative drugs are more and more the province of small companies, which are becoming increasingly powerful players, leadership from the next generation of independent biotechs could offer a chance to spark a reconstructing of the pricing paradigm.

Will anyone have the courage to do this?

They may not have a choice. Marketing and sales organizations, and executives who decide pricing strategies, may end up getting disintermediated by outsiders swooping in and disrupting, as we’ve seen in the tech industry.

The rise of Orphan drugs

Why are Orphan disease medicine approvals becoming more common than common disease medicine approvals?

At least three key factors are at play.

First is a new understanding of genetics and disease biology, ushered in by The Human Genome Project and the resulting intense focus on genetic drivers of disease. Now, cancer is increasingly seen as a collection of hundreds of rare genetic diseases rather than a single disease, and rare inherited diseases too are increasingly tracked down to their inborn genetic mutations.

A second factor is FDA responsiveness to the Orphan Drug Act, which gave the agency the ability to recommend relatively abbreviated preclinical and clinical requirements for rare disease approvals. These bespoke approvals are often based on small uncontrolled clinical studies with as few as 50-150 patients treated with the experimental medicine, creating significant R&D efficiencies compared to medicines for more common chronic non-life threatening conditions. Orphan medicine development can take less time, money and risk.

The most unanticipated factor, however, has been the extraordinary pricing of these medicines. The recently released EvaluatePharma Orphan Drug report showed that the Annual Cost to a patient is five times greater for an Orphan medicine compared to a non-Orphan medicine (see Table: “Orphans Ascend the Ranks”).

The economics of Orphan medicines are oxymoronic to the threat of “financial loss in the face of low sales expectations” that the Orphan Drug Act said it was trying to overcome.

“Rare disease medicines are increasingly the new blockbusters.”

Tim Shannon, Canaan

Rare disease medicines are increasingly the new blockbusters, only these blockbusters come with more efficient, lower cost R&D and commercialization, and with a favorable payer environment.

The biopharmaceutical industry has responded by radically realigning its businesses to focus on cancer and rare diseases. And the trend will not abate any time soon. In 2017, there were over 500 requests for Orphan status and over 300 Orphan designations granted by FDA.

Overall, this is a huge win for patients. Extraordinary things can happen when basic science priorities, regulatory policy and financial rewards are aligned. Many of these medicines are lifesaving or life-changing, and the FDA is now a proactive force guiding Orphan medicines to the market.

But, at today’s prices, the upswing in Orphan medicines can’t go on forever, especially if more and more common diseases get carved up into collections of rare ones (see Sidebar: “When Common Becomes Rare”).

Either the economics of the reimbursement system will break, or price controls will be imposed from the outside.

Paths to affordable innovation

One might expect that some of the financial benefits of Orphan drug development would be shared with patients in the form of lower prices, given the contributions of federal investment and policy support to those efficiencies. In addition, patients themselves make direct contributions through participation in clinical trials, and more recently, and perhaps more importantly, via patient tissue donation that enables discovery and innovation. However, the argument to share more of the value with other stakeholders who make key contributions to innovation has not gained much momentum.

The biopharmaceutical ecosystem is tightly knit and the major players don’t have much imperative to change. Universities and academic founders, private and public investors, and company management teams and employees all are making good money doing valuable things, which would be threatened by changes to the status quo.

For now, we will be dependent on public pressure and increased scrutiny on price and value to curtail the use of expensive products where the value proposition relative to price is suspect. The National Institute for Health and Care Excellence (NICE) in the U.K. has championed this role. In the U.S., ubiquitous disease guideline committees, pharmacy formularies and emerging groups like the Institute for Clinical and Economic Review (ICER) will hold great weight in how medicines are used based on a balance of value and price.

Market adaption and penetration have become an increasingly large barrier, larger than the historic FDA approval barrier. This will perhaps nudge companies toward more modest pricing expectations in return for market access.

“Fundamental change will need to come externally.”

Tim Shannon, Canaan

Fundamental change will need to come externally -- either from additional policy incentives, disincentives or price controls from government, or from entrepreneurs looking to disintermediate incumbents.

For instance, if precision medicine is scalable, matching one patient with one therapy, you could imagine sales and marketing organizations and mass marketing becoming obsolete. The downstream commercial partner for R&D companies need be nothing more than the patient’s electronic medical record containing the patient’s genetic profiling to match to the best medicine.

Digital technologies could also disintermediate traditional clinical trial infrastructure. For example, if the use of real-world evidence scales, it could replace the enormous cost burden of large randomized Phase II and III studies and contribute further efficiencies and savings. This might be particularly beneficial for more common diseases that currently rely on massively expensive trails. These companies of the future would be configured with significantly less sales, marketing and R&D expenses, which combined currently account for up to 60% of every pharmaceutical revenue dollar. Efficiency is gained by bypassing large, expensive parts of the current supply chain.

Disintermediation is a giant undertaking in a niched and byzantine business sector like biopharmaceuticals, so it won’t be easy. But Amazon, E*Trade, Uber, Airbnb and Lending Club are great examples of disintermediation producing pricing efficiency and improved experiences for customers, including some highly regulated businesses.

Great things have come from the alignment of science, regulatory policy and financial reward in the biopharmaceutical space. But if we are going to be able to afford continued advances, drastic innovation is required in the way these medicines are brought to patients, with those efficiencies passed on to society in the form of reduced prices.

Biotech is waiting for its Amazon to step forward.

Guest commentaries reflect the views of the author, not necessarily those of BioCentury.

Companies and Institutions Mentioned

Institute for Clinical and Economic Review (ICER), Boston, Mass.

National Institute for Health and Care Excellence (NICE), London, U.K.

U.S. Food and Drug Administration (FDA), Silver Spring, Md.