Do Orphan Drugs Really Need Development Incentives?

Drugs approved for an "orphan" indication ended up making just as much money as their non-orphan counterparts, even though they were helped by incentives during development, researchers found.

There was no significant difference in median 5-year net sales between orphan and non-orphan drugs ($719 million vs $812 million, P=0.09), reported Benjamin Rome, MD, MPH, of the Program on Regulation, Therapeutics, and Law (PORTAL) at Brigham and Women's Hospital in Boston, and colleagues in a research letter in JAMA.

"The Orphan Drug Act comes from a good place, which is [to get companies] to invest in these rare diseases, since they're not going to make a lot of money because the population is very small," co-author Sean Tu, JD, PhD, of West Virginia University in Morgantown, told MedPage Today. "But we show that's not true. They're making a ton of money."

"If you want to make a million dollars, you can charge a million people $1 or you can charge one person a million dollars," he added. "They're just charging these exorbitant rates to a very small population who have no choice."

Tu pointed to the example of lumacaftor/ivacaftor (Orkambi) for cystic fibrosis. The therapy made about $5.5 billion in the 5 years after its launch, despite CDC data showing that cystic fibrosis affects about 35,000 people in the U.S.

Jakub Hlávka, PhD, of the USC Schaeffer Center for Health Policy & Economics in Los Angeles, who was not involved in the study, said the research letter is a good start for generating discussion around reforms to the now-40-year-old Orphan Drug Act.

"It's much more difficult to come up with broad drugs" for large populations today, he said. "The low-hanging fruit has been harvested, and the nature of science today is different from 1983. It's a valid discussion to have -- 'How can we reform it given the new way drug development happens.'"

However, Hlávka said, he wouldn't base that discussion on revenue or sales. While the data Rome and colleagues used for the analysis "are some of the best when it comes to net prices, after taking rebates out," as opposed to list prices, "we can't just look at sales alone without thinking about the value these products generate."

"Revenue could be a good proxy for commercial success, but it doesn't tell us how much went into R&D, how much they got back from tax incentives, and what the profit margin is on that revenue," he noted.

Nonetheless, the research letter is a "helpful part of the discussion," he added.

This year marks the 40th anniversary of the Orphan Drug Act, which was enacted in 1983 to incentivize pharmaceutical companies to invest in drugs for rare diseases. It offers many benefits, including tax breaks, expedited FDA review, and 7 years of exclusivity instead of 5, Tu said. In addition, they "get to set their prices really high."

Over the last 4 decades, more orphan drugs have made it to market, including many high-earning products, the researchers noted. Thus, the "continued need for the statutory incentives has been debated," they wrote.

For their research letter, Rome and colleagues used SSR Health data to identify 315 drugs newly marketed from 2008 through 2016, with 5 years of follow-up data through 2021. Of these, 83 were initially indicated as orphan drugs; 67 of these remained orphan-only, while 16 subsequently added multiple indications -- including six that had a secondary non-orphan indication.

"In such cases, drug manufacturers benefit from Orphan Drug Act incentives and can extend to all uses the high prices set for the first indication," the researchers explained.

In addition to 5-year revenues being similar, the interquartile ranges for orphan and non-orphan drugs were as well, they said ($298 million to $1.8 billion vs $228 million to $2.4 billion).

The study was limited because it examined only drugs made by public companies, excluded sales in non-U.S. markets, and lacked data on sales volume. Nonetheless, the authors said Congress should act to do something about potentially unnecessary incentives.

"The question is, do we really want to give all these benefits, when the revenues are similar to non-orphan drugs?" Tu said. "We want people to invest in rare diseases, but it shouldn't subsume everything. It would be really bad if 80% of our new drugs are in rare diseases and 20% is for everyone else. The incentives are not set correctly."

Congress could reform some of the incentives of the Orphan Drug Act "by requiring manufacturers to repay tax credits when orphan-designated products are commercial successes," the researchers wrote. The legislature should "rethink the incentives for orphan drugs to avoid offering unnecessary incentives for commercially successful products."

Hlávka pointed to a 2022 Institute for Clinical and Economic Review white paper that examined potential reforms to orphan drug policies and incentives, highlighting solutions such as focusing on ultra rare or single-gene disorders where it's truly financially impossible to develop therapies given extremely limited treatment populations -- as opposed to the current definition of a rare disease, which includes conditions that affect no more than 200,000 people per year.

"There seems to be some agreement on what are called 'partial orphans,' limiting the incentives where the treatment is not really just an orphan treatment, but maybe the first indication is an orphan one," Hlávka said. "But companies will always adjust to any incentives we make."

"It may be something that requires deeper analysis that we don't yet have," he added.

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