Orphan drugs and reasons behind their exorbitant prices

‘Orphan medicines’ or ‘orphan drugs’ are medications for rare diseases that affect fewer than 5 in 10,000 people, according to the European Medicines Agency (EMA). In the EU, this amounts to roughly 250,000 people. In the US, the number is set at 200,000 people. The development of medicines for rare diseases historically lagged behind the development of cures for common ailments. Due to a much smaller patient pool and the higher cost of launching on the market, orphan medicines appear less profitable for the pharmaceutical companies to invest in, as the unit cost is significantly higher, compared to more commonly prescribed drugs.

The prices of orphan medicines are a major burden on the healthcare systems as well as the patients, raising concerns about their accessibility. In the presence of generous benefits to companies creating orphan drugs, the question arises of whether the current system works or whether the prices are excessive. To understand the seemingly astronomical prices of medicines for rare diseases, it is necessary to go underneath the surface and look at the reasons behind them.

Recouping Costs of Investment

The first argument explaining the high prices of orphan medicines is the need to recoup the costs of investment in R&D. While there is no universally accepted average cost of putting a new medicine on the market, a widely cited study conducted by Tufts Center for the Study of Drug Development estimated it at $2.6 billion in 2016.[1] Pharmaceutical companies argue that in addition to raw ingredients and manufacturing, the price should also include the R&D costs of the unsuccessful drug launches. After all, only around 10% of medicines make it from the initial development stages to launch.[2]

One way for pharmaceutical companies to recover their investment is through pricing. Due to a small target group using an orphan medicine, the prices are often high. A further factor that plays into the price level is the fact that the chance to recoup the costs is time-barred. While the medicines are expensive to develop, they are relatively easy to copy. The developers of orphan drugs thus only have a short period within which they can recover their sunk costs. The medicines generate profit only for as long as they are protected by patents, as cheaper generic drugs can enter the market once the IP rights expire.

Patent Protection

Patent protection is by no means unlimited. International and European provisions set the maximum period of protection at 20 years. The 20-year period may be extended in the EU for up to five years, via a supplementary protection certificate. The extension of the protection period is justifiable to compensate the developers of medicinal products for the time lost during the lengthy testing and clinical trials while waiting for the EU market authorisation, meaning that the creators of orphan medicines must recover the high costs of investment within a limited period. While the latter might seem long, it is relatively short in light of the high R&D costs. Thus, the question arise of whether we should extend the length of the protection period. Would this help bring down the high prices of medicines, especially orphan medicines?

There is no clear answer. While longer patent terms might give the pharmaceutical companies more time to recoup the R&D costs, lower prices would not necessarily follow. The patents might still face the risk of invalidation and their developers the threat of competition, further justifying higher prices. The current length of the protection period thus strikes a necessary, yet fragile, balance between permitting the makers of medicines to profit from their inventions and eventually making them available to the general public.

Incentivising Development

Orphan drugs are medical breakthroughs which can radically improve patients’ lives. Investing in orphan medicines would be deemed unattractive if the pharmaceutical companies were developing them at a loss with no possibility to recoup the costs. Allowing them to recover their investment and operate at a profit is essential to encourage the future development of ground-breaking medicines.

With a view to stimulating biotechnology and pharmaceutical companies to develop medicines which are very expensive to put on the market and not very likely to be profitable due to the small number of patients taking them, the US government passed the Orphan Drugs Act in 1983. In the US, orphan drugs benefit from seven years’ market exclusivity, tax credits for R&D costs, fee elimination and reduction, as well as federal and state grants for drug development. The equivalent EU legislation entered into force in 1999, introducing similar advantages for orphan medicines, with the market exclusivity period being three years longer. According to the EMA, 164 initial orphan marketing authorisations and 22 extensions of indication were granted between 2000 and 2018.[3] In the US, the number reached 503 between the adoption of legislation in 1983 to 2018.[4]

The Most Expensive Medicine in the World

How has this special regime performed in practice? Let us consider spinal muscular atrophy (SMA). This disease destroys the nerves that control muscles, leading to difficulties with performing even the most basic functions. SMA affects 1 in 10,000 babies born every year,[5] and pharmaceutical companies have traditionally been slow to develop medicines for it. Until recently, the most advanced medication for this disease was Biogen’s ‘Spinraza’, which patients had to take regularly and indefinitely. Now, the medicine sold under the trade name ‘Zolgensma’ developed by AveXis, a subsidiary of global giant Novartis, offers a one-time gene therapy that works by repairing the genes that carry the disease. A single dose of the new medicine suffices to produce long-lasting beneficial effects, resulting in cost savings in the long term and improved quality of life immediately. As SMA is the number one genetic cause of infant death, the new drug can rightly be called a medical breakthrough. Nevertheless, this revolutionary medicine comes with a hefty price tag that has made headlines around the world. At $2.1 million, Zolgensma currently holds the title of the world’s most expensive medicine.

Looking Forward

We must not let the high price distract us from the fact that such medicine would likely never have existed had it not been for the incentives offered through the orphan medicines system and the opportunity for the innovators to monetise their invention. The special orphan drug regime and the possibility to price the medicines at market rates have helped bolster new scientific breakthroughs, improving the lives of patients with rare diseases around the world. While the costs of many orphan medicines are indubitably considerable, they can be made more accessible by inclusion in public healthcare schemes or flexible payment methods, striking a balance between encouraging pharmaceutical companies to innovate and making drugs for rare diseases readily available. However, the orphan medicine regime in itself is an insufficient stimulation. It can only provide an effective means of incentivisation when combined with robust patent protection.

There are clear benefits for the preferential treatment of orphan medicines and their developers in the fight against rare diseases. Most importantly, it has stimulated pharmaceutical companies to develop medicines for diseases previously thought incurable. The road to finding the perfect balance between accessible price of medicines and effective incentivisation of their developers is rocky, however, and time will tell if there are more efficient ways of developing easily accessible cures for rare diseases.

[1] JA DiMasi, HG Grabowski and RW Hansen, 'Innovation in the pharmaceutical industry: New estimates of R&D costs' (2016) 47 Journal of Health Economics 20 accessed 9 January 2020.

[2] K Smietana, M Siatkowski and M Møller, 'Trends in clinical success rates' (2016) 15 Nature Reviews Drug Discovery 379 accessed 9 January 2020.

[3] European Medicines Agency, 'Orphan medicines figures' (2018) accessed 9 January 2020.

[4] IQVIA Institute for Human Data Science, 'Orphan Drugs in the United States' (December 2018) accessed 9 January 2020.

[5] A D'Amico, E Mercuri, FD Tiziano et al, 'Spinal muscular atrophy' (2011) 6 Orphanet Journal of Rare Diseases 71 accessed 9 January 2020.