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How pharmaceutical companies profit from drugs for rare diseases

Rare diseases have turned into big business. Mikelederay/www.shutterstock.com

How pharmaceutical companies profit from drugs for rare diseases

Rare diseases have turned into big business. Mikelederay/www.shutterstock.com

Pharmaceutical companies’ traditional focus on discovering the next US$1 billion “blockbuster” drug has shifted in recent years, from products for common diseases to treatments for rare conditions. And in new research we’ve published, we found that legislation enacted to incentivise the pharma industry to invest in medication for rare conditions is now so profitable that it’s stifling investment in other vital areas of drug research.

Blockbuster drugs have been dependent on a high volume of prescription sales. Heartburn treatment Losec, the brand name for omeprazole, earned pharmaceutical company Astra US$6 billion a year up to the year 2000. Pfizer’s Lipitor (atorvastatin), used to reduce cholesterol, generated up to US$12 billion per year and cumulative sales of US$131 billion to 2011. Yet unit prices were low, with both available for about US$2 per patient per day.

Today’s pharmaceutical business model, by contrast, is focused increasingly on rarer diseases, where the low volume of prescriptions has to be countered by high unit costs to ensure a return on investment. So why the change? Concerns that rare conditions were being neglected by drug developers led to the 1983 Orphan Drug Act in the US, the orphan medicinal products regulation by the European Parliament, and other such laws internationally. These rules incentivise pharmaceutical companies to develop medicines for rare diseases – “orphan drugs” – that would otherwise not be commercially viable.

The incentives on offer include seven years of market exclusivity in the US, and ten years in Europe (which may be further extended for paediatric use); reduced or waived regulatory fees and tax credits. These have been very successful so far: the Food and Drug Administration has approved more than 500 drugs for rare diseases since the US law came into force, compared with fewer than ten such products in the decade before that.

High price for low demand

Niche drugs can command hefty prices, however. Gilead’s hepatitis C drug, Sovaldi, for example, costs US$84,000 for a 12-week course, and Vertex’s cystic fibrosis drug, Kalydeco, is priced at US$311,000 per patient per year. In fact each one of the world’s ten most expensive drugs is an orphan, with Soliris – used to treat certain types of rare blood diseases – topping the list at more than US$400,000 per patient per year. Although these are prescribed to fewer patients, their high prices can result in revenues equivalent to traditional blockbusters.

The focus used to be on making money from high sales of commonly used products. Lisa S./www.shutterstock.com

The pharmaceutical industry is acutely aware of this. Former chief executive of drug company Shire, Angus Russell, told the Wall Street Journal in 2013 that “large pharmaceutical firms watched smaller drug-makers develop drugs for orphan diseases that reached hundreds of millions or even billions in sales and followed suit”. In 2011, for example, pharma giant Sanofi-Aventis paid US$20 billion to buy orphan drug maker Genzyme.

Almost a third of drugs for rare diseases now exceed US$1 billion in annual sales. The global orphan drugs market is expected to reach US$176 billion by 2020, and account for 19% of total branded prescription drug sales.

This has led to many concerns, most notably put by former US representative Henry Waxman who introduced the Orphan Drug Act, that: “The act has been used by some highly profitable manufacturers of drugs to increase their profits and block competition.”

Adopting orphans

Our recent analysis of the companies which market nearly 200 orphan drugs provides even more damning evidence. Compared to control companies matched by size, country, and research and development investment, those which market orphan drugs are five times more profitable and have a 10%-15% higher market value. Moreover, their profits have been increasing by 11% for each additional orphan drug produced.

This suggests that policies directed towards incentivising orphan drug development have worked to the extent that companies are profiting excessively. But this may have had the adverse unintended consequence of directing R&D resources away from other areas of unmet clinical need, such as new antibiotics.

So what can be done? Orphan drug status could be redefined, incentives might be reduced and prices could be controlled. The pharmaceutical industry will likely oppose such measures, however. While orphan drugs are for rare diseases that are serious or potentially life threatening, a distinction could be made between drugs with specific use for one condition (often for ultra-rare hereditary diseases), and those used in a number of conditions. Gleevec (imatinib), for instance, has European Medicines Agency orphan status for seven different cancers.

The duration of market exclusivity could also be better linked to the revenue generating potential of each orphan drug. Under the orphan medicinal products regulation in the EU, member states can trigger a review of the profitability of individual products to limit the period of monopoly to six years. This is to allow other companies to enter the market sooner, promote competition and put downward pressure on prices. Cost containment measures might include reimbursing companies a price which more closely reflects the value of the medicine or applying direct controls on companies’ profit margins.

Whatever steps are taken, appropriate policies are needed now to stop orphan drugs becoming less affordable for patients in need while companies get more profitable.

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