Looking ahead at orphan drugs' future: More breakthroughs, exploding sales
In 2015, the Food and Drug Administration (FDA) approved 45 new drugs, beating out 2014’s tally and marking the highest number of approvals since 1996. But the agency didn’t just rewrite the record books for new drugs; it also approved more orphan drugs for rare diseases than any other prior year. Among the 45 new molecular entities in 2015, 21 were designated as orphan drugs.
Defined in the U.S. as treating under 200,000 patients, orphan drugs have received increasing investment and attention from the pharma industry. Although patient populations are small, pharmaceutical companies have been drawn towards orphan development by a combination of market exclusivity, pricing power, and favorable R&D tax credits.
In the U.S., approved orphan drugs enjoy seven years of marketing exclusivity and receive a 50% tax credit on R&D costs. Although the parameters are slightly different, Europe grants an even longer 10 years of exclusivity. These regulatory incentives give pharma companies the opportunity to price new drugs higher, a prospect which has buoyed the number of applications.
The FDA’s Office of Orphan Products Development received a record 472 orphan drug applications in 2015, and designated 354 of those as orphan drugs. (A designation does not mean the drug will be approved and is received prior to the approval process.)
Three Orphan Blockbusters
In a recent report compiled by Thomson Reuters, three of the seven “drugs to watch” in 2016 carried orphan tags. All three were forecast for blockbuster (>$1 billion sales) status by 2020. Sumitomo Dainippon Pharma’s obeticholic acid for the treatment of chronic liver diseases led all seven drugs with a forecast of $2.62 billion in 2020 sales. If approved, it would be the first treatment for primary biliary cirrhosis to be approved in more than two decades.
AbbVie plans to enter the orphan market with Venetoclax, its drug for the treatment of chronic lymphocytic leukemia. The third orphan drug on the list, Actelion’s pulmonary arterial hypertension drug Uptravi, received FDA approval late last year.
The three drugs highlight the revenue promise of orphan drugs. Evaluate Pharma, an analysis firm, predicts worldwide orphan drug sales will grow to $178 billion, from $97 billion in 2014. This projected growth is twice as fast as that of the overall drug market, propelling orphan drugs to just over 20% of global prescription sales in 2020.
Higher prices, greater returns
In the same analysis, Evaluate Pharma calculated the average cost to patients for orphan drugs compared to non-orphans. In 2014, average cost for orphan drugs per year was $111,820 versus $23,331 for broader market pharmaceuticals. Median cost per year for orphan drugs was $66,057.
With smaller patient populations, drug companies have fewer customers to recoup costs and make a profit, leading to higher annual prices. For example, Baxalta’s drug Advate earned $220,839 in revenue per patient, but only treated 4,460 patients in 2014.
This dynamic presents a double-edged sword. Greater pricing power and exclusivity incentives draw in drug companies to develop treatments they might otherwise find unprofitable. But, it can also lead to incredibly high costs for patients who have no other treatment options.
This is not exclusive to orphan treatments, however. The broader drug industry has also come under fire for its pricing practices, with Congress members and presidential candidates weighing in.
Recently, the House Oversight Committee grilled the interim CEO of Valeant Pharmaceuticals and senior executives from Turing Pharmaceuticals, two companies which have been castigated for their pricing policies. Both Valeant and Turing have bought the rights to older, off-patent drugs and rapidly increased prices many times over. Other companies, like market darling Gilead, have also faced blowback for pricing new, game-changing treatments close to $100,000 per regimen.
Too many orphan drugs?
A new paper published in the American Journal of Clinical Oncology argues pharmaceutical companies have deliberately submitted drugs as orphans and then subsequently sought additional indications to expand the patient population. Companies may originally target a very specific subset of a population and then seek to slowly expand the drug’s scope. Cancer drugs like Bristol-Myers Squibb’s Opdivo or Merck’s Keytruda were originally granted orphan drug designations but have since won much broader indications for other types of cancer.
As orphan drugs continue to enjoy stronger growth than other prescription drugs, the steady increase in orphan drug applications and approval looks likely to continue. However, with a souring pricing climate in the drug industry overall, orphan drugs may come under greater scrutiny than in the past.
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