Orphan drugs paying off for firms, despite pushback

Faced with expiring patents on many of its biggest-selling drugs, the pharmaceutical industry came up with several alternative blockbuster strategies a few years ago. One involved slapping high prices on specialty drugs that treat rare diseases and then expanding their use to more common conditions. It has paid off handsomely for many companies despite recent pushback by insurers and healthcare providers.

This latest wrinkle in aggressive drug pricing compounds the broader drug-price problem for insurers and providers, who already face sky-high bills for the latest cancer drugs and improved treatments such as Gilead Sciences' Sovaldi, a first-in-class cure for hepatitis C that became an overnight blockbuster because of its $1,000-a-pill price tag. Yet, there's little chance that purchaser outrage will lead to immediate changes in how orphan and other specialty drugs are priced, analysts say.

“There has been some pushback, especially from insurers,” said Joshua Cohen, a research assistant professor for the Tufts Center for the Study of Drug Development. “But most of it is verbal pushback.”

Orphan drugs are therapies approved by the Food and Drug Administration to treat rare conditions or diseases that affect fewer than 200,000 people in the U.S. Drug manufacturers that develop therapies to treat these conditions receive a number of incentives to do so, including seven years of market exclusivity and tax credits.

In recent years, the number of newly approved orphan drugs has increased, as have the prices that companies charge for these drugs. But orphan drugs, once approved, are sometimes expanded to cover multiple indications after their makers, the National Institutes of Health and physician-scientists successfully conduct clinical trials exploring other uses of the drugs.

A classic case involves Johnson & Johnson's Remicade, which was first approved in 1998 to treat Crohn's disease, a chronic bowel disorder that affects about half a million people in North America but received orphan-drug designation based on clinical trials showing its effectiveness in children. It has now received FDA approval for 16 indications including rheumatoid arthritis, which is significantly more common than Crohn's, and is being prescribed off-label for 15 additional indications, analysts say. The drug generated nearly 10% of Johnson & Johnson's total revenue last year.

Experts say insurers and providers generally have been unsuccessful in getting drug companies to lower the prices of expensive drugs like Remicade. There are dozens of drugs with orphan designations whose sales are derived wholly or in large part from treating more common conditions (See chart).

The next steps? Analysts say consumers should brace themselves for greater cost-sharing as insurers and providers look for ways to get patients involved in driving pricing reform. Consumers soon may be selecting health plans based on their drug-benefit design rather than focusing on the plans' provider networks, said Dr. John Whang, co-president of Reimbursement Intelligence, which develops reimbursement strategies for drug companies. “Cost-sharing on the patient side is finally going to drive the conversation.”

But even that strategy may not work. There usually are no alternative treatments for patients with rare diseases, which means the companies are free to set exorbitantly high prices for the small patient populations that suffer some of the 7,000 known rare diseases, only about 500 of which have approved treatments.

For instance, Biomarin Pharmaceutical, a Novato, Calif.-based biotechnology company, in February received FDA approval for Vimizim, an enzyme-replacement treatment for Morquio A syndrome, which affects fewer than 800 Americans. The treatment is priced at $380,000 per patient a year, making it one of the most expensive orphan drugs on the market.

While it's unlikely other uses will be found for an enzyme-replacement therapy, other drugs are more like Remicade, where the high price justified by the orphan indication then gets spread across hundreds of thousands of patients and turns the drug into a billion-dollar blockbuster. That issue was front and center in a lawsuit brought last year by PhRMA, the drug industry trade group, over a 2013 HHS regulation for the 340B federal drug discount program, which allowed hospitals to buy orphan drugs at cheaper prices to help providers serving low-income and uninsured patients even when used to treat more common conditions.

In May, the U.S. District Court for the District of Columbia gave PhRMA a big win when it ruled the government did not have the authority to issue the regulation. If the ruling isn't reversed—HHS has until June 13 to appeal—the rapid expansion of 340B in recent years to rural hospitals will likely slow down. “If this decision results in the inability to use 340B pricing for orphan drugs when used for a non-orphan purpose, the increase in pricing will likely cause many of these hospitals to evaluate the benefit of the 340B program and whether to continue participating,” said a spokesman for the Safety Net Hospitals for Pharmaceutical Access.

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