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European Biopharmaceutical Review
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As the number of companies in the rare diseases sector increases, will
value and unmet medical need be sufficient to sustain the high prices of
orphan drugs?
“It's not just about the cost of medicines; it is mainly about their
value.” So said Henri Termeer, head of Genzyme for 26 years, in a recent
interview with Dutch daily newspaper NRC Handelsblad (1).
Mr Termeer was referring to the price of orphan drugs, which have been
the topic of much debate recently. “The point is that we as a society
have to justify how we spend the available money. Those few patients who
need expensive, innovative treatments have hardly any effect on the
health budget. However it does make a difference whether you have people
in wheelchairs or people who can return to work,” said Termeer.
There may be as many as 8,000 rare diseases, yet there have been only
425 orphan drug approvals in the US and 65 in Europe. Traditionally, the
pharmaceutical industry has always focused on relatively common
diseases, where the potential for large sales volumes can support a
business model which requires very large investments in discovery,
research and development, coupled with significant risk of failure. As a
result, rare (orphan) diseases were largely ignored by the
pharmaceutical industry until the introduction of orphan drug
legislation in 1983 (US) and 2001 (Europe), which provided incentives to
help make the development of treatments for rare diseases more
commercially interesting.
The orphan drug legislation is probably only one of multiple reasons why
activity in the orphan drug sector has increased signifi cantly in the
last few years. The dwindling pipelines of the traditional
pharmaceutical companies have also played an important part. All of the
big common diseases now have treatments and, although these are not
perfect, it is getting harder to show an advantage over existing
medicines, which is essential for market penetration in the current
economic climate. Coupled with the fact that most of the blockbuster
drugs are now going off-patent, to be replaced by cheap generics, it is
not surprising that the large pharmaceutical companies are looking for
alternative strategies for future commercial success. The expansion of
the biotech industry, which has accompanied recent advances in molecular
biology, and the stronger, better organised rare diseases patient
groups, will also have played a role.
A New Perspective
Several recent articles have highlighted the commercial attractiveness
of orphan drugs and suggested that they might represent an alternative
strategy for Big Pharma (2-4). Meekings et al showed that orphan drugs
have equal revenue-generating potential to non-orphan drugs (2).
Furthermore, they calculate, the compound annual growth rate for the
orphan drug market between 2001 and 2010 was 25.8 per cent. They point
out that the revenue-generating potential is increased where a single
drug is approved for multiple orphan indications. A further analysis by
Thomson Reuters showed that, of the top 10 orphan drugs, six had more
than one rare disease indication with an average peak value of $34.3
billion (3). In his review, Phillips reports that gross profi t margins
of orphan drugs may be more than 80 per cent, compared to the
pharmaceutical industry average of 16 per cent (4).
For rare disease sufferers and their families, it is a positive thing
that companies are finally taking an interest in developing treatments
for their illnesses. But the fact that orphan drugs are individually
very expensive – even though they are each used in only a small number
of patients – is a potential problem on the horizon, which must be
tackled sooner rather than later.
It is not simply a matter of value, it is a matter of limited and
already stretched healthcare budgets, at least in European countries.
These budgets are effectively fixed; the only way to increase them is to
raise the amount that people pay for their insurance or taxes. This
means that money can only be found to pay for expensive drugs if it is
diverted from elsewhere. Currently, this is still feasible without any
significant impact on other services provided by a country’s health
service, since the overall cost of orphan drugs is still relatively
small in comparison to what a country spends on healthcare (orphan drugs
account for only about six per cent of the total pharmaceutical budget)
(3). But if, as it is claimed, there are 6,000 to 8,000 rare diseases,
affecting six to eight per cent of the world’s population – hundreds of
millions of people worldwide – it doesn’t take long to work out that it
will not be possible to have treatments for a significant proportion of
these diseases and still demand the same high prices that are being
asked for the handful of orphan drugs that are currently available.
It should be noted that this conclusion is not in line with that of
EURORDIS in a 2009 publication (5). This report stated that the costs of
orphan drugs would not increase out of proportion, although their
argument only holds if the number of orphan drugs remains small. “At an
individual level”, the report stated, “treatment of a rare disease is
more costly than treating the majority of common illnesses. However, the
rarity of the disease and the limited number of orphan drugs available,
compensate the burden of cost at the level of society.”
Currently, the world’s most expensive drug is Soliris (eculizumab),
licensed for the treatment of paroxysmal nocturnal haemoglobinuria
(PNH). Despite the fact that PNH is an ultra-rare condition, the high
price (approximately $440,000 per patient per year) generates annual
revenues for the manufacturer (Alexion) of more than $1.1 billion, with
Wall Street expecting that figure to double again over the next three
years. Its current net margin is 22 per cent and Alexion shares are up
600 per cent since the drug’s approval, outperforming even companies
such as Apple (6). Soliris was recently licenced for an additional
indication: atypical haemolytic uremic syndrome (aHUS).
Paying the Price
Unfortunately, there are signs that the price of orphan drugs is
damaging the image of this sector. In a series of articles in the BMJ
two years ago, several objections were raised about the industry’s
approach to orphan drug pricing (7-11). There are also worrying signs
that payers may not be willing to pay the high costs, even where there
is no other treatment available and patients may suffer or die as a
result. For example, the Dutch Health Insurance Board (CvZ) recently
gave preliminary advice not to reimburse enzyme replacement therapies
(ERT) for Pompe and Fabry diseases. They had calculated a quality
adjusted life year (QALY) for ERT in Pompe disease of €15 million (for
comparison, a typical acceptable QALY may be up to €38,000). In this
case, after an intervention by EURORDIS and the Amsterdam Academic
Medical Centre, the CvZ decided that reimbursement of the drugs will be
continued, but it is unlikely that this is the end of the story, and it
demonstrates that orphan drugs are not immune to the cost-containment
measures implemented by governments on healthcare budgets.
Even in the European Community, where a marketing authorisation for an
orphan drug is valid in all 27 member states, individual countries are
responsible for their own healthcare budgets. As a consequence, the
reimbursement of orphan drugs varies across Europe; in some countries
patients have no access to approved products, even when no other
treatment is available (12).
A number of proposals have been put forward in an attempt to facilitate
the job of health technology assessment bodies. CAVOD (Clinical Added
Value of Orphan Drugs) is an initiative developed by EURORDIS, and these
ideas have been further refined into a proposal put forward in a paper
by Hughes- Wilson et al (13). These authors propose that, at the time of
pricing and reimbursement, each new orphan drug could be evaluated
against several criteria, such as:
● Rarity of the condition
● Level of research undertaken
● Level of uncertainty of effectiveness
● Manufacturing complexity
● Follow-up measures required by regulatory authorities
● Disease severity
● Available alternatives/unmet medical need
● Level of impact on condition/disease modification
● Single or multiple indications
Individual countries would determine the monetary value placed on each
of the different criteria, creating a systematic and transparent system
for a more structured dialogue between manufacturers and payers.
The approach outlined above, if implemented, may represent a useful
method to determine reimbursement. However since drug development is a
long process, companies will be thinking about how the situation will
look when their drug reaches the market, and if more and more
high-priced orphan drugs fail to receive reimbursement in important
markets, this may mean that companies and investors will start to find
the orphan drug sector less commercially attractive, causing it to
suffer as a result.
One issue which rarely seems to be tackled head-on is whether companies
really need to charge such high prices for an orphan drug. Professor DW
Light of Stanford University claims that the cost of (traditional) drug
development is considerably less than the figure of $1 billion or more
which is often used to justify the cost of pharmaceuticals (14). He
calculates that the real cost for most new drugs is likely to be closer
to $43.4 million. Professor Light did not make a specific estimate for
the development of an orphan drug, but in many cases the cost of
development is likely to be significantly less than for traditional
drugs for common diseases for several reasons:
● Development is faster, with an average of 3.9 years, compared to 5.42
years from Phase 2 to launch for orphan versus non-orphan drugs (2)
● Clinical trial programmes are usually smaller because of the reduced
numbers of available patients and the larger effect size when there are
no available treatments for comparison
● It is often possible – or even essential – to use surrogate endpoints
● Special regulatory pathways, such as approval under exceptional
circumstances or conditional approval, are more likely to apply to
orphan drugs
● The chances of regulatory success are higher (2)
● The development may be less risky (for example, a monogenetic disease with a clear target for therapy)
● In case a drug is being re-purposed, the development costs are very low
● Marketing costs are considerably less due to the absence of
competition and the established physician and patient networks which
exist by the time the drug is launched
Conclusion
Considering these factors, is it possible that companies might be
willing to charge less for orphan drugs? Would this still represent an
interesting business proposition? Or could this be an area where social
entrepreneurs might come in? Several organisations have been created
recently which aim to develop treatments for rare diseases using public
money or on a not-for-profit basis. The company Genethon is financed
almost entirely by proceeds from the French muscular dystrophy
association, which raises money from the annual Téléthon. But whether
any of these solutions could realistically hope one day to provide
treatments for rare diseases in a sustainable model remains to be seen.
References
1. Termeer H and Schikan H, Interview, NRC Handelsblad, 2013
2. Meekings KN, Williams CSM and Arrowsmith JE, Orphan drug development:
an economically viable strategy for biopharma R&D, Drug Discovery
Today 17 (13/14): pp660-664, 2012
3. Thomson Reuters, The economic power of orphan drugs, 2012. Visit:
http://thomsonreuters.com/content/news_ideas/articles/ science/713363
4. Phillips MI, Big Pharma’s new model in orphan drugs and rare diseases, Expert Opinion on Orphan Drugs 1(1): pp1-3, 2013
5. EURORDIS, Orphan drugs: rising to the challenge to ensure a better
future for 30 million patients in Europe, 2009. Visit: www.eurordis.org
6. Forbes, 2012. Visit: www.forbes.com/sites/
matthewherper/2012/09/05/how-a-440000-drug-is-turningalexion-
into-biotechs-new-innovation-powerhouse
7. Ferner RE and Hughes DA, The problem of orphan drugs, BMJ 341: c6456, 2010
8. Godlee F, Stop exploiting orphan drugs, BMJ 341: c6587, 2010
9. Hawkes N and Cohen D, What makes an orphan drug? BMJ 341: c6459, 2010
10. Roos CP, Hyry HR and Cox TM, Orphan drug pricing may warrant a competition law investigation, BMJ 341: c6471, 2010
11. Nicholl DJ, Hilton Jones D, Palace J et al, Open letter to prime
minister David Cameron and health secretary Andrew Lansley, BMJ 341:
c6466, 2010
12. Bignami F, 6th ERTC workshop Barcelona, 2007. Visit: www.eurordis.org/IMG/pdf/2007ODsurvey-eurordis.pdf
13. Hughes-Wilson W, Palma A, Schuurman A and Simoens S, Paying for the
orphan drug system: break or bend? Is it time for a new evaluation
system for payers in Europe to take account of new rare disease
treatments? Orphanet Journal of Rare Diseases 7: p74, 2012
14. Light DW and Warburton R, Demythologizing the high costs of pharmaceutical research, BioSocieties 6: pp34-50, 2011
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