spacer
home > ebr > spring 2013 > the price of value
PUBLICATIONS
European Biopharmaceutical Review

The Price of Value

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


Read full article from PDF >>

Rate this article You must be a member of the site to make a vote.  
Average rating:
0
     

There are no comments in regards to this article.

spacer
Dr Anthony Hall graduated from King’s College London with a first class honours degree in Physiology and Pharmacology before going on to study Medicine at the Royal Free Hospital. He joined the pharmaceutical industry in 1994 and started his own company in 2001. Since 2010, he has focused exclusively on the orphan drugs and rare diseases sector. Anthony is Co-Founder of Findacure Foundation, as well as working as a consultant providing advice and guidance on the development of orphan drugs to the biopharmaceutical industry.
spacer
Dr Anthony Hall
spacer
spacer
Print this page
Send to a friend
Privacy statement
News and Press Releases

Santhera and ReveraGen Announce FDA Acceptance of New Drug Application for Vamorolone in Duchenne Muscular Dystrophy

Pratteln, Switzerland, and Rockville, MD, USA, January 9, 2023 – Santhera Pharmaceuticals (SIX: SANN) and ReveraGen BioPharma, Inc announce that the U.S. Food and Drug Administration (FDA) has accepted the new drug application (NDA) for vamorolone for the treatment of Duchenne muscular dystrophy (DMD) for filing. The FDA has set October 26, 2023, as the Prescription Drug User Fee Act (PDUFA) target action date.
More info >>

White Papers

The Role of the CRO in Effective Risk-Based Monitoring

Medpace

The clinical trial industry is evolving. In an effort to improve participant safety and data integrity, regulators are encouraging trial sponsors to transition from a focused on-site monitoring approach they have traditionally employed toward a risk-based approach that utilizes a combination of centralized and on-site monitoring techniques to ensure patient safety and data quality. The Risk-Based Monitoring (RBM) paradigm has many potential advantages over established monitoring practices including enhanced patient safety and data integrity, more efficient and effective protocol design, reduced costs, and the ability to strategically adjust oversight in keeping with changes in risk level.
More info >>

 

 

 

©2000-2011 Samedan Ltd.
Add to favourites

Print this page

Send to a friend
Privacy statement