Insights from BCC Research

Do Orphan Drugs Significantly Contribute to Healthcare Spending?

Posted by Laurie L. Sullivan on Sep 14, 2016 10:00:00 AM

A new analysis finds that growing concerns about spending on prescription drugs that treat rare diseases are not justified. Researchers at IMS Health and Celgene Corporation analyzed US pharmaceutical spending from 2007 to 2013 on more than 300 drugs that had orphan approval under the 1983 Orphan Drug Act, which has long been considered a success for encouraging the production of hundreds of drugs for rare diseases.

This Health Affairs article is the latest contribution to a growing debate about the causes of high prescription drug prices and how orphan drugs may play a role. Drugs that win orphan approval have been cited for commanding premium prices. Celgene’s own drug Revlimid, which has orphan status for multiple myeloma and many other cancers, had sales of $5.8 billion in 2015.

With its recent acquisition of Baxalta, Shire gained a dominant position in providing treatments for hemophilia, a bleeding disorder that affects roughly 20,000 people in the United States. Baxalta’s drug Advate, for hemophilia A, can cost up to $500,000 per year and is well reimbursed by insurers. Advate adds to Shire’s collection of rare-disease drugs, which includes Cinryze for hereditary angioedema. Cinryze is among Shire’s best-selling products and one of the most expensive medicines in the world, costing as much as $630,000 per year.

Alexion’s Soliris is also cited as one of the world’s most expensive drugs. Soliris is approved for the treatment of paroxysmal nocturnal hemoglobinuria, which is an ultra-rare, life-threatening blood disorder. Soliris, a lifetime maintenance drug, costs more than $500,000 per year in the United States. Alexion sold $2.15 billion worth of Soliris in 2014, an increase of 38% from 2013, with a profit of $657 million. It continues to study whether Soliris could be effective against more than the two rare diseases it is currently approved for (Hartford Courant). Alexion reported revenue of $2.6 billion for the drug in 2015. Soliris was Alexion’s only product for eight years after it was approved in 2007. Alexion has since launched two more drugs for rare metabolic diseases: Strensiq, priced at $285,000 per year, and Kanuma, which sells for $310,000.

It is often noted that drugs for rare diseases are prescribed only to a handful of patients, making it easier for insurers to absorb the costs. However, the US National Institutes of Health has identified as many as 7,000 rare diseases afflicting 25 million to 30 million Americans. This estimate highlights that while individual diseases may be rare, the total number of people with a rare disease—and thus the bill for these medications—is large.

The pharmaceutical industry’s interest in the orphan drug program has escalated in recent years and, increasingly, doctors and researchers have raised questions about unintended consequences of the act. The Orphan Drug Act provides a seven-year exclusivity period and other financial incentives to companies that develop drugs for diseases that affect fewer than 200,000 people. Payers and patients have pushed back against the high prices of such products, however, and what some view as abuse of the orphan drug incentives by producing therapies that are ultimately used to treat larger populations.

America’s Health Insurance Plans, a national association for health insurance companies, released a paper in August that questioned prices on orphan drugs when they were being used outside of their approved orphan indication, i.e., for more common conditions. The study, which looked at 46 of the 80 drugs that had orphan drug exclusivity between 2012 and 2014, found that the average wholesale price of the drugs increased by 26% during that time frame. Drugs with mostly non-orphan uses had the greatest average price increases (37%); price jumps were lowest (12%) for drugs prescribed almost exclusively for their rare disease indications.

For the Health Affairs paper, researchers narrowed their analysis to orphan drug spending on drugs when they were used only on the rare diseases they were approved to treat under the act. The researchers used a database estimated to represent 98% of overall US sales. Their review found that orphan drug spending in the United States totaled $15 billion in 2007 and $30 billion in 2013, an increase from 4.8% of total pharmaceutical spending to 8.9%. The study projects that orphan drug spending will remain fairly stable as a proportion of total drug spending.

That rise in spending was caused by an increase in the number of orphan drugs approved by the FDA, according to one of the study’s authors, Victoria Divino. During the time period of the analysis, the number of orphan drug approvals increased from 16 in 2007 to 33 in 2013. Still, the authors write, “In a broader context, drug expenditures are minimal when considered as part of total healthcare expenditures.” Total orphan drug spending represented approximately 1% of total US healthcare spending, according to the authors.

For more on this topic, see BCC Research’s blog: Rare Disease, Drug Repurposing Markets.

Some of the above material was originally published by Kaiser Health News, a national health policy news service that is part of the nonpartisan Henry J. Kaiser Family Foundation.

Topics: Life Sciences, Healthcare