Orphan Drug Profiteering by Big Pharma



In 1983 Congress passed the Orphan Drug Act to stimulate research and development for treatments to rare diseases. An orphan disease is defined by the law to be any disease that affects less than 200,000 people in the US. An opinion piece in the Wall Street Journal called for reforms to the Orphan Drug Act that could prevent current abuses. This law that inspired so much innovation in the past 30 years is being gamed by the pharmaceutical industry for profit and is costing payers billions.

A drug company applies for Orphan status for a prospective treatment and if the application is accepted they receive a package of benefits. Benefits that include millions in grant money, support on costs of clinical trials, and most importantly 7 years of market exclusivity.

“This worked wonders. The law fueled the development of Rufinamide for myoclonus, Imatinib for rare cancers like stromal tumors, and many other new drugs.”

Congress provided incentives and the market used those subsidies to create breakthroughs. In the 30 years since, Big Pharma has approached the law differently and much more aggressively. Last year the proportion of new FDA drugs given Orphan Drug status was record 44% of all approvals. The manipulation of this law fits within a larger pattern of abusive practices by the industry that have driven prices up and have been costing payers and patients for years.

A study “published in the American Journal of Clinical Oncology, found a pattern of gaming the system. These companies take common diseases and slice them into subtypes that affect smaller populations. The companies then submit their drugs to the Food and Drug Administration under orphan-disease criteria. Once approved, the drugs are broadly used off-label for other conditions.”

The law was supposed to inspire companies to treat uncommon illnesses, but it has been manipulated to funnel billions of dollars towards giant blockbuster drugs. One example is Rituximab which was originally designated as a drug for a sub-type of non-Hodgkin lymphoma. Since it was approved, doctors prescribe it for all types of off-label conditions including rheumatoid arthritis. The consequences and costs of this manipulation are large and growing.

“Of the top 10 projected best-selling drugs world-wide in 2015, seven bear the orphan designation. Total sales of orphan drugs are forecast at $107 billion this year, a figure that is expected to reach $176 billion by 2020. Pretty well-heeled for an orphan.”

Other countries have similar laws, but they cap the incentives that prevent abusive practices like those occurring in the US. Japan has an “orphan” law, but there is a profit threshold beyond which a 1% tax is triggered to repay the costs of the subsidies. A reform like that will be no help to payers in the US when a blockbuster drug has market exclusivity. The Orphan status and market exclusivity should be removed after a reasonable profit threshold has been achieved and there should be third party review of new Orphan applications to prevent abuse.

The Orphan Drug Act is an example that even a positive government intervention can have unintended consequences, but that shouldn’t discourage regulation. Oversight of the industry needs to be reflexive and responsive to abuse by Big Pharma, while increasing efficiencies that lower costs and benefit patients.