No Price Pressure on Orphan Drugs (Yet)

Projections show orphan drugs being a lucrative revenue stream for pharma for years to come, but payers are starting to scrutinize expenditures.

Ed Silverman

When Biogen won regulatory approval late last year for a new drug to treat a spinal muscular atrophy, a rare genetic disorder in children, the price tag quickly sparked debate. The first year of treatment costs an eye-popping $750,000 and each year thereafter runs a hefty $375,000.

Given the growing anger and anxiety about the cost of medications in this country, one Wall Street analyst worried the price tag for Spinraza might become “the straw that breaks the camel’s back in terms of the U.S. market’s tolerance for rare disease drug pricing.”

So far, though, Spinraza is rolling right along.

Biogen recently reported $47 million in sales in the first quarter, three times Wall Street expectations. And there are “numerous reasons” why sales should continue climbing, Cowen analyst Eric Schmidt wrote in an investor note.

The performance reflects the ongoing allure of orphan drugs for the pharma and biotech companies.

Under the 1983 law that created separate approval rules for treatments for rare diseases, orphan drugs are defined as medications that target patient populations of 200,000 or less. Sales of orphan drugs are forecast to grow 11% over the next five years, to $209 billion. That growth rate is twice as fast as the expected increase in sales of all other prescription medicines, according to EvaluatePharma. By 2022, EvaluatePharma predicts that orphan drugs will account for more than 21% of worldwide brand-name prescription drug sales, up from 6% in 2000.

These figures suggest that orphan drugs will remain a lucrative revenue stream for drug makers for years to come. Insurers may think about putting up hurdles to coverage, but haven’t for a couple of reasons. Sometimes the number of patients is so small that the added expense isn’t worth fighting over, and no insurer wants to be put in the position of denying coverage of treatment for serious, life-threatening conditions.

“On the pricing front, for those drugs that are new chemical entities or first approaches to these diseases, we don’t see any pricing pressure,” says SunTrust Robinson Humphrey Analyst Edward Nash.

Recent history certainly supports this outlook. Last year, there were 582 requests for an orphan designation from the FDA, a 23% increase from 2015 and triple the number of requests that were made a decade ago. The number of designations last year totaled 333, down slightly from 354 in 2015, but still the second-largest number ever. And the FDA approved 39 orphan drugs last year, which is fewer than the number approved in the two previous years but the third-largest tally.

Some pushback may be coming. Fifty-three percent of 34 biotech executives and large investors believe payers will be tougher over the next year or two, according to a SunTrust Robinson Humphrey survey.

One payer confirms this perspective. “We are consistently monitoring pipelines and looking for new drugs and new indications that would contribute to new spending,” says April Kunze, senior director for clinical program development at Prime Therapeutics, a pharmacy benefits manager in Minnesota. “It’s been challenging over the past six to nine months.”

Last year, Prime’s overall spending on medicines totaled $22.6 billion and specialty drug spending accounted for 30%, or roughly $6.8 billion, a Prime spokesperson says. Orphan drug spending was between 10% to 20% of the specialty drug spending, or $600 million to $700 million. As a result, Prime looks religiously at codes to match indications, the number of people in the population that may have the diagnosis, and recent clinical trial results “to get some idea of utilization and cost trends,” Kunze explains.

Even so, the SunTrust Robinson Humphrey survey found that investors, more than biotech executives, expect near-term pricing pressure and, interestingly, 31% of the executives, compared with 9.5% of investors, do not believe orphan drug pricing will become a serious issue in the next decade.

“I think companies are trying to be as conservative as possible, at least with regard to how they speak to the Street,” says Nash. “No doubt, these [drugs] will be expensive. But to start putting pressure on pricing would almost go against the whole spirit of the orphan drug incentive.”

Ed Silverman founded the Pharmalot blog and has covered the pharmaceutical industry for 20 years.

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