Are Orphan Drugs Losing their Luster?

The orphan drug market is experiencing strong growth, but there are signs that pricing pressures may be impacting the sector, raising questions about whether it will become unattractive to drug companies, a new report suggests.

EvaluatePharma’s annual Orphan Drug Report forecasts that orphan drug sales will climb 11 percent a year through 2024, reaching $262 billion. That represents a far more robust rate of growth than the 6.4 percent compounded annual growth rate for the overall pharmaceutical market during the same period.

But other indicators suggest a less rosy reality. From 2013 to 2017, the mean price of the top 100 orphan drugs in term of sales the United States grew at an annual rate of 5.2 percent. That compared to a rate of 9.2 percent for the top 100 nonorphan drugs. And the pipeline tells another story with orphan and nonorphan in development today expected to generate virtually the same compounded annual growth rate through 2024 at around 132 percent.

“While the overall 2024 revenue forecast for orphan drugs shows growth at double the rate of non-orphan drugs, if you just look at the forecasts for orphan and non-orphan drugs currently in R&D, they show similar CAGRs,” said Karen Pomeranz, managing analyst and report author. “It’s possible that increased pricing pressure is contributing to this equilibrium. However, there are likely other factors at play as well, such as the expected levels of penetration and prescribing, and differences in the number of products expected to launch in each segment.”

Overall, the report paints a mixed picture for the orphan drug market saying the sector is at a crossroads. On one hand the unmet medical need of rare diseases remains great with the overwhelming majority of the estimated 7,000 condition without an approved drug to treat them. On the other hand, development costs are rising while payers are pushing back on pricing.

The report does point to some evidence of pricing pressure playing out in the sector. For instance, the mean orphan drug costs for U.S. patients rose to $147,308 in 2017, about a 1 percent increase over the previous year. That compares to an average increase of 6 percent over the three previous years.

“This dip in the amount pharma companies are able to command for these rare disease products raises the question: has the pushback against orphan drug pricing begun?” the authors write.

There are other warning signs too. Payers and politicians last year began scrutinizing the sector more closely. There was growing outcry about abuses of the Orphan Drug Act and lawmakers questioned the appropriateness of granting drug companies tax and regulatory benefits as rewards for developing orphan drugs. With well-funded, multinational drug companies accounting for seven of the top 10 companies by orphan drug sales, the authors said the industry will have a harder time defending the necessity of incentives associated with orphan drugs.

Last year, lawmakers took a swipe at the Orphan Drug Tax Credit. As part of the Trump Administration’s tax reform package, the Orphan Drug Tax Credit was slashed to 25 percent from 50 percent of R&D costs associated with developing an orphan drug.

And then there’s the matter of payers. The authors note that a recent survey by the Pharmacy Benefit Management Institute showed that cost is the primary concern for 55 percent of payers, and 71 percent do not believe that current prices are sustainable.

Already two large pharmaceutical companies—GlaxoSmithKline and AstraZeneca have announced plans to exist the orphan drug space—although those decisions are part of a complex strategic process and not made in response to any single development, it does suggest the sector may be losing some of its shine to some.

EvaluatePharma says if the orphan drug sector is to achieve the growth targets Wall Street analysts expect, “the trick will be to getting products to patients in the most efficient and cost-effective way.”

But the pressures noted in the report are not unique to orphan drug development. Indeed, drug companies are feeling greater pressure to be efficient as they move all drugs from the lab to the marketplace. But the orphan drug sector may be at risk of becoming a victim of its success.

The once protected island orphan drugs represented for drugmakers may well be eroding as payers become emboldened to take on pricing in areas that were once too small to risk the public relations damage of doing so. There’s little to suggest that orphan drug development as a business model is faltering. Like other things, it just may not be enough to do it. Companies that decide to be in that business will need to do it well.

May 30, 2018