orphan drugs

For years Americans with Duchenne muscular dystrophy were able to import a drug, deflazacort, from outside the United States at a cost of about $1,200 per year.

This price, though, could skyrocket to a list price of $89,000 a year now that a U.S. pharmaceutical company has received approval for the drug as a treatment for the rare, fatal disease.

In an interview with the Washington Post, the chief executive officer of Marathon Pharmaceuticals said the net price will be $54,000 after rebates and discounts.

Last month, the company received approval from the Food and Drug Administration (FDA) for deflazacort as an “orphan drug.”

This special designation comes under the Orphan Drug Act, which was intended to encourage companies to develop drugs to treat rare diseases, those affecting 200,000 or fewer Americans.

According to the National Institutes of Health (NIH), there are around 7,000 rare diseases, which affect a total of 25 to 30 million Americans.

In exchange for investing in research and development of orphan drugs, companies receive a tax credit on research and development, access to federal grants, and exclusive rights to sell the drug for that disease in the United States, even if the patent expires before then.

Marathon Pharmaceuticals also received a special “priority review” voucher — basically an FDA fast-track review of a future drug. The company can use this voucher itself or sell it to another for hundreds of millions of dollars.

The program has had many successes — 450 orphan drugs have been brought to market since the act was signed into law by former President Ronald Reagan in 1983.

But critics are concerned the system is being abused to maximize profits, with companies using their near-monopoly on orphan drugs to charge exorbitant prices.

And, as with deflazacort, applying for orphan status — sometimes multiple times — for drugs that are already available on the market.

This, they say, is a burden on families who worry about covering the costs of these drugs if their health insurance lapses or copayments and deductibles go up.

Read more: Why rare diseases deserve our attention »

Why are orphan drugs so expensive?

Some orphan drugs can cost as much as $804,000 per year, according to a report by the Kaiser Health Network.

The average price for orphan drugs is lower, but even that outpaces non-orphan drugs.

According to a report on orphan drugs by EvaluatePharma, the average annual cost for orphan drugs was $111,820, compared with $23,331 for mainstream drugs.

So why are orphan drugs so expensive?

“There are no easy answers to the question why orphan drugs are relatively expensive,” Joshua Cohen, PhD, a research associate professor at Tufts Center for the Study of Drug Development, told Healthline.

“One reason is that they serve small populations,” he said. “Another reason is that they are often unique products with no competitors.”

With seven years of exclusive rights for an orphan drug for a particular disease, a company can set whatever price it wants.

Companies say that the high prices are needed to recover the cost of research and development, which can be 20 to 30 years for a new drug.

According to a report to Congress last year by the Department of Health and Human Services, though, average development costs for an orphan drug are about $1 billion, compared with $2.6 billion for a mass market drug.

And, as the Kaiser study points out, even with fewer patients taking them, orphan drugs can be big moneymakers.

A $50,000 drug taken by 50,000 patients could bring in $2.5 billion per year for a company. A $300,000 orphan drug taken by only 5,000 people could net $1.5 billion a year.

In spite of the smaller number of people affected by rare diseases, sales of orphan drugs are also expected to increase.

According to StatNews, by 2022 orphan drugs will make up more than 21 percent of brand name prescription drug sales worldwide, an increase from 6 percent from 2000.

EvaluatePharma also notes that seven of the 10 top-selling drugs in the world by sales are orphan drugs.

Read more: Why some drugs cost so much and others don’t »

Double dipping on orphan drugs

Critics say that drug companies have become increasingly savvy about utilizing the benefits of the Orphan Drug Act.

Of particular concern are orphan drug applications for existing mass market drugs.

According to the Kaiser report, more than 70 orphan drugs were first approved by the FDA for mass market use. Many were approved for more than one disease, sometimes multiple ones.

This includes deflazacort.

Tetrabenazine was used for years to treat uncontrollable tremors in people with Huntington disease. According to the Washington Post, before its orphan drug status, a bottle of pills cost $42.28 from a European pharmacy.

After orphan drug approval, the list price for a bottle of tetrabenazine in the United States was more than $6,000. The price was eventually increased to $21,243 a bottle.

In a 2015 commentary published in the American Journal of Clinical Oncology, Dr. Martin Makary at the Johns Hopkins University School of Medicine, wrote that companies also exploit the law by focusing on just one of a drug’s uses — “one narrow enough to qualify for ‘orphan’ disease benefits.”

After orphan drug approval, they then market the drug as off-label for other conditions, increasing their profits.

Read more: How do companies keep getting away with raising drug prices? »

How high prices affect patients

One of the biggest concerns is that the high prices for orphan drugs will limit access to them — which would have the opposite effect of the original intent of the law.

Few people, if any, will pay the list price for an orphan drug. Drug companies have rebates and assistance programs to help offset the cost.

Insurance will also cover much of the cost for many people. But as insurance companies feel the price pressure of more people taking orphan drugs, they may ask people to pay more out of pocket or restrict access.

“Insured U.S. patients face few outright denials of access to orphan drugs,” said Cohen, “but may incur high levels of patient cost-sharing and also certain conditions of reimbursement such as prior authorization.”

For people on fixed incomes — such as those on Medicare or Medicaid — copayments of 20 percent of a drug’s cost can be a “considerable financial burden,” said Cohen.

In response to the Kaiser report in January, Sen. Chuck Grassley (R-Iowa) and two other U.S. senators have asked the U.S. Government Accountability Office (GAO) to look into abuse of the Orphan Drug Act.

Marathon Pharmaceuticals already announced last week that it would “pause” its launch of Emflaza — the brand name of deflazacort — because of pricing concerns raised by patients and advocacy groups.

Other critics echoed the concerns about abuse of the Orphan Drug Act.

“If we are serious about lowering drug costs, we have to make sure that incentives created to spur innovation are used for groundbreaking research instead of simply fleecing the American people,” William Holley, spokesperson for the Campaign for Sustainable Rx Pricing, told Healthline.