Balancing innovation, profiteering within the Orphan Drug Act

Tom Smith

April 09, 2021 8 min read Source/Disclosures Published by: Source: Chua KP, et al. Health Affairs. 2021;doi:10.1377/hlthaff.2020.01442. Disclosures: Chua and Tantibanchachai report no relevant financial disclosures. ADD TOPIC TO EMAIL ALERTS Receive an email when new articles are posted on Please […]

April 09, 2021

8 min read


Chua KP, et al. Health Affairs. 2021;doi:10.1377/hlthaff.2020.01442.

Chua and Tantibanchachai report no relevant financial disclosures.

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The Orphan Drug Act, passed in good faith to help patients with rare diseases in 1983, has been at the center of multiple controversies in recent years. A study published last month in Health Affairs has added fuel to that fire.

The key issue is that drugs granted orphan status may be given market exclusivity, allowing for lucrative monopolies and no competition. Some manufacturers have used this exclusivity to raise prices to exorbitant levels, while others reap the benefits of orphan status while simultaneously marketing the drug for diseases that are not rare at all.

“The challenge is that while there are clear examples of abuse of the Orphan Drug Act, it is often difficult to develop policies that prevent these abuses without unintentionally reducing incentives for true innovation,” Kao-Ping Chua, MD, PhD, told Healio Rheumatology.

The recent study by Kao-Ping Chua, MD, PhD, assistant professor of pediatrics at the University of Michigan Medical School and Susan B. Meister Child Health Evaluation and Research Center (CHEAR), and colleagues, pertains to this second issue.

The researchers reviewed U.S. national commercial claims data to estimate the proportion of prescription drug spending on the best-selling “partial orphan drugs” assigned to orphan indications in 2018.

Kao-Ping Chua

“We found that for 15 top-selling partial orphan drugs, just 21% of dollars spent were for orphan indications,” Chua told Healio Rheumatology. “Whether this low proportion should be concerning depends partly on whether the partial orphan drugs were first approved to treat common versus rare diseases.”

It is worth noting that the FDA does not use the term “partial orphan drug” for those that are used for both orphan and non-orphan indications, according to FDA spokesperson Chanapa Tantibanchachai. “The study found that for drugs approved for both orphan indications and common indications, less spending goes towards the orphan indications than the common indications,” she said in an interview. “This is not unexpected, as orphan indications are for rare diseases that affect a small number of patients.”

Chanapa Tantibanchachai

Regardless of the terminology, both Chua and Tantibanchachai acknowledge that, for all of its imperfections, the Orphan Drug Act has brought relief for patients with a number of diseases that might otherwise have gone untreated. Yet, sorting out how the program has played out in the real world may hold answers to its use in the future.

Balancing Act

Orphan drugs now account for 25% of U.S. prescription drug spending, according to Chua. He added that nearly half of new FDA approvals are now for orphan drugs. With that kind of money at stake, it seems like a logical consequence that legal issues would arise.

“Given this, it is becoming increasingly important to ensure that the Orphan Drug Act is working as it is intended,” he said. “The challenge is that while there are clear examples of abuse of the Orphan Drug Act, it is often difficult to develop policies that prevent these abuses without unintentionally reducing incentives for true innovation.”

When asked if the exclusivity clause in the act does more harm than good, Chua said that this is “not always” the case. “Orphan drug exclusivity can be a powerful incentive for drug companies to invest in the development of rare disease treatments,” he said. “At the same time, there have been instances of abuses of this exclusivity.”

Perhaps the most egregious case of abuse involves the drug manufacturer Catalyst, which received considerable negative attention — including from Sen. Bernie Sanders (D-VT) — after it increased the price of Firdapse (amifampridine) to $375,000 for the treatment of the rare Lambert-Eaton myasthenic syndrome (LEMS). The drug had previously been free through the FDA’s “compassionate use” program.

“The company’s ability to charge these prices was based upon the orphan drug exclusivity it received, which prevented competitors from marketing alternative versions of the same drug for the same disease,” Chua said. “This is a good example of how orphan drug exclusivity can be abused.”

Another example is the FDA’s approval of buprenorphine extended-release injection (Sublocade, Indivion), which is used to treat patients with opioid addiction. The drug was approved for orphan status under what Chua called “a terrible policy” that allowed a 23-year-old orphan drug designation for Sublocade’s predecessor to be grandfathered to Sublocade. This entitled Indivion to 7 years of orphan drug exclusivity, blocking competition until 2024 in the middle of “a terrible opioid epidemic.”

“Fortunately, the FDA saw the light and revoked the orphan drug designation for the predecessor drug, thus negating the possibility of orphan drug exclusivity for Sublocade,” Chua said. “If the FDA had not done so, there would have been serious implications for public health.”

While these obviously flagrant misuses of the Orphan Drug Act are easy to spot — and possibly to rectify — digging into the weeds of drugs that are used for multiple indications presents a more nuanced challenge.

“Partial Orphan Drugs”

Other findings from Chua and colleagues showed that for the so-called “partial orphan drugs” approved to treat rare diseases first, about half of spending actually went toward orphan indications and 40% was for non-orphan indications. “For these drugs, the sizable non-orphan spending is potentially more concerning,” Chua said. “The reason is that this non-orphan spending might reflect perverse incentives to pursue an orphan-first strategy that yields profits contrary to the Orphan Drug Act’s intent.”

But in keeping with the theme of a complicated picture, Tantibanchachai believes that this finding reinforces that the incentives provided by orphan drug designation may be important to drive development of drugs for rare disease indications. “Without these incentives, sponsors may only study their drugs for common disease indications and neglect rare disease indications,” she said.

Understanding how these incentives work could provide insight into how abuses may be mitigated. “The incentives associated with orphan drug designation that come from the Orphan Drug Act are tied to the specific rare disease for which the drug is designated,” Tantibanchachai said. “For example, the tax credit for qualified clinical studies only applies to clinical studies for the rare disease for which a drug is designated.”

She added that a sponsor cannot claim the tax credit by studying the same drug in a common disease. “Similarly, the waiver of the human drug application fee only applies if the sponsor is seeking marketing approval for an indication in the rare disease for which its drug is designated,” she said. “If the sponsor is also seeking an indication for a common disease, the user fee is not waived. The financial incentives for orphan drugs, then, do benefit the treatment of rare diseases.”

As for a specific example of these rules in action, among orphan drugs first approved to treat common diseases — including adalimumab (Humira, Abbvie) — only 8% of spending was for orphan indications in the current study. “The implications of these findings are a bit ambiguous, because there are advantages to repurposing common-disease drugs like Humira for rare diseases,” Chua said. “However, the relatively low cost of this repurposing raises questions about whether sponsors should receive the same level of orphan benefits as sponsors of drugs that only treat rare diseases.”

Raising questions is one thing. Finding solutions is another. The FDA and other regulators face ongoing obstacles in attempting to sort all of this out.

Untangling the Process

“The FDA takes its role implementing the Orphan Drug Act very seriously and is focused on safeguarding the intent of the act and preventing abuse,” Tantibanchachai said. “The Orphan Drug Regulations are specifically aimed at ensuring orphan drug designation incentives are provided only for the development of drugs that will benefit rare disease patients.”

When reviewing a request for orphan drug designation, the FDA ensures the disease that the drug is intended to treat meets the statutory definition of rare disease, according to Tantibanchachai. “The FDA also employs structural protections to ensure proper use of the Orphan Drug Act and orphan-drug designation reviews have a consistent uniform format and a multi-step clearance process,” she said. “All designation decisions are required to be publicly posted on the FDA’s website and competitors and other stakeholders will notify the FDA if there are questions or concerns.”

Looking at this process from the perspective of a sponsor may also provide insight into how the real-world uses and abuses can come about.

One point to consider is that it can be expensive to launch a rare disease drug, according to Chua. He added that these costs can transfer to common-disease markets. “Also, the bar for regulatory approval is lower for rare-disease drugs,” he said. “Therefore, for drugs that potentially have both rare- and common-disease uses, sponsors might be tempted to pursue initial approval as a rare-disease drug with the plan to obtain subsequent approval for a common disease.”

It may be relevant to consider that orphan status can make partial orphan drugs more expensive across all their uses, exacerbating the problem of rising U.S. drug spending, according to Chua. “For example, safety net hospitals and clinics in the 340B drug discount program typically receive 25% to 50% discounts when purchasing drugs,” he said. “But some of these hospitals and clinics can’t get this discount for drugs with orphan designation, including partial orphan drugs that are hardly ever used for their orphan indication, like pegfilgrastim [Neulasta, Amgen]. The inability to leverage the discount could add financial burden to vulnerable hospitals and clinics.”

How this translates to clinical practice is clear: These obstacles to developing orphan drugs can lead to fewer therapeutic options for patients who need them most. While this is certainly problematic, the news is not all bad when it comes to the Orphan Drug Act.

Hard to Argue

“In the decade prior to enactment of the Orphan Drug Act, very few rare-disease drugs had been developed and approved,” Tantibanchachai said. “However, since the Orphan Drug Act enactment, there have been over 950 orphan drug indications approved.”

Chua and colleagues provided a closer look at those numbers. Between 2000 and 2009, the FDA approved 148 drugs for orphan indications. “In comparison, almost the same number were approved in the 5-year period between 2010 and 2014, and 252 were approved in the 4-year period between 2015 and 2018,” Chua said. “The Orphan Drug Act has done a lot to further the development of treatment options for patients with rare disease, particularly in recent years.”

Chua described a number of drugs developed under the act as “true breakthroughs,” and he noted that without the associated incentives, this may not have happened.

But the drawbacks persist. And so, like many experts who have done research in this field, Chua feels a responsibility to offer solutions to the conundrum of the Orphan Drug Act. “In the case of partial orphan drugs specifically, there are a couple of incremental steps that policymakers might consider,” he said. “First, policymakers could limit the 340B exemption for orphan-designated drugs to instances in which the drug is used for the rare disease for which it has orphan drug designation.”

This approach has been proposed in legislation introduced in the U.S. House of Representatives, according to Chua. “Policymakers could also allow FDA to revoke orphan drug designation once the total patient population treated by the drug across all indications exceeds 200,000, thus reducing the incentive for sponsors to pursue an orphan-first strategy,” he said. “In addition, policymakers could pass legislation that forces sponsors to repay subsidies for clinical testing provided under the Orphan Drug Act once drugs are sufficiently profitable, mirroring an orphan drug policy used in Japan.”

Tantibanchachai underscored these comments. “It is important to understand how the flaws with the Orphan Drug Act can be fixed,” she said. “Only Congress has the authority to amend the Orphan Drug Act. The FDA has always sought to implement the Orphan Drug Designation Program in a manner that safeguards the intent of the Orphan Drug Act to drive innovation and access for treatments for rare disease patients.”

For more information:

Kao-Ping Chua, MD, PhD, can be reached at 300 North Ingalls St, SPC 5456, Room 6E18, Ann Arbor, Michigan 48109-5456; email: [email protected]

Chanapa Tantibanchachai can be reached at 10903 New Hampshire Ave., Building 32, Room 5245, Silver Spring, MD 20993; email: [email protected]

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