Markets Adopt Orphan Drugs

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Markets Adopt Orphan Drugs
Christopher Anzalone at Pasadena office of drug maker Arrowhead Research.

Though one of Arrowhead Research Corp.’s lead drug candidates is considered an orphan, it’s got plenty of company.

The Food and Drug Administration grants orphan status to drugs seeking regulatory approval that are intended to treat conditions that afflict fewer than 200,000 people in the country. It’s a designation that comes with perks such as tax credits and a period of market exclusivity meant to encourage drug makers to invest the time and money to develop therapies despite a very limited market.

When Arrowhead’s ARC-AAT, a clinical candidate for a rare liver disease, received orphan status last month it joined a rapidly growing set of therapies receiving the designation under the 30-year-old Orphan Drug Act.

About 290 orphan designations were granted last year, up from 132 in 2004. The number of such drugs to ultimately gain market approval also rose, to almost 50 from 13 in the same time period.

It is an endeavor fraught with risk. Creating a prescription medicine that wins marketing approval can take as long as a decade and cost nearly $2.6 billion, according to a 2014 study by Tufts University in Medford, Mass., and developers often incur costly failures before arriving at a home run.

“Most drugs do not work and, unfortunately, you don’t know that until you’ve spent tens or hundreds of millions of dollars,” said Christopher Anzalone, chief executive of Pasadena-based Arrowhead.

The prospect of a potential home run from one of these orphans is reflected in the way the markets have embraced companies that develop them. The market caps of a dozen of these companies have more than doubled since the beginning of the year.

The increases have not been seen across the board, however. Santa Monica’s Kite Pharma Inc., which scored an orphan designation for its lead drug candidate last year, has seen its shares rise about 5.7 percent since January and now has a market cap of about $2.6 billion. Arrowhead, with a market cap of about $400 million, has seen its shares fall by 3.1 percent in the same period.  

The volatility reflects the gamble in developing such drugs, which generally command steep prices when they hit the market as compensation for the risk and expense of development. It’s a side of the business that has drawn criticism, as some worry that incentives offered to drug sponsors might give the pharmaceutical industry carte blanche to charge exorbitant prices.

“The only way people can justify allocating an awful lot of capital to that very risky endeavor is to a come out with something to really help patients and make it economically viable,” Anzalone said.

Pricey proposition

The orphan drug program was created to entice companies into tackling therapies for uncommon conditions, such as the rare liver disease affecting some 100,000 people in the United States for which Arrowhead is developing ARC-AAT. The incentives include tax credits, grants to defray the cost of clinical testing, fee waivers and eligibility for up to seven years of market exclusivity – longer than the time granted to other kinds of new drugs.

The incentives appear to be working. Prior to the Orphan Drug Act of 1983, only 38 orphan drugs had been approved by the FDA, according to London-based consulting firm EvaluatePharma’s 2014 Orphan Drug Report. As of last year, that number has skyrocketed to 373. The report projected that worldwide orphan drug sales would total $176 billion by 2020.

The report notes that ivacaftor, a cystic fibrosis drug made by Boston’s Vertex Pharmaceuticals, has been the most valuable of the lot.

But that crown jewel raised hackles when, shortly after the drug’s 2012 FDA approval, Vertex set its price tag at $294,000 a year.

“As opposed to some other short-term, high-cost therapies, ivacaftor likely will need to be taken for decades by individual patients, with the potential total cost of many millions of dollars,” a trio of physicians wrote in a 2013 Journal of the American Medical Association opinion piece. “The vast majority of patients cannot afford this financial burden, and transferring the cost to private or federal insurers does not obviate the underlying problem – an unsustainable pricing structure.”

Private insurers often do provide coverage for many orphan drugs while shifting a small amount of the cost to patients or factoring it into higher premiums, said Aaron Kesselheim, an associate professor of medicine at Harvard Medical School.

“Insurance companies, a lot are still for-profit entities, and higher costs are going to be passed along in terms of higher premiums for all patients,” said Kesselheim, whose research focuses in part on the regulatory approval process, drug costs and availability.

Critics have expressed concern about the prolonged monopoly period conferred to these drugs, said Michael Carome, director of Washington, D.C., advocacy organization Public Citizen’s Health Research Group.

“One can argue they are rare diseases and the only way they’re going to find it profitable is to charge very high prices,” Carome said. “But you have to remember that there are a variety of financial incentives offered to bring it to market.”

He also voiced concerns that less data might be required to get these drugs approved because there are fewer patients who can be studied and that drug companies might use the orphan designation as a more lucrative path to market approval while eying nonorphan applications.

“The granting of an orphan designation request does not alter the standard regulatory requirements and process for obtaining marketing approval,” Sarah Peddicord, an FDA spokeswoman, wrote in an email. “Safety and effectiveness of a drug must be established through adequate and well-controlled studies.”

Regarding marketing exclusivity, Anzalone said that the Orphan Drug Act allows companies spending finite funds to allocate that capital to an indication that might not otherwise attract that kind of money.

“Any CEO of any drug company would gladly charge substantially less for the ultimate product if they could somehow decrease the time frame and the risk profile of drug development,” he said. “With better technology, we can squeeze some risk out of the equation. But at the end of day, there will always be risk.”

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