orphan drug pricing

Pricing: 4 reasons why the cost of orphan drugs is so high

In Partnering & Investment by Caroline Hornby

orphan drug pricing

The issue of pricing in orphan drugs has long been a topic of debate. Developing orphan drugs that ultimately only serve a small percentage of the population is costly, and that cost unfortunately has to be attributed somewhere. But for patients suffering with rare disease, the issue of expensive and limited treatment options may seem a little like rubbing salt in the wound.

Today I stumbled across this interesting article in GEN which explores this very issue.

So, why are orphan drugs so expensive? Some rare disease therapeutics cost as much as $500,000 which seems absurd! There seems to be 4 main explanations for the high costs of orphan drugs:

  1. The cost of drug development needs to be recouped – Pharma companies will invest the same amount of money in developing an orphan drug, which will only treat a limited number of people around the world, as they would on developing a drug which can potentially treat hundreds of thousands of people. They will still need to recoup that investment somehow, and with fewer potential patients the cost per patient will rise.
  2. The seeming willingness of payers and insurers to pay the high cost – Orphan drug companies can generally get away with high costs in part because insurance companies and payers will pay the bill. Insurers are generally guided by the principle of medical necessity, and as the symptoms of many rare diseases are very severe it is hard for them to argue that treatment is not necessary. Furthermore, they’ll often be paying a lot of money for palliative medicine for orphan drug patients, so if a new drug comes on the market which can offer more concrete results then this might, in the long run, be a more cost-effective option. Finally, refusing to cover the cost of treatment for a rare disease patient will ultimately result in horrible publicity. The general consensus seems to be that it is better to make up that cost elsewhere, for example by using generics for common diseases rather than brand name drugs.
  3. The lack of competition – Most rare diseases only have one orphan drug designation, or at least very few. The lack of competition means that orphan drugs can and will be priced highly, as patients have little choice but to use the drugs that are available to them, regardless of cost.
  4. The assistance available to rare disease patients to help cover costs – Where patients are uninsured, there are often some options available to them to assist with high orphan drug costs. Orphan drug developers generally acknowledge the need to offset the high costs they charge in some way in the public eye, and one way they do this is by offering free or discounted therapeutics for some patients. For example, Genzyme provided approximately $103 million in orphan drugs for free in 2013. Patient advocacy groups are also very involved in securing treatment for patients in need of assistance. This available assistance can make the high costs of orphan drugs seem less unforgivable, and therefore perpetuates the situation as minimal pressure is placed on orphan drug developers to lower costs.

So, that explains some of the reasons why orphan drugs cost so much. It still doesn’t make it an easier pill to swallow for rare disease patients and their caregivers, though.

Hopefully, however, as more and more orphan drugs come on the market the increase in competition will alleviate some of the pricing issues. With the advancement of generics, biosimilars and drug repositioning, we should soon be able to see more progress in this area.