A new twist on ‘for the children’

David E. Williams at Health Business brings to the public spotlight a new twist to ongoing concerns about the Orphan Drug law. He discovered that a company is using a loophole in the law to raise the price of a drug that’s been on the market for decades. By getting orphan drug status for its use as a treatment for a rare, life-threatening seizure disorder in babies and toddlers, the company is able to increase the price 20-fold — to more than $20,000 per vial. He discovered it in the company’s press release announcing a new strategy and business pricing model.

Mr. Williams writes:

Abusing the orphan drug law to rip off customers

Questcor Pharmaceuticals has announced “a new strategy and business model for H.P. Acthar Gel(R).” Translation: the company has obtained orphan drug status for a product that has been used for decades –including for the orphan indication– and is raising the price 20-fold, from about $1000 per vial to $20,000 per vial (according to my source).

The Orphan drug law has benefits. It encourages companies to pursue treatments for diseases afflicting small numbers of patients. In my opinion it shouldn’t be used in situations like this for an existing drug with a widespread existing use.

The press release is very defensive, as it should be. It cites the fact that the company has been losing money and is incurring costs for the new indication and for manufacturing upgrades. It mentions a program to make the drug available for those who can’t afford it, and talks about Questcor’s participation with patient advocacy groups.....

As the Questcor press release admits, the company saw losses of $10.1 million last year and already $5.5 million for the first half of this year. “Questcor's new strategy is intended to create an economic model that will allow Questcor to support ongoing efforts to manufacture and distribute Acthar....”

The Orphan Drug Act was signed into law on January 4, 1983. To encourage pharmaceutical companies to develop drugs and medical devices to treat rare diseases and conditions, it gives incentives such as marketing exclusivity, tax incentives of up to 50% of research expenses, and research grants. While it has been successful in helping to find new treatments for conditions that the industry might otherwise ignore because the drugs or treatments might not be profitable or patentable, critics have been objecting to certain aspects of the law for decades.

In a Congressional Research Service report for Congress, analyst M. Angeles Villarreal reviewed various amendments, such as the 1984 amendment which removed the requirement that companies demonstrate a drug would have been unprofitable; the 1985 amendment which extended marketing exclusivity for both patentable and unpatentable products; and the 1988 amendment which gave orphan drug designation to products before the company submits an application for marketing approval instead of as they want approval to market the drug.

Marketing exclusivity is probably the biggest motivator, she said, because without it companies could face competition from lower-priced generic versions:

The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the indication for which the drug has been designated. The FDA could approve a second application for the same drug for a different use. The FDA cannot, however, approve the same drug made by another manufacturer for the same indication during the marketing exclusivity period unless it has the consent of the sponsor or the sponsor is unable to provide sufficient quantities.

But in addition to seven years of marketing exclusivity, “the companies that develop orphan products face no regulatory restrictions in setting prices for the product,” she pointed out.

Because of the lack of available data, it is not possible to provide an accurate analysis on total sales, price ranges, or profit margins of orphan products. Some reports claim that orphan drugs are among the pharmaceutical industry’s biggest money producers. These reports point out that certain “blockbuster” drugs, such as a replacement enzyme treatment for Pompe disease which has a treatment cost of $170,000 to $340,000 per year, can be very costly.... However, other reports claim that most orphan drugs have relatively low revenues, while only a very few produce extremely high revenues....A 1991 report stated that 75 percent of orphan drugs earned less than $10 million in their first year of marketing, while 20 percent had sales of more than $26 million. Two products had sales in excess of $100 million. The report found that orphan drug sales had a highly skewed distribution that was similar to the distribution of sales revenues for other pharmaceutical sales.

Debates about the Orphan Drug Law have been going on for decades and Congress has considered amending the Act several times to remove certain loopholes, namely to prevent abuses of the law used to charge excessive prices or make excessive profits which can limit patient access to affordable treatment, but none have passed. You can read the full CRS background report here.

A New York Times article published more than 17 years ago provides a revealing glimpse of these debates. It reported:

Orphan Drug Law Spurs Debate

Amgen Inc.'s new drug for anemia, the latest biotechnology blockbuster, might set an industry record for first-year sales. Yet Amgen is shielded from competition by a law meant to encourage development of drugs for which there is supposed to be only a small market....Critics in Congress and in the pharmaceutical industry and patient groups say that while the law has generally worked, it has proved to be a bonanza for the makers of some very big drugs, allowing them to charge higher prices than there would have been with competition....and block competition...

[T]hree drugs [are] at the center of the controversy. One is Amgen's drug, known as E.P.O., which is used to treat anemia in patients with kidney failure. Treatment costs $4,000 to $8,000 a year. First-year sales of the drug, which came on the market last June, are headed toward $200 million.

Another is human growth hormone, marketed in different forms by Genentech Inc. and by Eli Lilly & Company; it is used to treat dwarfism in children. A year's treatment can cost $10,000 to $30,000, depending upon the size of the child.

The third is pentamidine, sold by Lyphomed Inc. of Rosemont, Ill.; it is used to fend off pneumonia associated with AIDS. Since Lyphomed began selling the drug in 1984, it has quadrupled the price to more than three times what it sells for in Britain.

AZT, used to treat AIDS, is also an orphan drug, despite being one of the best-selling drugs in the pharmaceutical industry. The manufacturer, the Burroughs Wellcome Company, has been the target of protests from AIDS patients and has twice reduced the price, from $10,000 a year to $6,500 a year.

Health Business points out a disturbing new way the Orphan Drug law can be misused: Get an Orphan Drug designation for a widely-used drug that’s been on the market for decades to treat a common condition, based on its use in a rare condition that afflicts babies, and be able to raise the price 20-fold ... and it's legal.