Opportunities in Rare Diseases: The Economics of Orphan Drugs

In the realm of pharmaceuticals, the pursuit of treatments for rare diseases stands as both a noble endeavour and a complex business venture. As we observe Rare Diseases Day on this 29th of February, it’s imperative to delve into the intricate landscape of drug development for conditions affecting a fraction of the population.

According to Nature Rev Drug Discovery (2020), the spectrum of rare diseases encompasses 5,000 to 8,000 conditions, affecting an estimated 10% of the population. Definitions of rarity vary globally, with the U.S. and the EU employing different thresholds. Shockingly, 90% of rare diseases currently lack a specific treatment.

The Costly Journey to Market

The developmental trajectory of new pharmaceutical entities is marked by considerable financial investments and intricate considerations. The failure at any stage of clinical trials not only results in substantial monetary losses but can also swiftly erode the company’s valuation. The estimated cost for introducing a New Molecular Entity (NME) to the market spans from $314 million to $2.8 billion, with these estimations excluding administrative, overhead, and post-marketing expenses. Factoring in these elements and adjusting for inflation suggests that future costs may surpass current projections.

Various determinants significantly impact the cost dynamics of drug development. The success rate in transitioning between clinical phases, the duration (cycle time) of the developmental process, costs associated with each phase, the therapeutic area under consideration, orphan drug status, the size of the firm, and the cost of capital collectively contribute to the financial landscape.

A critical point in this journey is observed during Phase 2 clinical trials, where a substantial attrition rate is noted. The high rate is attributed to the discrepancy between promising pre-clinical models and the demonstration of effectiveness in Phase 2. Mitigating this risk involves strategic diversification across different disease indications to enhance the likelihood of success.

The launch success of a product is notably contingent on the annual entry of molecules into the clinical phase. Industry averages indicate the introduction of one NME every 6 years, with successful firms achieving a rate of one NME per year. The industry has yet to witness the introduction of two or three NMEs annually, leading to a diminishing market share for NMEs despite substantial R&D investments.

Advantages of Orphan Drug Development:

Exploring the landscape of orphan drug development unveils a distinctive array of economic benefits, significantly shaping pharmaceutical strategies. In contrast to the substantial costs associated with bringing antineoplastic and immunomodulatory drugs to market (estimated at $4.45 billion), orphan drugs designed for rare diseases present a cost advantage, typically amounting to half that of non-orphan counterparts. This distinction holds unless the orphan drug is intended for oncological indications.

Beyond mere financial considerations, orphan drugs enjoy a spectrum of commercial benefits, fostering an environment conducive to their development and market presence.

Commercial Benefits:

1. Streamlined Regulatory Pathway:An orphan drug designation by both the FDA and the EMA bestows market advantages, including market exclusivity lasting 7 years in the U.S. and 10 years in Europe, contingent upon regulatory approval for market authorization. This designation facilitates regulatory approvals across diverse geographies.
2. First-Mover Advantage:Securing an orphan drug designation often translates into a first-mover advantage, creating a monopolistic market environment, particularly beneficial for novel therapeutic entities.
3. Economic Incentives:Regulatory bodies provide economic incentives, encompassing R&D grants and tax benefits, further enhancing the overall financial viability of orphan drug development.

Operational Advantages:

1. Accelerated Trials:Participation in FDA’s ‘fast-track programs’ expedites the trial process, reducing cycle time and associated costs. This acceleration is particularly notable, given the shorter duration for clinical trials, facilitated by small sample sizes.
2. Favourable Regulatory Review:Orphan drugs often receive more favourable regulatory reviews, minimizing impediments in the approval process.
3. Innovative Approaches to Data Gaps:Options to create synthetic arms and employ advanced techniques, such as deep fake profiles, offer innovative solutions for handling missing data, ensuring robust study outcomes.

In essence, the strategic advantages afforded by orphan drug development extend beyond cost considerations. From streamlined regulatory pathways to operational efficiency, the key drivers of drug development, including cycle time, phase costs, and capital, experience significant optimization. The probabilistic success rate is correspondingly increased, enhancing the overall feasibility and attractiveness of orphan drug initiatives in the pharmaceutical landscape.

Economic Dynamics of Premium Pricing in Orphan Drug Development

Examining orphan drug pricing reveals a strategic avenue for premium valuation. A recent study, emanating from the Office of Health Economics at the University of York, introduces an adjusted Cost-Effectiveness Threshold (CET) for specific categories of orphan drugs in the UK. Ultra-orphan drugs, catering to diseases with a prevalence of 1 patient per 50,000 of the population, are recommended to have a CET cut-off of £938.4K per Quality-Adjusted Life Year (QALY). In contrast, mid-point orphan drugs, tailored for a prevalence of 12.5 patients per 50,000, should adhere to a cut-off of £78.4K per QALY.

This calculated approach to pricing aligns with the acknowledgment that the rarity of diseases necessitates a distinct economic calculus. Paying agencies often agree to premium pricing structures for these rare orphan drugs, elucidating the economic strategy underlying such valuations.

Illustrative examples further accentuate this phenomenon. Soliris, designed to treat paroxysmal nocturnal haemoglobinuria and catering to fewer than 6000 patients in the US, commands a price tag of approximately $400K per patient per year. Similarly, Fabrazyme, addressing Fabry disease, is priced at $200K per patient per year. The ground-breaking gene therapy Zolgensma, crafted by Novartis to combat spinal muscular atrophy, bears an even weightier cost, standing at $2.27 million per dose.

Intriguingly, an in-depth revenue analysis spanning from 1990 to 2030 illuminates the financial landscape. The mean present value per orphan drug during this period amounts to $12.1 billion, surpassing the equivalent figure for non-orphan drugs at $11.5 billion. Remarkably, the mean per-year economic values for orphan drugs align with those of non-orphan drugs. This convergence implies that despite catering to a limited population, the elevated pricing of orphan drugs effectively balances the mean present value per drug, demonstrating the economic viability of such an approach. Otherwise, This implies that though the orphan drugs are limited to a small population, the high price of the orphan drug brings the parity to mean present value per drug of the non-orphan drugs As we project into the future, estimations suggest that the global orphan drug market will surpass $200 billion by 2025. This forecast underscores the sustained economic appeal of orphan drug development, emphasizing the significance of strategic pricing in navigating the unique landscape of rare diseases.

Conclusion: A Balancing Act

In essence, drug development for rare diseases presents a challenging yet rewarding endeavour. The economic viability of orphan drugs, coupled with regulatory incentives, encourages pharmaceutical companies to venture into uncharted territories. The journey is arduous, but the potential for impacting lives and reaping financial rewards makes it a road worth exploring. As we celebrate Rare Diseases Day today, let us acknowledge the strides made, recognize the challenges ahead, and continue the quest for breakthroughs that transform the lives of those affected by these rare conditions.