One Pharma Fix: Limit the ‘Orphan Drug’ Incentives

By Marty Makary

The cost of drug prescriptions has become an issue in the presidential-primary season, most notably with Hillary Clinton and Bernie Sanders competing to see who can do the most to protect the wallets of potential voters. Mrs. Clinton this fall proposed capping out-of-pocket drug expenses at $250 a month, while Mr. Sanders vowed to make the federal government drop its unwillingness to negotiate prices with pharmaceutical companies.


But the candidates’ proposals should start by addressing the misuse of the Orphan Drug Act, a well-intentioned law passed 33 years ago but now used in ways unanticipated by Congress. Extended monopolies on drugs for orphan diseases—as those affecting fewer than 200,000 people in the U.S. are known—allow pharmaceutical companies to charge higher prices, which are passed along to consumers. Specialty medications represent only 1% of all prescriptions, but last year they accounted for more than 31% of all spending on drugs, according to the White House.
The need for reform was crystallized in September when Turing Pharmaceuticals, in a widely condemned move, boosted the price of Daraprim by 5,000%, to $750 a pill from $13.50, soon after acquiring rights to the specialty drug that treats the parasitic infection toxoplasmosis.
Orphan diseases captured the public’s attention in the early 1980s. The popular TV drama “Quincy, M.E.” depicted a coroner in Los Angeles solving mysterious deaths, including from orphan diseases such as myoclonus, a neurological disorder that causes involuntary muscle jerking. In 1981 the actor who played Dr. Quincy, Jack Klugman, testified before Congress, accompanied by a young man with Tourette Syndrome.
The next year Congress passed the Orphan Drug Act to add powerful financial incentives for the development of medicines to treat rare diseases. Drug companies were offered direct federal grants of up to $2 million over four years, tax credits equaling 50% of qualifying clinical-trial costs, and an unprecedented seven years of market exclusivity. This worked wonders. The law fueled the development of Rufinamide for myoclonus, Imatinib for rare cancers like stromal tumors, and many other new drugs.
Regrettably, some pharmaceutical companies are now abusing the Orphan Drug Act. A study that my Johns Hopkins colleagues and I recently conducted, published in the American Journal of Clinical Oncology, found a pattern of gaming the system. These companies take common diseases and slice them into subtypes that affect smaller populations. The companies then submit their drugs to the Food and Drug Administration under orphan-disease criteria. Once approved, the drugs are broadly used off-label for other conditions.
Consider the orphan drug Rituximab. It was initially submitted to the FDA as a treatment for a subtype of non-Hodgkin lymphoma. But doctors prescribe it for a wide variety of common conditions, from rheumatoid arthritis to chronic fatigue syndrome. In the U.S., Rituximab ranks as the 12th best-selling medication of all time.
The proportion of medications given FDA approval under the Orphan Drug Act has steadily increased, to a record 44% last year. Of the top 10 projected best-selling drugs world-wide in 2015, seven bear the orphan designation. Total sales of orphan drugs are forecast at $107 billion this year, a figure that is expected to reach $176 billion by 2020. Pretty well-heeled for an orphan.
The Orphan Drug Act needs to be restored to its original mission. Congress should pass a bill that would remove a drug’s orphan status—and government support—once it reaches a blockbuster threshold of, say, $1 billion in annual sales. Lawmakers should take a look at Japan, which offers orphan incentives similar to those in the U.S. But once the annual profit on such a medication exceeds 100 million yen (roughly $800,000), the government levies a 1% “payback” tax, which remains until the subsidies have been recouped.
At the same time, the FDA should work to limit manipulation of its drug-approval process. In 2013 the agency began requiring drug makers to report in their application whether an orphan drug is intended to treat a subset of a larger, more common disease. Instead, the FDA should ask an independent group of practicing doctors to categorize drugs based on their broader clinical potential.
Reforming the Orphan Drug Act would be a step toward an efficient medication marketplace centered on the patient—instead of today’s inefficient marketplace created in part by another Washington intervention with unintended consequences.
Dr. Makary, a professor at the Johns Hopkins School of Medicine, is the author of the New York Times Bestseller “Unaccountable” (Bloomsbury U.S.A.).