Market Exclusivity is not What Attracts Orphan Drug Investment, Research Finds

The added incentive of seven years of market exclusivity has not been a major driver of investments into orphan drugs, which are used to treat conditions affecting fewer than 200,000 in the US, according to research published in Health Affairs by the Program on Regulation, Therapeutics, and Law in the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital in Boston.

In many cases, pharmaceutical patents render the much-hyped seven years of orphan drug exclusivity “largely moot,” the authors note, finding that from 1985 to 2014, the Orphan Drug Act provided exclusivity protections that lasted longer than patents for only one-third of orphan-designated drugs, and accounted for less than one-fifth (17%) of their total market exclusivity.

So if it’s not the exclusivity, what’s causing this spike in investment in orphan drug research and approvals (from little more than 10 orphan drug approvals per year in the 1990s to almost 50 orphan drug approvals each of the last four years)?

The study’s authors point first to the prices that companies can set for such rare disease drugs.

“In 2014 the average annual per person list price of an orphan-designated drug was $118,820 (several drugs had list prices that exceeded $500,000); by contrast, the same price of a non-orphan-designated drug was $23,331,” they wrote.

Also, pharmaceutical companies can earn tax credits for conducting orphan drug research (though the new tax law reduced that credit from 50% to 25% of research costs), and perhaps most attractive of all, the researchers found that many orphan-designated drugs lack generic competition.

“These drugs might not offer a large enough return on investment for generic manufacturers to make their entering the market worthwhile. In such cases, the orphan drug exclusivity is superfluous even when it outlasts all patent terms,” the authors wrote in the May issue of Health Affairs.

Moving forward, the authors suggested that policy makers “should be cautious about using the orphan drug exclusivity benefit as a model for other government-sponsored pharmaceutical incentive programs.”

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