NCPA - National Center for Policy Analysis

The Market for Orphan Drugs

August 24, 2012

Rare diseases affect 6 percent to 8 percent of the world population, but comprise 3 percent of the prescription drug market. Drugs that treat these rare diseases are known as orphan drugs, and they are not profitable enough for drug companies to invest research and development in, says John R. Graham, director of health care studies at the Pacific Research Institute.

  • In the United States, a rare disease is one defined as affecting less than 200,000 people.
  • The global market for treatment of rare diseases is expected to be worth 6 percent by 2018.
  • However, global pharmaceutical spending will increase to $1.2 trillion in 2016.
  • This puts the orphan drugs' share of the global pharmaceutical market at less than 3 percent.

Laws in the United States tried to rectify the problem by providing incentives to companies to research and develop drugs for rare diseases starting with the Orphan Drug Act, established in 1983.

  • The act gave federal funding of grants and contracts to perform clinical trials of orphan products.
  • Additionally, it gave a 50 percent tax credit for clinical testing costs.
  • Finally, drug companies were given seven year exclusivity on the market for whatever orphan drug they produced.
  • Unfortunately, only 250 of 7,000 rare diseases have approved therapies, which speaks to the inability to incentivize research and development for rare diseases.

This summer, President Obama signed the Food and Drug Administration Safety and Innovation Act (FDASIA), which seeks to renew an interest in orphan drugs.

  • One provision grants a voucher for a drug maker that develops medicine for pediatric cancers, which it can trade for expedited approval of a blockbuster drug.
  • Another provision allows medical device makers to bypass the most burdensome part of the Pre-Market Approval Process if their devices are used by less than 4,000 people a year.
  • Furthermore, in an effort to be more expedient, the U.S. Food and Drug Administration (FDA) is permitted to consult external experts when there is a lack of in-house expertise.
  • Finally, if treatments show success in clinical trial or improvement over existing therapies, the FDA can accelerate the approval process.

Despite these new laws, it is unlikely that they will help patients with rare diseases. Since the market for orphan drugs is so small, the price to buy them can cost somewhere in the neighborhood of $400,000. The current health care system does not incentivize insurance companies to cater to those with rare diseases, opting to cover the "median patient." A market-driven health insurance system that spreads over a large number of people is the best way to complement the new laws.


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