The Orphan Drug Act, Public Law 97-414, (ODA; “the Act”) was passed January 4, 1983 to address the glaring absence of drug development and coverage for diseases that affect only small patient populations in the US. Because of the small patient populations, the markets and corporate financial rewards for these conditions are small compared to common conditions. The Act was aimed to increase incentives to develop Orphan drugs. Unfortunately, it also opened the door to Orphan Drug Fraud. With easier and swifter FDA approval, pharmaceutical companies had a product to sell, but the indicated population still was minute. This push-pull, with unscrupulous companies, created pressure to promote the Orphan Drugs for Off-Label promotion and in doing so, other forms of Pharmaceutical Fraud.
With passage of the ODA, the concerns of industry on investment in orphan drug therapies were addressed in a dramatic way. The ODA provided companies with financial incentives for drug research for these populations (fewer than 200,000 affected patients). Incentives under the Act included (1) federal funding for clinical trials of orphan products; (2) a tax credit of 50 percent of clinical testing costs; and (3) an exclusive right to market the orphan drug for 7 years from the date of marketing approval. Thus, these congressional incentives included tax breaks on profits, research subsidies, and extended market exclusivity. With these incentives, drug companies began developing more drugs for uncommon diseases, such that by August 2018, 503 new orphan therapies were approved, only 35 years following passage of the Act.
Additional benefits available to sponsors include close coordination and priority review by the Food and Drug Administration (FDA) , and waiver of drug application fees. Finally, the FDA created the Office of Orphan Product Development to facilitate this regulatory function. In summary, the Act empowered the FDA to approve requests for orphan drug status, coordinate drug development, and award research grants.
But, in the wake of this sweeping legislation, concerns were raised both by Congress and rare disease stakeholders that exorbitant and unintended profit-taking by the pharmaceutical industry could result from the ODA protections. When considering the hope provided by orphan drugs, the Huntington’s Disease Society of America said in 1992, ‘hope is no good if a drug is developed and our folks cannot afford it.’
A scholarly report by a pharmaceutical analytical organization, evaluating the orphan drug market, recently concluded:
……… orphan drugs will make up one-fifth of worldwide prescription sales, amounting to $242 billion in spend in 2024 – with much of it going to either big pharma or big biotech.
(This) will only focus the minds of those calling for reforms to the Orphan Drug Act …..the willingness of big pharma groups to pay substantial premiums to get their hands on orphan drug products demonstrates the promise these companies see in the orphan drug space……………… growth rates (in orphan drug sales) approximately double those of the overall prescription drugs market and the mean cost per patient per year of the top 100 orphan products in the US hitting $150,854 in 2018 versus $33,654 for a non-orphan drug, explain much of the allure.
And with increasing complexity surrounding reimbursement of some of the industry’s most innovative drugs, big pharma’s regulatory expertise means it is arguably better placed to – if not develop orphan drugs – buy and market them. As such the dominance of big pharma in the orphan drug market, excluding substantially policy reforms, is only likely to increase…
………………. it might be wise to temper some of the excitement around these (orphan) products and the related growth of the orphan drug market. The promise of these new therapies will only become reality if the innovation of drug companies is matched by innovation in the drug pricing and reimbursement systems…………
A remarkable loophole is described in orphan drug regulations by the same watchdog group. During the period of orphan drug marketing exclusivity, regulatory bodies are barred from approving the same product (made by a competing manufacturer) for the same orphan indication. A single product (known as a “new molecular entity”) may hold several separate orphan designations. This unique chemical entity, as it may be known in drug development, may access multiple patient markets simultaneously. Thus, having financed the initial developmental costs, access to different downstream medical labelling indications can provide multiple separate market exclusivities for the same drug which can run concurrently.
Clearly the incremental cost of accessing multiple patient care markets, exploiting the identical drug entity, drops precipitously, due to virtually zero incremental research and drug development costs. At issue is whether the incremental FDA approvals are appropriate, or what lawmakers intended when passing the Act. What is not at issue for purposes of Pharmaceutical Fraud, is off-label promotion that is false, and the use of kickbacks to fuel prescriptions, to name a few patterns of conduct that are violative of the False Claims Act.