Will cost-control pressure on national and local payers have a knock-on effect on the treatment of rare diseases?

Orphan drugs, developed to treat rare diseases, are an important sub-set of pharmaceuticals. They can benefit from significant commercialization advantages, such as lower regulatory fees or tax credits (which compensate for the smaller market opportunity awaiting approved products). When approved, orphan drug regimens can be expensive, with annual costs of $150,000 per-patient not unusual. The targeted patient populations can be tiny, so the impact on hospital pharmacy budgets can be small.

For some time, regional payers have struggled to define a coherent reimbursement approach. For example, a payer might have been confronted with the following scenario: a certain rare disease affected only five patients in their region and the treatment under review, though offering huge quality-of-life benefits, cost $150,000 per-patient. Reasoning that $750,000 was a balancing item in their budget, the payer might have been inclined to shrug its shoulders and approve the treatment.

In recent years, pharmaceutical companies have identified orphan drugs as a growth area — the substantial resources now deployed to address the segment have led to an increased number of treatments both on the market and in development. Will this pendulum start to swing back? The increased number of products coming to market is leading to a shift in how the category is perceived from a reimbursement standpoint. Faced with larger numbers of expensive treatments to approve, the payer in our above example is more likely to view these treatments as part of a broader ‘miscellaneous’ category. When lumped together and set against other broad treatment categories, orphan drugs do not compare well, being expensive and reaching relatively few patients. Unhappily, rare disease treatment costs can also swell as time goes by, with patients diagnosed as children requiring larger and larger dosages as they mature, making the treatment even less attractive in a reimbursement context.

Will this ‘perception shift’ start to be felt at the development stage? Several of the largest pharma companies have devoted significant resources to rare and niche illness areas. However, the industry now routinely subjects drugs under development to market access strictures before committing to expensive late-stage clinical trials. With the reimbursement outlook for orphan drug treatments increasingly bleak, pharma companies may be tempted to pull the plug on these treatments during development, meaning they never get to market at all. How the conflict between national-level incentives and local-level reimbursement pressure resolves will do much to determine this outlook, but it is clear that the commercialization prospects for new orphan drugs will be generally more challenging.

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Anthony Harrington is manager healthcare corporate finance and strategy specialist, Results Healthcare. A graduate of National University Cork, Ireland, where achieved a First in Business Economics and a BSc, Finance, First Class, Mr. Harrington most recently worked as a corporate finance consultant for Survitec Group and Enteq Upstream PLC. Prior to this he was associate director in the corporate finance department of Investec PLC. During his time at Investec, he was involved in a number of significant transactions, including the sale of Arena Leisure PLC, the IPO of and subsequent fundraising for Enteq Upstream PLC, as well as acquisitions for Enteq and a fundraising for Digital Barriers PLC. Before joining Investec, Anthony spent four years in the healthcare team at Rothschild, where he worked on a wide variety of transactions. He has two more years’ healthcare experience, having worked as an analyst with the healthcare team at Bear Stearns. He can be reached at [email protected].