Incentivizing Innovation in Rare Disease Research

You might know that patents exist to incentivize innovation. In other words, the inventor who meets patent standards is given a period of market exclusivity (permitting the inventor to exclude others from various activities involving the patented invention) in exchange for publicly disclosing his/her invention. While this may be sufficient incentive for many technological areas, rare diseases pose a unique challenge.

Drug companies don’t generally target rare diseases. Why? A small patient population means that even if expensive research efforts are successful, there will not be a large return on investment. In 1983, the Orphan Drug Act (ODA) was passed with the intent to solve this problem. Has it worked? The answer to this question is more complicated than it may seem.

What Drugs are Covered by the Orphan Drug Act?

Photo by James Coleman on Unsplash

The Orphan Drug Act covers drugs that treat rare diseases. A rare disease, by definition, affects fewer people than a conventional disease. You have probably heard of some, such as Cystic Fibrosis and Huntington Disease. There are many others you probably have not heard of, such as Niemann-Pick Type C Disease and Ehlers-Danlos Syndrome. The National Institutes of Health (NIH) defines a “rare disease” as one that affects fewer than 200,000 people. The notion that rare diseases affect a minute portion of the population, however, could not be further from the truth. In 2012, the NIH reported that nearly 7,000 of the diseases that fit it’s definition of a rare disease affect 25–30 million Americans. If you are interested, the NIH has a list of all of the rare diseases.

How Does the Orphan Drug Act Work? 

The goal of the act was to entice drug manufacturers to develop rare disease treatments. It does this by providing three major incentives: (i) tax credits, (ii) 7 years of market exclusivity, and (iii) an FDA fee waiver.

The biggest incentive is market exclusivity. The ODA provides exclusivity similar to a patent for any drug approved to treat a rare disease (i.e. a disease that has less than 200,000 patients). A drug approved as an orphan drug receives this period of exclusivity even if the patent term on the drug has expired.

As long as the drug is approved by the FDA to treat a rare disease, the manufacturer is granted 7 years of market exclusivity from the date of approval. However, unlike a patent, the scope of market exclusivity for orphan drugs is specific to the FDA-approved treatment; so, the FDA could grant market exclusivity to a second company seeking approval of the same drug for a different treatment. This means that, similar to a patent, the manufacturer with an FDA-approved orphan drug has a measure of exclusivity in the marketplace for that treatment. The intent of this patent-like incentive is to give manufacturers confidence that they can receive a return on their investment despite the small patient population for a rare disease.

Is the Orphan Drug Act A Success?

To a large extent, the ODA has been an overwhelming success. As of 2017, more than 450 orphan drugs have been approved. This is a dramatic increase in the amount of approved orphan drugs. This means that many diseases now have treatments that previously did not. From this standpoint, it is hard to say the ODA isn’t a success.

Should the Orphan Drug Act be Revised?

If the ODA is convincing drug manufacturers to finally target rare diseases, why have many argued for amending the ODA? For one, should the ODA be reconsidered if the drugs are being sold at prices most patients can’t afford?

Some suggest that the ODA is over-rewarding some companies. In particular, a common drug discovery strategy is to look at whether an already approved drug can effectively treat other conditions. This is called repurposing. This approach can get treatments on the market much quicker and at a lower cost than developing a new drug from scratch. Manufacturers have sought and received orphan status under the ODA for repurposed blockbuster drugs (i.e. drugs that generate $1 billion in annual sales) to treat rare diseases. In other words, manufacturers have received all of the benefits of the ODA, including the 7 years of market exclusivity, for a drug that is already approved for another disease application. Moreover, these manufacturers often have already made a significant amount of money from the blockbuster drug. The ODA can even provide 7 years of additional exclusivity on these highly-profitable drugs after their patent-based market exclusivity has expired—permitting these companies to potentially extend their profits while patients must pay a premium.

The goal of the ODA was not to allow companies to keep collecting huge sums of money on drugs that have already made billions of dollars. There is no doubt that repurposing a drug still involves significant research and development costs. However, those costs pale in comparison to development of a brand-new drug. Given this substantial difference, it hardly seems justified to provide the same 7 years of exclusivity in both cases. You may have seen this scenario play out in the news in recent weeks when a pharmaceutical company was granted orphan status for an experimental COVID-19 drug. The company later decided to give up its ODA benefits in light of the bad press it received as a result of seeking ODA benefits for a COVID-19 drug.

What is there to lose by modifying the ODA?

Although it might seem logical to amend the ODA to bar repurposing of blockbuster drugs from qualifying for orphan drug status, there are risks to doing so. Do we really want to disincentivize companies from repurposing drugs for rare disease applications? The drug development process from discovery to approval takes an average of 15 years. This type of repurposing brings treatments to rare disease patients much faster than developing new drugs ever could. Also, given that the goal of the ODA is to promote treatments that companies might not have an independent financial incentive to develop, removing any incentives might result in fewer needed treatments.

What do you think?

Hopefully I have shed some light for you on the complicated situation created by the ODA. We now have more rare disease treatments than ever before, but often at an extremely high cost to patients. What do you think? Has the ODA been a success? Does it need to be amended? These are the tough questions that need to be asked.

Bradley Loren
Assistant Blogger
Loyola University Chicago School of Law, JD 2021