Pharma companies are going all in on rare disease treatments

Drugs designed to treat rare diseases now make up half of new drug approvals each year.
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Amelia Kinsinger

· 5 min read

What’s the hottest trend in drug development? Rare diseases.

Drugmakers historically shied away from developing drugs to treat rare diseases because the patient populations were so small that drugmakers didn’t think they’d make any money. But in recent years, the number of FDA-approved rare disease treatments has skyrocketed thanks to the Orphan Drug Act, which incentivizes drugmakers to invest in research and development for these drugs.

“Before the Orphan Drug Act was passed, there were less than 40 therapies approved for rare diseases,” Karin Hoelzer, director of policy and regulatory affairs at the National Organization for Rare Disorders, or NORD, told Healthcare Brew. “Now, half of the new approvals that are occurring every year are for rare diseases, and there have been more than 1,100 approved indications for rare diseases.”

What is the Orphan Drug Act?

Congress passed the Orphan Drug Act in 1983 in response to a lack of drugs targeting rare diseases, which affect as many as 30 million people in the US, or roughly 9% of the total population.

“​​In the 1970s, a lot of biopharmaceutical innovation was happening, which was great and really changing the lives of patients, but patients with rare diseases were largely left out,” Hoelzer said. “There were many rare diseases that just had no treatment options.”

The legislation provides three main incentives for drugmakers:

  • Seven years of market exclusivity following FDA approval
  • A waiver of user fees—which drugmakers are typically required to pay to the agency (and make up nearly half of the FDA’s annual budget)
  • And a 50% tax credit for qualifying clinical trial fees, according to Scott Freeman, an independent orphan drug regulatory consultant.

Is it *too* effective?

Some healthcare experts, including S. Sean Tu, a law professor at West Virginia University, think that the Orphan Drug Act wasn’t necessary and prompted drugmakers to overfocus on developing treatments for rare diseases instead of drugs that treat larger populations, like cancer treatments.

Drug companies make “plenty of money” on treatments for rare diseases, and the idea that drugmakers wouldn’t be able to make a profit on orphan drugs because of how small the patient populations are is “not the case,” according to Tu.

“I can either charge a million people $1 for the drug, or I can charge one person a million dollars for the drugs, and I’d be in the same position,” Tu said. “That’s what we see with these orphan indications. They’re charging a ton of money to a small number of people.”

Many orphan drugs do come with hefty price tags—the average annual cost of orphan drugs is $32,000, according to NORD. Zolgensma, an orphan drug designed to treat spinal muscular atrophy in kids under the age of two, has a $2.1 million list price for the one-time treatment.

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“I think drug companies have become wise to the fact that they can charge whatever they want for these drugs,” Tu said. “If I were to ask you, ‘How much would you pay for a drug that would cure you of your ailment that might be lethal to you?’ I think your answer would be, ‘All of the money that I have.’”

Freeman argued that while there may be a “lopsided” emphasis on orphan drugs compared to drugs for the general population, any changes to the Orphan Drug Act could “drastically hurt the rare disease community.”

C. Michael White, department head and distinguished professor of pharmacy practice at the University of Connecticut School of Pharmacy, told Healthcare Brew the issue isn’t that drugmakers are too focused on orphan drugs, but that the expensive price tags the drugs come with are putting a hefty burden on insurance companies, which bear the brunt of the costs.

For commercial payers, specialty drugs including orphan drugs make up less than 5% of use but close to 50% of retail prescription drug spending, according to a 2023 study from Vanderbilt University.

Because of the rise in costs, insurance can become more expensive for patients, White said. Some employers are moving away from copays to a coinsurance plan that requires patients to pay a certain percentage of a drug’s price. If a patient has to pay 20% of a $200,000 treatment, “that’s really cost-prohibitive,” White said.

More work to be done

While there may be some downsides to the Orphan Drug Act, such as an increasing cost burden on payers, experts agree that there are many benefits.

The orphan drugs that have been approved since the legislation passed are estimated to have prevented 108,000 deaths from rare diseases, according to research from the National Bureau of Economic Research.

But there’s still work to be done—an estimated 6,500 rare diseases still don’t have FDA-approved treatments.

“One of the most effective ways to address this is finding new uses for approved therapies,” Hoelzer said. “Many of the treatments that have already been shown to be safe and effective and that are approved to treat one disease are very likely to work for additional diseases, too, and we know there’s a tremendous opportunity to really use these drugs for additional therapies.”

Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.