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Why Do Drugs for Rare Disease Cost So Much?

drug research and rising costsHigh prices for drugs to treat rare diseases continue to climb. It’s a bit like bad weather – people complain about it, but no one (seemingly) knows enough about why it happens or how to control it. NPS Pharmaceutical’s new drug, GattexTM costs $295,000 for a year’s worth of treatment. This disclosure caused another uproar akin to complaints about the weather.

NPS developed Gattex to treat a rare bowel disease that cost $250 million to develop. Another pharmaceutical company revealed that their new drug, developed to treat a rare metabolic disorder, will cost $380,000 for a year’s worth of treatment. They have shown that the drug price aligns with the price for other enzyme replacement therapies (ERTs) and it certainly does. Genzyme’s drug Aldurazyme (Laronidase), an ERT, for mucopolysaccharidosis costs about $200,000 a year for children and $500,000 a year for adults.

A 2006 study showed the average cost of ERTs to range between $200,000 and $300,000 annually per person. Prices have climbed higher since that study and continue to increase.

Why are rare disease drug prices so high?

Biopharma companies with new rare disease drugs, also called orphan drugs, may set prices based on results from any or all of the following models:

  • Value-added pricing. Companies that use this model base price on replacement or enhancement of current treatments in the same or similar categories.
  • Cost plus pricing. This pricing model figures development costs and return on investment projections before newer products or generics can cut into the profit margin.
  • Comparable value pricing. This model sets price by comparing characteristics or benefits of drugs in different clinical areas.

Joshua P. Cohen, Ph.D., research fellow at Tufts Center for the Study of Drug Development, claims there’s no real link between cost of development and pricing, even though drug companies typically set prices higher for drugs for treating rare disease. Since few treatment options exist for treating these conditions, the drug companies know that payers (insurance companies) will end up footing the bill, so they can charge what they like.

“The rarity of the disease means that few people are affected. Generally, the fewer disease sufferers there are, the higher the price of the drug. Companies that invest the same amount of money or more in orphan drugs as they would non-orphan drugs want to recoup their investment,” says Cohen.

Who can blame these companies for wanting to recoup on their investment?

Pricing of these drugs remains controversial. If biopharams aren’t allowed to set pricing at a level where they can recover development and other costs, they may stop developing these drugs all together. It’s consumers and taxpayers who underwrite therapies for people with rare disease and the financial burden continues to grow. Soliris® from Alexion costs $400,000 annually per patient, making it the most expensive drug in the world. This drug represents the only treatment for paroxysymal nocturna hemoglobinuia (PNH), a rare blood disease. Fewer than 6,000 people in the US have this condition.

Can the market sustain such an incredibly high pricing structure? Drug prices continue to climb even as the call for fiscal responsibility and reform grow louder. This is putting an immense amount of stress on every aspect of our healthcare system. Every physician, patient, family, research facility, government agency, and insurance company feels the pressure.

There’s still no answer, clear or otherwise, to the problem of high prices for rare disease therapies, but Emergent believes that through education, conversation and innovation we can solve these and other challenging global issues. What do you want to build today?