Using market-exclusivity incentives to promote pharmaceutical innovation

Cost of Exempting Sole Orphan Drugs From Medicare Negotiation

Importance

The Inflation Reduction Act (IRA) requires Medicare to negotiate prices for some high-spending drugs but exempts drugs approved solely for the treatment of a single rare disease.

Objective

To estimate Medicare spending and global revenues for drugs that might have been exempt from negotiation from 2012 to 2021.

Design, Setting, and Participants

This cross-sectional study analyzed drugs that met the IRA threshold for price negotiation (Medicare spending >$200 million/y) in any year from 2012 to 2021 and had an Orphan Drug Act designation. We stratified drugs into 4 mutually exclusive categories: approved for a single rare disease (sole orphan), approved for multiple rare diseases (multiorphan), initially approved for a rare disease and subsequently approved for a nonrare disease (orphan first), and initially approved for a nonrare disease and subsequently approved for a rare disease (non-orphan first).

Outcomes

The primary outcomes were the number of sole orphan drugs, estimated Medicare spending on those drugs from 2012 to 2021, and global revenue since launch.

Results

Among 282 drugs, 95 (34%) were approved to treat at least 1 rare disease, including 25 sole orphan drugs (26%), 20 multiorphan drugs (21%), 13 orphan first drugs (14%), and 37 non-orphan first drugs (39%). From 2012 to 2021, Medicare spending on sole orphan drugs increased from $3.4 billion to $10.0 billion. Each year, a median (IQR) of $2.5 ($1.9-$2.6) billion in Medicare spending would have been excluded from price negotiation because of the sole orphan exemption. The cumulative global revenue of the median (IQR) sole orphan drug was $11 ($6.6-$19.2) billion.

Conclusions and Relevance

The sole orphan exemption will exclude billions of dollars of Medicare drug spending from price negotiation. The high level of global revenues achieved by these drugs, however, suggests that special exemption is unnecessary for them to achieve financial success. Congress could consider removing the sole orphan exemption to obtain additional savings for patients and taxpayers and to eliminate any potential disincentive for developing additional indications for these drugs.

Pharmaceutical policy and innovation for rare diseases: A narrative review

This article aims to synthesize the existing literature on the implementation of public policies to incentivize the development of treatments for rare diseases, (diseases with very low prevalence and therefore with low commercial interest) otherwise known as orphan drugs. The implementation of these incentives in the United States (US), Japan, and in the European Union (EU) seems to be related to a substantial increase in treatments for these diseases, and has influenced the way the pharmaceutical research & development (R&D) system operates beyond this policy area. Despite the success of the Orphan Drug model, the academic literature also highlights the negative implications that these public policies have on affordability and access to orphan drugs, as well as on the prioritization of certain disease rare areas over others. The synthesis focuses mostly on the United States' Orphan Drug Act (ODA) as a model for subsequent policies in other regions and countries. It starts with a historical overview of the creation of the term "rare diseases", continues with a summary of the evidence available on the US ODA's positive and negative impacts, and provides a summary of the different proposals to reform these incentives in light of the negative outcomes described. Finally, it describes some key aspects of the Japanese and European policies, as well as some of the challenges captured in the literature related to their impact in Low- and Middle-Income Countries (LMICs).

Pharmaceutical innovation and access to financial markets

While prior research shows that pharmaceutical innovation generates measurable benefits for society, over the last 70 years, the innovative activities of pharmaceutical firms have dramatically declined. In this study, we develop and test the hypothesis that to innovate, pharmaceutical firms must have access to capital through well-developed financial markets. Using a broad cross-country sample from 1989 to 2016, we document that financial market development is associated with greater levels of pharmaceutical innovation. To draw stronger causal inferences, and to overcome potential endogeneity issues, we use both instrumental variable and difference-in-difference analysis. Our results suggest that access to capital markets plays a vital role in pharmaceutical innovation.

Capture and passive predation in times of COVID-19 pandemic

In the midst of a health crisis, a drug in development and candidate for COVID-19 contagious disease was granted orphan-drug designation (ODD). This decision by the US Food and Drug Administration was immediately denounced as an abuse of the Orphan Drug Act (ODA). This paper outlines how this decision may be considered as the result of a complex case of capture along the regulatory process. Therefore, a case study of the remdesivir episode is conducted, combining the definition of a framework for the analysis of capture and the identification of stylized facts marking the trajectory of a repositioned drug and candidate for COVID-19. In doing so, arguments are put forward to show to what extent this granting of ODD can be described as the result of a series of captures, a case of weak capture however that calls for an amendment of the ODA to preclude drugs for contagious and communicable epidemic diseases from obtaining orphan status in the first place.

Reimagining Pharmaceutical Market Exclusivities: Should the Duration of Guaranteed Monopoly Periods Be Value Based?

OBJECTIVES

To describe the main features of a pharmaceutical market in which the duration of guaranteed monopoly periods would correspond to a new pharmaceutical product's value.

METHODS

After reviewing patent and regulatory exclusivity-based mechanisms for protecting prescription drug markets from competition to incentivize drug innovation in developed countries, we model market protection mechanisms within the current framework to give the longest-lasting market protections to drug developers that bring the most affordable products to market with highest public health and clinical value.

RESULTS

An approach tying pharmaceutical market exclusivity to value would have 3 main features. First, it would be based on regulatory exclusivity (ie, the drug regulator refrains from authorizing generic entry for a certain amount of time), rather than patents. Second, the duration of exclusivity period would be pegged to the magnitude of a product's anticipated health impact and its proposed price by using modified methods from the field of health technology assessment. Third, the duration of the value-based exclusivity period would be reassessed routinely 3 years after the product's launch to account for its real-world effectiveness.

CONCLUSIONS

Linking a drug's proposed price to the duration of its regulatory-based exclusivities would both incentivize the development of high impact, low-cost products and motivate drug developers to introduce these products at lower prices.

Market Exclusivity and Changes in Competition and Prices Associated With the US Food and Drug Administration Unapproved Drug Initiative

This cohort study assesses the long-term associations of the US Food and Drug Administration Unapproved Drug Initiative with market exclusivity characteristics and price changes.

Transferrable Market Exclusivity Extensions to Promote Antibiotic Development: An Economic Analysis

BACKGROUND

To address the growing threat of multidrug-resistant organisms, policymakers are seeking ideas to promote development of novel antibiotics. In 2018, the REVAMP Act was proposed in Congress to reward manufacturers of certain novel antibiotics with transferrable market exclusivity vouchers.

METHODS

We estimated the economic impact of this proposal by identifying antimicrobial drugs approved by the FDA from 2007-2016 that would likely have qualified for an exclusivity voucher and matching each drug to the highest-revenue fast-track drug facing generic entry within 4 years after the antibiotic was approved. Assuming a spending decrease of 75% after generic entry, we calculated the per-drug and total societal costs of these transferrable market exclusivity extensions over a decade.

RESULTS

We identified 10 antimicrobials that would have qualified for an exclusivity voucher, each of which was matched with 1 of 17 fast-track drugs facing generic entry through July 2019. These 10 drugs had a median annual revenue before generic entry of $249 million (range, $26 million-$2.7 billion). Accounting for a 75% spending reduction after generic entry, the median excess spending associated with 12 months of extended exclusivity was $187 million, for a total of $4.5 billion over 10 years.

CONCLUSIONS

While market exclusivity extensions are a politically appealing mechanism to encourage novel antibiotic development, this approach would cost public and private payers billions of dollars over the next decade.

Effective Market Exclusivity of New Molecular Entities for Rare and Non-rare Diseases

BACKGROUND

Growth in development, approvals, and revenue of drugs treating rare diseases (orphan drugs) has been increasing over the last four decades, which has drawn substantial attention to these products. Much of this growth has been attributed to the incentives created by the Orphan Drug Act, which includes a seven-year exclusivity period for the approval of rare disease indications.

OBJECTIVE

This study aims to compare the effective market exclusivity period of small molecule new molecular entities (NMEs) for rare (orphan) and non-rare (non-orphan) diseases approved by the U.S. Food and Drug Administration (FDA) from 2001-2012. While the overall length of a drug's effective market exclusivity period has been explored previously, there is little empirical research evaluating the differences in its duration between drugs for rare and non-rare diseases.

METHODS

Data sources utilized in this analysis included the NME Drug and New Biologic Approvals Reports, Orange Book, Orphan Drug Product Designation Database, Drugs@FDA and IQVIA's National Sales Perspective. We computed the effective market exclusivity period for each NME as the time from NME approval until approval of the first generic competitor. We then regressed the effective market exclusivity period for each NME, on orphan disease status, and other NME market factors using a Cox proportional hazards model. Subsequently, we calculated regression-adjusted median effective market exclusivity periods for both orphan and non-orphan NMEs to estimate effective exclusivity extensions from orphan status.

RESULTS

We find that only individual NMEs approved for the treatment of both orphan and non-orphan indications lower the hazard of generic entry (hazard ratio 0.464, p = 0.030) in comparison with non-orphan NMEs with a single indication. The associated additional median survival time for these NMEs is 1.9 years.

CONCLUSIONS

NMEs' orphan status per se is not associated with a reduction in the hazard of generic entry and longer effective market exclusivity periods in comparison with non-orphan NMEs. Only NMEs that were approved for the treatment of both orphan and non-orphan diseases experience lower hazard of generic entry and longer exclusivity periods compared with non-orphan drugs with a single indication.

Generating comparative evidence on new drugs and devices after approval

Certain limitations of evidence available on drugs and devices at the time of market approval often persist in the post-marketing period. Often, post-marketing research landscape is fragmented. When regulatory agencies require pharmaceutical and device manufacturers to conduct studies in the post-marketing period, these studies might remain incomplete many years after approval. Even when completed, many post-marketing studies lack meaningful active comparators, have observational designs, and might not collect patient-relevant outcomes. Regulators, in collaboration with the industry and patients, ought to ensure that the key questions unanswered at the time of drug and device approval are resolved in a timely fashion during the post-marketing phase. We propose a set of seven key guiding principles that we believe will provide the necessary incentives for pharmaceutical and device manufacturers to generate comparative data in the post-marketing period. First, regulators (for drugs and devices), notified bodies (for devices in Europe), health technology assessment organisations, and payers should develop customised evidence generation plans, ensuring that future post-approval studies address any limitations of the data available at the time of market entry impacting the benefit-risk profiles of drugs and devices. Second, post-marketing studies should be designed hierarchically: priority should be given to efforts aimed at evaluating a product's net clinical benefit in randomised trials compared with current known effective therapy, whenever possible, to address common decisional dilemmas. Third, post-marketing studies should incorporate active comparators as appropriate. Fourth, use of non-randomised studies for the evaluation of clinical benefit in the post-marketing period should be limited to instances when the magnitude of effect is deemed to be large or when it is possible to reasonably infer the comparative benefits or risks in settings, in which doing a randomised trial is not feasible. Fifth, efficiency of randomised trials should be improved by streamlining patient recruitment and data collection through innovative design elements. Sixth, governments should directly support and facilitate the production of comparative post-marketing data by investing in the development of collaborative research networks and data systems that reduce the complexity, cost, and waste of rigorous post-marketing research efforts. Last, financial incentives and penalties should be developed or more actively reinforced.

Six-Month Market Exclusivity Extensions To Promote Research Offer Substantial Returns For Many Drug Makers

To incentivize pharmaceutical manufacturers to invest in areas of unmet medical need, policy makers frequently propose extending the market exclusivity period of desired drugs. Some such proposals are modeled after the pediatric exclusivity patent extension program, which since 1997 has provided six additional months of market exclusivity for drugs studied in children. The most recent proposal would encourage rare disease research by providing six months of extended exclusivity for any existing drug that is granted subsequent FDA approval for a new rare disease indication. Yet the economic impact of such proposals is rarely addressed. We found that for the thirteen FDA-approved drugs that gained supplemental approval for a rare disease indication from 2005 through 2010, the median projected cost of clinical trials leading to approval was $29.8 million. If the exclusivity extension had been in place, the median discounted financial gain to manufacturers would have been $94.6 million. Median net returns would have been $82.4 million, with higher returns for drugs with higher annual sales. Extending market exclusivity would provide substantial compensation to many manufacturers, particularly for top-selling products, far in excess of the cost of conducting these trials. Alternative strategies to incentivize the study of approved drugs for rare diseases may offer similar benefits at a lower cost.

Profitability and Market Value of Orphan Drug Companies: A Retrospective, Propensity-Matched Case-Control Study

Background

Concerns about the high cost of orphan drugs has led to questions being asked about the generosity of the incentives for development, and associated company profits.

Methods

We conducted a retrospective, propensity score matched study of publicly-listed orphan companies. Cases were defined as holders of orphan drug market authorisation in Europe or the USA between 2000–12. Control companies were selected based on their propensity for being orphan drug market authorisation holders. We applied system General Method of Moments to test whether companies with orphan drug market authorization are valued higher, as measured by the Tobin’s Q and market to book value ratios, and are more profitable based on return on assets, than non-orphan drug companies.

Results

86 companies with orphan drug approvals in European (4), USA (61) or both (21) markets were matched with 258 controls. Following adjustment, orphan drug market authorization holders have a 9.6% (95% confidence interval, 0.6% to 18.7%) higher return on assets than non-orphan drug companies; Tobin’s Q was higher by 9.9% (1.0% to 19.7%); market to book value by 15.7% (3.1% to 30.0%) and operating profit by 516% (CI 19.8% to 1011%). For each additional orphan drug sold, return on assets increased by 11.1% (0.6% to 21.3%), Tobin’s Q by 2.7% (0.2% to 5.2%), and market to book value ratio by 5.8% (0.7% to 10.9%).

Conclusions

Publicly listed pharmaceutical companies that are orphan drug market authorization holders are associated with higher market value and greater profits than companies not producing treatments for rare diseases.

Protein kinase inhibitor therapy in advanced thyroid cancer: ethical challenges and potential solutions

Protein kinase inhibitors (PKIs) have emerged as highly promising therapies in progressive metastatic radioiodine-refractory differentiated thyroid cancer and in medullary thyroid cancer; two were recently approved in the USA for use in medullary thyroid cancer (vandetanib, cabozantinib), and another for use in progressive metastatic radioiodine-refractory differentiated thyroid cancer (sorafenib). Although more than 90% of thyroid cancer patients fare well in response to conventional treatment, PKI therapy has the potential to provide benefit. Nonetheless, PKIs produce numerous side effects, may worsen quality of life, may hasten mortality (by 1–2%), require discerning clinical acumen, are not yet proven to improve thyroid cancer survival and are very costly. This raises questions about who should prescribe PKIs, and about whether their use in thyroid cancer is truly beneficent and ethically justified. Restraint should be exercised in their use in thyroid cancer, with potential risks and benefits carefully weighed and solutions devised to help ameliorate many of the problems associated with their use.

How innovative are new drugs launched in the UK? A retrospective study of new drugs listed in the British National Formulary (BNF) 2001-2012

OBJECTIVES

Innovative new drugs offer potential benefits to patients, healthcare systems, governments and the pharmaceutical industry. Recent data suggest annual numbers of new drugs launched in the UK have increased in recent years, and we sought to understand whether this represents increasing numbers of highly innovative drugs being made available or the introduction of increasing numbers of drugs with limited additional therapeutic value.

DESIGN AND SETTING

Retrospective observational study of new drug entries in the British National Formulary (BNF).

PRIMARY AND SECONDARY OUTCOME MEASURES

Number of new drugs launched in the UK each year (based on first appearance in the BNF) from 2001 to 2012, including new chemical entities and new biological drugs, categorised by degree of innovativeness according to published criteria that incorporate both clinical usefulness and the nature of the innovation.

RESULTS

Highly innovative, moderately innovative and slightly innovative drugs made up 26%, 18% and 56% of all newly launched drugs, respectively, for the study period (n=290). There was an upward trend in annual numbers of slightly innovative drugs from 2004 onwards (R(2)=0.44), which aligned closely with the recovery in total numbers of new drugs launched each year since that time. There were no discernible time trends in the highly or moderately innovative categories. New drugs for malignancy and skin disease were most likely to be characterised as highly innovative (44% and 57%, respectively).

CONCLUSIONS

Highly innovative new drugs comprise only around a quarter of all new drug launches in the UK. In contrast, drugs categorised as only slightly innovative comprised well over half of all new drugs and annual numbers in this category are increasing. Current policy initiatives that seek to increase the supply of innovative new drugs have long-lead times to impact, and will need careful assessment to ensure they deliver their aims without unintended consequences.

Uneasy subjects: medical students' conflicts over the pharmaceutical industry

In this article I report on an investigation of the pharmaceutical industry's influence in medical education. Findings are based on fifty semi-structured interviews with medical students in the United States and Canada conducted between 2010 and 2013. Participant responses support the survey-based literature demonstrating that there is clear and pervasive influence of the pharmaceutical industry in medical education. They also challenge the theory that medical students feel entitled to industry gifts and uncritically accept industry presence. I investigate how medical students who are critical of the pharmaceutical industry negotiate its presence in the course of their medical education. Findings suggest that these participants do not simply absorb industry presence, but interpret it and respond in complex ways. Participants were uncomfortable with industry influence throughout their medical training and found multifaceted ways to resist. They struggled with power relations in medical training and the prevailing notion that industry presence is a normal part of medical education. I argue that this pervasive norm of industry presence is located in neoliberal structural transformations within and outside both education and medicine. The idea that industry presence is normal and inevitable represents a challenge for students who are critical of industry.

Barriers to novel therapeutics in amyotrophic lateral sclerosis

SUMMARY Amyotrophic lateral sclerosis is a devastating neurodegenerative condition primarily involving the motor system in the cerebral cortex, brain stem and spinal cord, but can, in later disease stages, also affect distinct extramotor brain regions. In this article, we discuss the prevalent barriers, including clinical and genetic variability of amyotrophic lateral sclerosis, frailty of the current mouse model and inadequateness of clinical trials, in the search for novel therapeutics. Approaches in terms of understanding the pathogenesis, and the search for biomarkers to initiate early or even presymptomatic treatment and monitor treatment effects are highlighted.

Unintended effects of orphan product designation for rare neurological diseases

Since the introduction of the Orphan Drug Act in 1983, designed to promote development of treatments for rare diseases, at least 378 orphan drugs have been approved. Incentives include financial support, tax credits, and perhaps most importantly, extended market exclusivity. These incentives have encouraged industry interest and accelerated research on rare diseases, allowing patients with orphan diseases access to treatments. However, extended market exclusivity has been associated with unacceptably high drug costs, both for newly developed drugs and for drugs that were previously widely available. We suggest that a paradoxical effect of orphan product exclusivity can be reduced patient access to existing drugs. In addition, the costs of each new drug are arguably unsustainable for patients and for the American health care system. Of all the specialties, neurology has the third highest number of orphan product designations, and neurological diseases account for at least one-fifth of rare diseases. Citing the use of tetrabenazine for chorea in Huntington disease, adrenocorticotropic hormone for infantile spasms, and enzyme replacement therapy with alglucosidase alpha for Pompe disease, we highlight these paradoxical effects.

An empirical review of major legislation affecting drug development: past experiences, effects, and unintended consequences

CONTEXT

With the development of transformative drugs at a low point, numerous commentators have recommended new legislation that uses supplementary market exclusivity as an incentive to promote innovation in the pharmaceutical market.

METHODS

This report provides an historical perspective on proposals for encouraging drug research. Four legislative programs have been primarily designed to offer market exclusivity to promote public health goals in the pharmaceutical or biomedical sciences: the Bayh-Dole Act of 1980, the Orphan Drug Act of 1983, the Hatch-Waxman Act of 1984, and the pediatric exclusivity provisions of the FDA Modernization Act of 1997. I reviewed quantitative and qualitative studies that reported on the outcomes from these programs and evaluated the quality of evidence generated.

FINDINGS

All four legislative programs generally have been regarded as successful, although such conclusions are largely based on straightforward descriptive reports rather than on more rigorous comparative data or analyses that sufficiently account for confounding. Overall, solid data demonstrate that market exclusivity incentives can attract interest from parties involved in drug development. However, using market exclusivity to promote innovation in the pharmaceutical market can be prone to misuse, leading to improper gains. In addition, important collateral effects have emerged with substantial negative public health implications.

CONCLUSIONS

Using market exclusivity to promote pharmaceutical innovation can lead to positive outcomes, but the practice is also characterized by waste and collateral effects. Certain practices, such as mechanisms for reevaluation and closer ties of incentives programs to public health outcomes, can help address these problems.

Biomedical Innovation: A Risky Business at Risk

Biomedical innovation needs a new regulatory framework that better balances the benefits and risks to the public of pioneering products.

Enhancing prescription drug innovation and adoption

The adoption and use of a new drug would ideally be guided by its innovation and cost-effectiveness. However, information about the relative efficacy and safety of a drug is typically incomplete even well after market entry, and various other forces create a marketplace in which most new drugs are little better than their older counterparts. Five proposed mechanisms are considered for promoting innovation and reducing the use of therapies ultimately found to offer poor value or have unacceptable risks. These changes range from increasing the evidence required for U.S. Food and Drug Administration approval to modifying the structure of drug reimbursement. Despite the challenges of policy implementation, the United States has a long history of successfully improving the societal value and safe use of prescription medicines.

"Creating hope" and other incentives for drug development for children

Enhancing drug development for pediatric disease is a priority and a public responsibility. The Creating Hope Act of 2010 is important new proposed legislation that adds drugs and biologics for treating rare diseases in children to those for neglected tropical diseases as eligible for a priority review voucher from the U.S. Food and Drug Administration. The Act enhances existing incentive programs through specific financial benefits to companies who seek a pediatric indication for a new drug to treat an orphan disease that occurs specifically in children.

Making the case for laws that improve health: the work of the Public Health Law Research National Program Office

No one who attended the 2010 national public health law conference hosted by the Public Health Law Association (PHLA) and the American Society of Law, Medicine & Ethics (ASLME) could miss the sense of excitement and momentum. The revival of this annual public health law meeting, with the support of the Robert Wood Johnson Foundation (RWJF), the energetic leadership of the PHLA president and board, ASLME’s expert guidance, and a rousing address by Dr. Tom Frieden, Director of the Centers for Disease Control and Prevention (CDC), symbolize the continued commitment of a wide range of important individuals and institutions to the proposition that law is of substantial importance to public health. But there is more than just symbolism to be excited about. CDC’s public health law program continues to champion efforts to promote the use and understanding of law as a public health tool.