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In 1983, the Orphan Drug Act was passed to give drug makers incentives to create medicines for rare diseases, which are defined as maladies that affect fewer than 200,000 people. The incentives include tax credits and seven years of marketing exclusivity. Since then, more than 400 orphan drugs have been approved by the Food and Drug Administration. Last year, though, 41 percent of all FDA approvals were for orphan drugs. And sales of orphan medicines, which carry high price tags, are forecast this year to total $107 billion.

In a new paper in the American Journal of Clinical Oncology, a team of researchers argues that drug makers are exploiting loopholes that allow them to widen the market for such drugs and distorting the original purpose of the law. We spoke with Martin Makary, a cancer surgeon and professor of health policy at Johns Hopkins School of Medicine, who is one of the authors, about the need for reform. This is an edited version of the conversation …

Pharmalot: What’s the problem with the Orphan Drug Act?


Makary: The dilemma is this: Pharmaceutical companies have invented and discovered cures for terrible medical conditions, which is wonderful, because generally, the research goes where the largest markets are. The Orphan Drug Act was passed in response to concerns that people with rare diseases were not getting any attention in the drug development community. It was intended to balance out this need with financial awards for companies that normally develop drugs that affect a large population. If we didn’t have the law, there’d be little incentive to develop drugs for rare conditions. Yet at the same time, there are unintended consequences, and this includes creating perverse incentives.

Pharmalot: What do you mean by that, exactly?


Makary: We found that an increasing number of drugs approved by the FDA have been orphan drugs. Last year, seven out of 10 blockbuster drugs in the US were passed as orphan drugs, even though they’re used off-label for other conditions. There’s a time when, as physicians, we believe there’s a benefit to patients for an off-label use, and we should be able to give them the drug. The problem isn’t the off-label use. The problem is that some of these drugs may actually have been submitted [for FDA approval] with the ultimate intention for being used more broadly than if they were designed only for the rare disease populations. There’s a pattern of gaming the system to cash in on a taxpayer-funded benefit to the company, and it needs to be addressed in order to preserve the mission of the Act.

Pharmalot: How do you mean ‘gaming the system?’

Makary: So a rare disease population is defined as affecting less than 200,000 people. But what’s happening is that a drug company develops a medication to treat a specific cancer, and will submit that to the FDA as intended for a very targeted subset of the cancer population. For example, HER2-positive is most commonly associated with breast cancer, but is also found in other cancers. … Once a drug is approved, companies can seek additional indications for populations well exceeding 200,000 people. And this is a pattern with most of the orphan drugs approved by the FDA.

Pharmalot: OK, but isn’t that a good thing if more patient populations are ultimately served?

Makary: Any time a drug is approved by FDA to help patients, it should be celebrated. But if we create a special mechanism for a drug that ends up being more commonly used after approval, we believe there will be less research conducted for drugs for true orphan diseases. Companies will direct their efforts to wider populations. As a cancer doctor, there are patients that were being helped by the Act, but they may not be in the future.

We think this law is being abused, because it suggests taxpayer-funded benefits are no longer truly concentrated on orphan diseases. These subsidies are provided by taxpayer dollars. Should taxpayers subsidize what may ultimately become blockbuster drugs? This is an especially important question, given the climate in America with outsized pricing. The median cost for orphan drugs is $98,534 per patient per year compared with a median cost of $5,153 per patient per year for drugs that are not approved for an orphan population. And the median cost of orphan drugs doubled between 2010 and 2014.

Pharmalot: So what do you suggest?

Makary: Drug companies should do what’s done in other countries, which is they should pay back the subsidies if their drug becomes a blockbuster. Perhaps a 1 percent tax if a drug grosses $1 billion a year. That seems to be a reasonable way to recoup the taxpayer-funded incentive, since those incentives were never intended for blockbusters. Or maybe if a drug is a $5 billion, the marketing exclusivity is shortened or the company pays a graduated tax.

Right now, the public is frustrated with drug pricing. This is a good time to ask if we think the most vulnerable members of our society deserve products developed with some incentives for research and development. As a country, we’ve said the answer is ‘Yes,’ but we believe the mechanism should be re-evaluated.

We’re the only country where our program to incentivize rare disease drug development has been abused to the point where 44 percent of all drugs approved, and seven out of 10 blockbuster drugs, are orphans. We hear about scientists asking how they can tailor a drug to gain an orphan indication. We shouldn’t have scientists talk about gaming systems. We want them talking about developing medications.