ORPHAN ECONOMICS: THE DOWNSIDE OF SUPPLY-SIDE PHARMACOLOGY

When government drug development incentives and free enterprise result in exorbitant price hikes, it is typically patients, not stockholders, who are caught in the crosshairs.  When the drug in question is unique in its ability to treat infants with a potentially life-threatening seizure disorder, boosting the price by 1,400% overnight seems indelicate at best.  Yet that is exactly what Questcor Pharmaceuticals did in August 2007 when it increased the price of H.P. Acthar Gel (ACTH) from $1,600 to $23,000 USD per vial.

What’s an Orphan? Orphan diseases are defined by the US Food and Drug Association (FDA) as any medical condition affecting 200,000 or fewer patients in the US each year.  Because some major diseases have smaller patient populations with subtypes of the disease, such as Multiple Sclerosis (MS), the appellation also applies.  ALS, and Tourette’s syndrome are also Orphan diseases.

Some diseases have patient populations of fewer than one hundred; however, collectively they affect an estimated 25 million Americans, according to the Office of Rare Diseases at the National Institutes of Health.  Most of these diseases are caused by inherited genetic mutations.

The National Organization for Rare Diseases maintains a database of 1,150 orphan diseases as well as 2000 organizations and resources for patients (www.nord.org).

Danielle Foltz was the first mother to need the drug for her child after the price increase took effect.  Her seven-month-old son, Trevor, had his first spasms just after the family returned from Disney World to their non-profit ministry in Tanzania, East Africa. He was soon having as many as 20 seizures in a 60 second span, up to five times a day, and they were told that unless the seizures were controlled immediately, their son’s developing brain would be irreparably damaged.

“We were told that the only thing between our son and a shot at a normal life was a drug called ACTH, marketed as Acthar Gel by Questcor Pharmaceuticals,” she said.

But when Danielle and her husband called their health insurer to find out about coverage, the carrier balked at the price tag – between $80,000 to $100,000 for a four or five vial course. Approval took several days, which the Rhode Island mother described as “a nightmare.”

As news of Questcor’s price increase and its effect on families like the Foltz’s hit the media, the company suddenly found itself in the crosshairs.  The outcry from parents and advocacy groups grew loud enough to be heard in Washington, and on July 24 of this year, the US Senate Joint Economic Committee held a special hearing entitled “Small Market Drugs, Big Price Tags: Are Drug Companies Exploiting People With Rare Diseases?”  The session focused on Acthar specifically, and on the entire issue of rocketing prices of orphan drugs, in general.

One week later – to the day – Questcor’s CFO, George Stuart, announced that he would resign.  The company denied that the decision had anything to do with the Acthar pricing controversy.

Congressional Fallout

At the outset of the July 24th hearing, Joint Committee Chairman, Senator Charles E. Schumer (D-NY) emphasized that, “While we are talking about smaller segments of our population when we discuss rare diseases, the total number of American families touched by them is quite high,” he noted. “NIH estimates that between nine and ten percent of the American population, or nearly 30 million men, women, and children, are affected by a rare disease. Approximately half of these people are children, and many of these rare diseases are present at birth.”  He also chastised Questcor directly.

“One might say that a brand new drug that just hit the market might be pricey because it had to recoup research and development expenditures, but Acthar has been on the market for three decades,” noted Sen. Schumer.

“Our witnesses today are going to shine a light on practices that look uncomfortably like an abuse of the pricing power we give to drug companies.  In case after case, it appears that pharma companies have been taking critical drugs that have been on the market for years – with the costs of their development long since paid for – and increasing prices to the very highest levels the market will bear.”

Schumer and Sen. Amy Klobuchar (D-MN) have asked the General Accounting Office to look further into the issue of the price increases and more hearings are expected.

“It’s Personal”

Danielle Foltz told the panel about the difficulties she and her husband endured to receive Acthar for Trevor.

“I understand that today’s hearing is political, but for us, and the two thousand families devastated by the diagnosis of infantile spasms each year, it’s personal,” she told the panel. “How do you find the words to describe the most horrific event of your life; your personal valley of the shadow of death?  Because that is exactly the feeling that clamps your heart when you are at a place where the medication needed to rescue your child is unattainable,” she said.

“What we didn’t know is that four months prior to Trevor’s diagnosis, Questcor Pharmaceuticals had implemented a new business model [which] included raising the price per vial from approximately $1,000 each to over $30,000 a vial.  And because Trevor was the first child to require ACTH treatment after the price increase, not even our neurologist was aware of just how dramatically the price had risen. What he thought would cost no more than $50,000 total would now be an astounding $150,000.  In hindsight, we have no doubt the excessive price of this drug influenced the insurance company against originally approving it for Trevor,” she said.

One vial of Acthar was being quoted at a minimum of $30,000, and Trevor needed about five vials, she continued.  Their insurer agreed to cover treatment one week after the seizures began, and after four treatments at an area hospital, the convulsions stopped and Trevor has remained seizure-free.

However, in preparation for testifying before the committee, Danielle Folz said that her husband had researched the current price of a vial of ACTH.  “Unbelievably, the escalation has not reached a plateau,” she said. “The very same vial we ended up paying $26,000 to obtain six months ago today can cost as much as $40,000. Where does it end?”

Under the Radar

Madeline M. Carpinelli, a research fellow at the PRIME Institute at the College of Pharmacy, University of Minnesota, Minneapolis, said that she and Stephen W. Schondelmeyer, professor and director of the Institute, have identified over one hundred cases, since 2002, where the price of a single-source drug more than doubled due to a single price increase.

Carpinelli was once a senior policy analyst at the Office of Inspector General for Health and Human Services, where she managed a team of analysts conducting evaluations of government drug price reporting and compliance issues.  She and the team at the PRIME institute recently looked at price increases during the first half of 2008, and divided price increases into two categories: normal and extraordinary (any increase equal to or greater than 100% at a single point in time).

“Through our tracking of drug prices over time, we have become aware that certain drug products have experienced extraordinary price increases that are well beyond what would normally be expected in a competitive market,” she told the Committee. “We found hundreds of cases of extraordinary price increases for branded drug products.”

For single-source drugs, there have been six price increases of more than 1,000%, with the largest being 3,436%. Another six brand-name, single-source orphan products increased from 500%-999%. One off-patent product had an increase of 10,631% and another ten had “extraordinary” increases of more than 500%.  She also noted that most of the drug products with extraordinary price increases are not among the top 100 to 500 drug products on the market, which might help explain the increases.  “In a sense, these drug products and their price increases have flown below the radar with respect to attention to their pricing behavior,” Carpanelli told lawmakers.

The exclusivity status of these products may also have facilitated the extraordinary price increases, she explained, noting that among the drugs with large price increases were a number of older drugs that have recently been patented for a new use, thus providing market exclusivity.  Older products have been prepared in a new dosage form that may be the subject of a patent, thus preventing the expected generic competition that is usually seen in other situations.

Finally, she noted that some individual drug companies have a large number of products that have had extraordinary price increases.  “This raised the issue of whether or not the extreme price increases are a matter of a particular corporate strategy. Firms may acquire drug products that have limited market competition, or that have high potential for monopoly power with or without intellectual property rights.”

Supply and Demand?

Questcor acquired Acthar from Aventis Pharmaceuticals in 2001 and the drug was granted orphan status for infantile spasms by the US FDA in 2003.  As such, the company became eligible for expedited FDA review of submissions for approval, seven-year exclusive marketing rights, as well as a number of other economic incentives.

Originally approved for MS in 1952, over the past decade, ACTH has emerged as the front-line, off-label drug-of-choice for treating infantile spasms, a rare seizure disorder affecting around 3,000 infants each year in the US.

Although there is emerging evidence that injections of prednisolone, a well known and far cheaper option, might be as effective, most children respond to a course of treatment with Acthar, which typically requires up to four or five vials of ACTH and brings the total cost to between $80,000 and $100,000 (Lancet 2004;364:1773-8.).

When the company broke the news of Acthar’s price increase last year under a “new business strategy,” Don M. Bailey, Questcor’s president, said the increase was necessary “to ensure adequate supplies and distribution of the drug.”

Shortages of ACTH had caused the FDA to take special action in 2003 to ensure its availability, and the Agency, at the time, applauded Questcor for taking steps to distribute the drug to pediatricians and hospitals in short supply.

The goal of the new strategy, Bailey stated, was “to make manufacturing and distribution of Acthar economically viable on a stand-alone basis, so that Questcor can continue to ensure the availability of Acthar for those patients who need it most, and fund projects which can contribute to the growth of the company.”  The new pricing brought Acthar “in line” with the cost of treatments for other very rare diseases, he explained.

The drug is by no means new.  It was first synthesized by Armour & Co. in the 1940s from pig pituitary glands and has been used since the 1950s to treat different inflammatory disorders.

Bailey said Questcor anticipated “incurring significant additional costs in its further pursuit of a formal FDA approval” as another reason for the price increase last year.  The company filed a Supplemental New Drug Application for Acthar but received a “not approvable” letter from the FDA in May 2007, citing a lack of scientific data on the new application.

Industry Trend

Questcor is by no means the only company that has significantly raised the price of drugs for rare disorders, or those in infants. After purchasing Indocin IV (Indomethacin), a drug for treating a congenital heart defect in premature infants, Ovation Pharmaceuticals boosted its price by 1,300%.  Ovation also raised the price of Cosmegen (dactinomycin), which is used to treat a specific childhood cancer, from $16.79 to $593.75, a 3,436% rise.  Genzyme’s Cerezyme (injectable imiglucerase) for treating Gaucher’s disease was increased from $100,000 to $400,000 per year, while Shire Pharmaceuticals’ Elaprase (idursulfase), which was approved in 2006 for Hunter syndrome, or MPS II, was recently raised from $200,000 to $300,000.

Data courtesy of Renée Gordon, US FDA

Defending the Decision

Questcor has always defended the price increase, saying that most insurers have covered the cost.  In August 2007, Questcor executed a series of decisions designed to ensure availability and access to Acthar, which included changes in distribution from multiple distributors to a single specialty distributor, as well as a co-pay assistance program for persons who are uninsured or under-insured.

The National Organization for Rare Disorders (NORD) provides Questcor’s patient assistance program.  NORD offers a one year supply of Acthar at a discount of 25%-100% to those who are eligible for the program.  As of the end of July, these transitions had virtually eliminated all Acthar inventories held by wholesalers.

“Questcor is not aware of any patients who need the drug but have been unable to access it.  Acthar’s availability has been stabilized, and Questcor has now begun sponsoring efforts aimed at developing a better understanding of how Acthar can best be used to treat infantile spasms and other rare disorders,” according to a company statement.

Questcor was not informed of the Joint Economic Committee’s hearing on drugs for rare diseases, nor was it invited to participate.  In response to the July 2008 hearing, the Pharmaceutical Research and Manufacturers of America (PhRMA) said that medicines to treat rare diseases are subject to price increases because they are often more costly and risky to develop.  “These types of increases are rare exceptions and not the norm,” according to a statement.

PhRMA also took the opportunity to emphasize the importance of patient access to the therapies.  “America’s pharmaceutical research and biotechnology companies today reinforce their commitment to ongoing scientific research in this area, and highlight the help available for existing therapies through patient assistance programs,” the group said.

“While pharmaceutical scientists are currently developing new medicines to add to this expanding arsenal, we recognize that innovative medicines do no good if they sit on pharmacy shelves and out of reach of patients who need them the most,” said PhRMA CEO, Billy Tauzin.

“America’s pharmaceutical research companies are committed to helping make sure that these medicines are within reach of America’s most vulnerable patients and to show this commitment they created the Partnership for Prescription Assistance (PPA).”

Created in 2005 by pharmaceutical research companies, PPA is a clearinghouse of information on more than 475 public and private patient assistance programs that offer free or nearly-free medicines to eligible uninsured and financially-struggling patients.

Status Quo?

John A. Vernon, PhD, an economist with the Department of Health Policy and Administration at University of North Carolina, Chapel Hill, has written extensively on drug development pricing. He noted that the Questcor price hike was neither an isolated incident in pharmaceutical development, nor entirely unfounded given the economic realities of any market.

“Clearly this was a decision that was motivated by a desire to maximize profits. What happened was that there was a new indication for Acthar and it became first-in-class for treating infantile spasms. It’s not like it represented a significant innovation.”

He likened it to buying a hairbrush with unique bristles for five dollars one week, and one week later researchers discover that the patented bristles, for some reason, could also restore hair growth in balding men.  “Believe me, the price of that hairbrush will go through the roof. What happened with Acthar is not surprising, and it will happen again and again.  Viagra is another case-in-point; once it was discovered that it had another application in addition to being valuable in treating angina.”

The economic principles involved in orphan drug development and pricing are by no means unique to pharmaceuticals either, he added. Even so, the increase with Acthar “was very striking,” he said.  “It’s also important to understand that no company is immune from the public response to a price increase like this. It wasn’t the right time to raise the price so much, but don’t expect them to roll their prices back.  Remember, their purpose is to maximize profits.  They’re going to price any product to maximize their earnings, and it is always calculated as price-times-quantity of units, or demand. When demand is small, the price will always be higher with drugs like this.”

“Money Can Be Made”

Although the Acthar controversy has attracted congressional scrutiny of how companies price orphan drugs developed with federal funds and other incentives, efforts to help more companies become involved are ongoing.

In late July, US and European regulators agreed to a common form that companies can use to apply for orphan drug status in both jurisdictions, cutting a significant amount of red tape.

The combined patient population with an orphaned disease in the US is thought to be 11 million, but could be as high as 20 million, and there are around 20-30 million additional patients in Europe.  Orphan products currently generate $3-5 billion each year, but the potential market could be as high as $200 billion.

The Office of Orphan Drug Development (OOPD) provides 20-25 new one-to-three-year grants annually for direct and indirect orphan drug development costs and, since its enactment in 1983, more than 1,200 products have been granted Orphan Drug Act status. Orphans have faster clinical development times, enjoy greater support from regulators, have lower development costs and end markets with less competition than treatments for other, more common diseases.

Developers of orphan drugs also take advantage of the FDA’s fast-track designation, with one survey showing that over half of fast-track program participants also had orphan designations.  Moreover, 67% (29 out of 43) of Investigational New Drugs (INDs) granted by FDA are orphan-designated products. These INDs are granted to drugs that treat seriously ill patients with no other treatment options.

The benefit of taking advantage of these special programs likely explains why nearly a quarter of the 50 fastest drug approvals carried out since 1984 have been of orphan products, Vernon noted.  At a joint FDA/Drug Information Association meeting last May, held to celebrate the Orphan Drug Act’s 25th anniversary, FDA chief Janet Woodcock endorsed increasing the amount of money that might be made available for such companies through the Agency’s special grant program for orphan drugs.

At the same meeting, Amgen’s Marlene Haffner, the former director of OOPD, emphasized the financial benefits companies can realize by investing in orphan product development.

“With the chronicity of rare diseases and a drug that, for the most part, won’t have competition – it’s yours and it’s yours beyond the seven-year exclusivity [which applies only to the indication for which the drug has been designated and approved].  Money can be made,” she said, referring to the likelihood that there will be no competition for the small market. AN

Kurt Samson