Ensuring a Change for the Better

Orphan Drugs – Reinventing Economies of Scale

Cristina Falcão
Contributor: Cristina Falcão
Posted: 11/15/2011

Economies of scale come in many flavors. Including the oddity flavor where the number of manufactured products decreases and the size of markets shrink.

Orphan drugs are economies of scale’ oddity flavor – a smaller market is as profitable as a large one, as long as the expensive therapies fall into reimbursement plans, in other words, as long as there are diagnostic tests pinpointing rare diseases’ patients that need those therapies.

Marketing strategies adapt and profit from new scaling, because direct-to-consumer (DTC) marketing has no relevance in such small target groups, whereas the internet and social media channels seem to be better fit for the purpose.

Small pools of patients, government incentives, and protocol support/advanced pathway, are a spoonful of ingenuity in clinical trial budgeting, to complement these new economies of scale.

Specialty pharmacies bear out that orphan drugs are not only forerunners of personalized medicine, as one of the therapeutic areas covered by this advancing field of health care.

The hardest area to improve is measurement and evaluation - pricing and reimbursement of orphan drugs are under payers’ scrutiny.

Index: Clinical Trials, Advanced Pathway/ Conditional Marketing Authorization,Personalized Medicine, Specialty Pharmacies, Pricing and Reimbursement, Conundrum

Clinical Trials

Clinical trials for orphan drugs with smaller patient groups have significant lower costs, additionally enhanced by government incentives and the support (protocols) that the FDA and the EU commission give to companies developing orphan drugs. Furthermore, the partnerships between pharmaceutical and biopharmaceutical companies reduce their R&D and marketing expenditures.

Advanced Pathway/ Conditional Marketing Authorization

The inherent difficulty of identifying patients and finding a pool of clinical trial participants, made way to the Accelerated Approval Pathway (AA) for orphan drugs in US and for the Conditional Marketing Authorization (CMA) in EU.

Created in 1992, the AA pathway isavailable to orphan drugs and drugs for other serious illnesses, where there is urgent need to treat patients with rare life-threatening diseases.

Surrogate endpoints are the substitutes of clinical trials for the approval of new drug applications (NDAs) - Surrogate endpoints are laboratory measurements, such as blood or urine tests, or physical signs that predict that a drug will improve a patient's condition. AA pathway is granted if applicants are able to demonstrate that these laboratory measurements are "reasonably likely” to provide a clinical benefit, and the FDA will continue monitoring AA - approved drugs, until their efficacy is confirmed in post-approval trials.

In EU, EMEA grants Conditional Marketing Authorization (CMA) similar to AA, to disease treatments including orphan diseases. Under CMA guidelines, treatments have a conditional approval, based on a presumption of a positive benefit-risk, which needs further confirmatory studies. However, there is no explicit mention in legislation to the use of surrogate endpoints to obtain a CMA.

Personalized Medicine

“Personalized medicine is a rapidly advancing field of health care that promises greater precision and effectiveness than traditional medicine because it is informed by each person’s unique clinical, social, genetic, genomic, and environmental information.”(1)

Specialty Pharmacies

The development of specialty pharmacies and specialty distributors is a move toward the model of personalized medicine.

The majority of orphan drugs are specialty pharmaceuticals with high percentage of biological drugs, requiring close coordination with providers, and far-reaching patient support.

These specialty pharmacies provide theface-to-face service capabilities, and bridge the gap between pharma companies, patients, and physicians.

Pricing and Reimbursement

The monopolistic power granted to orphan drugs results in high prices.

In US, the recent changes in healthcare through the Affordable Care Act put orphan drugs under payers’ observation.

Payers are regularly endeavoring to involve patients in cost share burden, especially because many of these drugs can be used for other non-rare diseases, therefore sponsors are required to show an overall impact on outcomes from different perspectives, including, patient, payer, and provider.

In EU, due to the differences of pricing and reimbursement plans in each country, pharmaceutical companies avoid downward price referencing between countries, by first marketing in member states where launch prices are unrestricted.

When companies are able to set a high initial price, that will, in practice, remain unchanged after formal authorization, (such as in France where price is fully reimbursed during the trial phase) countries that control prices, struggle to trim them down but without success. Pharma companies will rather donate the drugs than have discount rates. Donating facilitates avoiding the downward price referencing related with differential pricing. If the drug is expensive but available, National Health Authorities have a hard time fighting public pressure.

Reimbursement: Neither FDA nor EMEA have any authority over price control.


  • Each member state decides orphan drugs pricing/reimbursement
  • Setting up a prevalence ratio of less than 5/10,000 people avoids abusive practices
  • Several EU countries developed government mechanisms to keep orphan drug prices down, restrict public reimbursement, and promote a cost-effective use of orphan drugs 
  • Ultra-orphan drugs have different countries’ support for funding by healthcare systems
  • Risk-sharing schemes between government and industry are a new approach to funding expensive ultra orphan drugs

US – the Healthcare Reform:

Changes that affect orphan drugs:

  • Prohibition on lifetime limits/annual caps/preexisting conditions
  • Medicaid fee-for-service (FFS)
  • Managed Medicaid units now subject to Medicaid rebates
  • 50% Medicare Part D rebate in “donut hole” applies effective January ,2011


The conundrum of how the gist of globalization is different in West and East like the tragic story of Abigail Burroughs.

“Extraordinary measures,” a 2010 movie, showed us how families of children with rare diseases face daily hardships because unlike in the West, Indian government has no policy to offer them affordable treatment. The global pharma strategy is setting sights on a future world where India is the provider of key contributions to drug discovery and innovation, where Indian companies research and produce medicines for rare diseases.

“Simply because we were licked a hundred years before we started is no reason for us not to try to win.”(Harper Lee, To Kill a Mockingbird)

  1. http://bit.ly/v06SkI
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Cristina Falcão
Contributor: Cristina Falcão
Posted: 11/15/2011


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