Government incentives, advances in technology, and an army of patient advocates have spun a successful market—but abuses of the system and exorbitant prices could cause a backlash.

When Eileen Shore, a geneticist at the University of Pennsylvania, started investigating a rare bone disease in the early 1990s, it was a small group of patients that helped make her work possible.

Along with Frederick Kaplan, an orthopedic surgeon and molecular geneticist at the university, Shore was focused on finding the cause of fibrodysplasia ossificans progressiva (FOP), an extremely uncommon disorder that transforms soft tissues to bone. “One person in particular, Jeannie Peeper, just decided that it was really important to have research done,” Shore says. “One person can make a pretty big impact in pushing things along.”

In the 1980s, Peeper, who was born with FOP, started gathering a small group of individuals with the same disorder. This was not a trivial task, given the low prevalence of FOP—it affects an estimated one in 2 million people worldwide. Still, with the help of Michael Zasloff, a geneticist at the National Institutes of Health (NIH), Peeper connected enough people to establish the International FOP Association in 1988. Together, members and their families raised money to aid research efforts into the disease. “The funding we had initially was very small,” Shore says. “But it gave us a start.”

That money helped Shore and Kaplan, after more than a decade of research, to pinpoint the gene underlying FOP, ACVR1.1 This discovery set the stage for tracking down a potential treatment, palovarotene, a compound that inhibits a signaling pathway involved in bone formation and has been shown to prevent abnormal growth in the soft tissues of mice.2 In 2015, Clementia, a Canadian biotech firm, raised USD $60 million from investors to develop the drug for FOP, which is currently in a Phase 3 clinical trial.

Rare disease research has undergone some changes since the early years of Shore’s work. Not only have advances in sequencing made it faster and cheaper to find associations between genetic mutations and diseases, but other developments, such as the growth of gene therapies, have drawn increased commercial interest to the realm of rare, or orphan, disorders. In addition, legislation incentivizing the pharmaceutical industry to invest in therapeutics for rare diseases has been incredibly successful. “When I started working on rare disorders, the first question was, ‘Why study a rare disease that impacts so few people?’” Shore recalls. “But in recent years, the pharmaceutical industry has become very interested in studying rare diseases as a drug discovery strategy.”

As a result, hundreds of new rare-disease treatments have entered the market over the past few decades, and orphan drug development has become a highly profitable industry. While this has undoubtedly helped patients, there are downsides to this trend. Some economists and scientists suggest that companies have abused the financial incentives for rare-disease drug development, and they predict a coming backlash to the hefty price tags of these medications.

More than meets the eye

To date, around 7,000 rare diseases have been identified. In the U.S., they are defined as conditions that affect fewer than 200,000 Americans (in the E.U., disorders occurring in fewer than one in 2,000 Europeans fall into this category). (See “Rare Disease: By the Numbers” here.)

In total, these conditions end up being quite common—they affect an estimated 25 million people in the U.S. and 30 million in Europe. “In your circle of friends and family, there is certainly somebody who is affected that may not have told you about it,” says Heather Etchevers, a developmental biologist who studies rare congenital malformations, such as giant congenital melanocytic nevus, a large, pigmented birthmark, at the French National Institute of Health and Medical Research (INSERM). “And not all diseases are easily visible.”

Still, while rare diseases are common in the aggregate, each condition is unique. And before the mid-1980s, when governments began passing legislation that encouraged companies to invest in these uncommon conditions, industry was reluctant to pour its money into products with such minuscule markets. “If you look at it from an economic perspective, at the time there was a clear market failure—there was no incentive for companies to develop [an orphan] drug, it just didn’t make sense,” says Dyfrig Hughes, a health economist at Bangor University in the U.K. who is involved in clinical trials for rare conditions. “That was in the era of high-volume and low-cost treatments.”

In the decades since, the pharmaceutical industry has changed in numerous ways. For one, some studies suggest that the cost of drug development has increased across the board—one analysis by researchers at the Tufts Center for the Study of Drug Development estimated that the average research and development (R&D) costs per drug went up from $802 million for products approved in the 1990s to $2.6 billion for those approved between 2005 and 2013.3 It’s important to note, however, that the price tag of drug R&D is a contentious subject with little consensus: a subsequent examination by another group generated a much lower estimate—a median of $648 million per drug, based on medications approved between 2006 and 2015.4

In addition to rising prices, advances in science have yielded a greater understanding of the complexity of diseases—which, according to Andrew Lo, an economist at the MIT Sloan School of Management, has led to a trend in recent years of investors shying away from drug development in general, particularly in the early stages. “The irony is that as we’ve gotten smarter about the nature of these diseases, that’s actually caused the risk for investing in these therapies to increase,” Lo says.

Despite higher costs and less-certain returns, investments in drug development on the rare disease side appear to be bucking the trend affecting the greater biomedical industry, Lo says. “Rare diseases have actually done well, thanks to the incentives that the Orphan Drug Act provides.”

With a little help from the fedsThe US Orphan Drug Act (ODA), enacted in 1983, was a game changer for rare diseases. Before the law passed, only 10 orphan drugs had entered the market. By the end of 2017, more than 450 products for 668 orphan indications were FDA-approved.

The European Union passed a similar policy in 2000. Both pieces of legislation created incentives for pharmaceutical companies—which would normally be averse to investing in a drug that might benefit only a tiny patient population—such as market exclusivity (seven years in the U.S. and 10 years in Europe, plus extra time for pediatric indications), reduced regulatory fees, and, in the U.S., subsidies for clinical trials.

Prior to the introduction of this legislation, “there was no motivation for industry to invest in treatments for rare conditions,” Hughes explains, whereas afterwards, firms were driven to create more products. “There’s a stark contrast.” One study reported that 41 percent of the products green-lighted by the FDA in 2014 had orphan designation—the growth in popularity, the authors noted, had also corresponded with mounting evidence that some companies were gaming the ODA for their own benefit (See “Abusing Incentives” here).5

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