New Legislation a Windfall for Pharma, False ‘Cure’ for Patients

Health Letter, May 2016

By Sarah Sorscher, J.D., M.P.H.

In December 2015, Public Citizen released a report showing how one piece of legislation, called the 21st Century Cures Act, could contribute to rising drug prices, ultimately costing U.S. taxpayers, private insurers and patients $12 billion over 10 years.[1]

The House of Representatives passed the 21st Century Cures Act in July 2015. The bill purported to provide “help and hope for patients through biomedical innovation,”[2] yet in many ways, the “cure” presented by the legislation is a false one, undermining patient safety standards and raising drug prices in a misguided effort to speed innovation. Negotiations over a companion bill initially fell apart in the Senate, but supporters have adopted a new strategy that involves passing pieces of the bill separately. Those pieces can later be joined with the House bill in future negotiations between the Senate and House.[3]

Public Citizen’s December report focuses on just one of the costly problems with the bill: a provision that would allow pharmaceutical companies to charge high prices for brand-name medications for longer periods, to encourage investment in research on using those medications to treat rare, or “orphan,” diseases. Orphan diseases are defined as those that affect fewer than 200,000 patients nationwide.

Less innovation, higher costs

The provision would give an extra six months of monopoly protection to manufacturers for medications granted an additional approval to treat an orphan disease. Since the extra six months of monopoly rights would apply to all uses of the medication, not just the new orphan use, this proposal would encourage manufacturers to rush to find new uses for their most lucrative drugs. The result would be costly delays in patient access to lower-cost generic versions of medications, including those used to treat much more widespread diseases.

And by providing manufacturers an incentive to repurpose existing medications to treat orphan diseases, the provision would divert research funding away from truly innovative medical research. Too much orphan drug research already is spent on finding new uses for existing medications, rather than seeking out new approaches to treatment. Two-thirds of orphan medications approved from 2000 to 2009 were copies of, or minor variations on, existing drugs, rather than truly new treatments.

By conservative estimates, the provision would cost U.S. taxpayers and patients around $4 billion over 10 years, but given the structure of the financial incentive, the cost could easily approach $12 billion over that time, Public Citizen concluded.

No more incentives needed

Importantly, investment in orphan medications already is soaring. Even without the 21st Century Cures Act, pharmaceutical companies receive enormous incentives to develop orphan medications under existing laws. These incentives include research grants, tax credits that cover half of clinical trial costs and a seven-year monopoly on sales for the orphan use. As a result, in the past two years, approvals for orphan drugs have set records.

The pharmaceutical industry has benefited greatly. The average return on investment for orphan medications is nearly double that for non-orphan medications, due to both low development costs and astronomical prices: In 2014, the median cost for an orphan medication was $98,534 per year, compared with $5,153 for non-orphan medications.

At a time when skyrocketing prescription medication prices continue to outrage doctors and patients alike, Congress is actively looking for solutions to relieve the public of the burden of high-priced drugs. Leading presidential candidates have endorsed several proposals that would allow the government to negotiate lower drug prices for public insurance.[4],[5] But under the 21st Century Cures Act’s orphan-drug provision, patents on many expensive drugs would be extended, keeping prices high for longer and driving up health care costs.

Further, the orphan drug approval system already has serious flaws. One major concern is that orphan drugs are approved under substantially lower safety and efficacy standards. And these drugs often are prescribed “off label” — for a use not approved by the Food and Drug Administration — resulting in potentially unsafe or ineffective products being used in patient populations far larger than the orphan threshold of 200,000.

Ultimately, the provision would open the door to even more gaming and abuse of the system. Like so many other parts of the 21st Century Cures Act, this is bad policy for medical innovation in this country and offers a false cure for American patients.


References

[1] Public Citizen. House orphan drug proposal: A windfall for pharma, false ‘cure’ for patients: Provision in proposed 21st Century Cures Act could cost the public $12 billion. December 2015. https://www.citizen.org/sites/default/files/2289.pdf. Accessed March 25, 2016.

[2] U.S. House of Representatives. Committee on Energy and Commerce. The 21st Century Cures Act (HR 6). Summary. http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/114/Cures2015FACTSHEET.pdf. Accessed December 4, 2015.

[3] Baumann J. Senate to hold first ‘cures’ markup Feb 9. Bloomberg BNA. January 21, 2016. http://www.bna.com/senate-hold-first-n57982066450/. Accessed May 25, 2016.

[4] Perrone M. No clear path to government-lowered drug prices. ABC News. March 18, 2016. http://abcnews.go.com/Business/wireStory/clear-path-government-lowered-drug-prices-37747368. Accessed March 25, 2016.

[5] Armour S. Lawmakers, candidates target high drug prices. The Wall Street Journal. November 15, 2015. http://www.wsj.com/articles/lawmakers-candidates-target-high-drug-prices-1447635567. Accessed March 25, 2016.