Alexion Tests Orphan Drug Limits

Regulators and payers are starting to balk at high prices.

If a strategy works in the pharmaceutical industry, then you can bet someone will take it to its furthest extreme. 

Alexion has been a pioneer in two hot industry trends: marketing rare-disease, or "orphan," drugs and jacking up prices. It sells its drug Soliris, which treats rare blood disorders, for as much as $525,000 a year. Its newest drug Kanuma, which treats a rare genetic enzyme deficiency, could cost even more per patient per year, according to the U.K.'s health-care cost watchdog, known as NICE. 

Such practices have lately attracted negative headlines. And there are signs they have reached their limits. On Thursday, NICE suggested restricting Kanuma to a small group of patients until Alexion produces more cost-benefit data. This comes after NICE recommended against covering the company's ultra-rare bone disorder drug Strensiq, citing its high cost. Later on Thursday, Canada announced it had ended price negotiations with Alexion over Soliris, unable to resolve a dispute over cost-effectiveness. 

Alexion may need to rethink its approach to pricing.

Priced Out

Cost-based restrictions on Alexion's drugs hurt, when every prescription counts.

Source: Bloomberg

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It's a complicated problem. On the one hand, orphan drugs such as Alexion's satisfy the need to treat rare, deadly diseases. High prices are required to make a profit. But the industry's orphan-drug strategy can involve extreme pricing for drugs that aren't always extremely effective. So far, pharma has mostly gotten a pass from insurance companies and pharmacy benefit managers because, taken individually, costs for any one drug aren't too high, given the small number of patients taking each one. And orphan drugs by their nature lack competitors, making it hard for payers to drive prices down, as they have for treatments of more common diseases such as Hepatitis C. That's part of what makes these drugs so attractive to the industry. 

But when you add all of the orphan drugs up, their total cost is big and only getting bigger. Soliris did $2.59 billion in sales last year and is projected to grow to $5 billion by 2020. Vertex's rapidly growing cystic fibrosis drugs neared $1 billion in sales last year and are expected to pass $3 billion in 2017. Such numbers get the attention of payers.

Meanwhile, the pipeline is stuffed with other rare-disease drugs awaiting FDA approval. There's been a boom in companies trying to bag an FDA orphan-drug designation, which grants extra years of market exclusivity if the drug is approved. Drugs with the designation also get a priority review from the agency, and companies get a research tax credit. The FDA granted 354 orphan drug designations in 2015, compared to 190 in 2011.  The FDA approved 48 of those orphan drugs for use in 2014 and another 41 last year -- significantly higher than the historical average.

Growing Orphanage

Rare disease drugs are being approved at a rapidly growing rate.

Source: FDA Law Blog

And not all of those designations and approvals are for ultra-rare diseases. Many drugmakers seek initial approval in a small population with the intent of expanding it to a much larger group. Cancer drugs Revlimid and Opdivo had orphan designations, for example, and both may pass $10 billion in peak sales.  

Kanuma's difficulties in the U.K. represent many of the issues with orphan drugs in microcosm. There's extreme pricing, along with questions about whether the drug's effectiveness as a long term treatment justifies that cost.

Strensiq and Kanuma treat diseases that are extremely rare, so every patient matters for Alexion. If price pressure or regulatory restrictions continue, then the company may have a harder time raising the cash it needs to buy new drugs. Alexion spent a hefty $8.4 billion last spring to acquire Synageva, which netted it Kanuma in the first place. Other deals won't come cheap in the hot orphan drug market. The company's extreme pricing has also attracted potential competitors for its biggest blockbuster, Soliris, on which investors already fear Alexion depends too much. Soliris accounted for 99.5 percent of the company's sales in 2015 and is projected to be 95 percent of sales this year. 

It's worth noting that ultra-rare disease drugs take a long time to become profitable. Soliris got its first U.S. approval in 2007 and took five years to pass $1 billion in sales. The drug managed to get a go-ahead from NICE, though with some restrictive rules. Kanuma and Strensiq may face similar timelines. But Alexion's pricing strategy might be slowing uptake or limiting access to the drugs.  

The U.S. is pretty much stuck with high prices because the government has no authority to rein them in, and the FDA is not permitted to consider price in any way when making approval decisions. But with political candidates and lawmakers already hitting at not just Martin Shkreli but big-time biotechs such as Gilead, it's possible some of the most expensive orphan drugs might soon be in the stock-price-killing political spotlight as well. 

Add regulatory worries to the growing price pressure. Regulators have given orphan drugs some leeway, accelerating approval and accepting study data based on small sample sizes for rare diseases. But BioMarin's attempt to get the first drug approved for Duchenne muscular dystrophy was denied earlier this year by the FDA based on safety and efficacy concerns. The prospects for Sarepta's drug candidate for the same disease are looking grim after the FDA released a scathing briefing memo ahead of a planned review panel for the drug. Orphan drug leeway only goes so far, apparently, which isn't great news for Alexion or any other company with a similarly narrow focus. 

The rare-disease boomlet has been rewarding so far for some companies, but there's no guarantee it will stay that way.

Update:  In an emailed statement, Alexion said it believes "NICE has failed to recognize the transformative clinical innovation of Kanuma" and that it will continue discussions with the group. It added it was disappointed Canada "unilaterally" ended negotiations and emphasized Soliris' clinical benefits and approval by NICE. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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