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The Promise Of Financial Return Is Driving Both The "Biotech Bubble" And Orphan Drugs

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New York Times reporter, Andrew Pollack, focused his post-J. P. Morgan Conference comments on what he considers an unprecedented boom in the biotech industry. It was hard for anyone to avoid such an impression after experiencing the week of euphoria in San Francisco that surrounded the 9,000 attendees and the host of biopharmaceutical companies in attendance, all looking to find the next big drug breakthrough. In 2014, 41 new drugs were approved by the FDA to treat a variety of diseases including major breakthroughs in cancer, hepatitis C, and orphan (or rare) diseases. More such advances are on the horizon and, as a result, Pollack says that “Money is flowing into the industry as never before.”

He cited three drivers for this new found enthusiasm:

1) the frenzied pace at which small drug developers are being acquired by larger ones, a result of Big Pharma’s need to replenish its pipeline;

2) the FDA being more willing to approve drugs, relaxing its previous “ultra-cautious stance”;

3) the industry’s success in developing effective drugs.

However, Pollack is missing a major factor. New breakthrough drugs, particularly ones for previously untreated diseases, are able to command high prices. This is because these drugs are not just life-changing - and even life-saving - for patients, but also because such medicines can ultimately save the healthcare system money by preventing downstream costs such as hospitalizations and surgeries. The promise of a significant return-on-investment (ROI) is what is driving investors to put their money into early start-ups, particularly those companies that are searching for drugs that hope to treat cancer, viral diseases, and orphan diseases (those affecting less than 200,000 in the U.S.). The promise of high ROIs is also inspiring major pharmaceutical companies to make investments in these areas, as Pfizer did with the creation of its Rare Disease Research Unit.

However, all these breakthroughs have generated a concern about the potential for these high drug prices crippling the healthcare system. This has been especially true for drugs to treat orphan diseases, where the cost of a drug can be aa high as $400,000 per patient annually. Are these prices sustainable? A recent presentation at the American Society of Hematology entitled “The Budget Impact of Orphan Drugs in the U.S.: A 2007 -2013 MIDAS Sales Data Analysis” sheds some light on this. The authors found that in 2007, all sales of orphan drugs amounted to 4.8% of the total $311.4 billion expenditure on drugs in the U.S. In 2013, this had risen to 7.6% of the $337.4 billion spend. The authors also did a future trend analysis and they found that, while orphan drug expenditures will increase in the 2014 – 2018 timeframe, these drugs will still make up only 9 – 10% of future drug expenditures. Of course, the high costs of these valued medicines are temporal as their prices will drop precipitously once their patents expire. Nevertheless, even at their current high prices, orphan drugs are not prohibitively impacting the nation’s drug bill.

As the Tufts Center for the Study of Drug Development has shown, drug R&D is an arduous and expensive endeavor. There has to be the promise of an ultimate payoff if people and institutions are going to invest in new research ideas, particularly if these ideas are at the nascent stage. This promise is resulting in multiple new orphan drugs being approved annually, such as Sanofi ’s Cerdelga for Gaucher’s disease and J&J's Sylvant for Castleman’s disease. There is no doubt that the boom in biotech investments has been fueled by the explosion in scientific insights as to the basis of the cause of many diseases. These insights have laid the groundwork for an unprecedented number of research programs meriting pursuit. But the money to capitalize on these insights is being provided on the belief that effective new medicines will be priced based on the value they bring to the healthcare system. For many diseases, particularly orphan diseases, such a return can be considerable. As long as these drugs continue to be priced accordingly, this boom will continue, ultimately benefiting thousands of patients who currently have no options.