Drugs for Rare Diseases, Cancer and other Conditions Continue to Enjoy High Pricing, but For How Long?

The recent $3.2b healthcare M&A purchase of Synageva BioPharma Corp. by Alexion Pharmaceuticals again put the spotlight on the high cost of specialty drugs.  Synageva's lead candidate, Kanuma, is designed to treat lysosomal acid lipase deficiency, a genetic disease in which people do not produce enough of a certain enzyme. Infants with the disease often die within months. It can also cause liver damage and other problems in children and adults. So-called orphan drugs like Kanuma are now among the most attractive in the industry because companies can charge hundreds of thousands of dollars a year to treat rare diseases, making a blockbuster drug possible with only a few thousand patients. Developers of rare-disease drugs can also qualify for special tax breaks and protection from competition under federal law and can often win regulatory approval with smaller clinical trials.

The FDA has dramatically increased the number of orphan drug approvals in the past year or so.  To date, CMS and insurers have not paid much attention to the prices of these drugs because so few patients use them. But, with more of these drugs coming to market due to the attractive economics, payors are likely to push back on the exorbitant pricing, closing the window of opportunity a bit in what some consider a "bubble". Yet, on August 4, 2015, Shire Pharmaceuticals announced an unsolicited $30b bid for Baxalta Incorporated, a $6b biopharmaceutical company, within weeks after it was spun-off from Baxter Laboratories.

Pharmacy benefit managers are also pushing back on high prices of more conventional drugs.  Recently, Express Scripts expressed discontent on the proposed price of the cholesterol-lowering PCSK9 inhibitor Praluent (alirocumab). Co-developers Sanofi and Regeneron Pharmaceuticals  announced that the wholesale acquisition cost of the once-every-two-week injection will be $40 per day or $14,600 per year. This is  several orders of magnitude above the cost of statins, which average $2-3 per day.  And, many consider the exorbitant prices of many cancer drugs to be unsustainable.

According to Milliman, the medial actuarial firm, prescription costs spiked in 2015, growing by 13.6% from 2014 to 2015. The spike resulted from the introduction of new specialty drugs as well as price increases in both brand and generic drugs, increases in use of compound medicines, and other causes.  This trend is not sustainable.