Treating rare diseases has always been a conundrum for the healthcare industry. While patients and families eagerly await new therapies, limited market sizes and substantial investment in research and development lead to high treatment costs.
With the annual cost of treating a rare disease patient pharmacologically in the US reaching $32,000 on average, and over $100,000 in one third of the cases, the industry needs a more sustainable model — one that addresses both affordability and access. We are starting to see a migration in that direction as payers increasingly scrutinize these price levels. Much of this is being driven by greater cost pressure on healthcare systems, as well as the growing overall budget impact of rare disease therapies.
Evolving payer policies
Sales of rare disease therapies are growing at a steady 12% CAGR, twice that of non-rare disease drugs. By 2026 orphan drugs could make up 20% of all prescription sales. The segment is being fueled by a recent surge in regulatory approvals, as 51% of novel drugs approved by US Food and Drug Administration in 2023 received orphan designation.
As the segment grows, pressure is mounting in the US and EU to address high prices and manage category budgets. A 2022 survey indicated that US payers, which traditionally have exercised a light touch in managing rare disease drugs, are deploying tighter utilization controls like shifting coverage from medical to the pharmacy benefit of high-cost specialty drugs, including rare disease therapies.
Our research shows that payers now widely believe that disease rarity should not reflexively confer special status for pricing and reimbursement. Payers recognize the importance of addressing rare diseases, yet they are also increasingly concerned about high-priced drugs bringing little in the way of incremental clinical benefit. There is also heightened sensitivity to a strategy whereby the rare disease indication effectively becomes a stepping stone to much larger indications that generate blockbuster-level utilization and sales.
Recent health policy reforms key markets designed to better control drug costs also affect rare disease therapies. Under the Inflation Reduction Act of 2022, the US Centers for Medicare and Medicaid Services can negotiate prices for orphan drugs indicated for more than one disease. Imbruvica, which was first approved by the FDA in 2013 for mantle cell lymphoma, is on the list of drugs up for Medicare price caps. Since its initial approval, Imbruvica, which is sold as a joint effort by AbbVie and Johnson & Johnson, has been expanded to four other disease areas. Total global net revenues for the drug were $3.5 billion in 2023, with $2.6 billion coming from the US. But since its inclusion on the IRA price negotiation list, AbbVie officials recorded a $2.1 billion pre-tax impairment due to expected drop in revenue. We anticipate that commercial plans will likely follow CMS’ lead for these types of drugs and put downward pressure on net price in the coming years.
In the EU, member states are considering legislation that would determine the duration of market exclusivity based on criteria that include, for instance, the degree to which a high unmet need is addressed, or committing to launch in all member states. An example of how this can apply to orphan drugs is the 2022 GKV Financial Stabilization Act (GKV-FinStG) in Germany. Under this framework, orphan drugs receive a default rating of ‘unquantifiable additional benefit’ versus standard of care. This provides some basis for the manufacturer to negotiate price despite limited evidence if annual sales are below a certain level – the GKV-FinStG law lowered this threshold to €30 million per year, down from €50 million.
Implications for pharmaceutical companies
To address this evolving pricing and access environment, pharmaceutical companies should consider four key strategies to sustain attractive rare disease pricing and market access:
- Align with payers and health policymakers around the rare disease policy agenda. Transparency should increase regarding the principles for rewarding R&D investment in drug development, including how the cost of rare disease drugs is linked to demonstrated clinical benefits, degree of unmet need, and health equity considerations.
- Leverage advanced data analytics to support clinical evidence. Pharmaceutical companies should bolster their use of artificial intelligence and machine learning to generate more extensive, accurate and effective evidence to demonstrate the value of rare disease therapies. The tools can also be used to incorporate historical control data in instances where appropriate given the limited number of patients who could participate in a clinical trial.
- Fully engage patient and caregiver communities. These stakeholders are essential in supporting the rationale for health policies favorable to funding of rare disease therapies. By voicing their experiences, they can provide confirmation of the extent of unmet need and provide insight into the clinical outcomes that are relevant to them. Digital technologies such as targeted social media and platforms can play an important role in capturing such evidence in rare, often poorly understood, diseases.
- Create innovative approaches to funding and contracting. Innovative medicine funds are an option in this regard, as we’ve seen in (for instance) Italy and the UK: these entities help fast-track access to promising new therapies, as eligible patients can get treatment while clinical evidence is collected. Risk pools are also being explored to facilitate access to high-cost specialty drugs. Emerging gene therapies have fostered structuring of innovative contracting models, such as annuities or outcome-based arrangements. Managed entry agreements have also had success, primarily in Europe. Vertex is an example of a company that has leveraged such approaches to increase market access to its portfolio of cystic fibrosis therapies, despite high cost and residual uncertainty about clinical benefit.
The rare disease market is not immune from the challenges facing the rest of the industry, including regulatory and policy changes, escalating cost pressure, increased demand, and more. Pharmaceutical companies can leverage the approaches discussed above to continue to successfully bring much needed therapies to patients.