Orphan drugs’ clinical uncertainty and prices: Addressing allocative and technical inefficiencies in orphan drug reimbursement

Abstract

Legislations incentivising orphan drug development and scientific advances have made orphan drugs pharma’s high-end favourite for the past two decades. Currently, around 50% of new marketing authorizations are for orphan drugs. For third-party healthcare payers (“payers”) the rise of orphan drugs presents new challenges, including a high degree of uncertainty around clinical benefits and harms, a moderate effect size (for many orphan drugs), and a high price tag. The association of high clinical uncertainty and moderate effect sizes is not surprising in small target populations but in combination with high prices creates the risk of allocative and technical inefficiencies for payers. We here discuss and illustrate these risks. A combination of policies is needed for mitigation of allocative inefficiency: while there may be a rationale for higher prices for orphan than non-orphan drugs, a focus of pricing and reimbursement negotiations should include considerations of product profitability and of the consequences of orphan drug costs on the distribution inequality of medication costs for individual insured persons, coupled to knowledge generation from reimbursement contracts covering high-price orphan drugs that would benefit the wider patient community. Performance-based managed entry agreements could help to de-risk the economic consequences of clinical uncertainty and to mitigate technical inefficiency.