Johns Hopkins accuses drugmakers of 'gaming' orphan drug law

The Orphan Drug Act has led to drugmakers developing treatments for very small populations of patients who before suffered or died from rare disease with no hope of a cure. But along the way, experts at Johns Hopkins Medicine argue, drugmakers have learned to game the system through loopholes in the law that they are urging lawmakers to put a patch on.

In a report in the American Journal of Clinical Oncology, they say that by getting orphan designations for drugs that have much wider application than the rare disease they first target, drugmakers capture millions in subsidies and tax breaks for drugs that become blockbuster and reap billions in sales. In so doing, they are potentially diverting funds from the development of some new and badly needed drugs.

The report points out that 7 of the top 10 top best selling drugs in the world have orphan designation, CNBC reports. Those are AbbVie's ($ABBV) Humira; Roche's ($RHHBY) cancer drugs Rituxan, Avastin and Herceptin; Johnson & Johnson's ($JNJ) Remicade; Celgene's ($CELG) Revlimid and AstraZeneca's ($AZN) statin Crestor. In fact, Crestor got a new orphan designation in 2014, that will extend its patent another 6 months, the Johns Hopkins report says.

"This is a financially toxic practice that is also unethical. It's time to ensure that we also render it illegal," study co-author Michael Daniel, a research fellow in the Department of Surgery at Johns Hopkins said in a news report from Johns Hopkins. "The practice inflates drug prices and the costs are passed on to consumers in the form of higher health insurance premiums."

The report hits even as the rapidly rising cost of drugs to consumers and payers is drawing wide attention and some drug company practices are being scrutinized by lawmakers and even federal prosecutors.

A spokeswoman for Roche's Genentech unit told CNBC that the company does not promote off-label use of its drugs. "We are committed to discovering new medicines for people who have few treatment options, and we welcome updates to regulations around orphan drugs to ensure that pathways and incentives lead to more medicines for rare diseases," she said.

The Genentech spokesperson did not specifically comment on Rituxan, CNBC said. It was approved initially for use in treating B-cell non-Hodgkin's lymphoma, a disease that affects about 14,000 patients a year. But now it is used to treat other cancers as well as organ rejection following kidney transplantation and autoimmune diseases, including rheumatoid arthritis which affects 1.3 million Americans, according to the report. It earned Roche $3.7 billion in U.S. sales last year.

A Celgene spokesperson told CNBC that its Revlimid, whose orphan designation is for treating rare blood and bone marrow cancers, is used almost entirely for those uses.

Dr. Marty Makary

But Dr. Marty Makary, the lead researcher, argues that while drugmakers can say that a drug is being used for its intended designation, in the real world doctors prescribe some medications much more widely. "From the perspective of Celgene's executive suite, Revlimid is only used for narrow orphan indications, but on the front lines of medicine, it's used broadly off-label as a second-line agent for a variety of conditions, including chronic lymphocytic leukemia and Hodgkin's lymphoma," Makary told CNBC.

When drugs start being used much more widely, the report suggests, the FDA should be able to document the wider use and change the designation for drugs, the report says. The U.S. in 2013 did pass a law that allows the FDA to fight against "salami slicing." That is a practice in which drugmakers parse disease populations into disease subpopulations to try and qualify for orphan drug designation, but it is unclear how well that law is working, Makary said.

The result of these "loopholes," the report suggests, is that prices for these drugs often rise very quickly, adding to the U.S. health bill. And the situation is likely to get worse since drugmakers are more often seeking ODA designation. In 2014, 41% of the drugs the FDA approved got the ODA label. The prices for orphan drugs are growing at an 11% per year rate, twice the rate of other prescriptions drugs, the report says, and are projected to grow in 2020 to $176 billion in sales from $107 billion this year.

But not everyone sees the situation as drugmakers extracting big bucks through loopholes. Jimmy Lin, founder of the Rare Genomics Institute sees it as drugmakers taking advantage of the advances in genomic science that has helped them understand how their drugs can help more people.

"Everyone wants to find a rare disease that can also be used for a majority of the population," Lin told CNBC. "Many blockbuster drugs started off as rare indication. If you have something working for one disease, you want to try it for others as well. The drug pipeline for common diseases is drying out, so pharma companies are trying to get creative here."

- read the Johns Hopkins news story
- more from CNBC

Special Reports: Top 20 orphan drugs by 2018 | The 10 best-selling drugs of 2013 | Top 10 best-selling cancer drugs of 2013 | The top 15 pharma companies by 2014 revenue

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