Subsidies encouraged Big Pharma to develop medication for very rare conditions. But there's a catch. By Wendy Zukerman.

Focus turns to expensive ’orphan drugs’

Six-year-old aHUS sufferer Ashley Grey has been taking Soliris for four years.
Credit: Courtesy Kerri Grey

He was the perfect baby. But after six months, Ashley Grey’s health quickly deteriorated. His kidneys stopped working and he was put on dialysis. Soon, Ashley was diagnosed with the incredibly rare and fatal atypical Haemolytic Uraemic Syndrome (aHUS), which leads to uncontrollable blood clots and organ damage. Ashley’s situation was becoming dire when his mother, Kerri, learned of a new drug – Soliris – that might help. In February 2010, Ashley became the first patient in Australia to receive it and with every dose his condition improved. 

It’s expected that Ashley will need the drug throughout his life, which  would cost the Greys up to  $480,000 a year. It’s a prohibitive sum because Soliris is not subsidised by the Australian government. Not yet. Negotiations with its manufacturer, Alexion Pharmaceuticals, are under way. For now, Alexion donates the drugs to Ashley, but that charity could stop. “That would be our worst nightmare,” says Kerri.   

Ashley’s medication is part of a new trend for pharmaceutical companies to develop expensive drugs for ultra rare conditions – so called “orphan drugs”. Government incentives, along with medical advancements, have spurred the industry to focus on treating uncommon diseases. Last financial year, 39 per cent of the drugs approved for the Pharmaceutical Benefits Scheme (PBS) were orphan drugs, compared with 17 per cent in the previous financial year. In the US, similar trends are noted. 

While this is great news for families such as the Greys, it’s unclear what the new business model will mean for the wider population who are more likely to be affected by diabetes, dementia or a superbug. 

In April this year the Pharmaceutical Benefits Advisory Committee (PBAC), an expert panel that recommends whether the government should subsidise new drugs, handed down its decision on Soliris, along with another orphan drug, Kalydeco, which targets a rare form of cystic fibrosis. The PBAC recommended that both drugs be subsidised, but with a catch – patients would be taken off the medications and the pharmaceutical company made to pay back the government if the drugs didn’t work effectively. This so called pay-for-performance model has rarely been used in Australia, but is seen by health economists as a promising move to rein in government spending and hold pharmaceutical companies to account. Both Alexion and Vertex Pharmaceuticals – the manufacturer of Kalydeco – have rejected the initial proposal and are negotiating with the government. 

Greg Kyle, head of pharmacy at the University of Canberra, says requiring pharmaceutical companies to return funds for ineffective drugs is particularly justified for orphan drugs because their studies are smaller – rare diseases make large studies infeasible – and inherently less reliable. “It’s certainly something that holds the company to account,” he says. 

Thomas Faunce, a public health expert at the Australian National University, would like to see pay-for-performance widened to many new drugs. “Then the taxpayer won’t be saddled with hundreds of millions of dollars for what is essentially a lemon,” he says. 

For their part, the manufacturers aren’t completely opposed to the pay-for-performance model. David Kwasha, Australasian managing director of Alexion, says he would agree to it as long as the measure of performance is feasible. He argues that the government’s initial proposal to Alexion for Soliris was not. Vertex refused to directly comment on whether it  agrees with pay-for-performance, a spokesperson informing The Saturday Paper only that it had submitted “an alternative proposal” to the government. Negotiations drag on.

Seeing results

Kwasha says that before Soliris, aHUS patients had to have their plasma replaced to avoid the dangerous clotting. “At the worst phase of the disease you are taking out litres and litres of blood every few days,” he says. aHUS is caused by a genetic mutation affecting the so-called “complement system”, a group of proteins that help control blood clotting. A quarter of patients with the disease die, and 50 per cent experience organ failure. Soliris blocks the inappropriate clotting. Alexion’s figures show that, after two years, 80 per cent of patients are alive, and off dialysis.

Kalydeco, similarly, has been hailed as a landmark. The drug improves the function of a damaged protein, which is found in 5 per cent of cystic fibrosis patients – about 200 Australians. “It’s an extraordinary drug,” says David Parsons, a cystic fibrosis researcher at the University of Adelaide. More than 80 per cent of cystic fibrosis patients die because of damage to their respiratory system caused by infection and inflammation when mucus accumulates in their lungs. Vertex studies show Kalydeco can improve lung function by about 10 per cent. 

These impressive results come at a hefty price. Kalydeco costs $300,000 a year for each patient and subsidising Soliris could cost the taxpayer more than $100 million over five years, for a drug that helps 60 patients. The PBAC must decide whether these funds could help more people if spent elsewhere. “They make a cold, clinical decision. It has to be,” says Kyle. “There is a bucket of money that gets allocated, and whilst it would be nice to spend as much money on everybody in the country, it doesn’t work like that.” The cold calculations are becoming ever more necessary. Recently the PBS budget has ballooned. It took 40 years for the PBS to cost $1 billion and another decade to pass $4 billion. Today the PBS costs more than $9 billion. 

Generally, to calculate the best “bang for your buck” – as Kyle puts it – the PBAC compares the cost and effectiveness of new drugs against a “comparator”, an already subsidised drug for the same disease. These days, most new drugs only produce marginal benefits over comparators, and governments are becoming reluctant to give Big Pharma millions of dollars for small clinical benefits. But, more lenient rules apply to orphan drugs, such as Soliris and Kalydeco, making it easier to get these drugs approved. Often there are no comparators and classic cost-effective calculations aren’t used – if they were, the drugs would never get subsidised. Orphan drugs are often wildly expensive because pharmaceutical companies argue they need to reap their costs for research and development over a smaller patient population. 

These compassionate rules, mimicked in Europe and the US, have led to an unprecedented move for Big Pharma to develop orphan drugs, which were previously seen as unprofitable. Better for pharmaceuticals to charge exorbitantly for rare drugs that save lives and have no comparators than squabble over the price of marginal benefits. Developing orphan drugs for diseases with a specific target, such as a particular mutated protein, may also be easier than tackling complicated, multifaceted illnesses, such as schizophrenia or dementia. 

Recently, several big players have moved into orphan drug development, often by purchasing smaller companies specialising in rare diseases. In 2011, France’s Sanofi-Aventis, one of the world’s largest pharmaceutical companies, acquired Genzyme Corp, a small company with expertise in rare genetic diseases called lysosomal storage disorders. This move exemplifies Big Pharma’s scramble for cash. About 10 years ago many of their “blockbusters” – such as statins – started going off-patent and there are few promising replacements in the pipeline. “The traditional model of using a blockbuster to make a lot of money has kind of come to an end,” says Philip Clarke, a health economist at the University of Melbourne. 

Orphan drugs may also be cheaper to bring to market than other drugs because of the small size of their clinical trials, and their shorter duration. Where normally drug candidates are given to more than a thousand people before they are approved for effectiveness and safety, the number of candidates is naturally much lower in these cases. And since orphan drugs often tackle fatal illnesses, they are fast-tracked without the need for long-term studies. Vertex presents only three studies on its website, with fewer than 300 patients tracked over 48 weeks. 

Kwasha denies that orphan drugs are cheaper to develop. He says Soliris took more than $US1 billion of investment over 14 years. Still, the business of orphan drugs is booming. Shares of Ireland-based pharmaceutical company Shire soared after the multinational shifted focus to orphan drugs. The trading culminated in a buyout in July by multinational AbbVie for $US54.7 billion, while Kalydeco brought in $113 million for Vertex in the second quarter of 2014. Jeffrey Leiden, the chairman of Vertex, said in a press statement that he expected net revenues to quadruple by the end of the year, partly thanks to the Australian government subsidising the drug.

Orphan drug research is changing the way Big Pharma does business and how government funding models contribute. Both Vertex and Alexion seem confident that negotiations with the government will be successful and their drugs will soon be subsidised. If that happens, the Grey family – along with the companies’ shareholders – will be very happy. In the meantime, however, it’s a game of pay-for-performance brinkmanship.

This article was first published in the print edition of The Saturday Paper on Aug 30, 2014 as "Betting the pharma". Subscribe here.

Wendy Zukerman
is a science journalist and host of the Science Vs. podcast.