Establishing a reasonable price for an orphan drug
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(2020) 18:31 Berdud et al. Cost Eff Resour Alloc https://doi.org/10.1186/s12962-020-00223-x
Open Access
RESEARCH
Establishing a reasonable price for an orphan drug Mikel Berdud1* , Michael Drummond2 and Adrian Towse1
Abstract Background: This paper addresses the question of what a reasonable price for an orphan drug is. The research proposes a way to adjust an established payer/HTA body incremental cost-effectiveness threshold (CET) to take account of differences in patient populations and costs of research and development in order to sustain prices that generate rates of return from investments in developing orphan drugs that are no greater than the industry average. Methods: We investigated the cost of conducting research for orphan drugs as compared to non-orphan drugs, as well as patient population sizes targeted by orphans and non-orphans. We provided an empirical illustration based on novel drug approvals of orphan and non-orphan drugs of the FDA between 2011 and 2015 (N = 182). Results: Using, for illustration, the NICE incremental CET (£20 K per QALY) as an anchor and adjusting by R&D costs and expected market revenue, we estimated the adjusted reasonable CET for orphan drugs to be £39.1 K per QALY at the orphan population cut-off and £78.3 K per QALY at the orphan population mid-point. For ultra-orphan drugs the adjusted CET was £937.1 K. Conclusions: We propose one general method for establishing a reasonable price for an orphan drug, based on the proposition that rates of return for investments in developing orphan drugs should not be greater than the industry average. More research is required on data and assumptions, but with the data and assumptions we use, we find that in order to secure such a reasonable price for an orphan drug, the CET for orphans would need to be higher. This could be one approach for establishing the maximum allowable price society should be willing to pay, although decision-makers may still wish to negotiate a lower price, or refuse to pay such a premium over the value-based price in order to treat these groups of patients. Keywords: Orphan drugs, Reasonable price, Value-based pricing, Rate of return, Cost-effectiveness threshold, R&D costs Background The high cost of drugs for rare diseases (often known as orphan drugs) has generated considerable debate.1Many health economists argue that there is no justification for a premium for ‘rarity’ and that, in terms of reimbursement decisions (i.e. public subsidy), orphan drugs should not be judged any differently from drugs for common diseases. *Correspondence: [email protected] 1 Office of Health Economics, Southside 7th, 105 Victoria St., London SW1E 6QT, UK Full list of author information is available at the end of the article
Given the current trend towards value-based pricing, this implies that orphan drugs should demonstrate that they 1
According to the European Medicines Agency’s (EMA), rare diseases are defined as life-threatening or chronically debilitating conditions that affect no more than 5 in 10,000 people
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