Potential Effects of the Inflation Reduction Act on Orphan Drug Development

President Biden signed the Inflation Reduction Act (IRA) into law on Aug. 16, 2022, with the goal of reducing health care costs for the government and participants in Medicare and Medicaid programs. The IRA includes a section relating to drug price negotiation that subjects some of the most expensive Medicare/Medicaid drugs to mandatory price reductions. The IRA includes a provision that excludes orphan drugs from the drug price negotiation requirement, provided that the orphan drug has a single indication (the Orphan Drug Exclusion).

During the notice and comment period leading up to the implementation of the IRA, the Centers for Medicare & Medicaid Services (CMS) maintained that “a drug that has orphan designations for more than one rare disease or condition will not qualify for the Orphan Drug Exclusion, even if the drug has not been approved for any indications for the additional rare disease(s) or condition(s).” CMS also confirmed that “it will consider only active designations and active approvals when evaluating a drug for the Orphan Drug Exclusion; that is, CMS will not consider withdrawn orphan designations or withdrawn approvals as disqualifying a drug from the Orphan Drug Exclusion.”

Despite the well-meaning intentions of the IRA, there is a significant possibility of unintended negative consequences, particularly in the orphan drug market.

What is an orphan drug?

An orphan drug is a drug that is directed to an orphan disease, which is defined as a disease or condition that affects fewer than 200,000 people in the United States. More than 10,000 rare diseases impact more than 30 million people in the United States. On top of that, approximately 95% of rare diseases do not have an FDA-approved treatment.

Developing drugs for orphan diseases is difficult and costly, in part because of the medical complexity associated with rare diseases. It is not only less profitable to invest R&D money into a drug that will be used by so few patients, but it is also difficult to recruit patients to participate in clinical trials because of the small patient populations associated with these diseases.

Orphan Drug Act of 1983

In order to promote the development of orphan drugs, Congress passed the Orphan Drug Act in 1983. This statute created incentives for manufacturers to discover, sponsor and market drugs for rare disease patient populations. These incentives included seven years of marketing exclusivity for orphan indications (with no limit on the number of orphan drug indications), tax credits for qualified human clinical trials, grants to fund new research and development, and waiver of FDA fees for review and approval (which can total in the millions of dollars). The Orphan Drug Act also permits orphan drugs to be used for non-orphan diseases.

Since the Orphan Drug Act was passed in 1983, FDA has approved around 600 distinct drug products to treat orphan diseases.

IRA’s impact on orphan drugs

The IRA exempts orphan drugs from the price negotiation program, but only if the orphan drug has a single approved indication to an orphan disease. If an orphan drug receives an additional indication, whether directed to an orphan disease or not, then that drug is no longer eligible for the exemption and may be subject to price negotiation in the future.

This exception is a significant change from the incentives provided by the Orphan Drug Act. This change has the potential to significantly impact pharmaceutical companies and orphan disease patients.

It is common for orphan drugs to receive additional or “follow on” indications for other diseases, both rare and common. Many cancer medicines in the United States often launch first in an orphan indication and broaden their use over time to additional populations.

For example, between 1990 and 2022, 15% of orphan drugs had multiple orphan disease indications and 20% had both orphan and common disease indications. Looking more recently, of the 282 novel orphan drugs that were approved by FDA between 2003 and 2022, 63 (23%) were approved for at least one follow-on indication, including 29 (10%) for multiple follow-on indications. Indeed, 61% of those follow-on indications were also for orphan drug conditions. These follow-on indications normally require additional clinical trials and years of research to obtain.

There is a significant possibility that the IRA will discourage companies from pursuing additional indications for orphan drugs. In fact, several companies have already canceled trials and abandoned additional research into further indications.

For example, Alnylam Pharmaceuticals Inc. cited the new IRA price controls as the reason for canceling a Phase III clinical trial that tested its drug Amvuttra in treating patients with Stargardt disease, a rare eye disease that can lead to loss of vision. Amvuttra is already approved to treat polyneuropathy caused by hereditary ATTR amyloidosis. Alnylam stated that obtaining a second orphan drug indication would open Amvuttra up for price negotiation.

Alnylam is not alone. In a 2022 PhRMA survey, 95% of responding member companies said they planned to develop fewer uses for new medicines.

Although the IRA price negotiation provision has good intentions, there is a potential for unintended negative consequences. Pharmaceutical companies that stand to face price negotiation for orphan drugs if they obtain one or more additional indications are likely to be left with little incentive to pursue additional indications. This can lead to patients having fewer potential treatments as pharmaceutical companies grapple with significant losses in revenue. As well-intentioned as the IRA is, it may end up hurting orphan disease patients the most unless the Orphan Drug Exclusion is updated or revised to include drugs indicated only for orphan diseases.

Kramer Levin is continuing to monitor the IRA and its potential effects on the pharmaceutical industry. Please check back often for further updates.