Even though they may only treat a few patients per year, orphan drugs are raising big questions about their impact on the wider industry

Patients and families were delighted when the US FDA approved the first-ever drug for Duchenne, a severe type of muscular dystrophy, earlier this month. Yet the evidence that Exondys 51 (eteplirsen) actually works is limited – from a trial involving just 12 people – and the cost of treatment could be as high as $665,600 per patient. 

The FDA approved the drug partly because it was "reasonably likely" to help severely ill patients who have no other therapy to turn to, and partly because the resulting revenues would aid further research. In effect Exondys is still on trial, but taxpayers or insurers will be paying for further evidence to emerge rather than the drug's developer, Sarepta Therapeutics. 

This case is important because it takes the regulator's benign regime for orphan drugs one step further. Not only can such drugs receive fast-track approval, but they may also be allowed to meet laxer evidence requirements. Given the high cost of such drugs, and therefore the opportunity cost in terms of treating far more prevalent diseases such as breast cancer, this does raise the question of whether regulations have now swung too far in favour of orphan drugs. 

When the US passed its Orphan Drug Act in 1983, it was clearly needed. Because rare diseases only affect small numbers of people, few pharma companies had any interest in researching new treatments. Between 1973 and 1983 only ten new orphan drugs gained FDA approval. Since 1983 more than 400 have. Of the 36 new molecular entities that gained FDA approval last year, 17 were orphan drugs. 

The situation is similar in the EU, which passed its orphan drug regulations in 2000 to encourage research into diseases that affect fewer than five out of every 10,000 people. Since then, the number of orphan drugs making it on to the market has risen rapidly and is expected to continue to do so. Now Canada, the only major economy not to have similar legislation, is under pressure to pass its own orphan drug act, with patient groups saying it is long overdue. 

For patients facing such diseases, many of which are fatal, the legislation has certainly solved a huge market distortion. The US Orphan Drug Act offers lures including tax breaks on clinical trials and seven-year marketing exclusivity. Additional legislation, such as priority review rules and fast-track designation in the US, has also eased the path to approval for drugs targeting unmet needs, which many such drugs do. There are lessons for regulating other areas of the pharma market where the research incentives are skewed, such as for new antibiotics.

It's little wonder that specialists such as Alexion have piled into the orphan drug market, and major pharma companies such as Sanofi now devote a large share of their resources to developing them. Not only is the regulatory regime benign, but the clinical trials for rare diseases can be smaller and therefore cheaper. And over the past few years payers have proved willing to pay some extraordinarily high prices for such drugs. 

Indeed, the list of the world's most expensive drugs is dominated by orphan drugs. Top of the list is Glybera (alipogene tiparvovec), a groundbreaking gene therapy that costs around $1 million a year and is so expensive that it is rarely used, even for the rare patients who need it. Doubts over the cost-effectiveness of Glybera – and its profitability – have dampened excitement over gene therapy, but they have also revived the old questions about whether the resources devoted to Orphan drugs are actually worthwhile for taxpayers. 

Supporters of the current regime argue that although each disease is rare, in total the number of people affected is sizeable. In Canada, for example, there are 2.8 million people with one, of whom 60 percent are children. That is just under 8 percent of the Canadian population. In the US, where the legislation is in place, orphan drugs accounted for around 8.6 percent of total pharma spending in 2013, according to IMS Health, which is broadly proportionate. H

owever, the IMS figures suggest that US spending on orphan drugs doubled between 2007 and 2013. And there may be room for more growth. According to the EMA, there are between 6,000 and 8,000 known rare diseases and around five new rare diseases are described in medical literature each week. That leaves a lot of treatments still to be developed and commercialised, and patient groups for those with rare diseases are understandably single-minded about lobbying for cures. The bill for such treatments may well carry on rising unless the incentives to find new orphan drugs start to diminish. 

Admittedly, orphan drug research may start to get more difficult – as with other pharma research there may be a 'low-hanging fruit' bonus in the first few decades that is now starting to disappear. By that reckoning, spending growth could tail off. Still, in an era of personalised gene-based medicine, there is also an argument that many diseases are becoming rare diseases. If so, then the legislation may need to be modified so that the spending and the research funding are spread more fairly. 

Ana Nicholls is chief healthcare analyst at the Economist Intelligence Unit