As of 2009, orphan drugs constituted roughly one-third of all FDA drug approvals21 and, from 2005 to 2014, made up one-fifth of all new indications for previously approved drugs.22 Why the uptick in orphan development? A 2014 report by the industry consulting group EvaluatePharma explains:23 “The reason is clear. The industry has rushed to develop orphan drugs in recent years because they cost their developers less to put through clinical trials, and command higher prices when they do launch. Trial sizes are naturally smaller than for diseases with large populations, and the lack of alternative treatments give orphan agents an advantage when up for regulatory review. Tax incentives reduce development costs further. And when orphan drugs do reach the market, on average their cost per patient is six times that of non-orphan drugs, a clear indication of their pricing power.” The report then presents data demonstrating that the average return on investment for orphan drugs is nearly double that for non-orphan drugs: $14.90 vs. $7.90 for every dollar invested in Phase III trials, respectively.24 This is due partly to lower Phase III trial costs for orphan versus non-orphan drugs (with most products costing $97 million vs. $143 million or more to develop, respectively), which, in turn, are due mainly to smaller trials (with most products requiring 538 vs. 1,491 subjects or more, respectively).25 Of note, these data on the costs of orphan drug Phase III trials do not account for the 50 percent tax credit on orphan drug research and development costs granted to companies conducting trials on rare diseases.26 Higher prices are the other major driver of the greater returns for orphan drugs. In 2014, most orphan drugs cost patients at least $98,534 per year; the corresponding annual cost of a non-orphan drug was $5,153.27
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