Regulatory and Compliance Implications of Orphan Drugs

By Edward J. Buthusiem & Gary F. Miller, Jr.

Providing incentives to spur the development of new and novel drugs to combat rare diseases has historically posed a challenge to drug manufacturers, the FDA, the medical community, and—most important—patients afflicted with these diseases. Given the high and ever-increasing costs and challenges of drug development, combined with the relatively small number of patients that would be eligible to receive such treatments—which limits a company’s ability to recoup its R&D investment—pharmaceutical manufacturers have struggled with the economics of rare-disease drug development. The Orphan Drug Act, passed in 1983, was designed to address these concerns by providing incentives for pharmaceutical companies to develop drugs for uses for rare disorders or conditions. While the act was well intended, its application in practice has generated speed bumps as companies try to navigate through the waters of government reimbursement programs applicable to these drugs, as well as an unpredictable and often inconsistent DOJ enforcement pattern.

Orphan Drug Designation is given to drug products intended for the safe and effective treatment, diagnosis, or prevention of rare diseases or disorders that affect a limited U.S. patient population. When requesting Orphan Drug Designation, a company must support its request with scientific rationale that establishes a medically plausible basis for the use of the drug for the rare disease or condition. Assuming that this burden is met, companies must also provide documentation that demonstrates that the disease or condition for which the drug is intended affects fewer than 200,000 U.S. patients; if more than 200,000 patients are affected, the applicant must prove that it cannot reasonably recoup its costs in the research and development of the product. Upon receipt of Orphan Drug Designation, a company may then submit to the FDA for marketing approval of the drug for the condition or disease. Under the Orphan Drug Program, the FDA may approve a sponsor’s marketing application for a designated orphan drug for use in the rare disease or condition for which the drug was designated, or for select indication(s) or use(s) within the rare disease or condition for which the drug was designated.

Program Incentives

The Orphan Drug Act created four key incentives in an effort to facilitate orphan drug development: marketing exclusivity, protocol assistance, tax credits, and research grants. The most attractive of these incentives is marketing exclusivity. The Orphan Drug Program provides the holder with very similar marketing advantages as compared to a holder of a patented product; for example, Orphan Drug status confers the holder with market exclusivity—in effect a legal monopoly—over the drug and indication of Orphan Drug designation for a period of seven years following FDA approval. Drug companies are also provided access to FDA staff for recommendations and assistance on clinical and nonclinical trial protocols that will be used to support FDA approval. Companies are eligible for a tax credit of up to 50 percent for certain qualified expenses tied to clinical research on the drug. Lastly, companies are eligible for grants to support clinical development of drugs for such rare diseases or conditions for which no current therapy exists. The incentives can, and are intended to, be motivating factors for companies to pursue treatments for these rare disorders that otherwise might constitute financially unattractive opportunities.

Regulatory Flexibility

The Orphan Drug Act and supporting regulations instruct the FDA Office of Orphan Products Development, whose mission it is to advance the evaluation and development of products for the diagnosis and/or treatment of rare diseases, to “flexibly” interpret evidence that the drug will be effective in the treatment of a rare disease. In other words, the FDA allows for greater leeway in the amount of evidence generated and available to establish the efficacy and safety of the orphan drug as compared with non-orphan or traditional drugs. This is critically important, since large clinical studies and trials, common with traditional drug therapies, are not capable of being conducted for orphan drugs due to the limited patient population and other ethical considerations applicable to these rare diseases.

The National Organization for Rare Disorders (NORD) released a report on October 11, 2011, documenting the FDA’s flexibility in its review of potential treatments for rare diseases. In a press release, NORD President and CEO Peter L. Saltonstall said, “We are gratified that this extensive study, spearheaded by NORD on behalf of the entire rare disease community, found that there is supportable evidence to document flexibility by FDA medical reviewers. This study should provide an extra level of confidence for investigators, companies and investors who are considering developing new drugs for rare diseases.” The results of the study showed that out of 135 drug approvals studied, two-thirds evidenced the FDA’s flexible approach in determining efficacy in orphan drug clinical studies. Although this flexibility should further encourage companies to pursue these novel therapies, companies will no doubt continue to weigh the significant investment required to obtain sufficient drug efficacy data, compared to the incentives awarded for making such investments. For instance, favorable clinical trial data, case reports, animal studies, or even in vitro studies can generally satisfy the FDA’s flexible standards for orphan drugs. On the other hand, theoretical considerations or observations of “similar” drugs would likely not be sufficient. These can be very expensive trials to undertake and complete.

Traditional Compliance Concerns Remain

Notwithstanding the different and more flexible approach regarding the review and approval of orphan drugs, some familiar compliance concerns remain of which companies who pursue and succeed in developing an Orphan Drug should be aware. One such area, common to all pharmaceutical drug sales and marketing, is the prosecution of actual or perceived off-label promotion, as well as government pricing and reimbursement of such drugs and the interplay with the False Claims Act. This has recently been an area of concern for drug companies in the context of 340B pricing for orphan drugs as interpreted under the Affordable Care Act.

The so-called “340B” Drug Pricing Program requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations and certain designated entities at significantly reduced prices. In keeping with the Orphan Drug Act incentives, orphan drugs are excluded from 340B discounted pricing in order to avoid invalidating company incentives to develop such products. In 2013, the Department of Health and Human Services (HHS) published a Final Rule that permitted healthcare organizations and certain designated entities to purchase the orphan drugs at 340B discounted prices, but only if the drug is used to treat conditions other than the rare disease for which the drug received its “orphan” designation. In May 2014, the U.S. District Court for the District of Columbia issued a ruling that vacated this Rule on the grounds that HHS lacks the statutory authority to engage in such rulemaking. However, as stated on the HHS Health Resources and Services Administration website:

The Court did not invalidate HRSA’s interpretation of the statute. [Therefore] HHS/HRSA continues to stand by the interpretation described in its published final rule, which allows the 340B covered entities affected by the orphan drug exclusion to purchase orphan drugs at 340B prices when orphan drugs are used for any indication other than treating the rare disease or condition for which the drug received an orphan designation.

The drug manufacturing community has raised very real concerns regarding the interplay of HHS’s statutory interpretation and the well-known (and highly scrutinized) prohibition against off-label promotion. A common example that illustrates this potential conflict is the situation where an orphan drug only has one approved indication for orphan use. Under the HHS interpretation, the drug maker would be required to offer its product to a hospital at a discounted 340B price without any protection preventing such drug’s use for an off-label, non-orphan indication. Companies are oftentimes left guessing at what point the HHS-imposed obligation to offer 340B pricing for off-label uses armed with the knowledge that a particular sale of the product is for off-label may be viewed as “promotion” and becomes fodder for OIG and/or DOJ scrutiny. This is a valid concern that all manufacturers looking to enter the Orphan Drug market, or those who are already in the market, must consider. In fact, many examples of criminal and civil manufacturer settlements are related to allegations of off-label marketing of orphan drugs. This collision between the courts and HHS is sure to draw prosecutorial attention.

Closing Thoughts

Drug companies looking to pursue the development of orphan drugs need to take all regulatory and compliance implications into consideration. Even established Orphan Drug manufacturers need to ensure that their compliance program, activities, and risk assessments are broad enough in scope to adequately cover the risks of the often complex web of company incentives and goals and government program incentives and expectations. The Orphan Drug Program provides some real benefits and incentives to drug companies that have the capability and desire to address the over 7,000 rare diseases that currently exist. However, with the unique incentives created by the program also come many of the same traditional compliance concerns companies need to be prepared to address as they enter the ever regulated and scrutinized pharmaceutical and broader healthcare landscape.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.


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