Making Sure Orphan Drugs Don’t Get Left Behind

Garret Fellows, Daniel J. Dutton and Aidan Hollis
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Daniel J. Dutton: University of Calgary

SPP Communique, 2018, vol. 10, issue 6

Abstract: Orphan drugs developed to treat rare diseases are expensive, thus making it difficult for provincial governments to cover their costs and for patients to acquire them. However, a streamlined method of setting guidelines for coverage using a cost-based regulatory model could help patients get access to the drugs while ensuring manufacturers are fairly compensated. Currently, governments can justify covering cost-effective drugs. Manufacturing costs, including research and development, typically put orphan drugs over any threshold of cost-effectiveness because so few patients use them. Thus, governments either decline coverage or end up funding the drugs under pressure from patient advocacy groups. Without adequate compensation for their efforts, manufacturers will have no incentive to develop orphan drugs. A cost-based regulatory model, including yardstick pricing, would improve access to orphan drugs because it creates incentives for companies to lower their costs. Yardsticking means that prices are set using industry benchmarks and firms that successfully lower their costs below those of competitors can profit by it. Under this system, the government could still apply an initial costeffectiveness test. In cases where that threshold is not met, the costbased regulatory model would be used to decide upon the maximum price at which the drug would be covered. This would be done through an estimated, benchmarked, capital cost based on the average cost of drug development across the pharmaceutical industry, and take into consideration the probability of success. Such an approach would allow governments to bargain over a drug’s price, yet still create incentives for companies to develop orphan drugs at the lowest possible costs.

Date: 2018
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