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Orphan drug pricing and costs

by Hollis, Aidan

Background: A common narrative is that high prices are necessary for “orphan drugs” because of the small number of patients. In the context of state health insurance systems the high prices create significant challenges because of limited budgets. Results: This study carefully examines both costs and revenues of two drugs for cystic fibrosis (ivacaftor and lumacaftor), showing that, for this important example, prices are not high because of a small number of patients. It then explores the justifications usually given for high orphan drug prices, including the need to support R&D for new drugs. Each of these standard justifications is shown to be inadequate; instead, it appears that the exercise of market power in the presence of insurance is the dominant driver of high prices. Interpretation: Insurers need to re-examine how they address high-priced drugs.

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