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Rare disease designation for coronavirus drug is just a tax break

Rare disease designation for coronavirus drug is just a tax break
Aurich Lawson / Getty Images

On Monday night, a panicked headline at The Intercept proclaimed that a potential treatment for COVID-19 had been classified as what’s known as an “orphan drug,” which are given to treatments for rare diseases, and that such a classification runs the danger of “potentially limiting [the drug’s] affordability.” At first glance, describing a COVID-19 treatment like this sounds insane, given that a pandemic is the exact opposite of a rare disease. So what exactly is going on, and does it mean that Gilead Sciences, the biotechnology company that makes the drug (called remdesivir) is going to jack up its prices so that only the rich survive?

It all goes back to 1983

By the late 1970s, it was clear that the incentives for profit-making drug companies did not align with the needs of people with rare diseases. Developing a new drug was extremely expensive even 40 years ago, and so if a drug company wanted to make its money back, it would focus on conditions where it could expect plenty of sales rather than those with just a handful of patients. The rare-disease advocacy community was understandably outraged by this cold-hearted economic analysis, and by 1983 it had successfully cajoled Congress into passing the Orphan Drug Act.

Once the law passed, the FDA was given the power to grant a drug “orphan” status, even to compounds without patent protection. If a company got its product approved as an orphan drug, it gained a period of market exclusivity, meaning that for seven years no one else would be allowed to sell that same product to treat that specific disease. What’s more, all the costs associated with developing that orphan drug—including payroll for scientists and so on—was subject to a handy tax credit. Since the passage of the Orphan Drug Act, more than 800 orphan drugs and biologics have been approved by the FDA out of more than 5,300 applications.

How is a pandemic “rare”?!?

When we say “rare disease,” it’s generally accepted that this means a condition that affects fewer than 200,000 individuals in the United States. Obviously the predictions for COVID-19 are for many times that number—it’s a pandemic, after all. However, the Orphan Drug Act does have an exception for more common diseases with unmet needs. So the FDA is allowed to consider granting orphan drug status to a treatment for “[a] disease affecting over 200,000 persons in the US, but for which there is no reasonable expectation that the cost of developing and making available a drug for such disease will be recovered from sales in the US.” It’s this provision that Gilead used with its remdesivir orphan drug application.

The FDA has not approved remdesivir’s orphan drug status

At this point, it’s important to make something clear: the FDA has not approved remdesivir as an orphan drug. It has designated it as an orphan drug (as of yesterday), which means that Gilead can start tracking all of its expenses for studying remdesivir as a treatment for COVID-19 to satisfy the IRS. But getting something designated as an orphan drug by the FDA is pretty easy—the agency tries to respond to applications within 90 days and doesn’t even charge user fees.

Getting FDA approval as an orphan drug is another matter—that requires actual clinical data, and approval typically happens four or five years after designation. (In remdesivir’s case, I could see approval happening much quicker given the public health emergency, but again it would still require clinical trial data to be collected, analyzed, and then reviewed.) This approval is by no means guaranteed; Gilead applied for orphan drug status for remdesivir in September 2014 as a treatment for Ebola. But as of March 2020, that approval has not been granted.

Is it time to grab my torch and pitchfork?

In its article, The Intercept notes that Gilead is no longer allowing new patients access to remdesivir through a “compassionate use” exemption that allows a drug to be given to a patient for a disease for which that drug was not FDA approved. But we should also note that, until the clinical trials are complete, it’s yet to be proven that remdesivir will actually be effective with SARS-CoV-2 infections. A Phase 3 clinical trial is underway in the US, but it only began in February. (Another trial is also underway in China.) And the seven years of orphan drug exclusivity—and those potentially outrageous prices—can only happen after any FDA approval.

In fact, there’s another complicating factor in all of this. While the FDA is empowered to grant seven years of market exclusivity, that’s a separate power to the one given to the US Patent and Trademark Office. A patent awarded by USPTO is an intellectual property right, which can be much broader than the narrow definition of an orphan drug for a particular condition, and patents last for 20 years. And Gilead already has a patent for remdesivir in the US, so it will probably be in a position to charge what it wants for the drug whether or not it also gets approved as an orphan drug. In fact, any patent protection would likely extend to 2037, long past any orphan drug market exclusivity, as the two can and do run at the same time.

Finally, there is a provision in the law that would allow the FDA to give permission to other companies to sell remdesivir if the secretary of health and human services found that Gilead could not “assure the availability of sufficient quantities of the drug to meet the needs of persons with the disease or condition for which the drug was designated.” (Whether or not an HHS secretary of this particularly business-friendly regime would ever do such a thing is a different question.)

That’s not to say that criticisms of the Orphan Drug Act are completely off-base. Orphan drugs often come with high prices, and 95 percent of the 7,000-or-so identified rare diseases lack any effective treatment. While the market exclusivity granted under the act is beneficial for about a third of orphan drugs, more often it’s the sweet corporate-tax advantages that are driving that calculation.

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