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Executive Summary

Amgen expects to receive approximately $200 mil. from Medicare/Medicaid reimbursements for Epogen (erythropoietin) in 1990, the firm's chairman, George Rathmann, PhD, testified at a Feb. 7 hearing on the Orphan Drug Act before Rep. Waxman's (D-Calif.) Energy & Commerce/Health Subcommittee. Asked to estimate Medicare/Medicaid payment to Amgen for the orphan biotechnology product, Rathmann answered: "I would imagine it would be on the order of $200 mil.," Rathmann said. Sales of Epogen in its first ten months on the market "will be over $100 mil." for fiscal 1989, which ends March 31, he added. After seven months of marketing, Epogen sales were about $90 mil. Waxman's scheduling so early in the session of an exhaustive hearing on the issue of orphan exclusivity grants for highly profitable drugs indicates that he may once again attempt to amend the act. Two possible avenues for amending the orphan law were discussed at the hearing: adding a $100 mil. annual sales cap as a criterion to retain exclusivity, and shared exclusivity for products simultaneously developed. If Waxman introduces such legislation, it will be opposed within his own subcommittee. Rep. Scheuer (D-N.Y.), a principal cosponsor of the 1983 Orphan Drug Act, foreshadowed much of Genentech's testimony in his opening statement. "A retroactive shortening of exclusivity for already approved drugs would establish a particularly bad precedent" and would undermine investment in R&D, Scheuer maintained. "I think we want to avoid a Monday morning quarterback syndrome. Any retroactive amendments that would reward parties that have lost the research race would undermine the validity and the intent of the act," he said. "Providing for market exclusivity on a profitable drug is not an abuse" of the act. On the Republican side of the aisle, Rep. Nielson (Utah) agreed with Scheuer. "A deal is a deal," and "a deal was made in 1983," when the law was enacted, Nielson said. Profitability is not an appropriate reason for removing exclusivity, he maintained: "I don't believe in changing the rules in the middle of the game." On the other hand, Nielson said that removing orphan status after the seven-year exclusivity period "is fine," and "maybe" removal is appropriate after an orphan drug's patient population exceeds the statutory threshold of 200,000. The hearing focused on two highly priced orphan drugs that were the product of bioengineering and are being developed for broader applications -- human growth hormone and erythropoietin (EPO). In addition, the hearing addressed a highly priced AIDS drug -- aerosolized pentamidine -- whose potential patient population may soon surpass the 200,000 patient limit that defines orphan drugs. Waxman said he called the hearing "to gather information to determine whether" the Orphan Drug Act is "too inclusive" by granting market exclusivity for "drugs that would have been developed without the incentives of the law." Serono President Thomas Wiggans testified that the 1985 Orphan Drug Act amendments, which extended the act so that it applied to patented products like human growth hormone, "changed the rules of the game after several companies had invested millions of dollars" in the product. He also contended that human growth hormone "has always been commercially viable" and that "five companies were simultaneously" developing the recombinant product before 1983. Rep. Wyden (D-Ore.) suggested that orphan drug sponsors should be required to develop programs to ensure that their products will be accessible and affordable to all patients who need them. Genentech VP, General Counsel and Secretary John McLaughlin and Amgen Chairman George Rathmann both testified that their firms provide their orphan products free to underinsured patients who cannot bear the costs of the drugs. Both Genentech and Lilly offer their human growth hormone products free of charge to needy and underinsured patients representing nearly 10% of the patient population. Genentech estimated it has provided $31 mil. worth of the hormone free of charge. Serono's Wiggans commented that such programs help only a "small minority" of patients. "If we did have our product on the market, we would undertake a similar program, I can assure you." However, he indicated that more reasonably priced products would provide savings not only for the 10% of the patients who are uninsured but also for the majority of patients who bear the burden of the current high prices. "Another issue is not the small minority of people who receive the free product but rather the vast majority who have to pay the money." FDA is not recommending amendments of the Orphan Drug Act. The position represents a shift from testimony provided by former Commissioner Young, who in 1987 urged that FDA be given case-by-case discretion to grant shared exclusivity for simultaneously developed products. In his prepared testimony, Acting Commissioner Benson maintained that if legislation were enacted to allow a second sponsor to share an original orphan drug's exclusive market in order to lower prices, it "could undermine the act's chief incentive." Benson argued that "altering exclusivity could significantly lower firms' assessment of their financial returns for drug development and could potentially deprive patients with rare diseases of desperately needed therapies." He also pointed out that "in the few instances where price has been perceived as a problem, companies have actually lowered the price and have even instituted indigent programs so that those who can't afford the drug may receive it." All the witnesses agreed that the act has been successful in the vast majority of cases. Benson noted that "of the 42 approved orphan products, eight are for populations of less than 1,000," 10 are for populations of 1,000-10,000, six are for 10,000-25,000, 12 are for 25,000-50,000 and "only six are for populations greater than 50,000." Waxman asked the witnesses from companies shut out of orphan drug markets whether they would price their products competitively if allowed to sell them. Representatives of several companies shut out by orphan exclusivity suggested that their entries would drive down prices. However, none would testify as to how far below currently marketed products they would price their entries if the exclusivity barriers were lifted. Serono's Wiggans testified that his company would pursue aggressive price and service strategies for its human growth hormone product Saizen to garner a share of the market currently held by Genentech's Protropin and Lilly's Humatrope. "I can give you my assurance that for a small company there are only several ways to compete in a marketplace where you happen to be a later entry, as we would be. One would be through service, one would be through a lower price, and I can assure you that we would pursue both aggressively," Wiggans said. The Serono executive was responding to a question by Waxman, who noted that although only "two companies are marketing human growth hormone...the price of the product is reportedly between $10,000 and $30,000 a year." The Serono president quipped that his company would market its hormone product at an "appropriate" price to beat Genentech's and Lilly's so that he would not be called back "up here [before Congress] to explain" Saizen pricing. Waxman retorted that such a prospect "has not deterred [high pricing by] a lot of companies -- yet." Genentech's McLaughlin testified that Protropin is priced 25% less than Serono had charged for its cadaver-derived hormone product, since withdrawn from the U.S. market, and that the Protropin price has not been increased. In written comments submitted to the subcommittee, Novo-Nordisk indicated that it would also compete on price with its human growth hormone product. "At this juncture Nordisk realistically can only compete on price, service and the development of better products, and the customer has to benefit," the firm said. Genetics Institute President and CEO Gabe Schmergel testified simply that competition tends to force prices down. Genetics Institute hopes to market an erythropoietin product to compete with Amgen's Epogen. Waxman noted that Lilly and Genentech's competition for the human growth hormone market has not led to the lowering of their prices. Fisons VP-Medical Affairs Richard Foulds pledged only that his company would not charge more than Lyphomed for its aerosolized pentamidine product. Fisons has not determined its final development costs because "our application is still under review at FDA, and we do not know precisely what additional requirements, if any, will be placed on our application," Foulds explained. However, although Fisons cannot currently state what its Pneumopent price will be, he said the firm can make "a commitment that we will not charge more than Lyphomed." When asked how patients would benefit by the competition, Foulds replied that it offers superior technology. Sloan-Kettering Research Associate Edward Bernard, who has researched aerosolized pentamidine for Pneumocystis carinii pneumonia, argued that Fisons' "more efficient regimen" uses less drug and "doesn't require the technical assistance of a nurse or respiratory therapist." Patients would bear a "substantially lower" cost for Fisons' drug and delivery system even if they carried the same price as Lyphomed's, Bernard said. Schmergel contended that EPO is not an orphan drug (see related story, p. 9) and pointed out that Genetics Institute and Amgen began "simultaneously and competitively developing EPO" in 1981, two years before enactment of the law. Rathmann maintained that the Orphan Drug Act's exclusivity provision is important even to companies with R&D projects that predate the law. "Even in cases in which early research preceded the enactment of the orphan drug law, there has been reliance on the act's provisions," he said. "In Amgen's case, the company has raised $245 mil. from investors since we indicated that we would seek orphan drug status for erythropoietin." Schmergel testified, however, that EPO is a major drug product with a significant patient population. However, in order to exploit the exclusivity provision of the orphan law, firms have employed a "salami-slicing" technique to narrow their products' patient populations down to "finer and finer segments to arrive at indications totaling less than the 200,000 [patient] ceiling in the act." To illustrate his point, the Genetics Institute CEO noted that "several" of the FDA-designated orphan products "are really major drugs, whose value is in the hundreds of millions of dollars, sliced up like salami." For example, "human growth hormone is listed as an orphan drug for six separate indications; interferon-alpha is listed by one manufacturer as an orphan for eight separate indications and by two different companies for three more indications; GM-CSF [granulocyte macrophage-colony stimulating factor] is listed for two and Xomazyme [CD5] for four; and of course EPO has [at least] five indications." Schmergel suggested that Congress enact a shared exclusivity amendment. FDA Office of Orphan Products Development Director Marlene Haffner, MD, said that although "a potential for a problem exists," the agency tries to avoid abuse of the act through salami-slicing by having the new drug and biologic review divisions evaluate proposed orphan indications. "Where it would appear that a manufacturer or sponsor has requested" an "unrealistic" indication "created only for the purpose of" meeting the act's exclusivity requirement with an "an inordinately small" patient poplulation, Haffner said her office consults FDA's drug and biologic reviewing divisions to determine whether the proposed indication is "appropriate." Genentech testified that amendments to modify the act's exclusivity provision would be "bad precedent." A "retroactive" change in the law would be "unfair, bad public health policy and such changes would establish a bad precedent," McLaughlin said. The act's research incentives, particularly the seven-year market exclusivity awarded to orphan drugs first approved by FDA, "has stimulated the private enterprise system to develop therapies which might have otherwise languished in the laboratory," he contended. "Disruption" of the act's incentives and of "reasonable, investment-backed expectations" through retroactive amendments could impede future development of such products by undermining "the certainty that is the basis for the act's success," McLaughlin said. "To break the social and legal contract ...made with the sponsors of orphan drugs who have met the requirements of the law...would send a negative signal to anyone engaging in this type of vitally needed drug development." A former counsel on Waxman's Health Subcommittee staff, McLaughlin maintained that Genentech invests "between 35% and 40% of our income -- not our profits -- in R&D." The percentage of income folded back into R&D, which is "almost three times the industry average and is ten times the national corporate average," is intended "to sustain our product pipeline," he said. However, "without the economic certainty offered by the act we could not continue this pace of investment in future therapies for rare diseases." Besides being cheaper than Serono's cadaver-derived product, McLaughlin pointed out that Genentech's Protropin is safer in that it carries no risk of the Creutzfeldt-Jakobs virus. McLaughlin added that allegations of sales of the hormone for inappropriate use are "unfounded and untrue." There has been "no credible evidence of abuse of human growth hormone by prescribing physicians," he said. "Medical experts estimate that there may be 15,000 growth hormone deficient children in the U.S. As of the end of 1989 Genentech supplied Protropin to 9,710 patients." In written testimony, Lilly Research Labs Group VP W. Leigh Thompson, MD, said amendments to the act to provide "shared exclusivity" would "increase the already substantial risk associated with dedicating large investments of scientific resources to orphan drug discovery and development" and "would effectively gut the Orphan Drug Act." Thompson also pointed out the the current law's exclusivity provisions do not discourage development of other indications for orphan drugs like human growth hormone. National Organization for Rare Disorders Executive Director Abbey Meyers opposes orphan status for human growth hormone only; she supports the orphan designations and approval of Amgen's EPO and Lyphomed's aerosolized pentamidine. Meyers said the act should not be amended in any way that would limit exclusivity because such a change could undermine future R&D in orphan drugs. Nonetheless, she said she might support an amendment that would provide a sales cap. Under such a proposal, a marketed product might lose its orphan status if sales within a single year exceeded, for example, $100 mil. Waxman asked why Genentech has altered its position regarding shared exclusivity, which the company favored in 1987. McLaughlin replied that there was not sufficient support for the concept. Left unsaid was that Genentech's Protropin, despite the perceived disadvantage of the methionyl-group that can cause antibody response, has managed to retain the lion's share of the market over Lilly's methionyl-free product. Genentech's methionyl-free human growth hormone is pending at FDA. AIDS Action Council Executive Director Jean McGuire recommended that antivirals be precluded from receiving orphan designation. In the interest of "limiting the opportunities" for abuse of the act, McGuire requested "the immediate cessation of orphan designation for any antivirals and for any drugs which are likely to be used consistently in combination with the antivirals."

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