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ORPHAN DRUG AMENDMENTS PLACING $ 200 MIL. THRESHOLD ON CUMULATIVE SALES TO END MARKET EXCLUSIVITY INTRODUCED BY SENS. KASSEBAUM, METZENBAUM, REP. STUDDS

Executive Summary

A bill to amend the Orphan Drug Act by triggering an end to a product's market exclusivity after cumulative sales surpass $ 200 mil. was jointly introduced in the Senate Nov. 26 by Sens. Kassebaum (R-Kan.) and Metzenbaum (D-Ohio). A similar House bill (HR 3930) was introduced on Nov. 25 by Rep. Studds (D-Mass.). Under both proposals, seven-year market exclusivity periods (granted to orphan products under the original 1983 act) would be terminated for products when total U.S. sales exceed $ 200 mil. Declaring that the law was intended to create incentives to develop drugs for rare diseases with limited commercial markets, Kassebaum, an original sponsor of the 1983 law, said the amendment (S 2060) is needed to end exploitation of the act by manufacturers of products with potentially large markets. The total sales restriction would also lift "the clouds on [the law's] credibility," Kassebaum maintained. During the recess between the first and second sessions of the current Congress, Metzenbaum is expected to hold a hearing on expensively priced orphan drugs before his Judiciary/Antitrust Subcommittee. In addition, he and Kassebaum have asked Senate Labor & Human Resources Committee Chairman Kennedy (D-Mass.) to hold a legislative hearing on S 2060 early in 1992. Both Kassebaum and Metzenbaum serve on the Kennedy committee. As drafted, the legislation would end the exclusivity of three currently marketed orphan drugs: Lilly's and Genentech's human growth hormone products Humatrope and Protropin, Amgen's Epogen (erythropoietin) and Fujisawa USA's aerosolized pentamidine (Nebupent). All three have already sold more than $ 200 mil. Protropin sales are reported in excess of $ 100 mil. annually, and Medicare pays Amgen more than the threshold figure for Epogen each year for use in the end-stage renal dialysis program. Under the Senate bill, once the cumulative sales of an original orphan product reach $ 150 mil., FDA would be permitted to begin reviews of market applications for equivalent, competing products. After the $ 200 mil. threshold is passed, FDA would be required to notify the original orphan sponsor that exclusivity is being terminated. After another 90 days, competing drugs could be approved. The original product's sponsor may appeal the termination on two grounds: (1) if it can demonstrate that the drug's sales have not surpassed $ 200 mil.; or (2) if it can show that development costs exceeded that amount. If either argument is supported, FDA is required to suspend the termination of exclusivity until product sales exceed $ 200 mil. or the higher development cost. The Studds bill has a slightly different threshold. FDA would be permitted to approve competing products after sales of the original orphan drug exceed $ 150 mil., unless development costs are shown to have exceeded $ 100 mil. In that case, exclusivity is continued until the $ 200 mil. figure is reached. Under the Senate bill, sales data may be obtained from the sponsor, "independent sources" or "interested parties." The House bill requires the sponsor to submit annual sales reports after sales exceed the $ 75 mil. mark. Introducing the amendment on the Senate floor, Kassebaum said "the true success stories of the Orphan Drug Act are being overshadowed by instances in which the act has been used in ways never anticipated and for purposes never intended." The Kansas Republican cited EPO and human growth hormone as orphan drugs with large markets which were not intended to get the exclusivity approval of the orphan act. Stating that Medicare will spend nearly $ 400 mil. in 1992 for EPO and that growth hormone patients will spend $ 10,000-$ 30,000 per year for treatment, Kassebaum said "the extremely high prices charged for these drugs have led to sales figures in the hundreds of millions of dollars." Such sales plus the existence of would-be competitors "waiting in the wings, eager to bring these same drugs to the market" provide evidence "that these are not drugs of 'limited commercial viability,' which needed the incentives offered by the Orphan Drug Act to assure their development." Studds, a member of the House Energy & Commerce Committee, said aerosolized pentamidine, growth hormone and EPO have "undermined" the Orphan Drug Act by creating market monopolies for very expensive, "very profitable drugs." Studds noted that the current law prevents Serono from marketing its biosynthetic human growth hormone product (Saizen) during the extant exclusivity period awarded to Lilly's Humatrope. He also noted that Serono is based in Norwell, Mass., which is in his district. The Massachusetts Democrat's introduction of HR 3930 also represents a response to entreaties from AIDS patient advocacy groups. As the movement for orphan amendments ages, the effect of the changes on the existing products becomes less of an issue and the future cases become more important. For example, exclusivity for Lilly's methionyl-free biosynthetic growth hormone expires in 1994. Serono's interest in the legislation is to ensure that the company is not blocked from marketing future orphan drugs in the event it is not the first applicant to obtain approval. Such drugs include interleukin-6 and beta interferon. The Pharmaceutical Manufacturers Association in a Nov. 27 statement opposed the Senate bill as a threat to R&D funding. Rather than a means to reward research by ensuring a market, the bill is a disincentive to research, PMA said. The measure would limit "incentives for companies to remain involved in the expensive fight against rare diseases," association President Gerald Mossinghoff said. "Sales, moreover, are not a reflection of profits because they do not take into account the cost of doing business," he added. Sales "do not reflect the cost of R&D, capital expenditures, manufacturing, marketing or distribution." Mossinghoff repeated a recommendation by the National Commission on Orphan Diseases, which in 1989 advised Congress to lengthen market exclusivity periods to improve the Orphan Drug Act. The bills do not address orphan tax credits, which Congress has temporarily extended to June 30, 1992. However, the Senate bill reauthorizes the Orphan Drug Act and increases research funding levels by providing $ 20 mil. in fiscal 1992, $ 25 mil. in 1993 and $ 30 mil. in 1994. National Organization for Rare Disorders Executive Director Abbey Meyers said the Senate and House bills will "strike a blow against escalating health care costs." NORD "totally rejects the notion that passage of this reform will slow orphan drug development," Meyers said. "By leveling out the playing field we will see more true orphans developed." She also maintained that Congress first should consider "fairness to the patient" and then "fairness to the taxpayer" before heeding industry "cries that it is unfair to 'change the rules in the middle of the game.'" Changes have occurred in both the commercial and political landscapes since the last time similar amendments moved through the legislative process. Last November, President Bush vetoed amendments that would have ended exclusivity for products for rare diseases whose patient populations grow beyond 200,000 patients during the seven-year period and would have opened exclusive markets of products designated orphans after July 1990 to companies that develop the same products simultaneously with the first manufacturer to obtain approval ("The Pink Sheet" Nov. 12, T&G-1). In the industry, Genetics Institute, which is being prevented from marketing erythropoietin by Amgen's exclusivity for Epogen, has supported amendments to limit exclusivity and withdrew from the Industrial Biotechnology Association in 1990 over the issue ("The Pink Sheet" April 2, 1990, p. 5). However, Genetics Institute is being purchased by American Home Products, whose CEO John Stafford currently chairs the PMA board. On Capitol Hill, Kennedy's Senior Health Policy Adviser Mona Sarfaty, MD, is leaving the Labor & Human Resources Committee, where she worked on orphan drug legislation. Committee Counsel Mark Childress will assume responsibility for orphan drugs.

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