What will the orphan drug market exclusivity haircut mean for industry?


Jun. 05, 2023

Just over a month ago, the European Commission released its proposal for the new pharmaceutical directive and regulation. Here, we’re starting some deeper analysis of aspects of the proposal package with a look at the impact of orphan drug provisions, seeing what impact the new provisions and the surrounding uncertainty might have on innovation.

Regulatory Background: How things work now

  • Regulation (EC) No 141/2000 (the Orphan Regulation) provides the legal framework for orphan drug designations and incentives. The Orphan Regulation entered into force in January, 2000, outlining requirements for orphan designation and incentives, and establishing the EMA Committee for Orphan Medicinal Products (COMP). Commission Regulation (EC) No 847/2000 set the rules, defining an orphan drug as one “that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10 thousand persons in the Community when the application is made.”
  • Orphan designation in the E.U. provides a 10-year market exclusivity period. This exclusivity can be extended to 12 years if the sponsor complies with an agreed-upon pediatric investigation plan, though member states can request to reduce the exclusivity period to 6 years if the conditions are no longer met. Protocol assistance, a form of scientific advice, is offered to address scientific and development questions as the sponsor works through development phases. Sponsors are charged reduced regulatory fees that may be further reduced if the sponsor falls into the micro, small and medium-sized enterprise (SME) category.
  • COMP provides an opinion on orphan designation that must be confirmed by the European Commission (EC). The EMA’s committee assesses the sponsor’s application for orphan designation and provides either a positive or negative opinion. This opinion provides the basis for the EC’s assessment. The EC can agree or disagree with COMP’s opinion. The sponsor must show at the time of marketing authorization application (MAA) that the orphan designation criteria are still met. The COMP again provides an opinion for the EC to review alongside the overall assessment of the medicine’s approvability. The EC makes the final decision whether the orphan designation is retained after marketing authorization or not.

The problems: Although the current regulation stimulated orphan drug research, it didn’t do enough

  • The regulation fostered development of medicines for rare diseases since implementation, but not enough. The EC highlighted in its impact assessment that the Orphan Regulation has supported development of orphan medicines, with 200 authorized and another 2000 designated. However, 95% of the over 6,000 recognized orphan diseases still have no treatment options. The low prevalence of individual orphan diseases poses challenges for building a scientific knowledge base and poses hurdles for clinical trial conduct, though collectively the diseases have a big impact. Additionally, the smaller potential customer base may provide an insufficient return on the investment into research. [See also AgencyIQ’s analysis of the leaked draft impact assessment.]
  • However, medical needs of patients are not sufficiently met. In the proposed revision to the European pharmaceutical legislation, both the regulation and directive introduce two very similar though distinct concepts: unmet medical need, and high unmet medical need. Unmet medical need requires the disease to remain associated with high morbidity or mortality if a product is approved for that condition. In the same situation, an applicant must also demonstrate an exceptional therapeutic advantage for its product to be classified as addressing a high unmet medical need. Additionally, Medicine development is still largely focused on the adult population since the pediatric population (about 20% of total E.U. population) is considered heterogenous due to the developing physiological characteristics which makes clinical trial conduct challenging.
  • Innovative medicines come with a high price tag that poses challenges for healthcare systems. According to a study of healthcare expenditure on orphan drugs versus non-orphan drugs, the market share of expenditure on orphan drugs experienced an average annual growth of 16% in the eight E.U. countries examined between 2010 and 2017. The average annual growth in non-orphan pharmaceutical expenditure in the same period was only 3%. High-priced cell and gene therapies are being increasingly developed for rare diseases. For example, a comparison of some gene therapy reimbursement shows that the single-treatment CAR-T cell therapy Kymriah (tisagenlecleucel) is reimbursed at 320,000 euros (based on outcome) in Italy, Germany, Spain and France. The gene therapy Zolgensma (onasemnogene abeparvovec-xioi) is by far the most expensive product, with the one-time treatment course reimbursed at 3.21 million euros in Italy and 2.325 million euros in Germany.
  • Approved medicines are not equally accessible to patients across the E.U. The time from approval until patients can gain access to a new medicine ranges from an mean 128 days in Germany to 918 days in Romania and 1,351 days in Malta, according to the W.A.I.T study (Waiting to Access Innovative Therapeutics), sponsored by the European pharmaceutical trade association EFPIA. Similarly, of the 168 products approved through the centralized procedure, 147 were available in Germany, 51 in Romania and 10 in Malta. The EC’s impact assessment showed that only half of the 190 orphan products approved between 2000 and 2020 were accessible to patients in the majority of E.U. member states.
  • The current system is not flexible enough to support innovation without adding regulatory challenges. The EC considered whether the current criteria based on the disease and prevalence are still applicable to orphan drugs, given the regulatory challenges posed by advanced therapies such as cell and gene therapies. The regulatory system is also complex, involving up to four committees at the EMA: the Committee for Orphan Medicinal Products or COMP, the Pediatric Committee or PDCO, the Committee for Medicinal Products for Human Use or CHMP, and the Committee for Advanced Therapies or CAT. To add to the complexity, the EMA only provides an opinion, while the EC makes the final decision.

The new regulation aims to stimulate innovation for medicines while ensuring equal and affordable access to medicines

  • Medicines addressing high unmet medical needs gain the longest market exclusivity. As previously noted, although the orphan drug regulation has stimulated development in this field, but it has particularly not addressed those diseases with the highest need (e.g., no available treatment. Therefore, the EC would award the longest market exclusivity – 10 years – for those medicines that address a high unmet medical need hoping to stimulate innovation in this area. Other orphan drugs, which, by definition, address an unmet medical need, “only” receive 9 years of market exclusivity.
  • Reduced market exclusivity would foster generic and biosimilar competition through earlier market access. The proposed regulation uses three tiers of exclusivity: 1) 10 years for medicines addressing a high unmet medical need, 2) nine years for innovative orphan drugs, and 3) 5 years for well-established products. The reduction from the current 10 years to either 9 or 5 years would allow earlier entry of generics and biosimilars. The EC hopes that this move will drive generics/biosimilar development, with earlier market entry generating competition and reducing the cost of medicines.
  • The launch of a product across the E.U. would garner a reward of additional market exclusivity. Marketing authorization holders can gain an additional year of market exclusivity for launching their orphan drug across the E.U. within two years, or three for small- and medium-sized enterprises (SMEs). This incentive aims to ensure faster availability for all patients in all E.U. countries faster.
  • The reorganization of the EMA aims to free up resources for new activities and to support development of promising medicines. As noted, up to four committees can currently be involved in the assessment and support of a single medicine. The proposed regulation eliminates all committees except for the CHMP and the Pharmacovigilance Risk Assessment Committee (PRAC). Experts from the other committees will be retained in working parties. The EC hopes that this will make more resources available to support medicines based on a lifecycle approach, and to provide training to national authorities on handling regulation of innovative products.
  • The orphan designation procedures will be simplified, and criteria for defining a condition will remain flexible. EMA’s CHMP or a working party will determine if a new medicine fulfills the orphan drug designation criteria. This decision will then be published without the involvement of the EC as currently needed. The reassessment at the time of marketing authorization is also eliminated. This simplification streamlines the process and frees up resources for the regulator as well as the sponsor. The flexibility of how a condition is defined aims to make “procedures more ‘fit’ to accommodate new technologies.”

The European Commission issued a detailed economic impact assessment of the legislative options

  • Overall, patient quality of life would be improved if one or two new medicines for rare diseases are developed yearly, says the EC, with the additional year of market exclusivity being a driving incentive. Generally, patients and healthcare systems would benefit from “broader and faster access to complying medicines” because to gain the additional year, the launch has to be E.U.-wide.
  • Innovators of medicines addressing a high unmet medical need benefit from extended market exclusivity. The EC estimates that originators of medicines for a high unmet medical need would gain 94 million euros of gross benefits due to the additional year of market exclusivity. The EC concedes that faster generics market entry would mean “some losses for originator companies.” Those losses are estimated at 282 million euros for six products that would not launch across the E.U. and 4 million euros for the four that do. Adding losses due to entry of generics/biosimilars and removing the exclusivity for completing a pediatric investigational plan (PIP, currently 2 years) would lead to a total profit loss of 640 million euros.
  • Generic and biosimilar developers benefit from earlier market entry. Based on the assumption that 6 out of 10 products do not launch across the E.U., the generics/biosimilar industry would gain a gross profit of 38 million euros. The additional gains from market entry and PIP protection removal would gain 88 million euros for the generic industry.
  • The reduced market exclusivity “would not harm EU companies,” according to the EC. The commission argues that the incentives (i.e., market exclusivity) are agnostic and affect E.U. companies the same way as they would non-E.U. companies entering the E.U. market, with a global 160 million euros loss for investment in innovation. This sum, though, is only 0.07% of the 2021 global research and development investment of 230 billion euros, making any effect of the market exclusivity reduction unnoticeable, said the Commission.
  • Health systems would benefit from reduced cost of medicines. The EC estimates that the cost savings for public payers and patients will be about 662 million euros, with additional benefits of one to two new medicines per year that address unmet need and 9% broader and faster patient access to medicines.
  • The system simplification will particularly benefit smaller companies, and Innovation in rare disease is often started in academia or SMEs which may have fewer resources to tackle the regulatory process. The fee reduction incentives for SMEs would remain, and the EC also notes that SMEs may also be able to recoup the longest market exclusivity period since their products may be more likely to address a high unmet medical need.
  • Stakeholder views were divided between payers and payees. In a public consultation, public authorities and patients agreed with the modulation as proposed in the new regulation. Pharmaceutical industry agreed with modulation, but under the condition that the current length is retained, proposing that modulation occur through additional or new incentives such as transferable exclusivity. [See AgencyIQ’s analysis of industry’s comments.]

Analysis of potential impacts of the proposed regulation on the pharmaceutical industry

  • The reduction of overall market exclusivity provides a disincentive for industry. The E.U. offers the longest period of market exclusivity among major global regulators, which makes it attractive for companies to enter the market. However, EFPIA still notes an E.U.-wide 25% drop in research and development investment over the last two decades, with a shift to investment in Asia and the U.S. due to stated “difficulties of innovating in Europe.” The regulatory complexity and number of different requirements among all the member states pose significant challenges. Reducing this primary incentive is likely to further reduce interest in innovation in the E.U. It also stands to make the E.U. a less attractive market to place a product in for non-E.U. companies, given additional hurdles for less benefit.
  • The added obligation of cross-E.U. launch adds burden and may not be feasible for orphan drugs. Market launch depends on health technology assessment, pricing, and reimbursement procedures that take varying times across the E.U. According to EFPIA’s W.A.I.T report, it takes, on average, more than 600 days after authorization for a medicine to became available in just seven of the 27 member states. Therefore, it seems unrealistic to expect medicines to be launched in all 27 countries after marketing authorization. Orphan drugs may pose a special issue if there are no diagnosed patients with that disease in a given country; there would be no reason why the country would need to invest resources in the pricing/reimbursement process if there is no benefit to patients. The one-year extension of market exclusivity may not be a sufficiently large incentive for sponsors to attempt cross-E.U. launch.
  • But: The cross-E.U. launch requirement may become a negotiation tool. The requirement to launch products across all E.U. member states to receive an additional year of market exclusivity could have unintended negative consequences. First, countries with already long pricing/reimbursement negotiation times could take even longer to extend beyond two years (or three for SMEs) to make the launch across the E.U. impossible. Secondly, countries could use it as a price setting tool, offering the innovator a much lower price in exchange for a swift negotiation process to enable the cross-E.U. launch.
  • Extension of indication would yield a maximum benefit of stretching out market exclusivity for two years, reducing the reward for continued innovation. Ameet Nathwani, CEO of Dewpoint Therapeutics, noted at a POLITICO-hosted event that most innovation happens after the initial marketing authorization, through extensions to other indications and populations. The one year of additional market exclusivity can be obtain just twice, so an orphan drug would benefit from market exclusivity for an additional two years maximum, irrespective of new indications approved. Currently, each orphan indication obtains 10 years of market exclusivity. Could this limitation potentially incentivize “reinvention” of the same drug in a different way for new indications for a new marketing authorization so that the market exclusivity clock can start fresh? If so, this provision could have the unintended consequence of adding regulatory burden and cost not just to sponsors, but to the EMA, its committees, the EC, and national regulators.
  • The added six months of data exclusivity for medicines addressing an unmet medical need is moot. Article 81(2)(b) extends data exclusivity by 6 months for medicines addressing an unmet medical need, as orphan drugs do. The data exclusivity of six years is much shorter than the orphan drug market exclusivity of 10 years. Therefore, it would run out for innovative products before market exclusivity. Although it might benefit those products approved as being for a well-established use, which otherwise would only receive five years market exclusivity, data for those products would likely already be in the public domain and therefore not be protected.
  • Orphan drug developers may set higher prices to recoup their return on investment lost due to the haircut. Sponsors may factor the year of lost market exclusivity into their asking price in initial negotiations; the impact of lost profits will also depend on who the sponsor is. Academia and SMEs, responsible for a large portion of orphan drug innovation, will be much harder hit (although if their products address a high unmet need, they can recoup some additional exclusivity).
  • The EMA’s application of different categories of eligibility will affect how sponsors can benefit from the new provisions. It remains to be seen how the regulator will assess if the medicine addresses a high unmet need, garnering 10 years of exclusivity for the sponsor, or “just” an unmet need, with a 9-year exclusivity period. The definitions are provided in the regulation, but how will the EMA decide which applies for each condition? Additionally, this definition might change over the development time of a product, as other developers might obtain marketing authorizations in the same indication.
  • Would the proposed regulation really stimulate development of medicines for diseases with no treatment? Although those medicines would benefit from the full 10 years of market exclusivity, that incentive is the same as that provided by the current regulation. Although the additional year may drive some development to rare diseases with no treatment options, challenges remain. These include situations where the underlying cause of the disease is unknown or difficult to address, and those where the patient population is very small, complicating conduct of clinical trials. The additional uncertainty about whether a disease represents unmet need or high unmet need might add to hesitancy to invest in development.
  • What does industry think? Overall, trade associations and a patient group favor carrots over sticks. EFPIA’s position, stated in an April press release, is that the legislation “risks sabotaging Europe’s life science industry.” EFPIA’s President Hubertus von Baumbach asserted that the net impact risks the E.U.’s competitiveness and “weakens the attractiveness for investment in innovation,” though he recognized the aims to future-proof the revised legislation and support equitable access to medicines for patients across the E.U. Nathalie Moll, director general at EFPIA, went further, saying in the release that the proposed obligation on sponsors to make a medicine available in all member states in order to gain additional market exclusivity is “fundamentally flawed and represents an impossible target for companies.”
  • EUCOPE is concerned that the proposed regulation’s provisions will undermine innovation and the E.U.’s international competitiveness. The industry association, representing SME pharmaceutical and biotech companies, is of the opinion that the proposal “introduces more risk and unpredictability into the system while reducing incentives for innovation and investment, which will negatively impact patient access.” On the other hand, it “welcomes the simplified and reduced structure of the EMA.” EUCOPE predicts that introducing the concept of high unmet medical need will not address the underlying challenges for development and access of novel treatments, while reducing the value of iterative innovation.
  • EURORDIS, a non-profit alliance for rare diseases, has called for a reward for launching first in the E.U. The alliance proposed that an additional year of market exclusivity should be awarded for products that enter the E.U. market before any other market. It also requests other modifications and clarifications, such as what disease characteristics are “significantly debilitating.” The alliance welcomes the modulation of the market exclusivity since it is focused on the benefit for patients with rare disease, though it disputes the claim that the E.U. would remain competitive, given the observed decline of innovation.

What’s next

  • The final regulation will likely not become available for several more years. The E.U. legislative process is complex; both the European Parliament and the European Council can introduce changes or amendments to the proposal presented by the EC during the course of up to three readings. Additionally, a new E.U. Parliament will be elected in 2024, which could further slow down the process. New members to parliament may not agree with the work conducted before their election.
  • Most legislative texts undergo many changes during the legislative process. Some of those changes may just be for text clarification, but others might be more substantial. The European Parliament will introduce the first set of amendments, which the Council may accept or change again. The positions of members of the parliament have thus far been split between supporting access and affordability for patients and including sufficient incentives supporting innovation.
  • The final package, though, may well continue its focus on patient access and affordability. As a quick recap of the milieu for the progress of the pharmaceutical package, the European Council presidency drives the work of the council, and the country holding the presidency change s every six months. Sweden will hand presidency to Spain at the end of June. Spain is followed by Belgium, Hungary, Poland, Denmark, Cyprus and Ireland at the end of 2026. All these countries except for Denmark have long lead times (all over 540 days) to patient access to new authorized medicines. Therefore, the focus of changes will likely ensure that the legislation’s provisions ensure patient access and affordability.

To contact the author of this item, please email Kirsten Messmer ( kmessmer@agencyiq.com).
To contact the editor of this item, please email Kari Oakes ( koakes@agencyiq.com).

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