Establishing a reasonable price for an orphan drug

BACKGROUND: This paper addresses the question of what a reasonable price for an orphan drug is. The research proposes a way to adjust an established payer/HTA body incremental cost-effectiveness threshold (CET) to take account of differences in patient populations and costs of research and development in order to sustain prices that generate rates of return from investments in developing orphan drugs that are no greater than the industry average. METHODS: We investigated the cost of conducting research for orphan drugs as compared to non-orphan drugs, as well as patient population sizes targeted by orphans and non-orphans. We provided an empirical illustration based on novel drug approvals of orphan and non-orphan drugs of the FDA between 2011 and 2015 (N = 182). RESULTS: Using, for illustration, the NICE incremental CET (£20 K per QALY) as an anchor and adjusting by R&D costs and expected market revenue, we estimated the adjusted reasonable CET for orphan drugs to be £39.1 K per QALY at the orphan population cut-off and £78.3 K per QALY at the orphan population mid-point. For ultra-orphan drugs the adjusted CET was £937.1 K. CONCLUSIONS: We propose one general method for establishing a reasonable price for an orphan drug, based on the proposition that rates of return for investments in developing orphan drugs should not be greater than the industry average. More research is required on data and assumptions, but with the data and assumptions we use, we find that in order to secure such a reasonable price for an orphan drug, the CET for orphans would need to be higher. This could be one approach for establishing the maximum allowable price society should be willing to pay, although decision-makers may still wish to negotiate a lower price, or refuse to pay such a premium over the value-based price in order to treat these groups of patients.