Subject: Prescription to Stop Drug Companies' Profiteering Date: Published: 3/5/92 (141 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Counterpoint: Prescription to Stop Drug Companies' Profiteering ---- By Suzanne Tregarthen This week the Senate is hearing testimony on a revision to a curious and important law known as the Orphan Drug Act. Sens. Nancy Landon Kassebaum (R., Kan.) and Howard Metzenbaum (D., Ohio) are sponsoring a proposal to curb abuses of the law, which provides federal incentives for pharmaceutical companies. The senators' proposal would revise the act by limiting monopoly protection some companies have obtained for certain commercially lucrative drugs. Companies that earned more than $200 million on a drug would see that drug lose a special status it now enjoys. The revision represents an important prescription for change in the market for many potentially life-saving drugs. Congress passed the Orphan Drug Act in 1983 to stimulate development of pharmaceutical products that showed great medical but little commercial promise. The act's intent was to foster the commercialization of drugs that either required enormous development costs on the part of the pharmaceutical firm, treated a small patient population, or both. "They are like children who have no parents," Rep. Henry Waxman (D., Calif.) , an early supporter of the act, once said of orphan drugs, "and they require special effort." The "special effort" of the Food and Drug Administration, which administers the law, involves two big incentives. A firm that wins orphan designation for its product may also win tax credits for up to 50% of the costs of developing the drug and marketing it. The firm wins, too, an exclusive seven-year right to market the drug for the orphan indication, or disease. Several important drugs have reached patients thanks to the Orphan Drug Act, including exosurf neonatal, approved for the prevention and treatment of respiratory distress syndrome in infants, and opticrom 4% ophthalmic solution, approved for treatment of vernal keratoconjunctivitis, which causes corneal swelling. In designating orphan drugs, the FDA walks a fine line. Without such designation, some treatments for rare diseases may never reach the market. With it, the FDA runs the risk of creating unnecessary drug monopolies. Clearly, some firms have received orphan drug protection for drugs that required relatively small development costs and had considerable market potential. Bristol-Myers Squibb's orphan drug designation for taxol provides a good example. Government-funded research isolated taxol, an extract of yew tree bark, nearly 30 years ago. Taxol's effectiveness in treating human tumors was demonstrated more than a decade before Bristol-Myers Squibb spent a dime on it. Nonetheless, in October 1990, the FDA awarded the company orphan drug status for taxol's use in treating ovarian cancer. The story is not unlike that of the orphan drug AZT, which is used in the treatment of AIDS. Government scientists developed AZT and performed the first human tests of the drug. Nonetheless, Burroughs-Wellcome Co. earned orphan drug status and a seven-year monopoly for AZT. Orphan drug designation was not necessary to encourage development of either taxol or AZT. FDA guidelines encourage its Office of Orphan Products Development to consider the "best firm" for any particular designation, and FDA officials claim firms compete for the prize. But a Cooperative Research and Development Agreement between the National Cancer Institute (NCI) and Bristol-Myers Squibb assures that no other firm may have access to NCI's clinical data on taxol. Thus, among all the players in the FDA orphan products game, Bristol-Myers Squibb is the only one allowed to handle the ball. Burroughs-Wellcome, also working under an agreement with NCI, enjoyed the same advantage. Some firms have taken advantage of their monopoly clout to charge exorbitant prices for orphan drugs. When Burroughs-Wellcome first put AZT on the market in 1986, AIDS patients paid a whopping $10,000 a year for it. Burroughs-Wellcome reduced the retail price of AZT to $6,400 a year in 1989, but only after intense pressure from patients, lobbying groups and political activists. The original Orphan Drug Act required pharmaceutical firms to prove that the development of a drug would not be profitable. The act was amended in 1984, however, and this requirement was removed. Now, the company must indicate only that the drug will be used to treat a rare disease, which the FDA defines as one affecting fewer than 200,000 patients. Establishing a 200,000 patient threshold has led to what some observers call the "salami slicing problem." Suppose a firm develops a treatment for asthma, which affects nearly 10 million people in the U. S., and clearly is not an orphan indication. But suppose the firm requests orphan drug designation for the drug's treatment of severe steroid-dependent asthma, a condition that affects fewer than 200,000 patients. By presenting only a slice, the firm may receive orphan protection for a drug that may actually treat the whole salami. Biogen Inc. has shown remarkable finesse at salami slicing. In February 1991, FDA granted the firm orphan drug status for its drug r-IFN-beta to be used in the treatment of metastatic renal cell carcinoma. In April, the firm received orphan drug designation for the same drug in the treatment of cutaneous malignant melanoma. Fifteen days later, r-IFN-beta earned orphan drug designation for the treatment of cutaneous T-cell lymphoma. Then it received designation for AIDS-related Kaposi's sarcoma and multiple sclerosis. The combined potential patient population exceeds the 200,000 threshold several times. Pharmaceutical firm Eli Lilly, which enjoys orphan drug protection for some of its products, has coined the term "Daddy Warbucks" to describe the adoption of drugs with outstanding commercial potential. Daddy Warbucks knows a lucrative orphan when he sees one. There is every reason to believe taxol will be the lucrative orphan for Bristol-Myers Squibb that AZT has been for Burroughs-Wellcome. Taxol has already shown promising activity in the treatment of six malignancies, including lung and breast cancers, both of which strike more than 160,000 new patients every year. The NCI plans to test the drug on 18 other malignancies. Taxol has big potential. But the FDA has declared taxol an orphan. This newspaper has criticized the idea of amendments to the Orphan Drug Act. Speaking about the act, it has argued that Congress merely wants to change something when "it works too well." But the amendments submitted by Sens. Kassebaum and Metzenbaum would go a long way toward moving the Orphan Drug Act closer to its original job. Requiring firms to submit a reasonable estimate of adrug's commercial value is one step, but there must also be a reversing mechanism that would allow the FDA to end exclusive marketing rights once a drug's sales reached a certain level. Orphan drug status should not be used as a bonus for a firm whose product would truly reach the market without it. --- Ms. Tregarthen is editor of The Margin, a University of Colorado economics magazine for college students. [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]