New drugs for orphan and rare diseases have the potential to positively impact the lives of patients where historically few or no treatments had been available to manage the disease. The passage of the Orphan Drug Act (ODA) in 1983 incentivized manufacturers to develop agents to treat rare/orphan diseases, and the orphan drug landscape has evolved considerably. Approvals for orphan drugs have more than doubled in the past decade, and there are over 500 candidates in the pipeline for orphan diseases.1,2 In 2016, FDA received a record 582 applications for orphan drug designations from manufacturers and granted 333.3

These agents however, present challenges for the health plans that cover them. Worldwide sales of orphan drugs reached $114 billion in 2016, and are projected to exceed $200 billion by 2022.3 The median annual per-patient cost of therapy with an orphan drug was $83,883 last year, surpassing the cost of nonorphan drugs by 5-fold.3 The significant increase in orphan drug approvals, coupled with the high cost of these drugs, has led to increased scrutiny and management by payers. Regulators are also looking at the high price of orphan drugs, and this past March the Government Accountability Office (GAO) said it would investigate potential abuses of the ODA. The GAO wants to know whether the legislation is still incentivizing drug development for diseases with fewer than 200,000 affected individuals, as intended, and whether some pharmaceutical manufacturers are taking advantage of the multiple designation allowance orphan drug approval process.4 In September, FDA Commissioner Scott Gottlieb announced the FDA would advance guidance documents and policies to address alleged abuses of ODA.5

Understanding the evaluation and valuation that payers apply to the orphan drug space will aid manufacturers in study development and competitive positioning. In one large plan, orphan drug spending represented 10% to 20% of its overall specialty drug spend, about $600 to $700 million.6 This type of outlay has resulted in many health insurers looking at new forms of payment for orphan drugs. Health plans are constantly monitoring the drug pipeline and looking for those new drugs and indications that will contribute to new, higher spending. As a result of the significant costs associated with orphan agents, payers are also increasing the use of existing tools, such as formulary exclusion, prior authorization, and step therapy, to manage utilization.

Under consideration by payers is the development of metrics that can be used to assess the value of medications for patients with appropriate clinical biomarkers and creating related pricing models based on those metrics. Some plans are considering putting orphan drugs through a value framework analysis. Essentially, this analysis would determine if the new drug is better than existing medications. Rather than establishing a price at whatever the market will bear, manufacturers can adopt the payer’s value-based pricing and insurers could set or waive patient copays accordingly.

At Precision for Value, we employ individuals who have years of leadership within specialty pharmacies and at large national payers, who have worked with orphan drugs, and who can provide insight into current payer thinking and strategic management of orphan drugs.


  1. Orphan Drug Product Designation Database. US Food and Drug Administration. Accessed September 22, 2017.
  2. The Pharmaceutical Research and Manufacturers of America. Medicines in development for rare diseases: a report on orphan drugs in the pipeline. Accessed September 22, 2017.
  3. EvaluatePharma® Orphan Drug Report 2017. EvaluatePharma. Accessed September 22, 2017.
  4. Tribble SJ. GAO will investigate skyrocketing prices for orphan drugs. NPR. Published March 22, 2017. Accessed September 11, 2017
  5. Gottlieb S. FDA is advancing the goals of the Orphan Drug Act. US Food and Drug Administration. Accessed September 22, 2017.
  6. Silverman E. No price pressure on orphan drugs (yet). Managed Care. Published June 2017. Accessed September 11, 2017.