A high-cost drug gets a big discount.
Photograph by Ullstein Bild via Getty Images
By Sy Mukherjee
March 22, 2017

In late 1982, Congress overwhelmingly passed the Orphan Drug Act, which was then signed into law by President Ronald Reagan on January 4, 1983 – a long overdue New Year’s present for the collective of Americans with devastating rare diseases and their families, who had, until then, gotten the short end of the stick when it came to biopharmaceutical innovation and investment.

The landmark law signaled a paradigm shift in treatments for rare disorders which afflict 200,000 or fewer people. Since its inception, hundreds of drugs to treat genetic diseases, scourges stemming from rare protein deficiencies, and a collection of other maladies have made their way onto the market and provided hope to countless families.

But as with many incentive systems – the Orphan Drug Act gives firms access to beefed-up patent and market exclusivity rights and imposes less stringent clinical trial requirements for treatments with an FDA orphan drug designation – there’s the potential for abuse. And after a growing chorus of complaints that some pharma companies are gaming the system to rake in profits, the Government Accountability Office (GAO) has now agreed to officially investigate the issue.

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The GAO investigation was requested by a number of prominent senators, including Orrin Hatch (R-Utah), Chuck Grassley (R-Iowa), and Tom Cotton (R-Arkansas), who sent the agency a letter earlier this month requesting the probe.

“While few will argue against the importance of the development of these drugs, several recent press reports suggest that some pharmaceutical manufacturers might be taking advantage of the multiple designation allowance in the orphan drug approval process,” the senators wrote.

So what does “taking advantage” of the orphan drug system look like? Consider the very recent example of Marathon Pharmaceuticals, which snatched up a common, cheap steroid available throughout the world (but not on the market in the U.S.), won an orphan drug designation by testing it out as a treatment for the symptoms of Duchenne muscular dystropy (though not as a cure for the disease’s root cause), and then immediately gouged the list price to $89,000 upon winning FDA marketing approval – a price which would have been impossible to set if the therapy had simply been approved as a steroid, of which there are plenty. (Marathon has since agreed to sell off the treatment to another firm.)

But small biotechs like Marathon are far from the only perpetrators. In fact, an NPR report from January highlights how major drug makers like AbbVie, Otsuka, Bristol-Myers Squibb, and others have won orphan drug designations for medicines that treat common conditions like psoriasis (such as the world’s best-selling drug, AbbVie’s Humira) and psychiatric disorders. Even therapies like Allergan’s Botox have orphan drug status for certain disorders, allowing them considerable market reach beyond their already-blockbuster sales.

This has been a known practice in the industry for a while. Now, it’s going to get a thorough accounting.

This essay appears in today’s edition of the Fortune Brainstorm Health Daily. Get it delivered straight to your inbox.

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