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Anti-Competitive Practices

Unintended Cost-Consequences of the Orphan Drug Act

Lead Investigators:  Bill Padula, Sonal Parasrampuria

The Orphan Drug Act, passed in 1983, provides multiple benefits to drug companies for products with an expected market of fewer than 200,000 patients. These include seven years of additional market exclusivity before a generic can compete, a 50 percent tax credit for qualifying clinical trial costs between orphan drug designation and the new drug application (NDA), and special FDA assistance with planning preclinical and clinical studies. The law has led to more than 350 approvals of drugs with orphan status, many of which remain essential treatments for small populations of patients. However, there has also been gaming of the legislation. Some orphan drugs have gone on to become blockbusters, bringing in more than $1 billion per drug per year in revenues and including household names such as Vioxx, Cialis, and Botox. Revenue from orphan drugs in the US increased from $46.6 billion in 2014 to $60 billion in 2016. These revenues are raised through a combination of high drug prices, an expanding list of indications to include more common conditions and off-label sales (called stacking), and splitting of indications into smaller subtypes for which the government subsidizes R&D.  In a potential example of stacking, the highest selling U.S. orphan drug, Ritixumab, is a biologic originally approved for treatment of lymphoma, but grossed $3.7 billion as a treatment for rheumatoid arthritis in 2014. This project will assess how the Orphan Drug Act of 1983 is currently working. We will analyze market volume and cost of orphan drugs in the U.S., perform an economic evaluation of the impact of orphan drug exclusivities, and develop policy options for Congress to refocus the law to fulfill its intended purpose without undermining incentives for research and innovation into rare diseases.

Understanding the Role of Pharmaceutical Benefit Managers

Lead Investigators:  Ge Bai, Jeromie Ballreich, Caleb Alexander

Pharmaceutical Benefit Managers (PBMs) negotiate drug prices with drug manufacturers and pharmacists, design formularies, and manage drug benefits for insurers and self-insured employers. The largest three PBMs now control 80 percent of the market. PBMs use their purchasing power to obtain price concessions from drug manufacturers. The details of these transactions are proprietary, but in general PBMs earn most of their profit by getting rebates from the drug companies based on the difference between the list price of the drug and the transaction price that they negotiate. Additionally, in many states, PBMs may insert gag rules into their contracts with pharmacies to keep pharmacists from unsolicited disclosure of prices to patients in situations where patients could receive a lower price if they did not use their insurance. PBMs engage in this practice to maximize any rebates that they receive based on the volume of sales. In this project, we aim to understand whether the nature of PBMs’ transactions could potentially adversely affect patients and develop evidence-based policy options to ensure that PBMs’ actions preserve patients’ access to and the affordability of prescription drugs.

Examining Single Source Generic Drugs

Lead Investigators:  Jeromie Ballreich, Jodi Segal, Aditi Sen

A generic drug is a copy of a branded drug whose market protections have expired.  Because a company can copy a branded drug and does not need to go through a costly multi-phase drug development program, the cost of generic drugs tends to be far less than that of branded drugs, and the generic market is widely believed to be more competitive than the branded drug market.  However, recent dramatic price increases and drug shortages in the generic market have called into question its competitiveness. For a subset of generic drugs, there is only one company that produces the drug. These drugs are known as single source generics. This project will examine prices, utilization, and therapeutic classes of single source generics and use this information to inform policy proposals that ensure that the US generic market operates competitively and efficiently, preserving patients’ access to generic medications. Read more about trends in single source generic drugs here.

Exploring Limited Drug Distribution Networks

Lead Investigators:  Celia Proctor, Ken Shermock, Mariana Socal

A limited distribution network restricts the distribution channel for a pharmaceutical drug to one or a very small number of trade partner distributors, which are primarily specialty pharmacies but may include wholesalers. However, an abundance of evidence suggests that drug companies are manipulating these limited distribution networks as part of an anti-competitive strategy. Companies use these networks to prevent generic and biosimilar companies from accessing samples of drug products necessary to perform testing required by the FDA for generic and biosimilar drug applications, thereby preventing the entry of generic competitors into the market and limiting competition for existing pharmaceutical products that could help to lower drug prices. This project reviews the benefits and harms of limited distribution networks and considers various policy options to address anti-competitive practices.