How drug companies are gaming an old law for greater profits

In the 1980s, a law was passed to persuade pharmaceutical companies to develop drugs for small populations, but now that rule is being used to reclaim old "orphaned" drugs in order to raise prices and profits. Gwen Ifill learns more from Sabrina Tavernise of The New York Times.

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    We now turn to a story that continues to worry and to anger consumers, soaring drug prices, even sometimes for new versions of old drugs.

    The latest case involves a drug that helps treat a rare autoimmune disorder. Until recently, its manufacturer often offered it at minimal or no cost at all. But now another pharmaceutical company, Catalyst, says it wants the FDA to approve a modified, and likely more expensive, version of the drug.

    I recorded this conversation yesterday with reporter Sabrina Tavernise of The New York Times.

    Sabrina, I'm going to start out by asking you to define something that most people have never heard of. That is orphan drugs. What are those?

  • SABRINA TAVERNISE, The New York Times:

    The orphan drugs, this is a law that was passed in the early 1980s to try to stimulate development of drugs for rare diseases.

    So, it was specifically meant to get drug companies to come up with new ideas and new inventions for small populations of patients that wouldn't otherwise have been profitable, so it gave some advantages to companies that wanted to — that agreed to develop these drugs.


    And so now what you see is that some of these companies, some companies are repurposing some of these old drugs that were created under this — with this protection under this umbrella for profit?


    So, essentially, what's happened, Gwen, is that the — that companies are sort of scouting around in the landscape looking for older drugs to get approved under this law, so, essentially, not really doing any development work, not really doing any of the hard, you know, invention required to come up with something new, taking something that was old that was already on the market and getting it approved, getting it special status under this law.

    And so that gets them seven years of market monopoly, which is actually a very, very long period of time for the drug industry.


    You wrote in The New York Times about a particular drug that was designed to help patients suffering from Lambert-Eaton myasthenic syndrome.

    Tell us about that drug and about how that fits into what we're talking about here.


    So, the drug — so it's for a neuromuscular disorder. People who have the disease have trouble walking. Many are confined to beds or wheelchairs. The drug is (AUDIO GAP) quite old.

    The original work that was put into developing it happened in the U.K. And the earliest traces I could find of it were in France and Scotland in the 1970s.

    And, essentially, what's happened is, the drug has been effectively given away for free to patients since the early 1990s by sort of an unusual drug company, a little family-owned drug company in New Jersey called Jacobus. That was the situation for many years.

    And what has happened is that a publicly traded company, you know, a Wall Street-traded company, has sort of swept in and seen that the drug didn't have FDA approval and decided to get it approved under this special law, so basically kind of racing to approval and essentially taking the drug off the market for patients that currently are getting it for free, and starting to charge what most market analysts think will probably be about $100,000 a year.


    Exorbitant costs.

    Now, who controls this? I know this is the FDA, but maybe it is also the market. Maybe these drug companies have the right to charge what the market will bear?


    So, Gwen, this is a really good question. And this sort of gets to the crux of it.

    I mean, effectively, they do. It's not illegal. The FDA, when it decides how — when it decides what drugs to approve, doesn't look at price. That's not something that it considers. It's not — it never has.

    So, effectively, the United States is really the only rich country in the developed world that doesn't have any — where the government has no control over drug pricing, none.

    And this is a vulnerability in our system that, effectively, companies that are really, really out to get very, very high profits for their stockholders have taken advantage of.


    So, it becomes out of the good of the company's heart if they want to guarantee access for people who need this medication.


    So, essentially, what the companies have done is that they agree that, when a person is uninsured or if the person's insurance company won't cover the drug, the company has what they call a financial assistance plan that will help essentially apply for various subsidies, rebates. And often the company often kind of chips in some money to help patients pay for these things.

    But, for the most part, insurance companies do pay for the drugs, particularly under the Orphan Drug Act. The populations are fairly small. The prices are exorbitant but the insurance companies say, OK, well, there are not that many people, so we will cover this.

    But what economists say is that this comes out in everybody's premiums and in everybody's health care costs. The price of having insurance has gone up and up and up. And why is that? This is part of what's going on. It's part of the dynamic of rising costs in health care in the United States.


    Is there any way of knowing how widespread this is? I know it shows up in our premiums, but is it also that if you put together all these different orphan drugs, you actually end up with quite a population of affected people?


    Well, some of the kind of gaming of the system that drug companies have been doing under this act is, they will take a broader disease, say, breast cancer, and slice it into narrow definitions of smaller, smaller kind of subsets of that disease.

    Then they can qualify for orphan drug status, when, in fact, the population is much larger. Another example has been a drug that's been approved for some other treatment that they want to just sort of extend their monopoly on. And they under the act get it approved for some — for a new treatment, but, effectively, it's the same drug. There's no new research that has gone into it, no new work, no new invention. It's just sort of a repackaging.

    So, these are some of the ways that the law has been abused.


    Many, many ways to get to the same end, which is a profit.

    Sabrina Tavernise, thank you very much.


    Thank you so much.

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