In the super-hot orphan drug sector, most metrics track relentlessly upwards from one year to the next. But there is one recent exception: the prices pharma companies are paying each other to get hold of rare pediatric disease priority review vouchers.

Priority review vouchers (PRVs) have been around since 2009, two years after US Congress created a program to encourage the development of treatments for neglected, tropical diseases. In 2012, when commercial interest in orphan drugs was going through the roof, Congress created a PRV program for rare pediatric diseases. Under PRV programs, the US FDA can award a voucher to companies as a bonus for meeting certain criteria and securing regulatory approval for their drugs.

Recipients of PRVs can redeem them when making future regulatory submissions to the FDA. In return, the regulator will aim to make a decision in around six months, compared with the 10 months that is standard for drugs not qualifying for priority review. Some owners of PRVs use them in this way. But ownership of PRVs is transferrable, and some companies sell them to other drug developers that are keen to acquire a speedy FDA review.

The pricing of PRVs has proven controversial. From the $68 million paid for the first PRV sold on the open market, in 2014, healthy demand from buyers quickly drove prices upwards, pushing them to a peak of $350 million in 2015.

Since then, PRV price tags have come back down to earth. The voucher sales disclosed so far in 2019 have all been in the range of $80 million to $105 million. The most recent transaction, announced in August 2019, was AstraZeneca’s purchase of a rare pediatric disease PRV from Sobi for $95 million. Given the financial imperative for pharma companies to get their drugs to market as quickly as possible, why are we seeing deflation in PRV pricing?

Two economists (one of whom was an author of the paper proposing the original PRV program) saw this coming. Writing in 2016, in the journal Health Affairs, they cautioned that allowing a large number of vouchers onto the market would drive prices down. They were concerned that such an outcome would remove a key incentive for investment in tropical diseases and in rare, pediatric diseases. They estimated that if only one PRV were available in a given year, it could sell for more than $200 million. But with four vouchers available, their prices could be as low as $39 million apiece. Their warning fell on deaf ears at the FDA. The regulator has awarded seven PRVs so far in 2019, matching the total in 2018, and up on the six vouchers issued in 2017.

Given the usefulness of voucher sales in funding pharma companies’ rare disease-focused ambitions, the bigger question is whether a healthy commercial market for PRVs will return in the future. The most likely answer is no, because there are at least three factors driving down demand for PRVs.

First, PRVs are facing strong competition from other programs that facilitate expedited development and regulatory review. Under US law there are four expedited programs: accelerated approval, breakthrough therapy, fast track, and priority review. FDA data underline their popularity. Between 2015 and 2018, the share of US-approved novel drugs designated in at least one of these four programs was consistently 60% or above. The figure was 73% in both 2016 and 2018; equating to 16 novel drugs enjoying expedited status in the former year and a robust 43 novel drugs in the latter. Companies aiming to secure expedited status for a drug can be sure that if they continue to invest in novel science in areas of unmet medical need, priority review will not be their only shot on goal.

The second factor pushing down demand for PRVs lies in the effectiveness of these four regulatory mechanisms. Researchers at Brigham and Women’s Hospital in Boston, MA identified all drugs and biologics approved by the FDA between 2012-2016. They then compared overall clinical development timelines for drugs in each of the four expedited categories, as well as for products that didn’t qualify for any expedited program. As described in a letter published in JAMA, they observed the shortest development timelines among drugs with breakthrough therapy status (4.8 years, compared with 8.0 years for non-expedited drugs). By contrast, development timelines for drugs with priority review status were no shorter than those for non-expedited drugs, despite spending four months less time undergoing FDA review. Priority review is not only competing with other expedited review programs, but it is also proving to be a weak competitor in this race.

The third factor concerns the increasingly challenging reimbursement landscape for orphan drugs. Novartis’s early, post-approval experience with Zolgensma (onasemnogene abeparvovec), its novel gene therapy for spinal muscular atrophy, illustrates the challenge well. Priced at $2.1 million per patient, the product seems to have generated more headlines after FDA approval than it did before.

In July 2019, two months after Zolgensma’s approval, an analysis by Bernstein, an asset manager, found that only 11 of the top 30 health insurers in the US had decided how to cover the therapy. And among these 11 insurers, coverage policies were in several cases more restrictive than the FDA-approved label. According to recent reports, the company’s proposed value-based contracting, tying payments to demonstration of efficacy, finally won payers over. Even so, US payers know that Novartis’s pricey gene therapy is a sign of things to come. Evaluate, a research company, projects that four of the gene therapies currently in Phase III development will be launched in the US by the end of 2020. If they do make it to market, lofty prices are likely.

A key lesson from the Zolgensma experience is that reimbursement hurdles are becoming as difficult to clear as regulatory ones. And if developers of late-stage gene therapies are expecting many months of negotiations with US payers, they may conclude that shaving four months off the FDA review timeline is less useful than it was for companies in the past. Investing in generating more clinical and real-world data to demonstrate to payers the cost-effectiveness of their therapies may be a smarter bet than paying around $100 million for a PRV.

So, PRVs have clearly started to lose their shine. Even so, it’s worth reflecting on what the most recent voucher sale has meant for its seller and buyer.

For Sobi, an orphan drug specialist with a market capitalization of $5 billion, the $95 million cash windfall (equivalent to 11.7% of its pharma sales in 2018) has helped fund recent corporate activity. The payment provided a partial (18%) return on the $518 million it spent in June 2019 to acquire the drug emapalumab from Novimmune (the small biotech company that was the PRV’s original owner). Or viewed another way, it was $95 million in the bank that went towards Sobi’s acquisition of Dova Pharmaceuticals, announced in September 2019, for up to $915 million. The Dova acquisition will bring $91 million in pharma sales in 2020, according to Evaluate.

And for AstraZeneca, a top-tier pharma company with a market capitalization of $115.1 billion, the price it paid for the voucher could have been a mere rounding error in its 2018 pharma sales of $20.6 billion. The pharma giant has remained tight-lipped about what it plans to do with the voucher. But industry media were quick to identify roxadustat, an anemia drug that AstraZeneca anticipates filing in H2 2019, as a likely candidate to benefit from priority review.

Anemia is not a rare, pediatric disease, highlighting another curiosity about PRVs: the fact their owners are free to redeem them on any drug in any indication. It’s also worth noting that, excluding rare cancers, AstraZeneca is not known as a player in the orphan drug sector. The company’s inclusion in the Orphan Drug Report 2019 from Evaluate is mostly attributed to the expected commercial success of a single oncology drug. In other words, by writing a check for a modest sum, AstraZeneca has acquired a PRV and made headlines in rare disease without any real commitment to the non-cancer, orphan drug space.

By Pete Chan, Head of Research & Analysis

Published on October 24, 2019