While rare diseases were historically passed over by pharmaceutical companies in favor of those with larger patient populations, such as cardiac disease and diabetes, today the story reads differently. Rare diseases made up nearly half of the 41 new drugs approved by the FDA in 2014 — the highest number since the Orphan Drug Act (ODA) was passed in 1983.

In fact, sales of orphan drugs are expected to grow at an annual rate of nearly 11 percent per year to about $176 billion in 2020, compared with 4 percent for drugs treating larger populations.

This has been evidenced by the actions of several companies this year: In early November, Lexington, Massachusetts-based Shire signed a deal to buy small biopharmaceutical company Dyax for $5.9 billion to deepen its portfolio of treatments for the rare hereditary angioedema (HAE), an inflammatory disease that causes bouts of severe swelling and affects about 1 in every 50,000 people. Sanofi’s Genzyme unit agreed in July to pay AstraZeneca up to $300 million for global rights to Caprelsa, a treatment for rare cancer medullary thyroid carcinoma.

And in the biggest premium paid for a company in 20 years, Biotech Company Alexion Pharmaceuticals paid $8.4 billion in May—more than double the market value—to acquire Synageva BioPharma, a smaller drug maker specializing in rare diseases. Synageva is in late-stage development of a treatment for genetic disease, lysosomal acid lipase deficiency, which affects about 3,000 people.

“In the past, the prevailing wisdom at large pharmaceutical companies was that to create a ‘blockbuster’ product, drug development should be focused on diseases with the largest number of patients,” Andrew Robbins, chief operating officer of Array BioPharma told Drug Discovery & Development in an exclusive interview. “Companies like Novartis and Genzyme have demonstrated to the industry that products like Gleevec (Chronic Myeloid Leukemia – CML) and Cerezyme (type 1 Gaucher disease) could also reach blockbuster potential by delivering significant benefit to thousands of patients.”

As a result, the level of investment and focus in finding new treatments for rare diseases has surged, offering hope and symptomatic relief for the one in 10 Americans living with a rare disease.

Encouraging the industry to invest in rare disease treatments

The success of the ODA may be based on the built-in incentives for pharmaceutical companies. For one, there are financial incentives, such as multiyear periods of market exclusivity. This provision protects orphan drugs against competition from generics in the U.S. for seven years as compared with five years for non-orphan products.

Rare disease drug developers can also qualify for tax breaks, such as a 15 percent tax credit on clinical studies. These companies can also win regulatory approval with smaller clinical trials, and are granted fast track status, an FDA designation that assures quicker approval process — around 10 months versus at least one year for non-orphan drugs.

Another important development that has encouraged more companies to pursue rare disease treatments during the past decade is the advancement of technology, and research and development. Since many rare diseases have a genetic component or cause, greater knowledge in the area are progressing therapies.

“Advances in biomedical research are increasing understanding of diseases,” James Cloyd, Pharm. D., professor at the University of Minnesota’s College of Pharmacy told Drug Discovery & Development in an exclusive interview. “So once you know the exact cause of a rare disease — a single defect in DNA that results in a deficiency or an absence of an enzyme — it may be easier to develop a targeted treatment for it.”

Agreed Robbins, “As our understanding of human biology continues to improve, small and large companies have the ability to create innovative products that can directly target these genetic disorders.”

The cost concerns

It’s no secret that rare disease drugs are expensive. Take, for instance, Alexion Pharmaceuticals, whose drug, Soliris, to treat a rare blood disorder lists for more than $500,000 a year. Or Merck’s Keytruda, for non-small cell lung cancer, which has a $150,000-per-year sticker price. And Bristol-Myers Squibb’s immunotherapy drug Opdivo may finish with $6 billion in worldwide sales by 2020, EvaulatePharma forecasts.

But the high prices for rare disease drugs have raised concerns. In particular, was the case of Turing Pharmaceuticals, a start-up led by a former hedge fund manager, who acquired the drug, Daraprim, for the treatment of a life-threatening parasitic infection — and then increased its price from $13.50 per pill to $750. Public outrage soon followed, with a flurry of social media comments including Democratic candidate Hillary Clinton’s “Price-gouging like this in the specialty drug market is outrageous.”

READ MORE: Rare Disease Drug Price Skyrockets, from $13.50 a Tablet to $750

A common refrain from pharmaceutical companies is that the high cost of research and development, along with the financial risks of developing a novel treatment without guarantee of regulatory approval, are the biggest factors for high price tags on drugs.

“There has to be a financial incentive for companies to invest in developing new therapies, and they’re not cheap to do,” Cloyd told Drug Discovery & Development. “With rare diseases, it’s a small population of people, and companies need to get a return on investment.”

A new report published by the Tufts Center for the Study of Drug Development (CSDD) assesses the cost of bringing a drug to market at $2.6 billion, a 145 percent increase, correcting for inflation, over the estimate the center made in 2003. Forbes has calculated that large pharmaceutical companies spend approximately $5 billion per new drug.

And wrapped up within the conversation of drug costs is the calculated “value:” Is the high price of a rare disease treatment worth it?

Memorial Sloan Kettering Cancer Center in New York City posted an online tool in June suggesting a drug’s fair price, based on benefits and side effects. “We have a broken system” with drug prices rising more than the degree of benefit, said Peter Bach, M.D., director of the Center for Health Policy and Outcomes at Sloan Kettering, reported The Associated Press. Others followed suit, with the American Society of Clinical Oncology and the European Society for Medical Oncology also proposing similar guides.

In the case of rare disease treatments, companies can make up for small patient populations by charging high prices — hundreds of thousands of dollars a year — without needing a large sales force often used for primary care drugs. “Rare disease drugs often command premium prices for years because competition is slim,” Cloyd told Drug Discovery & Development. “And a company’s focus can be sharper and that can reduce marketing cost and other aspects for providing the drug.

“For example, if a company has approval to market a new drug for hypertension, nearly every primary care provider prescribes that drug. With a rare disease like cystic fibrosis, the only people treating that are pulmonologists.”

Are rare disease drug prices sustainable for patients and payers?

The increasing number and cost of orphan drugs are a growing concern to patients, providers and payers.

Many critics have said that the high prices of rare disease treatments are not sustainable. Three doctors published an editorial in the Journal of the American Medical Association in 2013 urging pharmaceutical companies to rein in prices for orphan drugs, arguing they are unsustainable for patients and insurers.

So far, insurers have not paid too much attention to the prices of orphan drugs because so few patients use them, “so the huge costs haven’t greatly affected their budgets. But that is starting to change as more of these drugs come to market,” reported The New York Times.

Cloyd, who maintains the importance of developing new therapies for rare disorders, told Drug Discovery & Development, “Over the long term, it’s not sustainable because the number of treatments of this type will grow, and at some point, if their costs remain high and there are many, many more of these treatments you’ll exceed the ability of the government and insurance companies to cover that cost.”

More than anything, large pharmaceutical companies are interested in developing and commercializing products that have a significant impact on patients’ lives, Robbins said. “Executives at biopharmaceutical companies understand that if they can attain this goal, other issues like sustainability and return on investment become secondary concerns,” Robbins told Drug Discovery & Development.

“The issue of price sustainability ultimately is tied to the relative benefit that current and future drug products provide to patients,” Robbins told Drug Discovery & Development. “The future of drug pricing sustainability is certainly questionable for ‘me-too’ products, or for drugs that provide a nominal, incremental benefit over available treatments. On the other end of the spectrum, innovation that results in significantly improved patient outcomes will continue to be appropriately rewarded by our health care system.”