Jacob Levitt, who suffers from periodic paralysis, takes karate in June in New York. He and his father, who were both pharmaceutical executives, had sought to have an old glaucoma drug approved for use to treat Levitt’s rare disease. (Yana Paskova/For The Washington Post)

Three decades ago, Congress listened to the plight of Americans sick with diseases so rare many people had never heard of them. They were victims of a pharmaceutical market failure — “orphans” ignored by drug companies because, the thinking went, tiny groups of patients would lead to trifling sales.

To make the business viable, Congress — pushed by patients and a popular television show that highlighted rare diseases — passed the Orphan Drug Act. The 1983 law offered drug companies attractive tax credits and monopolies to develop treatments for rare diseases, radically transforming the pipeline of orphan drugs.

Now, rare diseases are no longer a neglected niche of the pharmaceutical business; they are a tantalizing moneymaking opportunity. More than 400 treatments have been approved since the law passed. Last year, nearly half of all novel drugs approved were treatments for orphan diseases.

But critics and some medical experts are concerned that the Orphan Drug Act may have backfired.

Pharmaceutical companies can reap huge profits because of the most important perk offered by the law: a period of market exclusivity that prevents competition for seven years. That has paved the way for drug prices so high that a single year of treatment can cost more than a car or even a house. Since the act passed, the median launch price of orphan drugs for chronic use has doubled every five years, according to an analysis presented in May by a team of Massachusetts researchers.

In one way, this is a straightforward success story: Patients with rare and often devastating diseases have the attention of drug companies and a growing trove of treatments. Despite the drugs’ high list prices, patients generally are not on the hook for the full amount, thanks to insurance, secret rebates and assistance programs underwritten by drug companies.

As the rare-disease drug business has expanded, though, the high prices could drive up insurance costs for everyone. Spending on orphan drugs is growing twice as fast as the overall drug market, according to the market research firm Evaluate.

For example, the orphan drug Soliris has an average annual cost of up to $488,000 per patient for the treatment of paroxysmal nocturnal hemoglobinuria — one of two ultra-rare diseases for which it is approved. It netted $2.59 billion in sales last year. Rituxan, an orphan cancer drug sometimes called “vitamin R” because it has become an important treatment for so many diseases, had worldwide sales of more than $7 billion last year.

“We’re seeing the Orphan Drug Act used in ways that we never anticipated when the law was adopted,” said former congressman Henry A. Waxman, the California Democrat who was the principal author of the bill and now works at his son’s lobbying and communications firm, Waxman Strategies. “In the way people use the word ‘orphan status,’ it’s almost becoming a synonym for a monopoly price. Sounds like it’s good to be an orphan.”


Birth of a new market

That wasn’t always true.

In the late 1970s, Abbey Meyers was a young mother from Connecticut who had finally found relief. Her son, David, was taking an experimental drug for Tourette’s syndrome, a rare disease that causes motor and vocal tics. The treatment worked. But when the drug failed the main trial for a common illness, the drugmaker stopped supplying it.

After testifying at a congressional hearing, Meyers was invited to speak with drug executives.

“You have grandchildren — what if it was one of your grandchildren?” Meyers recalled pleading.

The problem gained national attention when the popular medical drama “Quincy, M.E.” aired an episode on Tourette’s and actor Jack Klugman, who played the medical examiner at the center of the show, testified before Congress.

As written, the law sought to fix a clear market failure: “Because so few individuals are affected by any one rare disease or condition, a pharmaceutical company which develops an orphan drug may reasonably expect . . . to incur a financial loss.”

“It gave them the realistic chance of making a profit,” said Meyers, who would go on to found an advocacy group, the National Organization for Rare Disorders. “It was not going to be a great big profit. . . . It was only going to be reasonable profit, because the market was very small.”

For drugs treating diseases that affect fewer than 200,000 people in the United States, the law provides tax credits for half the cost of clinical development, seven years free from competition, and waived fees.

The debate over profits began not long after the law was adopted. Congress passed an amendment that would have increased competition and revoked exclusivity if the drug’s target population grew to more than 200,000, but President George H.W. Bush refused to sign it into law.

Two years later, a proposed amendment would have terminated the exclusivity early if a drug reached $200 million in annual sales. Henri Termeer, then the chief executive of the Massachusetts biotechnology company Genzyme, appeared before Congress to argue against the cap, which was never passed, and defend a $300,000-a-year treatment for a rare metabolic disorder called Gaucher disease.

In his testimony, Termeer said the cost of the treatment, Ceredase, would naturally drop “in the affordability range” — without a change to the law — because the dose could be reduced over time.

That never happened. Lower doses did not control the disease as hoped, and the next generation of the drug, called Cerezyme, became a blockbuster, hitting a billion dollars in annual revenue. There are now five drugs for Gaucher disease, which has been diagnosed in 10,000 people worldwide. Two are made by Genzyme and are both priced around $310,000 a year.

David Meeker, the current head of Sanofi Genzyme, said that the Orphan Drug Act is an important law but that the proof of profitability has been crucial in establishing the industry. “It suddenly created a business model that said you can go after these incredibly rare diseases and survive,” Meeker said.

Not every drug is a success, but the appeal of the niche is clear.

In 2014, the average annual cost per patient for the 100 top-selling orphan drugs in the United States was nearly $112,000, compared with $23,000 for non-orphans, according to an Evaluate report. And orphan drugs are generally cheaper to develop. The largest, most expensive clinical trials for orphan drugs cost about a quarter as much as those for non-orphan drugs, after the tax credits are factored in, according to the report.


Old drugs become orphans

Nowhere are the strange economics of drug pricing more difficult to understand than when a drug invented decades earlier is granted orphan status — and an orphan price.

Last summer, an old glaucoma drug was reborn as an orphan for a disease called periodic paralysis. Its list price was $50 a bottle in 2002, according to Truven Health Analytics. In 2015, it was relaunched by Taro Pharmaceutical Industries with a new brand name, Keveyis, and a new price: $13,650 a bottle.

The relaunch of the drug was first envisioned by a family with unusual connections to periodic paralysis and the pharmaceutical industry.

Jacob Levitt, a member of that family, experienced his first attack of paralysis at a karate lesson when he was 12, three decades ago. Jacob sat down on the floor, and when he tried to stand up, he couldn’t.

A neighbor slung the boy over his shoulder and drove him home. His father, Barrie Levitt, a physician and then-chairman of Taro, drew blood and raced to his Manhattan medical office in the middle of the night to run tests.

By the next day, Jacob Levitt’s scary illness had a name: periodic paralysis, an ultra-rare disorder that causes temporary bouts of immobility and muscle weakness. Patients can wake up paralyzed and go through their days feeling as if they are wearing lead shoes and a 50-pound backpack.

Jacob Levitt began taking an old glaucoma treatment that is sometimes used off-label to manage periodic paralysis. It worked, and he was able to continue practicing karate and went on to become a doctor and a vice president at Taro.

In the early 2000s, a similar glaucoma drug called Daranide was discontinued by Merck, leaving many periodic-paralysis patients without their best option for controlling their disease.

The Levitts wondered whether Taro could help launch it as a generic drug that could be used off-label, like Jacob’s medication.

Taro bought Daranide from Merck for less than half a million dollars in 2008, according to the Levitts. Two years later, Taro filed for orphan status.

Then in 2010, after a contentious corporate and legal battle, the Levitts were forced out of Taro and the company was taken over by Sun Pharmaceutical Industries, the Indian drugmaking giant. Under the new leadership, Taro got orphan approval in 2015 and priced the drug at more than 270 times its last price.

Credit Suisse analysts estimated the drug could bring in $100 million per year for Taro, with a “blue sky” scenario of up to $600 million.

In May, however, the company changed its plan and announced the drug would be given away free. Taro said it had made less than $1 million selling Keveyis and spent millions on patient support services, medical education and promoting disease awareness.

Experts who track the industry said that the sudden reversal on price is an uncommon move. But it is not uncommon for companies to recycle old drugs as orphans and stamp them with a price hike.

For example, a decades-old pregnancy drug received orphan approval in 2011 as a treatment to lower the risk of preterm birth. The drug was previously available from compounding pharmacies for $20, but the list price for the approved drug, Makena, rose to more than $1,400 a dose — although it was halved after public backlash. After receiving orphan designation as an infantile spasm treatment, H.P. Acthar Gel increased in price by more than $20,000 a vial in 2007, though it had been used since the 1950s. Today, its list price is $34,034, not including discounts.

In February, dozens of physicians signed a letter in the journal Muscle and Nerve, highlighting concerns about the future price of a treatment for a rare autoimmune disease that had been around for decades, though never approved — now at risk of a hike.

“What is particularly troublesome to us is a ‘loophole’ in the Orphan Drug Act that allows companies to receive FDA market exclusivity . . . for older, existing drugs,” the physicians wrote.


Popularity of orphan drugs

The high prices of orphan drugs have been detached from the law’s original rationale — that incentives are necessary for companies to recoup the costs of research and development of treatments with tiny markets. Today, some pharmaceutical companies use the word “orphan” to justify a drug’s high price, whether or not that drug is protected by the law’s exclusivity. The market has come to expect high prices for any drug that treats very few patients, and the system lacks any real mechanism to counter the price increases.

In a slide deck released to a Senate committee last year, Valeant Pharmaceuticals International outlined its reasoning for a price hike for Syprine, a three-decade-old rare-disease drug that ultimately went from $652 for 100 capsules to $21,267 over a five-year period. The slide explains the reason for the price hike: “Progressive pricing actions to bring in line with comparable Orphan products.”

Former pharmaceutical executive Martin Shkreli, who became notorious for hiking the price of an old drug called Daraprim that is used to fight an exceedingly rare infection, called the drug an orphan even though it is not protected by the law. “This drug is priced similarly to other drugs for rare disease, and I think most physicians understand that,” Shkreli told The Washington Post last year.

Orphan drugs are isolated from many of the typical pressures that bring down prices. Insurance companies often have so few rare-disease patients on their books that even a very high-priced drug gets little attention. And pharmaceutical companies fund assistance programs that ensure patients do not forgo a treatment because of its price.

Drug companies argue that any change to incentives could lead the industry to abandon orphans once more. Patients and their advocates worry about that — but also see how the new market for orphan drugs gives companies virtually unlimited pricing power.

In 1979, Joseph Jankovic, a physician at the Baylor College of Medicine, began treating the uncontrollable movements of Huntington’s disease, called chorea, by importing tetrabenazine, a drug not approved in the United States. For years, his efforts to interest a drug company in tetrabenazine were fruitless. The medicine cost about $200 for a 180-pill bottle.

Prestwick Pharmaceuticals got U.S. orphan approval for the drug in 2008. The brand-name version, Xenazine, now sold by Lundbeck, carries a list price of $10,622 for a 112-pill bottle.

“Obviously, I’m concerned about the cost of the drug, but more importantly, I’m concerned about what is the out-of-pocket cost to the patient,” Jankovic said.

Cheaper generic versions entered last year after the drug’s exclusivity expired. But now a chemically altered form of the drug that breaks down slower is being developed by Teva Pharmaceutical Industries as an orphan.

“On one hand, I’m encouraged by the data we just published showing that the drug is very effective in reducing chorea, with minimal side effects,” Jankovic said. “On the other hand, I’m concerned that once the drug is approved, it’s going to be perhaps even more expensive.”