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NPS Pharma: Controversy Over Super-Expensive Orphan Drug Prices

Tickers in this article: AEGR ALXN DNDN NPSP SNY

Boston ( TheStreet) -- Last night, NPS Pharmaceuticals (NPSP) announced that it set the price for Gattex, its drug for short bowel syndrome, at $295,000 per year, or more than triple what analysts had expected.

NPS's decision to price Gattex in the exclusive "ultra orphan" drug club sparked a lot of debate on Twitter last night, with many people, including myself, arguing the drug wasn't worthy of super-premium pricing. This morning, I debated the topic with my good friend and fellow healthcare writer Matthew Herper of Forbes. Herper has done some excellent reporting on orphan drug companies and pricing, so I wanted to get his take on Gatttex.

The orphan drug market grew at an annual rate of almost 26% from 2001 to 2010, faster than the 20% growth for traditional drugs, according to a Reuters analysis. Rare diseases are garnering a lot more attention from small biotechs and Big Pharma, in part, because there's a lot of money to be made. Orphan drugs can be priced sky high and, up to now, insurance companies -- public and private -- are willing to foot the bill.

But is there a limit to how much insurers are willing to pay for orphan disease drugs? And should the definition of an orphan disease reflect more than just the number of patients affected?

Herper and I discuss NPS and orphan drug pricing in the conversation below, which took place over instant messaging this morning.

Adam Feuerstein : NPS Pharma announced Gattex pricing last night -- $295,000 per year -- way above expectations. The news generated a lot of buzz and debate on Twitter last night about whether or not Gattex is truly an ultra-orphan product. What say you, Matt?

Matthew Herper : Well, it does match the ultra-orphan playbook as far as disease prevalence. I'm still trying to figure out whether this is a fair price. NPS says that they've done market research and insurers will be willing to pay.

Matthew Herper : There's been a big increase in the number of these rare disease drugs that cost $200,000 or more. It's high time we had a real conversation about pricing. Is there any way to avoid what happened in cancer, where there seemed no price limit until Dendreon (DNDN) hit the wall with Provenge?

Adam Feuerstein : Here's what I find interesting. Before Gattex approval, NPS told investors that there were approximately 15,000 short bowel syndrome patients in the U.S. At the FDA panel in October, the company used a 10,000 to 15,000 patient estimate. Last night, NPS revealed new "research" that shows the incidence at 3,000 to 5,000.

Matthew Herper : Right, and I spoke with NPS CEO Francois Nader this morning and he says that if the disease were more common the price would be lower. So part of the question is who decides if it's an ultra-orphan disease? And what if there are a lot more patients than expected? That's one of the reasons Alexion Pharmaceuticals (ALXN) has been so successful.