Key Takeaways
- Limited use of risk contracts in orphan disease treatments. Payers typically avoid risk arrangements for high-cost orphan drugs, especially those requiring ongoing administration, due to operational burdens, physician preference variability, and small patient volumes.
- Growing competition may shift strategies. With 160–200 orphan drugs projected for FDA review between 2025–2030, later market entrants in crowded indications may need to consider risk contracts to justify premium pricing and gain market share.
- Risk contracting as a value-based differentiator. For new entrants with compelling clinical benefits, risk arrangements could offer a pathway to stand out, align with value-based care trends, and secure greater adoption despite established competition.
Despite the often extremely high cost of drugs for orphan diseases, the tendency among health plans is to avoid risk arrangements, particularly for treatments requiring ongoing administration. There are multiple reasons, including:
- Potential for disagreement
- Variability around physician feedback
- Administration burden
- Patient volume limiting savings potential
- Timeline covering different fiscal years
In addition, if products for orphan conditions are considered clinically comparable and cost roughly plus/minus 5% of each other, the philosophy is to let physicians make the decision.
Consequently, if one product is administered weekly and one every six months, or one is provider-administered and another patient-administered, or even if one has more versus less tolerability issues, the payer point of view is generally to maintain equal access and let the market decide.
These factors individually are impactful but collectively present a powerful barrier to risk contracting.
However, as the number of new agents gaining FDA approval for the same orphan indication increases, the suggestion here is that later entrants may begin to find a receptive ear to a risk contract offer.
Crowded orphan space
Between 2020 and 2024, approximately 20-25 orphan drugs per year gained FDA approval. Estimates for 2025-2030 point to between 160-200 on a path toward FDA review. Given this pipeline, while many orphan conditions are likely to see gene or cell therapies, monoclonal antibodies, other biologics, or extremely high-cost small molecules for the first time, some can be expected to see three, four, or more of these high-cost treatments available for the same indication.
The signs for this growing competition may be reflected in a 2025 Evaluate Pharma Orphan Drug Trends Report. Globally, its research suggests that from 2025-2030, the compound annual growth rate (CAGR) for orphan products will be 10% versus 7.5% for non-orphan; but the orphan product “growth advantage looks set to slip to just 1% by the end of the decade, potentially marking the end of an extraordinary run.”
Consistent with this, other data suggests that between 2020-2024, the CAGR for US orphan products was in the 10%-11% range, with 6.3% projected for 2029-2030.
One likely reason is that pricing for new treatments where there are existing options will likely need to fit in with prevailing prices, causing the growth rate in future pricing to decline. Right now, for example, there are four prophylactic agents approved to treat hereditary angioedema and there may be another seven aiming for FDA review by 2030. Similarly, there are three agents approved to treat transthyretin amyloid cardiomyopathy, with signs of another five moving toward FDA review by 2030.
Absent significant gains in clinical benefit, it is hard to imagine new entrants pricing their treatment outside the higher end of the prevailing range since any added access barrier makes the challenge of overcoming prescriber experience with current treatments even more difficult.
While there is no reason for the first agent in an orphan space—nor probably the second and third, to offer a risk contract—they can always discount if necessary; for later entrants intent on premium pricing, there could be a business case.
Orphan conditions and risk contracts
The major precondition for a later entrant to consider tying pricing to a risk contract centers on trial data pointing to a new and compelling clinically meaningful benefit.
The major reason for a risk contract is to premium price, and most likely the safest way a later entrant can price outside what payers will otherwise tolerate.
Significantly, risk contracting resonates with the “value-based” philosophy long on the ascent in managed care. Perhaps more importantly, it represents a new platform for the late entrant to be the “value-based workhorse” in a specific orphan disease space—the more the treatment is used, the greater the clinical and financial value generated.
Suffice it to say, each pipeline agent for an orphan disease will need to evaluate the opportunity for building a risk arrangement into its launch strategy.
While the business requirement is that the operational burden on payers be minimal, the business justification for carving in such arrangements appears to be growing.
Ira Studin, PhD, is President, Stellar Managed Care Consulting. He can be reached at istudin@stellarmc.com.
