Why Priority Review Vouchers Provide Pharma a Starting Point Worth Building Upon

BDO Talks with David B. Ridley About Hopes for the Program’s Future

By John Kwon and Jennifer Cook

As Congress and the new administration hone in on prescription drug prices, a 10-year-old program initially created to encourage the development of treatments for neglected and rare pediatric diseases is coming under fire. Priority Review Vouchers (PRVs), created by the FDA in 2007, are tickets to the front of the line of an often-lengthy FDA approvals process, holding significant value for companies on the receiving end.
But have they been successful in serving their original purpose—bringing more drugs that treat some of the world’s most neglected diseases to market? Speaking with David B. Ridley, a Duke University professor whose 2006 paper formed the basis for the PRV program, we explore its evolution—its strengths and weaknesses, along with hopes for the future.  

A Humble Academic Beginning

In their 2006 paper, Ridley and his colleagues proposed that priority review be given to treatments of infectious and parasitic diseases. Ridley noted that these diseases, often labeled as “tropical diseases,” are commonly neglected by major drug developers due to their low return on investment as the recipient populations are generally impoverished. Ridley argued that creating a voucher program would provide the market incentive needed for drug developers to treat some of the world’s most neglected diseases. Lawmakers listened, and in 2007, the Food and Drug Administration Amendments Act of 2007 was passed, creating the Tropical Disease PRV system.

The tropical disease PRV, when redeemed, grants an expedited FDA review of about six months, compared to the standard 10 months. Examples of tropical diseases eligible for the voucher include Dengue and sleeping sickness, as well as Ebola and Zika, which were recently added to the list of eligible diseases.

The program was expanded in 2012 to include rare pediatric diseases, considered “orphan diseases,” which suffer similar neglect by major drug developers as the number of patients impacted by the diseases is small, making it difficult for a company to recover its development costs. The rare pediatric disease vouchers only required the FDA to be notified 90 days prior to use and could be resold an unlimited amount of times. The Tropical Disease PRV system was amended in 2014 to align with the rare pediatric disease voucher regulations.

The first PRV was awarded under the tropical disease portion of the program to Swiss company Novartis AG in 2009 after qualifying for its drug Coartem, developed to treat malaria. Since the original PRV was awarded in 2009, an additional 12 PRVs have been awarded, three for tropical disease treatments and nine for rare pediatric diseases.

So far, just four of the 13 vouchers have been redeemed, resulting in three successful drug approvals. So, have we made any progress in treating some of the world’s most neglected diseases?

More Qualifying Drugs, but None to Market

The PRV program has received mixed reviews. Criticisms of the program include the fact that the vouchers can be awarded for drugs that may already exist in international markets. The first voucher awarded to Novartis AG, for example, was awarded for a combination malaria drug that had already been licensed and used outside the U.S. since 2001. Additionally, while the vouchers are awarded only for qualifying tropical or rare pediatric diseases, they can be redeemed for any drug the company pleases. This was also evident in the Novartis AG redemption, as the company was awarded the voucher for the qualifying malaria treatment drug but redeemed its voucher to expedite review of a more profitable gouty arthritis attack treatment drug.

These potential shortfalls in regulation only add to the market value of these vouchers. With no regulation on drug type redemption or resale for either voucher program, companies can submit certain qualifying drugs for the PRVs with full intention to redeem the vouchers for more profitable drugs under development or capitalize on the market value of the vouchers.

Of the 13 vouchers awarded, five have been sold to third parties (see Exhibit A), exhibiting an outsized return on investment for companies cashing in on these vouchers. Three of the five vouchers sold have subsequently been redeemed, none for drugs qualifying as tropical or rare pediatric diseases. While generating attention to some of the world’s most neglected diseases, the drug market has not yet seen any new treatments as the program originally intended.

Can the Program be Fixed?

Not unnoticed by global health organizations, a group of seven, led by Doctors Without Borders, lobbied the Senate Committee on Health, Education, Labor and Pensions in November 2015, requesting an amendment to the PRV program.

The group proposed that companies awarded the vouchers should be held to some level of responsibility to ensure the neglected and rare disease drugs make it to market at a reasonable price and do not overlap with drugs already on the international market.

“Critically, the PRV program for neglected diseases does not ensure that the qualifying products will be accessible and affordable to patients in need,” the group wrote. “PRV recipients are not even required to market a product that earns a PRV.”

Taking notice, the House included proposed amendments to the PRV program in its September 2016 amendment to the H.R. 3299 bill addressing strengthening of public health emergency response. Facing the regulatory end of the PRV program in September 2016, Congress and President Obama elected to extend the program through 2020, but did not address all its problems. The FDA also acknowledged problems with the PRV program, noting a company can essentially purchase a priority review at the expense of other important public health work.

“Two major revisions that would be beneficial to the PRV program would be, one, to limit eligibility in a way that only new drugs would be awarded the PRV,” Ridley told us during a recent interview. “Additionally, an access plan should be required so that people, regardless of socioeconomic status or location, can receive treatment.”

Facing Political Pressure

With a new administration and leadership changes in Congress, the future of the PRV program and any amendments is uncertain.

The latest recipient of a PRV, Marathon Pharmaceuticals, has put commercialization of its steroid to treat Duchenne Muscular Dystrophy (DMD) on hold after receiving widespread criticism of its aggressive pricing, which included a letter from a group of senators demanding to see development costs that would result in the proposed price of $89,000 a year. The steroid Marathon Pharmaceuticals has developed at its core is already available for a fraction of the cost in other countries. With President Trump and Congress focused on aggressive drug pricing, Marathon has likely opened itself—and the PRV program—up to heavy criticism and political risk.

As recently as early February, a key House committee had taken up legislation targeting high prescription drug costs, with the goal of expediting FDA approval of generic products where branded products have limited competition. The proposed generic PRVs would be a distinct market from the tropical and pediatric PRVs.

Could $350 Million Become the Norm for PRV Sales?

Based on the current regulatory and political environment, it is likely the value of PRVs will decline. However, it is difficult to truly pinpoint the value of an individual voucher, as there is inherent information asymmetry between the parties negotiating the sale of a PRV, which will have more or less value depending on the specific drug the holder is trying to get to market. This is evident by the range of sale prices PRVs have historically sold for as seen in Exhibit A.

Theoretically, a sale should go to the party that can get the most value out of it. To appraisers, this type of information is unavailable and so they are relegated to looking at past transactions. Future sales are truly market driven, so sales could go even higher than $350 million if fewer PRV vouchers are awarded—or lower, if the value is diluted by additional FDA fast-tracking regulation.

A Hopeful Future

Although the market has yet to see treatments for some of the world’s most neglected diseases, the PRV program has been beneficial to the cause in other ways.

The program did, after all, provide inspiration for a component of the bipartisan 21st Century Cures Act, one of the last bills President Obama signed into law. Although the impact the new administration could have on the law remains to be seen, it provides the FDA with $500 million to streamline regulations to move drugs and medical devices through approvals more quickly; create incentives to develop drugs for pediatric diseases and medical countermeasures; and provides greater flexibility in reviewing and approving medical devices that provide first-of-a-kind technologies.

The program has also helped infuse capital into the pharma/biotech industry for the development of neglected and rare disease treatments—whether through the channels originally intended or not.

“We are seeing a number of venture capital firms and entrepreneurs providing the funding biotech companies need to develop the treatments for these neglected diseases through the sale of these vouchers,” Ridley said. “So, to me, the program has been successful in serving its original purpose.”

John Kwon is a managing director in BDO Consulting’s Valuation & Business Analytics practice. He can be reached at [email protected].

Jennifer Cook is a manager in BDO Consulting’s Valuation & Business Analytics practice. She can be reached at [email protected].

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Return to BDO Life Sciences Letter - Spring 2017