With advances in medical and diagnostic technologies, as many as 6,000–8,000 rare diseases have been identified, and so the number of patients diagnosed with rare diseases has been on the rise (Boycott and Ardigó, 2018; Nguengang Wakap et al., 2020; Baynam et al., 2024). A significant proportion of rare diseases are chronic, progressive, debilitating, life-threatening, and/or fatal. As such, unmet medical needs with respect to rare diseases have led to strategic investments in these therapeutic areas (Dunoyer, 2011; Rodriguez-Monguio et al., 2017; Boycott and Ardigó, 2018). However, rare diseases tend to have extremely low prevalence, with some occurring in a mere 1–5 per 1,000,000 people (Nguengang Wakap et al., 2020). The poor prospect of commercial success, given the smaller-sized patient pool, has worked against the strategic business planning of profit-oriented pharmaceutical companies in this area (Gammie et al., 2015).

However, patients with rare diseases collectively account for 4%–8% of the general population (Nguengang Wakap et al., 2020; Baynam et al., 2024). Moreover, disease impact reverberates throughout the lives and livelihoods of patients and their families. As many as 50% of those affected are children, 30% of whom will die before they reach the age of 5 years (Gammie et al., 2015; The Lancet Diabetes, 2019; Chan et al., 2020; Nguengang Wakap et al., 2020).

After the US introduced the Orphan Drug Act in 1983, other developed countries, including the EU and Japan, have followed suit. Relevant initiatives have included the designation of orphan drugs (ODs), marketing approval and market exclusivity, and a raft of financial incentive programs particularly earmarked for rare diseases (Gammie et al., 2015; Chan et al., 2020). Presently, over half of all countries provide subsidies for the research and development (R&D) of ODs (Braun et al., 2010; Gammie et al., 2015; Chan et al., 2020; Postma et al., 2022). Subsequent market interest has led to the filing of as many as 5,099 OD applications in the US; as of 2019, 724 pipelines (14%) have successfully reached the final approval stage (Miller et al., 2021). Incentive legislation for orphan drugs has thus effectively contributed to their development, thereby addressing the unmet needs of patients with rare diseases (Michaeli et al., 2023; Ipe et al., 2024; Martins et al., 2024).

The sheer scale of R&D investment that has poured into the OD pipelines has naturally translated into exorbitant pricing for such drugs, in turn limiting patient access. As such, the price setting of ODs is intertwined with issues of patient accessibility and commercial viability for pharmaceutical companies. Despite the intervention of state-led initiatives, a wide range of discrepancies persist in terms of drug accessibility, with the large bulk of approved ODs remaining uninsured and stuck in reimbursement negotiation. Only approximately 65% of ODs approved in the EU are publicly insured as of 2018; in South Korea, the proportion was 56% in 2019 (Stawowczyk et al., 2019; Lee et al., 2020).

Reimbursement approvals are directly linked to patient accessibility—ODs would not be financially feasible options to most patients without reimbursements (Stawowczyk et al., 2019). However, pricing & reimbursement (P&R) decisions require much caution as the number of ODs entering markets continue to rise and budgetary burdens become heavy (Hughes-Wilson et al., 2012; Hall and Carlson, 2014; Logviss et al., 2016; Czech et al., 2019). The pricing levels of ODs directly translate to pharmaceutical companies’ return on investment and, ultimately, long-term financial viability (Denis et al., 2010; Côté and Keating, 2012; Franco, 2013; Berdud et al., 2020). Therefore, the pricing of ODs has great importance to all three parties involved—patients, pharmaceutical companies, and policymakers.

Many countries have no specialized P&R pathways that apply only to ODs, opting instead for flexibilities and exceptions in their pricing systems, such as the use of conditional incremental cost-effectiveness ratio (ICER) threshold, weighted quality-adjusted life year (QALY), pharmaco-economic evaluation (PE) waivers, and risk-sharing agreements (RSAs) (Gammie et al., 2015; Felippini et al., 2024). Some countries have specialized funds that are earmarked for expensive medicines for fatal and rare diseases (Gammie et al., 2015; Felippini et al., 2024). To consider the incorporation of methods for assessing societal values and preferences within health technology assessments for ODs, P&R models such as multi-criteria decision analysis, proportional time trade-off, and discrete choice experiments are also examined (de Andrés-Nogales et al., 2021; Vásquez et al., 2024).

Four P&R pathways apply to newly approved ODs in South Korea: essential ODs, PE-waived ODs, weighted average price (WAP) ODs, and PE ODs. For serious and life-threatening rare diseases, RSAs can be applied (Supplementary Figure S1) (Lee, 2021). Essential and PE-waived ODs should meet a set of prescribed criteria and can be listed based on the adjusted pricing of seven advanced countries (A7 countries: the US, United Kingdom (UK), Germany, France, Italy, Switzerland, and Japan) without proving cost-effectiveness (Supplementary Table S1) (Bang and Lee, 2021). The pricing of WAP ODs is computed based on the WAP of alternatives. PE ODs can be listed up to premium prices with the support of PE studies. External reference pricing (ERP) refers to the average of adjusted A7 prices; the listing prices of newly approved drugs should not exceed average levels. Especially for PE-waived new drugs, the lowest value of adjusted A7 prices should be used as the reference price. Adjusted prices start from ex-factory rates, upon which exchange rates, value added tax, and distribution margins are applied and added (Kim et al., 2021).

In this study, we attempt to determine the factors associated with the pricing of ODs in South Korea with the goal of elucidating the workings and determinants of OD pricing there.

P&R pathways have been widely regarded as the most important factor determining patients’ access to ODs (Gammie et al., 2015). Given that ODs are used by only a small fraction of the whole population, most are priced at an astronomical level to compensate for their R&D expenditure (Michaeli et al., 2023). Therefore, patients who need ODs face difficulties in affording such prices without the help of public reimbursement (Stawowczyk et al., 2019). For biopharmaceutical companies, having their drugs listed in the reimbursement system encourages consumption, which can help them recoup their hefty investment expenses in a financially viable and long-term way . Otherwise, even companies with pipelines whose safety and efficacy have passed through formal evaluation processes can go bankrupt if cashflow shortfalls occur (Rollet et al., 2013; Stawowczyk et al., 2019).

As more ODs enter the market, P&R decisions are becoming a major budgetary issue with which policymakers must contend. In South Korea, the expenditure share of ODs out of total pharmaceutical spending nationwide accounts for a mere 1%, below the 3% level of most European countries, and in the US or Bulgaria it can reach 5% or even to 9% (Teagarden et al., 2014; Gombocz and Vogler, 2020). Ultimately, decisions boil down to a moral dilemma between utilitarianism—maximizing outcomes with finite healthcare resources—and non-abandonment, which can be seen at favoring those in dire need (Onakpoya et al., 2015; Kanavos et al., 2020; Zimmermann et al., 2021; Postma et al., 2022).

The annual treatment costs per patient of existing ODs range between USD 1,300 and 500,000, with the average cost per patient between USD 32,000 and 35,000 (Schey et al., 2011; IQVIA, 2020). Meanwhile, the return on investment of ODs at 8.4% far exceeds that of non-orphan drugs at 2.3%—a fact that raises suspicion that profit-oriented corporates tap patients’ willingness to pay in the absence of alternative treatments (Rzakhanov, 2008; Côté and Keating, 2012; Berdud et al., 2020). In 2008, 43 blockbusters drugs, or drugs with sales exceeding USD 1 billion, had orphan designations (Côté and Keating, 2012).

All ODs that are included in this study were developed by foreign companies and launched first in other countries and then entered the South Korean market. Since the Korean government runs the ERP system, it resulted in almost a one-to-one correspondence between adjusted A7 and Korean OD prices, leaving only limited scope for the influence of other determinants. Given that most advanced countries implement variants of the ERP system, once-determined pricings inevitably spill over to other neighboring countries and, thus, prices worldwide are aligned in some sense. Accordingly, pharmaceutical companies exploit the situation by delaying new drug launches in countries where they are highly likely to be compelled to list low prices and withdrawing marketing approvals upon unsatisfactory negotiations in the P&R review processes (Rollet et al., 2013; Kanavos et al., 2020).

In terms of regulatory harmonization, South Korea is placed ahead of the US, EU, and UK, but in terms of flexibility it is placed behind China (IQVIA, 2024). South Korean authorities have introduced layers of the abovementioned pathways in an attempt to accommodate accessibility for patients in dire need. Among the available P&R pathways in South Korea, ODs are given PE waivers the most (39%), then WAP (32%) and PE (29%). Drugs that go through the PE waiver pathway are also the most likely to be assigned an RSA compared to the other P&R pathways. Notably, orphan drugs that passed through PE waiver and are assigned an RSA tend to have higher average annual treatment costs than those that go through WAP or PE pathways.

Our study indicates that neither the difference in P&R pathways nor the total expected budget of an individual OD significantly influences its pricing. However, we found a strongly positive correlation with adjusted A7 prices—in other words, the higher the adjusted A7 price, the higher the corresponding price in South Korea. Instead, the intrinsic characteristics of drugs, such as oncology status, ATC classification, and RSA assignment status, play a more substantial role in determining prices. While the expected budget of an individual OD does not appear to be statistically associated with individual OD pricing, it remains unclear whether this reflects an intentional exclusion of fiscal considerations or limitations in how such impact is operationalized in the pricing decision process.

Our findings suggest that while P&R pathways are structurally diverse and multi-layered in South Korea, pricing decisions are consistently driven by objective metrics such as A7 prices and drug characteristics. This indicates that a transparent and rule-based pricing environment is functioning there. In light of the global trend of increasing OD approvals and their substantial budgetary impact, South Korea’s approach may serve as a reference for countries seeking balance between patient accessibility and fiscal sustainability in OD policy.

Our study has several limitations. First, in South Korea, RSAs, which require mandatory pay-back if sales exceed prespecified thresholds, represent one of the most financially supportive mechanisms for payers. As such, the listed and adjusted prices may have unrealized gaps and may not match the actual prices paid by payers and patients. In our study, as many as 54.5% of ODs included (i.e., 36 drugs) were classified as RSAs. However, we chose not to apply a sensitivity analysis to adjust for RSA refund, as similar refund-type RSAs are also common in comparator countries. Second, we calculated the annual treatment cost per patient based on the dosage regimen approved by the Korea Ministry of Food and Drug Safety (KMFDS). However, in real-world cases, treatment costs may be influenced by clinical practice guidelines or reimbursement criteria. As such, the actual prices may differ from the prices that we calculated.

Our study delineates the factors having actual influence on orphan drug (OD) pricing, highlighting the interplay between OD pricing and external reference prices, drug characteristics, and the size of the treatment-eligible patient population. In light of these results, we recommend the adoption of a flexible approach to OD pricing decisions to ensure that patients with ultra-rare diseases are not marginalized in terms of treatment access. Our findings can guide policymakers, pharmaceutical companies, and healthcare providers in their efforts to balance patient accessibility with OD development and the financial sustainability of public health insurance.