Orphans No Longer
With worldwide markets for prescription drugs stagnating, pharmaceutical companies are eyeing small-population “orphan drugs” as big moneymakers. Orphan drugs treat rare diseases and disorders, defined as those afflicting fewer than 200,000 people annually in the United States, fewer than 250,000 in the European Union and fewer than 50,000 in Japan. Some of the more widely known rare diseases are cystic fibrosis, Huntington’s disease, amyotrophic lateral sclerosis (ALS), Tourette syndrome and muscular dystrophy.
Despite their relatively limited populations, drugs for rare diseases have already demonstrated significant financial value. For instance, Rituxan (rituximab)—an orphan treatment currently marketed by Genentech (South San Francisco, Calif.), a wholly owned subsidiary of Roche (Basel, Switzerland) and Biogen Idec (Weston, Mass.) for non-Hodgkin’s Bcell lymphoma and for chronic lymphocytic leukemia—is now the world’s second-most profitable drug after Pfizer’s (New York) blockbuster Lipitor (atorvastatin calcium). Rituxan is expected to generate more than $150 billion over its lifetime, most of which will come from sales for orphan indications, according to a 2012 analysis by Thomson Reuters (New York).
A recent report by EvaluatePharma (London) projects that Rituxan will become the world’s best-selling orphan drug in 2018, generating more than $6.9 billion in sales. It will be closely followed by Celgene’s (Summit, N.J.) immunomodulator Revlimid (lenalidomide), with more than $6.6 billion in worldwide sales. Overall, the company predicts that orphan drugs will garner $127 billion in sales in 2018, demonstrating a 7.4% compound annual growth rate from $83 billion in 2012. This will be nearly twice the growth rate of the overall branded prescription drug market (3.7%) over the same period. And orphan drugs are expected to account for 15.9% of the total global branded drug market in 2018, up from 12.9% in 2012 and a paltry 5.1% in 1998 the report says.
Orphan drugs offer their manufacturers a greater return on investment compared to non-orphan drugs largely because of less stringent regulatory requirements. In particular, orphan drugs require smaller Phase 3 trial sizes—an average of only 528 patients compared to 2,234 patients for non-orphans. This helps reduce the average Phase 3 drug cost to $85 million compared to $186 million, according to EvaluatePharma. Factoring in a 50% U.S. R&D tax credit further reduces this cost to $43 million. The other side of orphan drug profitability comes from their often high retail price. For example, a year’s supply of Vertex Pharmaceuticals’ (Cambridge, Mass.) Kalydeco (ivacaftor) for cystic fibrosis can cost patients as much as $300,000. Health insurance covers most of this cost for patients, according to Vertex, but many orphan drug companies also offer patient subsidies and other discounts.
New Arena for Development
Approximately 6,800 rare diseases and conditions have been cataloged and about 250 more are identified each year. Nearly 30 million Americans suffer from at least one rare disease, according to the National Organization for Rare Disorders (Danbury, Conn.) a patient advocacy group. To stimulate research on treatments for rare diseases, the U.S. Congress created incentives for drug developers through the U.S. Orphan Drug Act of 1983. These incentives include extended tax credits; seven-year market exclusivity that begins after formal approval and is independent of patent status; grants for drug development; fast-track U.S. Food and Drug Administration (FDA) approvals; and, more recently, a waiver on FDA user fees. Similar legislative incentives were enacted in Japan in 1993, the EU in 2000 and in many other countries.
Right now, it seems government incentives for orphan drug development will continue to grow in the near future. For instance, the European Medicines Agency previously has provided fee reductions for only small- and mid-sized companies involved in the development of new orphan drugs, but that restriction will be lifted effective January 2014. In addition, the agency will increase its fee reduction for non-pediatric-related protocol assistance from 40% to 75%. For pediatric-related assistance, the EMA fee reduction has been and will continue to be 100%. The EMA will also introduce new fee reductions for initial marketing-authorization applications (10%) and for preauthorization inspections (100%).
Within FDA, an Office of Orphan Products Development has overseen the development and marketing of more than 400 rare disease drugs and biologic products since 1983. In October 2013, FDA awarded 15 grants totaling about $15 million to foster treatments for such rare conditions as Stargardt disease, an inherited form of juvenile macular degeneration ($167,000 to Alkeus Pharmaceuticals, Boston) and to treat and prevent porphyria attacks ($1.5 million to the University of Texas Medical Branch at Galveston).
“The grants awarded this year support studies in very vulnerable, difficult-to-treat populations who have no available options,” says Gayatri R. Rao, director of the FDA’s orphan products office, which has awarded more than $300 million in grants to support about 530 new clinical studies, which resulted in 50 new products winning marketing approval. Earlier this year, the European Commission (EC) announced $187 million to support 26 rare disease research projects, part of its goal to spur development of 200 new rare disease treatments by 2020. To date, the EC has funded 100 rare disease drug projects totaling about $650 million.
Drugs for rare diseases generally face limited competition from either branded or generic rivals, part of what makes them so attractive to pharmaceutical companies eager to expand their portfolios with more profitable products. Many of these companies have been major players in the orphan drug world for some time, including Roche, Celgene, Novartis (Basel, Switzerland), Johnson & Johnson (New Brunswick, N.J.), Eli Lilly and Co. (Indianapolis, Ind.), Bristol-Myers Squibb (Princeton, N.J.), Bayer AG (Leverkusen, Germany) and Sanofi (Paris).
Many of these and other pharmas are looking to expand their orphan drug activities. Novartis in September agreed to exercise a $700 million option to acquire a Phase 2-ready therapy for two rare diseases from Camarus AB (Lund, Sweden). The deal gives Novartis full development and commercialization rights to CAM2029, a long-acting octreotide product for treatment of acromegaly and carcinoid tumors. In June,
GlaxoSmithKline (London) announced it had committed more than $23 million in venture capital funding focused on rare disease startup companies in Europe. In November, Shire plc (London) announced that it had agreed to buy ViroPharma Inc. (Exton, Penn.) for $4.2 billion to expand its portfolio with treatments for rare disease, such as Cinryze, a C1 esterase inhibitor approved by the FDA to treat the inflammatory condition hereditary angioedema.
Roche has reportedly been eyeing to acquire Alexion Pharmaceuticals (Cheshire, Conn.) and BioMarin Pharmaceutical (San Rafael, Calif.), companies that have orphan drug products on the market and in development. “We go where the science takes us, wherever it is, independent from the size of the patient population,” Roche’s CEO Severin Schwan told reporters in October.
Contributing editor Ted Agres, MBA, is a veteran science writer in Washington, DC. He writes frequently about the policy, politics and business aspects of life sciences.