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Wall Street BioBeat : Mar 1, 2010 (Vol. 30, No. 5)

Big Pharma Reassesses Orphan Drug Sector

Drug Firms Are Aggressively Seeking Replacements for Dwindling Blockbusters
  • Benjamin Conway

As evidenced by the recent licensing deal between Pfizer and Protalix Biotherapeutics for the Gaucher disease treatment taliglucerase alfa, there is significant interest among big pharma companies in orphan drug indications. Long considered niche markets and the domain of their smaller biotech brethren, traditional pharmaceutical companies are now re-evaluating their position on orphan drugs. A confluence of market dynamics and scientific advances seems to be driving this change.

Six thousand rare diseases affect more than 25 million Americans. While in aggregate, the patient numbers are large, the number afflicted with a particular disease is often quite small. The Orphan Drug Act (ODA), passed by Congress in 1983, provides drug companies incentives to pursue treatments for these diseases. Most significant is the seven years of market exclusivity that is awarded for use of the drug in the designated orphan indication.

As measured by the number of compounds seeking orphan drug designation, as well as the number of approved drugs for orphan indications, the ODA has had its desired effect. Since its 1983 introduction, more than 2,100 compounds have sought orphan status and more than 350 have received regulatory approval.

The number of drugs seeking orphan drug designation was relatively consistent from the program’s inception to 2002 (Figure). More recently however, the number of drug candidates pursuing orphan drug status has soared. That the number of orphan drugs approved annually has not increased at the same rate, but has instead remained flat, may suggest that the increase in orphan drug designations is the result of label-extension strategies—finding new uses for already approved compounds—and not new molecular entities developed specifically to treat a particular orphan indication.

This development strategy is quite common with cancer therapeutics, which, not surprisingly, account for 50% of all orphan drugs in development. The recent increase may also be indicative of companies’ increased eagerness to obtain the advantageous market position provided orphan drugs.

No therapeutic program better exemplifies the potential commercial attraction of orphan indications than Genzyme’s Gaucher franchise. The U.S. patient population for Gaucher disease, the enzyme deficiency that Cerazyme addresses, is fewer than 6,000. Yet at an annual cost of $200,000 to $600,000 per patient, Cerazyme generates well in excess of $1 billion in revenues.

Even drugs approved for nonorphan indications can reap the benefits of orphan designation. As late as 2003 Amgen’s Epogen, with sales approaching $2.5 billion derived primarily from its use in cancer treatment, maintained orphan status for anemia associated with kidney failure.

While orphan drugs account for only a small fraction of overall pharmaceutical revenues, the estimated $40 billion in annual sales they generate is not an insignificant figure. For pharmaceutical companies facing patent expirations for many of their biggest selling drugs and thinning product pipelines, the outsized revenue and profits orphan drugs can offer are enticing.

One likely driver behind the pharmaceutical industry’s move toward orphan indications is the increased prevalence of product-liability litigation. Drug companies recognize that, because of genetic variation, the probability of some number of serious adverse effects appearing is high, especially with a therapeutic used to treat a chronic condition across a large and diverse patient population—this, despite rigorous late-stage clinical trials. Moreover, clinical trial data is often not black or white but instead some shade of grey, which is left to interpretation. This further compounds drug companies exposure to litigation.

The verdicts often result in sizable monetary judgments, not to mention the revenue lost as a result of a drug’s removal from the market. Negative publicity and senior management distraction also go hand in hand with product-liability cases. When a therapeutic addresses an often immediately life-threatening condition, as is the case with many orphan indications, these litigation risks are significantly diminished.

Recasting the Mold

The historical reticence of pharma firms to pursue orphan drugs seems to have originated with conflicting molecular domains. The pharmaceutical industry evolved with a small molecule bias. Large molecule biologics, which make up the majority of orphan drugs, do not lend themselves to the industry’s molecular R&D comfort zone.

Moreover, big pharma’s small molecule therapeutics tend to target diseases with sizable patient populations. The large commercial infrastructures that drug companies have established to address these markets provide them significant competitive barriers. The small, concentrated patient populations that define orphan drug markets do not provide similar operating leverage. Thus, as long as new drug opportunities existed in markets that fit the established market mold, big pharma seemed willing to pass up orphan drug opportunities despite the financial attractiveness. 

A deeper understanding of the molecular basis for disease will likely make the billion-dollar pill obsolete. Advances in genetic profiling and biomarker discovery may bring a greater appreciation that broad disease categories more likely reflect an aggregation of numerous, albeit slight, genetic variants. Accordingly, future therapeutics may be developed to target specific variants.

While personalized medicine may not extend to the individual, a single remedy for the masses seems destined to become more “mass-less”. Another perspective might postulate that, as currently defined, today’s orphan indication may be much more commonplace in the future.