Quantifying The Potential Value Of Orphan Drugs
By Dr. Kiran Meekings, consultant, Thomson Reuters Professional Services
Rare or “orphan” diseases typically affect fewer than 200,000 patients in the U.S. — about 1 in 1,500 people. While this is not a large patient pool, it is still seen as an attractive market for pharma companies to pursue in R&D. In the last decade, government incentives, longer exclusivity rights, and advantageous pricing structures have launched an explosive growth in the development of orphan drugs.
Thomson Reuters sought to quantify that growth and the extensive potential of orphan drugs. Using predictive modeling, the team compared the total value of orphan drugs from 1990 to 2030 and published its findings in Drug Discovery Today (“Orphan Drug Development: An Economically Viable Strategy for BioPharma R&D”) and in a Thomson Reuters report, The Economic Viability of Orphan Drugs.
In the past, orphan drug development was considered risky due to low expected return on investment in an expensive R&D program with a limited patient population. Collectively, however, the number of people affected by rare diseases continues to grow. The National Institutes of Health and the European Organization for Rare Diseases estimate there are 7,000 rare diseases worldwide, and the list increases by about 250 each year.
The tide for orphan drugs changed in 1983 when the U.S. government passed the Orphan Drug Act. Designed to encourage the development of drug therapies for rare diseases, the Act provided unique incentives, including seven-year market exclusivity, tax credits covering up to half of R&D costs, R&D grants, and waivers of FDA fees. During the next 17 years, other countries followed suit with similar acts, offering a new level of security to companies undertaking the orphan drug cause.
From 2001 to 2010, the CAGR of sales of orphan drugs was 25.8% compared to 20.1% for a matched control group of non-orphan drugs. The orphan drug sample set also revealed notable characteristics: 40% of the orphan drugs in the sample set were oncology-related (compared to 10% in the non-orphan sample), and there was a larger share of biological orphan drugs than small molecule orphan drugs. Additionally, 25 of the 86 orphan drugs studied were blockbusters — that is, 29% had annual sales greater than $1 billion, a percentage that stayed consistent from 2000 through 2010.
Our analysis suggests the CAGR of orphan drugs will outperform nonorphan control drugs over the next 20 years due to several factors:
- The high representation of biological orphan drugs. Biological orphan drugs are expected to retain their economic value past patent expiration since most biological drugs are currently less susceptible to generic, or biosimilar, erosion.
- The impact of the smaller patient populations will be offset by higher pricing supported by unmet medical needs and fewer competitors. For example, Soliris, designed to treat paroxysymal nocturnal hemoglobinurla, a life-threatening blood disease, brought in $541 million in total sales in 2010, even though it was the industry’s most expensive drug that year (costing over $409,000 annually) with an estimated U.S. patient population between 4,000 to 6,000 people.
- The ability to reposition an existing orphan drug to treat additional rare diseases increases profit opportunities. Of the top 10 orphan drugs studied, six had more than one rare disease indication with a peak value of $34.3 billion in overall revenue potential versus $8.1 billion for drugs with a single orphan indication. Out of the entire sample set, 15% had subsequent rare disease indications.
- Extended market exclusivities will insulate orphan drugs from generic competition longer. In the U.S., orphan drugs are granted seven years of exclusivity (versus five years for non-orphan drugs), further protecting them from generic erosion.
Two of the largest challenges facing orphan drug developers are the ability to locate and recruit patients and the logistical issues surrounding trial organization. However, trials for orphan drugs are significantly shorter and have greater regulatory success, potentially offsetting increased R&D costs. Along with other significant benefits, including tax credits, favorable reimbursement, fewer approval hurdles, longer exclusivity, lower marketing costs, faster uptake, and premium pricing, orphan drugs may be an unexpected effective strategy to future profitability.