Orphan Drugs: Big Pharma's Next Act?

By Cliff Mintz Ph.D., Life Science Leader magazine

Orphan or rare diseases are chronic, degenerative, and often life-threatening. Officially, rare diseases are classified as those that affect fewer than 200,000 in the United States and less than 5 in 10,000 in the EU. It is estimated that in the United States 47% of rare disorders affect fewer than 25,000 people. Because patient populations for rare diseases are so small, big pharmaceutical companies historically have had little financial incentive to invest in drug development for these diseases.

The term “orphan” was coined to reflect pharma’s lack of interest in this class of drugs. To date, about 350 orphan drugs have been approved in the United States. Nevertheless, despite this effort, commercially available treatments are lacking for most rare disease indications. Not surprisingly, the rare diseases markets in the United States and elsewhere continue to represent an area of enormous unmet medical need.

The costs of most treatments for rare diseases are high, ranging from $200,000 to $500,000 per patient. Despite the high price tags, financial analysts expect patient demand to increase and predict that the size of the orphan market will grow from $58.7 billion in 2006 to $81.8 billion by 2011. This, coupled with growing generic competition, faltering drug development pipelines, and the demise of the blockbuster drug model, has forced the pharma industry to consider commercial opportunities in the orphan drug space. “Increasingly, big pharma companies are beginning to view orphan drugs as possible market drivers,” said Swetha Shantikumar, an analyst at Frost and Sullivan. “The lower clinical development costs, higher margins, and the growing size of the global rare diseases markets are making orphan drugs a lot more attractive to big pharma companies these days,” she added.

Peter Saltonstall, CEO of the National Organization for Rare Diseases (NORD), is pleased with pharma’s new awareness and focus on rare diseases. “These are exciting times for the rare diseases community. We are hopeful that greater resource allocation and emphasis on orphan drug development will result in treatments for many of the 6,800 rare diseases for which no therapies exist today,” he said. “This market, which was previously too small to consider, is now being seriously considered at many of the big pharmaceutical companies that I have been speaking with,” added Saltonstall.

Who’s Who In Orphan Drug Development?
Until recently, orphan drug development was mainly in the purview of smaller biotechnology and specialty pharmaceutical companies; roughly 70% to 75% of approved orphan drugs were developed by these companies. Previously, only 20% to 25% of the requests for orphan drug designation were estimated to come from larger pharmaceutical companies. However, according to Frost and Sullivan’s Shantikumar, in 2009, big pharma accounted for 43% of all orphan drug approvals and claimed over 70% of market share for rare and genetically inherited diseases — up from an estimated 53% in 2006.

Pharmaceutical companies that have already successfully tested the orphan drug market include Novartis (Gleevac, Tasigna, and Ilaris), Novo Nordisk (Nordotropin and NovoSeven) and Eli Lilly (Humatrope). However, big pharma’s interest in orphan drug development is clearly on the rise. Pfizer, the world’s largest drug maker, announced in July 2010 that it was creating a new division to focus exclusively on new treatments for rare diseases. Likewise, in February 2010, GlaxoSmithKline, one of Europe’s largest pharmaceutical companies, announced it was creating a dedicated unit specializing in orphan drug development. Other big pharma companies including Novartis and Eli Lilly have also invested in active orphan drug development programs, according to Shantikumar.

Currently, the industry leader in orphan drug development is Genzyme, one of the world’s largest biotechnology companies, which has mainly built its business model on the commercialization of treatments for rare diseases. Its top-selling enzyme replacement therapies for Gaucher Disease (Cerezyme), Fabry Disease (Fabrazyme), Pompe Disease (Myozyme and Lumizyme), and MPS (Aldurazyme) exceeded $2.5 billion in sales in 2009. Genzyme’s drug development pipeline includes products to treat multiple sclerosis, Duchenne muscular dystrophy, Niemann Pick B, macular degeneration, and an oral, small molecule treatment for Gaucher disease.

Like Genzyme, several specialty pharmaceutical companies rely on orphan drugs as the centerpiece of their business models. These companies include Pennsylvania-based Cephalon (Nuvigil and Provigil for narcolepsy and related sleep disorders) and New Jersey-based Celgene (Revlimid and Thalomid for multiple myeloma and Vidaza for myelodysplastic syndromes). Other companies that have successfully commercialized one or more orphan drugs include Enzon, Actelion Pharmaceuticals, Intermune, and Lundbeck. In addition to these well-established companies, there are several start-ups including Protalix, Amicus Therapeutics, and PTC Therapeutics that are using novel approaches to develop new treatments for rare diseases.

Israel-based Protalix has developed a novel plant biomanufacturing platform that utilizes carrot or tobacco tissue culture cells to produce recombinant protein drugs. The company’s first product is taliglucerase alfa (UPLYSO), a plant cell expressed recombinant glucocerebrosidase enzyme (GCD) for the treatment of Gaucher disease. It is the first plant-derived, enzyme replacement treatment for a rare disease.

The company has completed clinical testing and has filed an orphan drug application with the FDA. According to David Aviezer, Protalix’s CEO, taliglucerase alfa offers several advantages over Cerezyme, Genzyme’s industry-leading treatment for Gaucher disease. “The product has a longer half life and is completely devoid of any contaminating animal viruses that have appeared in recombinant protein products manufactured in animal cell culture. Also, new clinical trial data suggest that it may be more efficacious than Cerezyme, and it is much cheaper to manufacture in plant cells,” he said. “These cost savings may allow more competitive pricing for the product and provide greater patient access,” he added. Pfizer executives apparently agree with Aviezer — in December 2009, Pfizer paid Protalix $60 million for worldwide licensing rights (except Israel) for taliglucerase alfa.

Amicus Therapeutics is mainly developing treatments for enzyme replacement disorders like Gaucher, Fabry, and Pompe diseases. In contrast with most of its competitors, Amicus is developing small molecule rather than protein-based treatments. Amicus’ technology platform is built upon a novel class of orally bioavailable molecules called pharmacological chaperones that help to reshape and restore function to misfolded proteins that cause Gaucher, Fabry, and Pompe diseases. “Pharmacological chaperones offer potential advantages over competing approaches to treating rare diseases including oral delivery and the ability to increase enzyme activity levels in tissues that are hard to reach. They represent the next generation treatment for many genetically inherited rare diseases,” said John Crowley, the president and CEO of Amicus.

Finally, another company taking a different approach to treat rare diseases is PTC Therapeutics. The company is working with several larger pharmaceutical and biotechnology companies to develop orally bioavailable molecules that target transcriptional processes that regulate protein folding and structure and function. Currently, its development pipeline includes potential treatments for cystic fibrosis, hemophilia, and Duchenne and Becker muscular dystrophies. The company’s treatments for hemophilia and Duchenne and Becker muscular dystrophies are in Phase 2 clinical testing.

Factors Affecting The Paradigm Shift
Big pharma’s interest in rare diseases has been influenced by a variety of factors. First, drug development pipelines at most big pharma companies are thinning, and company executives are urgently looking for suitable replacements. Orphan drugs are less costly to develop and command higher prices than most conventional molecules. This suggests that orphan drugs may serve as a new source of high profile and highly profitable drugs to bolster sagging drug sales. Further, the advent of personalized medicine is reinforcing the notion that “no market is too small to develop” and that future corporate profits may depend upon orphan drugs developed for multiple niche indications.

Second, many blockbuster drugs are nearing patent expiry and consequently, will face aggressive generic competition in the not-too-distant future. The impending loss of major revenue streams from multibillion-dollar drug franchises (in the absence of innovation) has left many big pharma executives no choice but to reevaluate the industry’s reliance on its anachronistic blockbuster drug model.

A growing focus on orphan drug development offers pharmaceutical companies an opportunity to diversify and begin to move away from developing drugs for mass market indications. While profitable in the past, this class of drugs is becoming increasingly costly to develop, and they no longer address areas of large unmet medical need. According to NORD’s Saltonstall, “Many of the pharma executives I have been talking with are extremely excited about the orphan drug market and convinced that this is the right direction for their companies. Many are already screening exiting inventories for cross-indications for a variety of rare diseases.” He added, “It is not difficult to envision that a former blockbuster may be extended to cover an orphan indication or for an orphan drug to become the next blockbuster.”

Third, for the past decade or more, the cost and risks of bringing a new drug to market have skyrocketed. Orphan drugs are becoming increasingly attractive to big pharmaceutical companies because they are less costly to develop, and, historically, the regulatory risks associated with these products have been lower. Lower development costs result from 1) smaller and fewer clinical trials, 2) R&D tax credits and other incentives, and 3) fast-track regulatory review. Also, because orphan drugs are mainly marketed by patient advocacy groups and healthcare professionals, less investment is required for brand development and marketing and advertising. Finally, and perhaps most importantly, the profit margins for orphan drugs are much higher than most conventional molecules, mainly because manufacturing demand is low (small patient populations) and the price per dose is high.

Fourth, because persons with rare diseases usually have severely limited treatment options, it is generally accepted that orphan drugs may have an advantage in garnering regulatory approval — as compared with drugs with nonorphan drug status — even though their safety profiles may be less than ideal. Whether or not this is true, pharmaceutical executives are acutely aware of the plummeting drug approval rates and the negative effect it has had on company stock share prices. The likelihood of a shorter, less onerous, and more cost-effective regulatory review is something that will continue to entice pharma executives to consider orphan drug development.

Similarly, pharmaceutical risk management experts have determined that persons with rare diseases and their families are less likely to pursue product liability lawsuits than traditional patients. This is likely because of the limited treatment options for most rare diseases. As NORD’s Saltonstall remarked, “Unfortunately, any treatment is better than no treatment at.” The possibility of reduced legal exposure and reductions in product liability litigation is another factor driving big pharma’s interest in orphan drugs.

Finally, Western orphan drug markets are still in their infancy. Early entrants like Genzyme, Celgene, and Cephalon will continue to see revenues and profits rise as these markets continue to mature. However, while Western markets represent an opportunity for big pharma, the real prize may be Asia, which represents 2/3 of the world population. According to Amicus’ Crowley, 2/3 of Genzyme’s sales are already outside of the United States. Moreover, awareness of rare diseases is continuing to rise in many Asian countries.

Recently, the governments of Japan, China, South Korea, Taiwan, and Singapore enacted rare disease legislation to spur orphan drug development. And, according to Saltonstall, rare disease patient communities and advocacy groups are rapidly emerging all over Asia. “There is a whole new potential market in Asia that hasn’t been evaluated yet. Big pharma is certainly aware of the opportunity,” he added.

Challenges
Despite mounting interest, there are formidable challenges that must be overcome before big pharmaceutical companies can successfully penetrate and compete in the rare diseases market. They include: 1) lack of orphan drug development experience and expertise, 2) absence of adequate infrastructure and distribution channels for small patient populations, 3) a limited understanding of rare diseases market attributes and business drivers, and 4) the need to manage the sensitivities surrounding the high prices of orphan drugs.

The lack of experience and expertise, while a concern, can be easily acquired through strategic licensing deals and mergers and acquisitions. Indeed, a few months after Pfizer licensed the rights to taliglucerase alfa (Protalix’s Gaucher disease treatment), it announced it was launching its own rare disease division. More recently, sanofi-aventis made an offer to acquire Genzyme for $18.7 billion to quickly gain entry into the orphan disease market. However, Crowley warns, “While it is easy to buy an orphan product or acquire a company to open up certain indications, I think to be successful, it is vitally important to understand the technology and science that went into developing the drug for the indication.” Consequently, both Crowley and Protalix’s Aviezer believe that for the foreseeable future, big pharma will continue to rely on smaller companies to innovate and fill their development pipelines. Nevertheless, both agree that vigorous licensing and M&A activity will continue in the orphan drug development sector.

While big pharma is clearly interested in the rare diseases market, it is not clear whether existing pharmaceutical infrastructures are sufficiently configured to meet the production, distribution, and marketing needs of the rare diseases markets. “There is no question that big pharma is really good at developing and delivering mass- marketed drugs,” said Crowley. “But the orphan drug market is very different. And the understanding and skills required for success aren’t currently well-represented at most pharmaceutical companies,” he added.

In contrast, Protalix’s Aviezer contends that, while the necessary infrastructure and understanding of orphan drugs may be lacking at many big pharma companies, he said, “They will gradually acquire the necessary information and skill sets over time — through M&A and licensing deals — and ultimately be successful.” Crowley tends to agree, but believes that, “The big pharma companies that will succeed are the ones that have been very, very thoughtful, have painstakingly gone through a strategic review of the market, and consciously made a long-term commitment of resources, monies, and talent to orphan drug development.” Crowley singled out GlaxoSmithKline as a big pharma company that he is impressed with and “gets it.”

One of the more difficult and contentious challenges facing the orphan drug industry is product pricing. Many rare diseases experts and patient advocacy groups feel that the prices that orphan drug manufacturers charge are excessive and hinder patient access to potential life-saving drugs. On the other hand, orphan drug manufacturers contend that, because of the small patient populations that they serve, they have little choice but to set prices high to recover their development and commercialization costs.

Crowley believes the best way to develop more affordable treatments is through increased competition and innovation in the orphan drug development sector. “The best way to make orphan drugs more affordable is to get more companies involved so that companies can be advanced more rapidly from the bench to the clinic,” he said. Further he added, “Increased competition will ultimately lead to lower costs and fairer pricing.”

Ironically, however, the seven years of market exclusivity enjoyed by companies with approved orphan drugs tends to inhibit competition and hinder innovation. To that end, Crowley suggested maybe the Orphan Drug Act needs to be changed to foster new innovation and competition. “If you look at the legislative intent of the Act drafted in 1983, it was very clear that legislators thought that R&D tax credits would be a significant incentive. It turned out not to be because most of the companies that are doing the research like Amicus are not profitable and don’t qualify for the credit. Changing that would certainly help to improve competition in the space,” he said. While Saltonstall agrees with Crowley that pricing orphan drugs is complicated and warrants further discussion, he disagrees that the Orphan Drug Act needs to be drastically changed. “It has been one of the most successful pieces of healthcare legislation to date and has helped thousands of persons. Rather than reopening the Act, a better way to modernize it and incentivize companies would be to explore ways to enhance it through regulatory and administrative actions rather than legislative reform. We are actively reviewing those strategies at NORD,” he said.

The Future
Currently, there are only a handful of companies that have successfully developed and commercialized orphan drugs. However, this is likely to change as more big pharmaceutical companies decide to enter the rare diseases market. Whether or not big pharma companies remain in the market will depend upon how they embrace new business models, make changes to existing infrastructure to accommodate rare disease patient populations, and, most importantly, garner the highly anticipated ROI that orphan products offer.

Finally, orphan drug pricing still remains a highly debated and contentious issue, especially in the face of current downward pricing pressures being brought to bear by insurance companies, third-party payors, and healthcare reform. It isn’t clear at present how the pricing issue will ultimately be resolved. However, while the window of opportunity for entry into the orphan drug market is currently wide open, it may not remain that way indefinitely.

The Orphan Drug Act

In 1983, the U.S. Congress passed the Orphan Drug Act which contained incentives for the pharmaceutical industry to develop new products to treat rare diseases and provisions that granted patients better access to these treatments. In the decade prior to 1983, fewer than 10 treatments for rare diseases were commercialized. Today, more than 1,700 products in the United States have received orphan drug designation from the FDA. Similarly, in 1999, the European Union adopted regulation (EC) No.141/200 on Orphan Drugs to spur rare disease drug development in Europe.

Some of the orphan drug development incentives offered in the Act include:

• seven years of market exclusivity (monopoly on drug sales) for the first company to obtain FDA approval for a particular drug
• federal tax credits for research performed (up to 50%) to develop orphan drugs
• research grants to defray clinical development costs
• manufacturers may request protocol assistance for research and study design assistance (e.g. smaller clinical trials sizes) to ensure a successful and expeditious review process by the FDA
• waivers of drug approval application and annual FDA product fees

While passage of the Orphan Drug Act has led to the development of new products for the treatment of rare diseases and disorders including cystic fibrosis, Gaucher Disease, Fabry Disease, Pompe Disease, and rare cancers, it has also been co-opted (mainly in the late 1980s) by pharmaceutical companies to launch products that ultimately achieved blockbuster status. For example, Lilly’s recombinant human growth hormone and Amgen’s recombinant erythropoietin (Epogen) and recombinant filgrastim (Neupogen) received orphan designation when they were originally launched. Nevertheless, many big pharma companies are now beginning to recognize that rare diseases, in their own right, represent a burgeoning, new commercial opportunity.