An orphan drug can be defined as a product that treats a rare disease, although different countries have slightly different definitions. For example, the FDA defines a rare disease as a disease with an incidence of less than 1:5,000 of the general population, while the European Union defines it as a disease with a prevalence of 5:10,000.
Historically, rare diseases received little attention from pharmaceutical companies as the small target audience could not justify the huge investment needed for drug development. The U.S. was the first nation to propose a legal framework to encourage development and availability of orphan drugs; the Orphan Drugs Act (ODA) was approved in the U.S. in 1983.
Early on, big pharma was not interested in the benefits provided by ODA; it was more focused on areas with blockbuster potentials. The biotech sector, however, realized the benefits of ODA right from the beginning. Many successful biotech companies came into the market with orphan drugs, which provided these companies a space of their own, free of competition from big pharma.
Incentives offered under the ODA such as tax breaks, grants, and market exclusivity were extremely important for the survival and growth of these start-ups. In addition, the smaller patient populations for rare diseases made clinical trials relatively easier, cheaper, and hence, more manageable by small firms.
Currently biotech drugs are the key drivers of the rapidly growing orphan drug market. A recent report published by BCC estimated the market size of the orphan drug sector at $59 billion in 2006, with 7% CAGR growth expected to propel the market to $82 billion by 2011.
Biologics accounted for approximately 60% of the global orphan drug market in 2006, and over 50% of the leading orphan drugs were biologics. Some of the most promising categories within biologics are monoclonal antibodies, interferons/interleukins, growth hormones, and plasma products (Figure).
As a general rule, orphan drugs are not expected to create high revenues, which is why ODA was proposed in the first place. Some say that rules are meant to be broken though, and in 2006, 50 orphan drugs broke that rule with annual revenues exceeding $200 million. Out of these, 19 were blockbusters. Such highly successful orphan drugs have played a crucial role in changing the industry’s perception about orphan drugs.
Some of the key growth factors involved in the transition of orphan drugs into blockbusters include market exclusivity options for multiple orphan indications, off-label usage and expansion to nonorphan indications, and freedom from generic competition.
Market exclusivity played a crucial role in the success of the orphan drug market. Seven years of market exclusivity is offered by the U.S., and the EU proffers 10 years. Market exclusivity by itself, however, is not a great incentive for investing since orphan indications have a small market size. On the other hand, opportunity to expand to related orphan indications offers the potential for a significant collective patient population.
Focusing on large therapeutic areas such as cancer, and acquiring approvals for multiple related orphan indications, has proven to be a good strategy for many drugs. One classic example is Gleevec from Novartis, a kinase-targeting drug for chronic myelogenous leukemia (CML).
One year after receiving FDA approval for CML, the company received another orphan drug approval for gastrointestinal stromal tumors. Further focusing its efforts to gain approvals for multiple orphan indications, Novartis recently gained five more approvals for Gleevec. Already a blockbuster drug with more than $2.5 billion in revenues, Gleevec is projected to grow at a rate of 10–12% generating more than $4 billion in sales by 2011.
Once established as an orphan drug, off-label usage and expansion to nonorphan indications can lead to an increase in sales. Genentech’s Rituxan, for example, became a blockbuster drug within a short span of time as it was prescribed for many off-label indications. Drugs such as Centocor’s Remicade have become blockbusters due to expansion to nonorphan indications including rheumatoid arthritis. In fact, 12 out of 19 leading orphan drugs had just one approval for an orphan indication but became blockbusters by expanding to nonorphan indications or by off-label usage.
In 2006, 13 out of 19 blockbuster orphan drugs were biologics, but the market exclusivity period had already expired for nine of these (Table). These drugs were able to maintain their market position because of the lack of competition from biogenerics.
The biopharmaceutical market is highly attractive to generic companies and legislation permitting biogenerics will come sooner rather than later. Such legislation will have a tremendous impact on the orphan drug market. With reduced profitability, attracting investment in areas with low economic return will become a challenge.
Nevertheless, the process to develop a biogeneric drug is more complex than that of developing a generic copy of a chemical-based drug. The regulatory pathway is not completely finalized, even though EMEA as well as FDA recently approved the first biosimilar drug, Sandoz’ Omnitrope. The fact that achieving similar levels of clinical efficacies by duplication of biologics is not as easy as for conventional drugs, is expected to play a crucial role in delaying the competition for orphan biologics from generic drugs.
Biotech companies have long championed the development of orphan drugs. Genentech was the first biotech company to enter the market with its growth hormone products—Protropin and Nutropin—in 1985. The landscape, however, is changing as more and more big pharmaceutical companies are realizing the potential. Currently, big pharma accounts for 53% of the orphan drug market, while biotech companies account for 37%. Small- and medium-sized pharmaceutical companies account for the rest.
The fact remains that it is still the biotech and small pharmaceutical companies that are investing in the early stages of orphan drug development. Big pharmaceutical companies enter the picture once the drug has passed the discovery stage and a significant part of development, too.
Most often, big companies choose to acquire or collaborate with biotech companies rather than start a new drug development program targeting an orphan disease. This strategy has been a boon for biotech companies, which often struggle with inadequate funding. It has also worked well for the venture capital community, as it provides a good exit strategy.
The future of the orphan drug industry will depend heavily upon the entry of biogenerics, since biologics account for over 50% of the orphan drug market. It can be expected that the orphan drug market growth will remain positive as more and more governments are taking action to promote this sector, especially in Asia.
Australia, Japan, Singapore, Taiwan, and Korea have already implemented legislation for promoting research on orphan drugs, and India and New Zealand are in the process of establishing similar regulatory processes. With more countries adopting similar legislation, it can be expected that market potential will increase.
Pharmacogenomics is forcing a paradigm shift in patient care. An inevitable impact will be shrinking patient populations as this approach may eventually lead to a scenario where the majority of blockbuster drugs are suitable only for a small group of patients, the number of which may very well fall within the definition of rare diseases. Such developments could lead to a redefinition of the limits set by the Orphan Drugs Act.