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June 15, 2010 (Vol. 30, No. 12)

Big Pharma Steps Into Orphan Drug Market

Main Attraction of Sector Is the Availability of a Market Space Devoid of Competition

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    Although it took almost two decades, big pharma players are now aggressively entering the orphan drug market. In 2009, they accounted for 43% of the total orphan drug approvals by the FDA. The rising presence of big pharma indicates the importance of ODA in their strategic decisions.

    The Orphan Drug Act (ODA) came into effect in 1983 as a solution to meet an unmet need in the industry. Its success is often projected as an example of how innovative regulatory frameworks can be used to develop unviable but necessary solutions. The orphan drug sector has come a long way since the early 1980s. In a recent study, BCC estimated the market size of the sector to be around $85 billion in 2009; this is expected to grow at a compound average growth rate of 6% between 2009 and 2014.

    ODA provided the biopharma industry a space to grow free of competition from big pharma, and biopharmaceutical companies played a significant role in the development of the orphan drug market. According to the BCC report, biologic orphan drugs accounted for almost 65% of the total orphan drug market in 2009—up from the 60% estimated in 2006.  

    Although it took almost two decades,  big pharma players are now aggressively entering this sector. In 2009, big pharma accounted for 43% of the total orphan drug approvals by the FDA and claimed over 70% of the market share—up from an estimated 53% in 2006. The rising presence of big pharma indicates the importance of ODA in their strategic decisions. 

    Drying drug pipelines, profit erosions due to generic competition, ever increasing regulatory requirements, and spiralling drug development costs are the key factors driving big pharma’s interest in this sector.

    As the sustainability of the traditional blockbuster business model wavered, niche busters such as Gleevec instigated tremendous interest in the orphan drug sector. In 2006, there were 19 orphan blockbuster drugs, in 2009 that number was 27. In 2009, 58 orphan drugs generated over $200 million in revenues, although the revenues were not exclusively from orphan indications. The point being emphasized here is that developers are willing to invest in additional clinical trials to establish the effectiveness of their blockbuster drugs in treating rare diseases. 

    The main attraction of the orphan drug sector is the availability of a market space devoid of competition, which offers freedom in terms of pricing. In addition, rarity of the diseases often justifies small clinical trials that offer substantial bottom-line profitability. Moreover, orphan drugs may get conditional approvals even before the completion of the full clinical trial period.

    Unlike standard drugs, orphan drugs do not require mass marketing. Hence, marketing budgets are significantly lower and are targeted to a focused group of specialist physicians and patient advocacy groups. These compelling advantages are driving big pharma investments for developing orphan drug pipelines. 

    Companies such as Novartis, Eli Lilly, Pfizer, and GlaxoSmithKline (GSK) have invested in active orphan drug development programs. GSK launched a dedicated unit to specialize in orphan drug research in February 2010.

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