June 15, 2010 (Vol. 30, No. 12)
Syamala Ariyanchira, Ph.D.
Main Attraction of Sector Is the Availability of a Market Space Devoid of Competition
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.
Ultraorphan drug development is still challenging. However, some of the emerging business models may change the industry outlook on ultraorphan drugs. The inventors and adapters of these innovative business models include not-for-profit as well as for-profit companies, pharmacies, and patient-support groups.
While the for-profit business model based on high-prices has become the norm of the sector, novel approaches are being adopted in the emerging ones. For instance, the Institute for One World Health, a not-for-profit company focusing exclusively on neglected diseases, works on a hybrid business model combining philanthropic funding with the revenues from commercial activities such as partnership projects and intellectual property licensing.
Another model is patient-support groups as investors. A typical example is the Cystic Fibrosis Foundation Therapeutics, which is promoting cystic fibrosis drug development by acting as a virtual company based on a venture philanthropy business model.
Specialty pharmacies dedicated exclusively to ultraorphan drugs are also emerging, which is proving to be beneficial for patients as well as companies. While the patients receive a full package of services that include safe and timely delivery, payment, reimbursement, and financial assistance, the companies benefit by improved patient access that assists in patient monitoring and price designing.
Demand for Modification of ODA
ODA has attracted considerable negative media coverage lately. The controversy over the price increase and the availability issues associated with H.P. Acthar Gel (ACTH) is a representative case. In 2007, after receiving orphan drug status for the treatment of infantile spasms, the price of ACTH was increased by over 10 times and its availability was controlled by limiting the number of distributors.
Since the drug was in the market for decades for treating various indications, payers, as well as patients categorized these actions as loopholes of ODA. Critics also have criticized the practice of defining patient groups in a narrow manner to get orphan drug status.
Overall, however, it has to be acknowledged that ODA was instrumental in providing treatments for various rare diseases, which would have received little attention from the industry otherwise. Hence, though loopholes exist, ODA can be rated as a regulation successful in meeting its objectives to a significant extent.