Evaluating Market Opportunities in Orphan Drugs

Greater market pressures have obliged pharmaceutical companies to reconsider their product-development strategies. Product innovation amidst an increasingly competitive market, inclusive of generic-drug incursion in many therapeutic areas, makes developing new drugs ever-more challenging. Orphan drugs, traditionally pursued by smaller biopharmaceutical companies, are becoming an attractive option for mid- to large-sized pharmaceutical companies. Often supported by favorable pricing from a pharmaceutical-company perspective and filling patient demand for drugs to treat unmet medical need, orphan drugs offer good market potential.

Evaluating the opportunities

A recent Thomson Reuters analysis of the economics and investment case for orphan-drug development and commercialization shows that although orphan drugs target much smaller patient populations than traditional mainstream drugs, the favorable pricing for such products and other factors, such as government incentives, smaller and shorter clinical trials, extended exclusivity, and high rates of regulatory approval, make the top orphan drugs a viable alternative to mainstream drugs. Part of that opportunity also comes from the abundance of therapeutic areas for possible drug development. The Thomson Reuters report offers estimates from the National Institutes of Health and the European Organization for Rare Diseases that indicate that there are approximately 7000 rare diseases worldwide and the recognized number of such diseases increases at a rate of 250 diseases per year.

Assessing current and potential value

The orphan-drug market was valued at approximately $50 billion globally at the end of 2011, according to the Thomson Reuters analysis. Spending on orphan drugs currently makes up approximately 6% of total pharmaceutical sales, assuming a total pharmaceutical market of $880 billion. The compound annual growth rate (CAGR) of the orphan-drug market between 2001 and 2010 was 25.8% compared with a CAGR of only 20.1% for a matched control group of non-orphan drugs, according to the Thomson Reuters analysis. Given these comparative growth rates and expectations that approval rates of orphan drugs will continue to be robust, the positive indicators for orphan drugs are likely to continue in the long-term. This growth is in part due to the high number of biologic-based orphan drugs, which are less vulnerable to generic-drug incursion compared to small-molecule drugs, according to the Thomson Reuters analysis.

The Thomson Reuters analysis evaluated current and future revenue of the top-revenue generating drugs over a drug’s product lifecycle. The average present value, based on 2010 estimates, of orphan drugs was $637 million, which was on par with the average present value of non-orphan drugs of $638 million. In looking at the value of drugs over a product’s lifetime, Lipitor (atorvastatin), Pfizer’s anticholesterol drug, was found to be the highest valued drug. It generated an estimated $197 billion over its lifetime as measured through discount potential revenue. Discount potential revenue is the discontinued peak value of a drug’s revenue over its lifetime. It is an estimate based on the value of all historical revenues and future projected revenues. The anticancer drug Rituxan (rituximab), by Roche/Genentech, is the second highest ranked drug in terms of discount potential revenue and is the only drug among the top 10 drugs that has significant sales arising from orphan-drug indications, according to the Thomson Reuters analysis.

The economic value of rituximab shows the strength of the oncology market as a leading therapeutic area for orphan drugs. Approximately 40% of the top 10 orphan drugs are oncology drugs with an estimated average lifetime revenue potential (EALRP) of $70 billion per drug, according to the Thomson Reuters analysis. The remaining 60% of the top 10 orphan drugs have an EALRP of $41 billion per drug.

Following rituximab, the next highest ranked orphan drug, as measured by discount potential revenue, is the ophthalmological drug ranibizumab with discount potential revenue of $74 billion, according to the Thomson Reuters analysis. Ranked third among the top 10 orphan drugs is the human-growth hormone drug somatropin (epr) with a discount potential value of $62 billion followed by the oncology drug lenalidomide with a discount potential value of $60 billion, according to the Thomson Reuters analysis. Rounding out the top 10 orphan drugs, based on discount potential revenue, in descending order of discount potential revenues are: imatinib mesylate, filgrastim, glatiramer acetate, recombinant factor VIII;octocog alfa, bosentan monohydrate, and bortezomib, according to the analysis.

Although orphan drugs are associated with niche therapeutic areas, their market success have been fairly robust. Of the 86 orphan drugs included in the Thomson Reuters analysis, 25 were blockbusters, representing 29% of orphan drugs. Blockbuster drugs are defined drugs with sales of more than $1 billion. That 29% was comparable to the 29%, or 83 out of 291 non-orphan drugs that were considered to be blockbusters.

Market exclusivity

One of the benefits of orphan drugs compared with non-orphan drugs is that orphan drugs are protected by additional market exclusivity. In the United States, orphan drugs are awarded a seven-year orphan-drug exclusivity (ODE). Non-orphan new chemical entities are awarded five years of exclusivity upon approval, thereby providing orphan drugs an additional two years of market exclusivity, explains the Thomson Reuters report. The seven-year orphan exclusivity can also begin later in the product’s lifecycle if the new indication is approved after the initial launch. The exclusivity for orphan drugs, however, does not apply to non-orphan indications for a particular drug. Additionally, orphan-drug exclusivity does not have any association with patents and may or may not provide exclusivity beyond the composition of matter patent, according to the Thomson Reuters report.