Once given the moniker of orphans, drugs for rare diseases
were originally considered to be an unviable proposition for
pharma companies. This was because the number of patients for
treatments was so small that their development and production
were considered negligible. Today, they have emerged as major
money earners for the pharma sector.
What Are Orphan Drugs?
Rare medical conditions were originally called "orphan
diseases" simply because no one was providing treatments for
them. The need for drugs targeted at rare conditions led to
Congress creating the Orphan Drug Care Act of 1983. This offered
companies a seven-year monopoly on medicines for rare
This offers the same protection to companies that a patent
does, without having to clear the rigorous procedures a patent
must go through. Again, orphan drug status can be given to drugs
which are already being used in foreign markets, or in the U.S.
itself for other diseases.
Such a development offered hope to patients with conditions as
rare as hereditary angioedema. This condition affects only around
six thousand people in the U.S. But these small numbers
ultimately emerged as an advantage.
This is because pharma companies found they could make
considerable profits from a small segment with relatively limited
options. Treating patients with orphan drugs could cost anything
between $200,000 to $600,000, leading to companies raking in
Costs and Competition
The high cost of treatment may emerge as a roadblock in the
long run. As attempts to reduce expenditures rise, pharma
companies may find costs unsustainable. However, competition
between drug makers is bringing down prices.
) produces Kynamro, used to treat a life-threatening inherited
cholesterol disorder, which costs patients between $235,000 to
$295,000 a year. In December 2013,
Aegerion Pharmaceuticals, Inc.
) received approval for a cheaper alternative, Juxtapid. However,
even this new medication will cost around $176,000 a year.
A Bright Future
Despite the obvious opportunities, not all aspiring orphan
drug makers succeed because of the high costs and risks involved.
However, the future looks bright according to a report released
by research firm TechNavio. The orphan drugs sector is projected
to grow globally at a CAGR of 5.67% from 2013 to 2018. This is
primarily because of a reduction in the time required for drug
Below we present three stocks, each of which is involved with
the orphan drugs sector and also have a good Zacks Rank.
Incidentally, they also find mention in the TechNavio report.
) produces specialty biopharmaceutical treatments. It
concentrates on medications for gastrointestinal conditions,
attention deficit and hyperactivity disorder, regenerative
medicine and human genetic therapies. It is currently developing
a treatment for Sanfilippo syndrome, a rare metabolic
Shire plc holds a Zacks Rank #1 (Strong Buy) and has expected
earnings growth of 19.50%. The forward price-to-earnings ratio
(P/E) for the current financial year (F1) is 17.41.
) is one of the world's largest biotechnology companies and much
of its success is attributable to orphan drugs. It produces
medications for kidney conditions, cancer, rheumatoid arthritis
and bone diseases. It is a pioneer in the biotechnology arena and
is involved in drug discovery, development and manufacturing.
Currently the company holds a Zacks Rank #2 (Buy) and has
expected earnings growth of 7%. It has a P/E (F1) of 15.31.
Our third choice is
Biogen Idec Inc.
The company developed its drug Avonex when multiple sclerosis was
still recognized as an orphan disease. It focuses on medication
for autoimmune disorders, neurodegenerative diseases and
hemophilia. Biogen is a Fortune 500 company with annual revenues
of $5 billion.
Besides a Zacks Rank #1 (Strong Buy), Biogen Idec Inc. has
expected earnings growth of 31.70%. It has a P/E (F1) of
Drugs for rare conditions will continue to play a key role in
the pharma sector in the future. Adding these excellent choices
will go a long way in enhancing the value of your portfolio.
AEGERION PHARMA (AEGR): Free Stock Analysis
AMGEN INC (AMGN): Free Stock Analysis Report
BIOGEN IDEC INC (BIIB): Free Stock Analysis
SHIRE PLC-ADR (SHPG): Free Stock Analysis
SANOFI-AVENTIS (SNY): Free Stock Analysis
To read this article on Zacks.com click here.