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 to be an unviable proposition. Today, they have
emerged as major money spinners for the pharma sector.
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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 diseases.
This offers the same protection to companies that a patent does,
without having to clear the rigorous procedure which a patent has
to 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 expenditure rise, pharma companies may
be find costs unsustainable. However, competition between drug
makers is bringing down prices.
Aegerion Pharmaceuticals, Inc.
) produces Juxtapid, used to treat a life threatening inherited
cholesterol disorder, which costs patients between $235,000 to
$295,000 a year.
) has recently received approval for a cheaper alternative,
Kynamro. 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 condition.
Shire plc holds a Zacks Rank #1 (Strong Buy) and has expected
earnings growth of 19.50%. The forward price-to-earnings Ratios
(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.
Biogen Idec Inc.
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 28.96.
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.
(We are reissuing this article to correct a mistake. The
original article, issued Wednesday, March 5, 2014, should no
longer be relied upon.)