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 diseases.
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 billions.
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.
For example, Sanofi ( SNY ) 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. ( AEGR ) 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 development.
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.
Shire plc ( SHPG ) 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 ratio (P/E) for the current financial year (F1) is 17.41.
Amgen Inc. ( AMGN ) 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. ( BIIB ) . 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.