For many years, big pharma’s model of success has been the blockbuster: drugs that sell more than $1bn. But because the cost of R&D has become increasingly prohibitive, particularly in such disease areas as cardiovascular and diabetes, a focus on niche orphan indications has become more attractive as products to treat them provide better return on investment.
EvaluatePharma’s first ever detailed analysis of the orphan disease sector reveals how much more profitable orphan compounds are. The expected return on rare disease drugs is ten times the cost of phase III clinical trials, compared with just six times the cost for candidates being tested in non-orphan indications. And given that the 24 best-selling rare-disease drugs are forecast to be blockbusters in 2018, pharma’s shift toward orphan diseases is understandable.
Profit motive
The size of phase III trials, as well as the availability of assistance from the US government is key to understanding how much more profitable orphan drugs can be.
By definition, orphan diseases are rare ones – in the US, fewer than 200,000 people and in Europe, no more than 5 in 10,000 – so the number of patients available to enrol in trials is limited. In many cases, orphan diseases represent advanced-stage cancer indications for which no alternative intervention is available, such as Bristol-Myers Squibb’s Yervoy, recently approved in metastatic and inoperable melanoma.
A smaller trial reduces costs. In addition, typical randomised controlled trials may not be possible for a rare disease, so alternatives such as open label studies and use of surrogate endpoints abrogate the need for a control arm, further reducing trial enrolment.
Thus, for candidates that entered phase III since January 1, 2000, the analysis shows that the median size of trial enrolment for approved orphan drugs is 528, compared with 2,234 for non-orphan drugs. That means the average phase III cost of approved orphan agents is $85m, vs $156m for non-orphan drugs, according to the analysis, released today at the Biotechnology Industry Organization meeting in Chicago.
With a 50% tax credit in the US for the costs of developing an orphan drug, the cost could be as low as $43m, less than one-quarter of the phase III costs of a non-orphan drug.
The combined net present values of the approved drugs is $57bn for orphans vs $131bn for non-orphans; and phase III costs were $6bn for orphans – the US tax credits were not included in this analysis - and $22bn for non-orphans. That yields a return of $51bn for orphans and $109bn for non-orphans, or 10 times phase III costs for the orphan drugs and 6 times costs for non-orphans.
The small trial sizes appeared to be the main reason for the lower costs. The median lengths of trials – 2.75 years for orphan candidates vs 2.72 for non-orphans – and FDA approval times – 9 months for orphans vs 10.1 months for non-orphans – were similar.
Best hopes
Thus the promise of a compound’s profitability can be forecast in development. Eli Lilly’s cancer antibody ramucirumab (IMC-1121B) is now estimated as the most valuable orphan drug in phase III at $3.53bn, and is expected to have an above-average return on investment of 32 times phase III costs for the Indiana company (Lilly’s ramucirumab comes off the bench with a clutch single, October 16, 2012).
Even that pales in comparison to the potential profitability of Baxter International’s BAX 111, in the blood-clotting condition Von Willebrand disease, which at an NPV of $1.68bn is expected to yield a return 113 times its phase III costs.
Even the least of the top 20 orphan candidates by NPV in phase III has a better profit outlook than the average non-orphan drug: Novo Nordisk’s haemophilia A treatment turoctocog alfa and Novartis’ heart failure drug serelaxin (RLX030) promise returns of eight times phase III investment, according to the analysis.
Of the orphan candidates, only three remain in the hands of small-cap companies, which parallels the hypothesis that promising oncology assets are uncommon enough that big pharma will almost surely in-license them or acquire the company, or investors will have bid the price of the company up, by the time they reach late-stage development (Ten oncology companies to avoid, February 14, 2013).
The three compounds still in small-cap hands are Gentium’s defibrotide, which has struggled to make headway with regulators as it seeks approval in veno-occlusive disease; NewLink Genetics’ cancer vaccine HyperAcute Pancreas; and Intercept Pharmaceuticals’ obeticholic acid, in primary biliary cirrhosis.
The era of the mega-blockbuster is not necessarily over – AbbVie’s rheumatoid arthritis drug Humira shows that there is still room for huge sellers today. However, this analysis suggests that the profitability of orphan indications has become increasingly attractive to drug companies.
To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @JonEPVantage on Twitter
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