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The Case for Investing in Orphan Drugs

Investing in biotech companies developing therapeutics seems like a natural decision for physicians and other healthcare providers. One area that should particularly be considered are “orphan drugs” – products being developed for a rare disease. A disease is classified as a “rare disease” if the patient population in the United States is less than 200,000 patients. It is estimated that there are over 7,000 rare diseases and that 10 percent of the US population has one of these rare diseases.

In total, not so rare at all; and certainly not “rare” to the patients that are afflicted with them.

Investing in companies developing a drug for a rare disease may align with the personal interest of health care practitioners. Individuals in the medical field have a deeper level of scientific knowledge than a typical investor, and they have a broader appreciation for the medical consequences of the disease and for therapeutic alternatives. In addition to their medical background, there are several other compelling reasons to consider companies developing drugs for orphan diseases.

Orphan diseases represent a very attractive sector of the pharmaceutical industry. As noted by Christopher J. Schaber, PhD, President and CEO of Soligenix “The fact that these small patient populations tend to be under-served by the pharmaceuticals industry does allow for more “creativity” in the development program as, many times, there is no applicable development precedent that the company must adhere to in terms of previously approved products. The standard superiority studies versus approved active comparators are not always required by FDA. This often allows for a much more timely and cost-efficient development program.” Dr. Schaber is presently Chairman, President and CEO of Soligenix, Inc. (NASDAQ: SNGX), a rare disease biotech company developing drug therapies for multiple orphan diseases, which includes a Phase 3 pivotal clinical trial for cutaneous T-cell lymphoma and a Phase 3 pivotal trial for pediatric Crohn’s disease. Schaber has spent his 27 year career dedicated to the development of drug therapies in rare diseases and areas of unmet medical need. 

Big Pharma’s continued reliance on the in-licensing and/or acquisition of smaller companies to supplement their portfolios demonstrates clearly the commercial value of orphan indications. Dr. Schaber noted that “the significant challenge with developing treatments for orphan diseases is often that they are extremely medically challenging to address; however, once a program is ‘de-risked’ by advancing to late stage (e.g., Phase 3 clinical studies) development, Big Pharma begins coming to the table.” This trend bodes particularly well for startup companies developing products for these rare diseases. Orphan drugs are expected to account for over $200 billion in worldwide revenue by 2022, this represents an 11 percent annual growth rate, over twice the industry average.

Here are some compelling orphan drug facts showing why orphan drug companies may be a valuable addition to an angel investment portfolio:

  • Orphans drugs account for 1/3 of all new FDA drugs approved.
  • The likelihood of approval for an orphan drug is much higher than that of a traditional pharmaceutical drug.
  • 30 percent of orphan drugs generate over $1b in annual sales.
  • Orphan drugs cost less to develop (less than half as much as traditional pharmaceuticals).
  • The FDA registration trials require fewer patients and the trials are frequently quicker.
  • Physician adoption following FDA approval is faster for drugs that treat rare diseases.
  • Typically, orphan drugs enjoy easier market access with lower price resistance from payers (the average orphan drug in the US is priced five times higher than a non-orphan drug).
  • Partnering deals for orphan drugs on average are 30 percent above non-orphan products.
  • Companies developing orphan drugs receive tax benefits and other financial incentives.

Drugs for orphan diseases, are a major trend in the pharmaceutical industry today. There are many companies developing highly specialized drugs for very specific diseases. Many of these companies represent a novel investment thesis for angel investors, and potentially provide a great leap forward in medical care while providing very attractive financial returns; however, drug development is not without risk, so do your homework first and make an educated investment.

 

As reported by Craig Philips, Interim CEO, Kv1.3 Therapeutics Inc. and Alexandra Barnes.

Sources:

Evaluate Pharma: Orphan Drug Report 2017, June 2017

Hughes DA, Poletti-Hughes J (2016), Profitability and Market Value of Orphan Drug Companies: A Retrospective, Propensity-Matched Case-Control Study. PLoS ONE 11(10): e0164681. doi:10.1371/journal.pone.0164681

Vardi, Nathan. “The Man Who Made A Personal Fortune Off Of Cancer Drug Maker Medivation.” Forbes, Forbes Magazine, 12 May 2016

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