Orphan drugs are used to treat rare diseases where a limited number of patients lack effective alternatives. Given this context, the approval and drug supervision process often has lower entry barriers; furthermore, in the absence of any competition, the marketing costs for these drugs are lower and the issuing company’s pricing power higher, hence generating higher average long-term returns.
Presently about 7,000 different rare diseases are known, of which only around 400 have some type of medical coverage. With our understanding of biology constantly growing, it’s expected that over time, the gap between availability and known diseases will close more and more. This offers investors scope for long-term growth, and hence, investment opportunities.
According to the EvaluatePharma study, the orphan drug market share is expected to grow from its present USD 83bn per annum to USD 127bn by 2018. Furthermore, it is expected that orphan drugs will account for about 16% of the non-generic prescription market.The development of orphan drugs is encouraged and supported by a number of important incentives which can be divided into two main classes: 1) R&D drivers such as R&D grants, tax credits, lower barriers to entry, and structural developments, and 2) commercially related drivers such as pricing power, higher uptake, lower competition, lower marketing costs, shorter approval processes, and longer exclusivity.
The orphan market is the latest activity to be discovered and actively pursued by the larger pharmaceutical companies. The reasons for this sudden change of attitude are: the decline in blockbuster sales (orphan drugs can generate higher sales performances) and the potential impact of gaining the next market breakthrough.
In terms of sales and global market share, the most active companies in the orphan drug market are:
| Company | % of Net Sales 2012 |
Global market share |
| Novartis | 19 % | 12,3 % |
| Roche | 18 % | 10,2 % |
| Pfizer | 9 % | 6,3 % |
| Celgene | 90 % | 5.6 % |
| Bayer | 8 % | 3,5 % |
| Sanofi | 7 % | 3,5 % |
| Baxter | 21 % | 3.4 % |
| Biogen Idec | 53 % | 3,3 % |
| Eli Lilly | 13% | 3,3 % |
| Merck KGaA | 20 % | 3,3 % |
| Amgen | 15 % | 2,9 % |
| Novo Nordisk | 18 % | 2,9 % |
| Johnson & Johnson | 3 % | 2,1 % |
| Merck & Co | 4 % | 2,1 % |
| Bristol-Myers Squibb | 2,1 % | 4 % |
| GlaxoSmithKline | 4 % | 2 % |
| Alexion | 100 % | 1,3 % |
Trying to capture the benefits of orphan drug development appears to be best achieved through small and medium sized companies as the benefits derived from such business seems to be much more diluted in the larger pharma companies.
Even when the small and medium sized specialized companies have multiple upcoming catalysts, they are not risk-free investments by any means. Neither they, nor large pharma companies are immune to setbacks and non-approvals. Finally, investors should also be aware that small and medium sized companies, especially in the pharma sector, are exposed to above average risk factors.
The following list outlines a number of biotech companies and their products/product stages:
List of Orphan Drug Companies ENG.pdf