Lucrative niches: how drugs for rare diseases became lifeline for companies.

When an experimental medicine helping her son was dropped because it didn’t seem profitable, Connecticut homemaker Abbey Meyers turned into a lobbyist. Her crusade: Change the law to create incentives to develop drugs for rare diseases. Congress responded with the Orphan Drug Act of 1983, giving companies a seven-year monopoly for bringing a new treatment for a rare disease to market. Within two years, a drug was approved to treat Tourette’s syndrome, the disease Ms. Meyers’s son has. At the time, Margaret Heckler, then health and human services secretary, predicted orphan drugs “will make nobody rich, but they will help treat a small group of tragically handicapped people.” It didn’t turn out quite that way. Drugs for “orphan” diseases (socalled because no one was treating them) have benefited many people with rare illnesses. But what was originally envisioned as a modest sideline for drug companies has instead become a multibillion-dollar business. With no cap on prices and patients with few options, companies found they could profit in small markets—charging as much as $600,000 a year per patient for drugs that people would need their entire lives. There are 260 orphan drugs now on the market and 1,400 under development. Some orphan drugs have revenue of more than $1 billion a year, the industry’s measure of a blockbuster. Orphan-drug status is granted by the U.S. Food and Drug Administration. For seven years, it gives a company, in effect, the same market protection that a patent does, without requiring the company to go through the lengthy process of getting a patent. (A patent for a scientific discovery is good for 20 years from filing, but typically there are about 10 years remaining on it by the time it results in an approved drug.) Unlike a patent, which is granted for a new discovery, orphan-drug status can be given to a drug that has been on the market in the U.S. for other diseases or used in other countries for years. While companies often have to battle competing patent claims in court, orphan drugs are protected by the FDA, which is barred by law from approving another drug with the same active ingredient unless it is proven clinically superior for that disease. “It’s much more valuable than a patent for that period of time,” says Sherrill Neff, a managing partner at Quaker BioVentures Inc., a Pennsylvania biotech venture-capital firm. The law also granted companies a 50% tax credit for research and development, grant money to defray the cost of testing, and assistance in getting products approved. The law gave a powerful boost to the biotechnology industry, which was in its early days when the act was passed. Today, nearly half of all drugs produced by biotech companies are for orphan diseases. Two of the biggest biotech companies in the world, Amgen Inc. and Genentech Inc., were built on orphan drugs. Companies have secured millions in funding and gone public based on the prospect of an orphan drug. Even very small markets have proved profitable. Last year, Genzyme Corp., a Cambridge, Mass., biotech firm, posted sales of $840 million on its drug for Gaucher disease, which affects fewer than 10,000 people world-wide. Treating the average patient costs $200,000 annually, the company says. But the price of the drug, dosed by weight, can run as high as $600,000 a year for adults on the higher of two recommended doses. Although the monopoly period for the drug has run out, like many biotech drugs it remains free of competition, in part because federal regulations don’t allow generic-drug makers to easily sell copies. The cost of such drugs has grown so dramatically that employers and By Geeta anand TUESDAY November 15, 2005