TUESDAY November 15, 2005 Lucrative Niches How Drugs for Rare Diseases Became Lifeline for Companies Federal Law Gives Monopoly For Seven Years, Fueling Surge in Biotech Profits A Teen’s $360,000 Treatment By GEETA ANAND When an experimental medicine companies has instead become a Sherrill Neff, a managing partner helping her son was dropped because multibillion-dollar business. With no at Quaker BioVentures Inc., a it didn’t seem profitable, Connecticut cap on prices and patients with few Pennsylvania biotech venture-capital homemaker Abbey Meyers turned options, companies found they could firm. The law also granted companies into a lobbyist. Her crusade: Change profit in small markets—charging as a 50% tax credit for research and the law to create incentives to develop much as $600,000 a year per patient development, grant money to defray drugs for rare diseases. for drugs that people would need their the cost of testing, and assistance in Congress responded with the entire lives. getting products approved. Orphan Drug Act of 1983, giving There are 260 orphan drugs now The law gave a powerful boost to the companies a seven-year monopoly for on the market and 1,400 under biotechnology industry, which was in bringing a new treatment for a rare development. Some orphan drugs its early days when the act was passed. disease to market. Within two years, have revenue of more than $1 billion Today, nearly half of all drugs produced a drug was approved to treat Tourette’s a year, the industry’s measure of a by biotech companies are for orphan syndrome, the disease Ms. Meyers’s son blockbuster. diseases. Two of the biggest biotech has. At the time, Margaret Heckler, Orphan-drug status is granted by the companies in the world, Amgen Inc. then health and human services U.S. Food and Drug Administration. For and Genentech Inc., were built on secretary, predicted orphan drugs seven years, it gives a company, in effect, orphan drugs. Companies have secured “will make nobody rich, but they will the same market protection that a patent millions in funding and gone public help treat a small group of tragically does, without requiring the company to based on the prospect of an orphan handicapped people.” go through the lengthy process of getting drug. It didn’t turn out quite that way. a patent. (A patent for a scientific Even very small markets have proved Drugs for “orphan” diseases (so- discovery is good for 20 years from profitable. Last year, Genzyme Corp., a called because no one was treating filing, but typically there are about Cambridge, Mass., biotech firm, posted them) have benefited many people with 10 years remaining on it by the time sales of $840 million on its drug rare illnesses. But what was originally it results in an approved drug.) Unlike for Gaucher disease, which affects envisioned as a modest sideline for drug a patent, which is granted for a new fewer than 10,000 people world-wide. discovery, orphan-drug status can be Treating the average patient costs given to a drug that has been on the $200,000 annually, the company says. market in the U.S. for other diseases But the price of the drug, dosed by or used in other countries for years. weight, can run as high as $600,000 While companies often have to a year for adults on the higher of two battle competing patent claims in recommended doses. Although the court, orphan drugs are protected monopoly period for the drug has by the FDA, which is barred by law run out, like many biotech drugs it from approving another drug with remains free of competition, in part the same active ingredient unless it because federal regulations don’t allow is proven clinically superior for that generic-drug makers to easily sell disease. copies. “It’s much more valuable than a The cost of such drugs has grown patent for that period of time,” says so dramatically that employers and insurers are now pushing back. found it profitable enough to market. the cost per patient is very high,” says Some health plans are excluding In crowded congressional hearings in James Greenwood, president of the coverage of certain orphan drugs. 1981, Mr. Klugman testified in support Biotechnology Industry Organization, Others are requiring employees to of patients. a Washington trade group. “Without pay as much as half of the cost of Those initially involved with the our making these drugs, patients would the pricey medicines. All this makes law didn’t think these niche drugs have no alternative but to suffer and die.” it tougher for patients to get the would be a profit center. “All we At first, most employers and insurers very drugs that the Orphan Drug wanted to do was make products didn’t worry too much about the price Act helped make possible. available for patients who had these of orphan drugs. The diseases were “We have all of these new rare diseases,” says Marion Finkel, thought to be so rare that most insurers fantastic new drugs, but nobody— former head of the FDA’s Office were likely to have few patients needing not employers, not employees—can of New Drug Evaluation. A report them in their health plans. pay for them,” says Ms. Meyers, who she wrote in 1979, recommending But it turned out that there are a now heads the National Organiza- incentives for such treatments, called lot of orphans. The act defines orphan tion for Rare Diseases, a nonprofit them “Significant Drugs of Limited diseases as those which affect fewer advocacy group. (Her son, now 37, Commercial Value.” She says: “We than 200,000 people. In 1989, a is doing well on a medicine that were thinking of chemicals that are congressional commission estimated isn’t an orphan drug.) relatively inexpensive.” that, by that measure, one in 10 Ms. Meyers hadn’t envisioned When President Reagan signed Americans suffers from an orphan such turmoil would arise from her the Orphan Drug Act in 1983, the disease. Many different types of efforts to get a medicine for her son’s biotechnology industry was in its cancer are classified as separate Tourette’s syndrome, a disease that infancy. Unlike traditional medicines, orphan diseases. causes involuntary muscle movements which are made by mixing chemicals, The biggest biotechnology and sounds. An estimated 100,000 biotechnology drugs are typically companies got their start with people in the U.S. have Tourette’s proteins produced by live cells, grown orphan drugs. Genentech received syndrome. McNeil Laboratories, in sterile, temperature-controlled orphan-drug protection in 1985 for a division of Johnson & Johnson, containers. The complexity of the its first drug, human growth hormone, was developing a drug that looked process of coaxing the cells to make to treat children who weren’t growing promising for Tourette’s. But the biological matter makes them more properly because of a hormone company discontinued development expensive to produce. deficiency—a population of about of the drug after it failed in tests “We did not expect to see the high 20,000 in the U.S. Revenue grew for treating another, more common cost of orphan drugs,” Rep. Waxman says rapidly as the drug became more disease. today. While the seven-year monopoly widely used. Last year, 19 years after Ms. Meyers helped build a guaranteed by the legislation “is obviously the first version came to market, the coalition of patients that urged quite effective at generating interest drug yielded Genentech revenue of Rep. Henry Waxman, a Califor- in certain drugs by pharmaceutical $354 million. nia Democrat, to pursue legislation companies, it also has the unfor- Amgen got its first product, Epogen, pushing the drug industry to develop tunate consequence of increasing approved in 1989 as an orphan drug medicines for rare conditions. Ms. prices.” He says the price of drugs “is for treating anemia in dialysis patients, Meyers argued her case through unfair across the board, and Americans a population estimated at less than the prism of civil rights: People with everywhere are getting fed up.” 200,000 at the time. Revenue from rare diseases were being discriminated Drug company executives say Epogen grew quickly to $1.4 billion by against because of their small numbers. they need to make sizeable profits 1996 and $2.6 billion last year. About so they can invest in research and 250,000 people are now estimated to Testimony by ‘Quincy’ development of new medicines. suffer from the condition. They say the high prices reflect the Even after the seven-year monopoly Her crusade gained steam when value of products that save lives. expires, there is often no competition actor Jack Klugman, whose brother They note they help patients who for many orphan drugs. That’s because had a rare bone cancer, made an can’t afford certain drugs by giving there is no federal process for gaining episode of the television series some of it away. approval of generic versions of biotech “Quincy,” in which a patient couldn’t “When you have small populations, drugs. For regular pills such as Prozac, get a treatment because no company WSJ November 15, 2005 2of5 a generics company merely must show ing how difficult it was to produce: Gaucher medicine, Genzyme has that its product is identical to the Originally, it took enzyme from 22,000 bought other companies and today original in order to win FDA approval. human placentas to make enough develops and sells medicines for cancer, But it’s harder to prove equivalence in medicine to treat one adult patient cardiology and kidney disease, as well as biotech drugs—biotech companies with each year.