August 1, 2011Rare Diseases - Pipeline & Trends
Note to Readers: This entry was co-written with Eileen Moison of Osage University Partners and is Part II of a two part series. Part I can be accessed here - link.
The first rare disease entry focused on the various players in the industry, venture activity, and universities that are licensing rare disease technologies to start-ups. This entry will focus on the pipelines of the biopharma and start-up companies, types of therapies those companies are developing, and trends that I am seeing in the industry.
Large-Cap Pipeline Analysis
As the graph shows, Genzyme (now part of Sanofi) is the preeminent rare disease company, a distinction the company earned from its deep pipeline of enzyme replacement therapies (ERT). Genzyme helped legitimize the rare disease business model (small patient numbers and high reimbursement rate) and laid the groundwork for its peers to follow. More recently, Genzyme’s preeminence in the field has been challenged due to major manufacturing issues, which created a short-term shortage of ERTs. Genzyme’s loss was Shire’s gain, as the rare disease up-start received accelerated approval for several products, resulting in the company’s rise to the top echelon of rare disease drug developers (which is also why analysts now believe Shire is a top acquisition candidate).
ERTs dominate the number of approved rare disease therapies for large-cap biopharma. One could argue that the low-hanging ERT fruit (ex: lysosomal storage disorders) has been already picked, but recent M&A activity would indicate that pharma is still bullish on ERTs. For example, while Eli Lilly has technically been in the ERT space for quite some time (the company sells recombinant HGH), it was only recently that it developed a cohesive strategy around the rare disease sector. In early July, the company acquired venture-backed Alnara Pharmaceuticals (investors: Third Rock, Frazier, MPM, Bessemer, and Longwood), which is developing an ERT for exocrine pancreatic insufficiency (EPI).
In addition to lysosomal disorders, companies are broadening out their ERT development efforts in areas such as mitochondrial and urea cycle disorders.
Given the fact that the first US rare disease legislation dates back to 1983, it is surprising that there are so few established players in the rare disease space. Genzyme is really the only major start-up (Biomarin & Alexion are talked about later on in this entry) to have created a standalone biotech around the rare disease model.
While pharma companies are piling into the rare disease space, the number of larger (BioMarin, Alexion, Celgene) companies to acquire is rather limited. The lack of mature acquisition targets likely portends to a situation where pharmas will grow their rare disease units through smaller acquisitions, which are bread-and-butter investments for VCs. In that sense, the stars are aligning for VC investment in rare diseases as there is a large pool of eager acquirers, reasonable development and regulatory hurdles, and a clear unmet need / utilization path.
Mid- & Small-Cap Pipeline Analysis
BioMarin is a good example of a rare disease focused company that is building out its infrastructure to support a standalone company. A sign of BioMarin’s maturity is the fact that the company has expanded its drug development abilities, developing both ERTs and small molecule therapies. Other companies poised to make a similar jump include Alexion and Amicus. Genzyme showed that establishing a standalone rare disease drug company is feasible; however, given the current equity investment climate, shareholders seem more willing to support acquisitions than funding long-term value creation through pipeline investment.
The recent acquisition of Cephalon, maker of Nuvigil and Provigil for narcolepsy and related sleep disorders, by Teva highlights the willingness of pharma - even a generic pharma company - to enter into the rare disease fray. Based on their maturity, BioMarin and Alexion would be bolt-on acquisitions for pharma companies, while other clinical-stage companies such as Amicus, Aegerion, and GTC could be considered attractive acquisition targets for their future potential.
Start-up Pipeline Analysis
The diversity of therapeutic programs being tackled by start-up companies highlights the maturation of the rare disease space. While large-cap pharma has predominantly focused on developing ERTs, start-ups are using a variety of therapeutic modalities, including small molecules, biologics, and even gene therapies, to treat rare diseases. As the low-hanging fruit continues to be picked, expect more combo therapies to be employed to tackle multifactorial diseases.
Another change that is already taking place is the resurgence of gene therapy. As the cost of long-term care for rare disease patients continues to rise, insurers are increasingly looking toward gene therapy as a possible cost savings approach (surprising, but true). Bluebird Bio, a gene therapy start-up focused on rare blood disorders, has indicated that it could possibly charge up to $750K for its one-time medicine. While many would balk at that price, in lifetime terms, $750K upfront is considerably cheaper than $100-200K per year over 10+ years of therapy for a standard ERT.
Gene therapy companies have made incredible strides over the last 10 years, but it is hard to say when, if ever, their use will go mainstream as there are considerable clinical and ethical risks associated with it. Rare diseases could provide the impetus needed to generate widespread support for gene therapy use.
The Future
With over 6,000 different types of rare diseases to treat, the drug development rush into rare diseases is just beginning.
The globalization of the pharmaceutical industry will ultimately be what drives the future success of rare disease companies. Genzyme already generates about 70% of its sales from abroad as rare disease is increasingly becoming a global health concern with Asia at the forefront. The health ministries of Japan, China, South Korea, Taiwan, and Singapore have all recently passed rare disease legislation to speed up the development of drugs, many of which will only serve those local populations. In turn, expect biopharma to increasingly look to serve local Asian rare disease markets.
To promote rare disease drug development in the US, there are should be a renewed focus on modifying our existing framework for promoting innovation in the space. As biopharma continues to trim its R&D infrastructure, start-ups are shouldering a larger burden of early drug discovery work and existing legislation, such as R&D tax breaks, do little to support start-ups (which do not generate revenue and therefore are not taxed). Legislation should be enacted to further promote and support innovation in rare disease drug development.