Drug Makers See Profit Potential in Rare Diseases

Rare diseases once were the neglected stepchild of drug makers, who wanted medicines they could sell to millions of patients. Today, conditions afflicting far smaller numbers are seeing booming interest from the industry.

A Sanofi drug recently became the second therapy to win approval in as many months to treat an often-deadly inherited cholesterol disorder. The injectable drug, Kynamro, now will compete with Juxtapid, a pill from Aegerion Pharmaceuticals Inc. that received a green light late last month, to treat a condition that affects just a few thousand patients in the U.S.

Pfizer Inc. and GlaxoSmithKline PLC are among companies studying treatments for Duchenne muscular dystrophy, an inherited condition affecting 1 in 3,600 infant boys. Shire PLC and BioMarin Pharmaceutical Inc. are seeking treatments for a rare metabolic disorder called Sanfilippo syndrome that affects 1 in 70,000 births.

This competition to treat rare disorders underscores how shifting commercial dynamics and progress understanding the molecular roots of diseases are driving the pharmaceutical industry in new directions.

Incentives from the U.S. Food and Drug Administration to develop so-called orphan drugs can mean quicker approval, tax benefits for the developer and seven years' protection from competition after approval. Conventional drugs typically get five. Patient groups have raised hundreds of millions of dollars to give to firms for development of orphan drugs, defined as experimental treatments for diseases with fewer than 200,000 patients at any one time.

But perhaps most persuasive: Drug companies have found that they can charge towering prices for such drugs, which often treat deadly conditions for which there are few or no options.

Big drug makers had "thought that orphan drugs were small, tiny things that didn't warrant their attention," says Angus Russell, chief executive of Shire, some of whose top-selling products treat rare enzyme disorders. The big companies watched Shire and other firms "develop drugs that have gone on to" reach sales of hundreds of millions, if not billions, of dollars, and have followed suit, he says.

That said, the often-six-figure yearly price tag for each patient raises the question of whether drug makers' costs will be sustainable as efforts intensify to control health-care spending. Competition also may temper prices. Kynamro, the cholesterol drug, will be priced lower than its rival Juxtapid. But Kynamro still will cost $176,000 a year, according to Sanofi's Genzyme unit, which developed the drug with Isis Pharmaceuticals Inc. A year's treatment of Juxtapid costs $235,000 to $295,000, depending on the stage of therapy, says Aegerion Chief Executive Marc Beer.

When Congress created the orphan-drug designation in 1983, pharmaceutical companies were working on one new such treatment a year, according to the FDA. Now the agency says that nearly 200 orphan drugs a year enter development, and about a third of the drugs it approves are for rare diseases.

Francois Nader, chief executive of NPS Pharmaceuticals Inc., which late last year received FDA approval for a therapy to treat a rare bowel condition, says that shifting science and economics have made the market viable. Drug researchers can identify ahead of time "the patients who would benefit from a particular drug, rather than using the shotgun approach we used in the past," he says.

NPS's bowel drug, Gattex, cost $250 million to develop. That compares with the $1 billion or more it might cost to bring a more widely used drug to market, in part because the clinical trials for Gattex required far fewer patients and took less time, Dr. Nader says. Gattex costs $295,000 a year.

Thanks to such high prices, almost a third of orphan drugs notch more than $1 billion in yearly sales, according to a sample reviewed by Thomson Reuters. The category has more than $50 billion in world-wide sales and has been rising more than 20% annually for the last several years.

So far, private health plans and governments have agreed to pay for the expensive drugs. The diseases are rare enough that each plan might need to pay for only one patient, and the treatments often prove lifesaving, making it difficult for insurers say no.

"In the future, there will be more pricing pressure" as costly orphan drugs proliferate, says Rhonda Greenapple, founder of Reimbursement Intelligence, a pharmaceutical market-research firm that surveys insurers. "But right now, [payers] can't do much" to limit access.

For the rare cholesterol disorder, known as homozygous familial hypercholesterolemia, newly approved Kynamro and Juxtapid "are going to fill a very important need," says Steven Jones, director of inpatient cardiology at Johns Hopkins Hospital.

Patients with the condition have defects in the genes that help the body take bad cholesterol, or LDL, out of the bloodstream. As a result, even children can see their cholesterol levels reach 400 milligrams or higher per deciliter of blood—three to four times the recommended level. The disorder can lead to heart attacks, strokes and death, often before age 30.

Christian Jacobs, a 21-year-old community-college student from West Jefferson, Ohio, was diagnosed at age 2 with an LDL cholesterol level of 957 milligrams per deciliter. He takes six drugs for his cholesterol, has stents propping open seven blocked arteries and drives two hours every other week to have a machine filter cholesterol from his blood, but his cholesterol levels remain above 500.

Mr. Jacobs says Kynamro lowered his cholesterol to 250 in a clinical trial, and his family's health plan has approved reimbursement for Juxtapid treatments to start soon. If one drug "doesn't work, there's another one available," he says. "It's not, 'You're out of luck.' "

Both drugs will carry strong warnings about the risk of liver damage from long-term use because they are associated with liver-enzyme abnormalities and the accumulation of fat in the liver that could lead to disease.

Jonathan D. Rockoff at jonathan.rockoff@wsj.com