Why rare-disease treatments can be big business
Two big drugmakers, Shire PLC and Baxalta Incorporated, announced on Monday that they plan to hook up in a deal valued north of $30 billion.
The combined company expects 65 percent of its total revenue to come from rare disease treatments, which would make it a powerhouse in that field.
Biotechnology analyst Karen Anderson at Morningstar said big pharmaceutical companies used to steer clear of rare-disease drugs. There weren't enough patients to make them profitable.
“But that has changed as the market has been willing to bear extremely high prices,” Anderson said. “So even if you're targeting a disease with just a few thousand patients, if you're charging six figures for a drug, you can turn this into a several hundred million dollar product, if not a billion dollar product.”
Baxalta is known for treatments aimed at rare diseases like hemophilia. Anderson said Shire has been building up its rare disease business, though it's best known for drugs like its attention deficit disorder medication.
The combined company is expected to reap some big benefits, including some streamlining of operations around regulatory issues.
“What does that mean? Filling out all the documents needed to get approval from the FDA, understanding how that regulatory process works and running clinical files in an efficient fashion,” said Yale economist Fiona Scott Morton.
But will cost-savings from those streamlined operations trickle down to patients? Pharmaceutical companies are raising the prices of already expensive drugs.
Steve Schondelmeyer is a University of Minnesota economist who focuses on the pharma industry. He said rare disease drugs can save patients' lives, but price spikes can put patients in a bind.
“So if the price goes up and you're a hemophiliac patient on a drug that saves your life every day you use it, are you going to stop taking it every time the price goes up?” he said.
There are currently about 7,000 rare diseases and fewer than 500 therapies to treat them, according to the National Organization for Rare Disorders. The head of the organization, Peter Saltonstall, said he hopes a tie-up of Shire and Baxalta could help improve the pipeline of new treatments.
“We're hoping that we'll see more drugs coming to market,” he said.