Small Patient Population? Charge $400K a Year for Your Drug

A Novato, Calif.-based biopharmaceutical company has figured out how to make money developing and selling drugs that might benefit a few thousand people worldwide: Charge about $400,000 for a year’s treatment.

In the first quarter of this year, BioMarin Pharmaceutical (NASDAQ:BMRN) plans to begin clinical testing of another orphan drug it hopes will be a huge financial success. The medicine is designed to treat achondroplasia, a genetic condition that’s the most common form of dwarfism. About 18,000 to 24,000 people in the U.S. and in Europe suffer from the condition, according to a company news release.

BioMarin is part of a growing legion of companies focusing on developing treatments for rare diseases. As we pointed out in a September article, many of the firms are members of Big Pharma, including GlaxoSmithKline (NYSE:GSK), Pfizer (NYSE:PFE) and Sanofi (NYSE:SNY).

With blockbuster drug patents drying up and many R&D pipelines in a funk, these smaller diseases offer companies an attractive revenue stream, as they’re able to charge hundreds of thousands of dollars annually for their drugs. Factor in the advantage of a far less perilous and time-consuming path to approval, and the attraction becomes obvious.

What got the ball rolling was the The Orphan Drug Act, passed in 1983. The law allows companies that develop drugs for disorders affecting fewer than 200,000 people in the U.S. to sell without competition for seven years and qualify for valuable clinical trial tax incentives.

During the past 30 years, the agency has approved some 90 drugs under the law, according to the National Organization for Rare Disorders via a The Wall Street Journal report. Most got the agency’s stamp of approval after going through shorter testing periods involving smaller numbers of patients than generally required for drugs for mainstream diseases.

The authorization process even seems to be getting speedier. BioMarin’s last three drugs to be approved got to market in five, four and three years, respectively, BMRN Chief Medical Officer Hank Fuchs told Bloomberg. “Compared to an industry average of eight, we do an average of four,” he said.

BioMarin has four approved products and recorded sales of $367 million in 2010. The company also is testing a number of compounds, including several in the late stages of development.

BioMarin is now undertaking perhaps its most ambitious project — applying what it has learned in developing orphan drugs to cancer, the San Francisco Business Times reported.

Its focus is a subset of ovarian cancer patients. The drug it’s developing is in a class called PARP inhibitors, which have gained notoriety by blocking enzymes that cancer cells use to repair themselves after chemotherapy. But the PARP inhibitors haven’t performed well in clinical trials, BioMarin CEO Jean-Jacques Bienaime told the Business Times. The reason, he said, is because they focus on a large group of patients rather than those with the gene mutation. He wants the BioMarin drug to be “super-effective” for the 10% to 15% of ovarian cancer patients with the mutation.

From an investor standpoint, the company has performed admirably during the past two years, climbing about 70% to near $35. Even at that price, though, BioMarin still is a few bucks below its all-time high in April 2008. One indication that that stock might be a buy is its popularity with mega-fund managers, according to Seeking Alpha.

Mega-funds added a net $213 million in the third quarter of 2010 to their $1.83 billion prior quarter position in BioMarin, and mega-funds hold 48.8% of BMRN’s outstanding shares.

As of this writing, Barry Cohen was long PFE and GSK.

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