Profitability and Market Value of Orphan Drug Companies: A Retrospective, Propensity-Matched Case-Control Study

Hughes DA, Poletti-Hughes J (2016), PLoS ONE 11(10): e0164681. doi:10.1371/journal.pone.0164681

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The small markets associated with rare diseases, however, necessitate high prices for returns to be made on investments, and orphan drugs are generally more expensive than non-orphan drugs. Each one of the world’s 10 most expensive drugs is an orphan, with alipogene tiparvovec (gene therapy approved in Europe for inherited lipoprotein lipase deficiency) ranked highest at about US$1.4m per patient over a year. The revenue-generating potential of orphan drugs is consequently as great as for non-orphan drugs with almost a third being US$1bn blockbuster products in terms of global annual sales.
Orphan drugs also command a higher profit margin, owing to shorter clinical development time, incentives related to research and development, reduced marketing costs and premium pricing. However, it is unclear whether this necessarily translates to higher company profits. One cross-sectional analysis of a small sample of specialised orphan drug companies concluded that they had not performed as strongly as other companies. This observation is not supported by the evidence of the rapid and extensive diversification into the orphan drugs market by large pharmaceutical companies, some of which have established dedicated rare disease units, and acquired or partnered biotech companies already in the rare disease sector.
Concerns have been expressed meanwhile that orphan drug policies are being exploited by companies as treatments initially approved for rare diseases are later used more broadly. Rituximab, as one example, was initially approved as an orphan drug by the FDA for the treatment of follicular non-Hodgkin’s lymphoma. It is now used to treat a wide variety of conditions making it the fourth best-selling drug in the world in 2014.

We hypothesise that companies with orphan drug market authorization are more profitable and are more attractive investment opportunities than non-orphan drug companies. We aimed to test whether the financial performance of publicly listed European and US orphan drug companies is better than matched non-orphan drug companies in terms of their market value and profitability.



Profitability and Market Value of Orphan Drug Companies: A Retrospective, Propensity-Matched Case-Control Study