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By Janina Malone

Research and Development generally occurs in areas in which there is a demand or where demand can be created.  Pharmaceutical development has traditionally followed this axiom with pharmaceutical companies pursuing development of drugs to treat common conditions such as high cholesterol, pulmonary embolism, arthritis, gastric reflux, hypertension and allergies.  Cholesterol lowering statins alone generated $16 billion in U.S. sales in 2005[1].  However, due to the increased presence of generics, the expiration of patents, advances in genomics and proteomics and the development of personalized medicine, the research and development focus is changing.  Pharmaceutical companies have become increasingly interested in a much smaller market, a market that is expected to reach an annual rate of $81.8 billion globally by 2011[2]. 

            Tax credits, government grants, market exclusivity and fee waivers have helped to drive this market.  Federal recognition of pharmaceuticals in this market has developed into an early-stage regulatory concurrence that can increase investor interest creating more funding opportunities, even in a down economy, and increasing the interest of big pharmaceutical companies in an area that for a long time received little interest and little funding.  In 2009, Pfizer, GlaxoSmithKline, and Novartis each either licensed or received approval for pharmaceuticals in this market, treatment of orphan diseases. 

An orphan disease is a condition affecting a small number of people.  In the U.S., it is defined as affecting fewer than 200,000 residents.  In the European Union, it is defined as affecting not more than 5 in 10,000 individuals in the Community and in Japan as affecting fewer than 4 in 10,000 individuals.  However, there are approximately 7,000 rare diseases affecting approximately 25 million people in the U.S. and 30 million people in the European Union[3] alone.   Global sales of orphan drugs reached 58.7 billion in 2006, up from $54.5 billion in 2005[4].  Several orphan drugs have reached blockbuster status, generating more than $1 billion in revenue annually.  Orphan drugs can also be re-introduced to treat non-orphan diseases, increasing their market potential.

Orphan drug designation requires that the drug be for the treatment of a disease that affects a small number of people and that there is more than theoretical rationale for belief that the drug has promise for treating the orphan disease.  In the 10 years prior to the passage of the Orphan Drug Act of 1983, ten drugs that fall under the definition of an orphan drug were approved for sale.  In the ten years following the passage of the Act, 612 drugs were designated orphan drugs and 99 received market approval.  In 2009, 159 drugs currently under development were designated orphan drugs and 17 received market approval.

The U.S. Orphan Drug Act of 1983 (P.L. 97-414, as amended) provides incentives for the development of these drugs including tax credits, marketing incentives, extended protection and grants.  The European Union has similar legislation under Regulation 141/2000/EC on orphan medicinal products (Orphan Regulation), which provides for fee waivers, community marketing authorization, extended protection and protocol assistance.   In an effort to reduce costs to manufacturers, the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMEA) agreed in 2007 to use a common application process for determination of orphan drug status. 

            There is also specialized funding earmarked for orphan disease research.  The NIH announced a second phase of funding for the Rare Diseases Clinical Research Network (RDCRN) in October of 2009.  Funds totaling more than $117 million are to be distributed over the next five years to 19 research consortia and a Data Management Coordinating Center.[5]  Grants are also available through the National Organization for Rare Diseases (NORD).  The NIH additionally provided $672 million in funding through its SBIR/STTR (Small Business Innovation Research/Small Business Technology Transfer) programs in 2009 and will again provide 2.7% of its extramural set-asides for R& D to the SBIR/STTR programs in 2010.

The annual budget under the Federal Orphan Grants program is currently $14 million.  Grants are for up to $200,000 or up to $400,000 in total (direct plus indirect) costs per year for up to 4 years.  A fourth year of funding is available for phase 2 or 3 clinical studies.  For fiscal year 2011, the application receipt date for Federal Orphan Grants is February 3, 2010[6]. 

Orphan drug designations will continue to fuel new drug development, licensing, acquisitions and mergers leading to increased opportunities in a previously neglected area of drug development.  Candidate funding is available at multiple levels, from seed money for academic scientists to grants for clinical testing.  Application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product.  To help with the application process, the FDA is launching an orphan drug workshop series for those who have developed at least one candidate drug.  The workshop will be in Claremont, CA in February 2010 and Minneapolis, MN in August 2010.  For more information on the FDA application process, protecting or licensing your product, please contact Swider Medeiros Haver LLP for further information.

[1] Steven Findlay. The Statin Drugs, Prescription and Price Trends October 2005 to December 2006, Consumer Reports Best Buy Drugs (February 2007).

[2] Syamala Ariyanchira Global Markets for Orphan Drugs, BCC Research Report ID:PHM038B (September 2007), available at http://www.bccresearch.com/report/PHM038B.html. 

[3] Eurodis Rare Diseases: understanding this Public Health Priority, ” citing Background Paper on Orphan Diseases for “WHO Report on Priority Medicines for Europe and the World,” (7 October 2004), Eurordis, November 2005 available at http://www.eurordis.org/IMG/pdf/princeps_document-EN.pdf. 

[4] Syamala Ariyanchira Global Markets for Orphan Drugs, BCC Research Report ID:PHM038B, Published: September 2007, available at http://www.bccresearch.com/report/PHM038B.html.

[5] http://www.nih.gov/news/health/oct2009/od-05.htm

[6] http://www.fda.gov/ForIndustry/DevelopingProductsforRareDiseasesConditions/default.htm