Orphan drug firms turn price pharma sector catch

Advantage firms which can charge multiples of $100,000/year from each patient for rare diseases

Alexion Pharmaceuticals has become one of the most valuable companies in the biotechnology industry on the strength of a single drug that treats two extremely rare diseases. Its secret: charging about $500,000 a year for the drug for each patient, and scouring the planet for every potential patient.

Now, the company hopes to repeat this process with a new drug. Alexion said recently that it would pay about $9 billion to acquire Synageva BioPharma, another company specialising in rare diseases with one drug expected to come to market later this year. “Synageva is an ideal strategic and operational fit for Alexion as we strengthen our global leadership in what we know well and do well,” David Hallal, the chief executive of Alexion, told analysts at a conference call recently.

Alexion valued its offer of cash and stock at $230 a share. That is a 140 per cent premium over Synageva’s closing price on Tuesday. Alexion said the deal was worth $8.4 billion.
Alexion will acquire all the shares of Synageva through an exchange offer, followed by a second-step merger, with each share receiving $115 in cash and 0.6581 shares of Alexion stock.

Rare disease drugs gain profile

The transaction is the latest in a flurry of acquisitions in the pharmaceutical industry as companies seek to bolster their product pipelines. It is also reflects investor interest in drugs for rare diseases, which were once neglected because manufacturers thought they could not turn a profit.

Now, orphan drugs are among the most attractive in the industry because companies can charge hundreds of thousands of dollars a year to treat rare diseases, making it possible to have a blockbuster drug with only a few thousand patients.

Developers of rare disease drugs can also qualify for special tax breaks and protection from competition under federal law and can often win regulatory approval with smaller clinical trials than for other drugs. So far, insurers have not paid that much attention to the price of these drugs because there are so few patients using them, thus the huge costs haven’t greatly affected their budgets. But that is starting to change as more and more of these drugs come to market.

Alexion’s only marketed drug is Soliris, which is used to treat two rare blood disorders: paroxysmal nocturnal hemoglobinuria, and atypical hemolytic uremic syndrome. Sales have grown steadily to $2.2 billion last year, helping Alexion increase its market value to around $33 billion, one of the biggest in the biotechnology sector.

Synageva’s lead product candidate, Kanuma, is designed to treat lysosomal acid lipase deficiency, or LAL-D, a genetic disease in which people do not produce enough of a certain enzyme. Infants known to have the disease often die within months. It can also cause liver damage and other problems in children and adults with the diagnosis.

Hallal said Alexion could turn Kanuma — known generically as sebelipase alfa — into a billion-dollar drug, by following much the same playbook for Soliris. For that drug, the company aimed to raise awareness among doctors about the disease so that more patients receive the diagnoses for the rare diseases its drugs treat. On the conference call, several analysts seem to be politely questioning whether Alexion was paying too much, asking if there were competitive bids for Synageva and how the company determined the valuation.

Alexion executives said they were comfortable with the valuation, given the strong fit between the companies. They said that the company could achieve cost savings of at least $150 million by 2017. The sales force selling Kanuma will also be able to sell Strensiq, another rare-disease drug that Alexion hopes to bring to market later this year.
Alexion said the deal would bring other drugs that Synageva is developing, broadening its pipeline. It said the deal would be accretive to earnings in 2018.

One-drug wonders

Alexion Pharma is one of the most valued biotech thanks to a drug that treats rare diseases

It may pay $9 b to acquire Synageva BioPharma, another company specialising in rare diseases with one drug

It values its offer of cash and stock at $230 a share. Alexion says the deal is worth $8.4 billion

Alexion will acquire all of Synageva’s shares through an exchange offer,
followed by a second-step merger, with each share receiving $115 in cash and 0.6581 shares of Alexion stock