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Raising Orphans: A Refined Approach to Selecting and Developing Orphan Products

Putnam Associates reports on how crafting successful strategies for orphan drugs requires a nuanced understanding of their unique risks and benefits

October 21, 2011 -- Putnam Associates, a Boston-based strategy consulting firm advising the biopharmaceutical industry globally, has released an analysis highlighting many of the critical ways orphan products are distinct from typical biopharmaceuticals.  The unique risks and benefits of orphan products stretch across the value chain from research and development through regulatory approval and commercialization.  Major players in the biopharmaceutical industry, including the largest pharmaceutical companies and many important venture capital firms, have increasingly turned their interest towards orphan products.  Analysis by Putnam Associates has shown that properly valuing these opportunities requires a distinct analytic perspective.  Using standard valuation approaches, designed for typical pharmaceuticals, often leads to underinvestment in high-potential assets and overinvestment in low potential assets.

The development process for orphan products is unique in several important ways:

  • 37% higher probability of FDA approval
  • Smaller trial sizes result in lower overall development costs
  • 26% less clinical development time on average
  • Regulatory assistance on trial design and shepherding through the approval process
  • 47% less regulatory review time on average
  • Direct financial incentives including a 50% tax credit on clinical development costs
  • Advocacy organizations can play a critical role in funding and development
  • Existing scientific knowledge base (e.g., disease models, therapeutic pathways) of particular orphan diseases is often limited

The economics of commercializing orphan products are similarly unique:

  • Commercialization costs can be proportionally tailored to make non-blockbusters highly profitable
  • Ability to generate a larger than average share of revenues outside the US
  • Markets generally less price sensitive
  • Advocacy organizations highly influential in reimbursement decisions and general awareness
  • The first-mover advantage can be more pronounced in orphan product markets
  • Orphan products can often be later developed to treat additional disease states (orphan and non-orphan)

Orphan diseases represent areas of significant unmet need; of the approximately 7,000 recognized orphan diseases, only about 200 products have been approved to treat them. The biopharmaceutical companies that are able to formulate the right strategies for orphan products will establish the development and commercial architecture necessary to be successful in this rapidly growing market.

Matthew Riordan, Senior Manager at Putnam Associates, observes, “Over the past few years we have seen considerable attention paid to the orphan drug space by both big pharma and Venture Capital.  At face value this is a great trend, but being successful in orphan drugs requires an understanding an appreciation for their unique risks and benefits.  Unfortunately, many companies continue to use standard litmus tests as they evaluate these products.  By developing a more tailored approach to valuing, developing and commercializing these assets, pharmaceutical companies could profitably bring many more of these life-changing treatments to the market”.

 

Putnam Associates (www.putassoc.com) is a strategy consulting firm headquartered in Boston, founded in 1988, and serving the pharmaceutical and biotechnology industries globally. The firm’s services include: portfolio prioritization, licensing and due diligence, clinical trial strategy, forecasting, pricing, product positioning, market segmentation and customer targeting, sales force optimization, reimbursement and contracting, lifecycle planning, and alliance management. Putnam has supported clients ranging from venture-backed biotechnology to large pharmaceutical companies in developing winning strategies in the ever evolving healthcare industry, including numerous engagements focused on orphan product strategies.

 

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