December 1st 2020
Today, Noema Pharma rose 59 MMUSD in Series A to develop four products spun out from Roche to treat rare neurological disorders. Led by Sofinnova Partners (Antoine Papiernik) and Polaris (Darren Carroll) this round is the latest example showing how offensive could be VCs with rare diseases. As an investor, rare diseases probably concentrate the most noble and ethical values of the mission. The figures speak by themselves: 50% of rare diseases patients are children, more than 90% of them do not have therapeutic alternatives, 65% have serious and debilitating conditions and 50% of the diseases are life threatening. Moving forward orphan drugs market has skyrocketed to more than 150 B € in 2020 with an expected constant annual growth rate of 12,5% for the four coming years (the double of the industry) representing 20% of the Rx market ! The Pricing and Regulatory environments and the industry strategy have boosted the number of “nichebusters” (totalizing more than 1 B USD of annual sales) from 3 in 2012 to 20 in 2019! Rare diseases do not play anymore with small figures. Among the “serial orphan drug” champions are Revlimid™ (Celgene/BMS) report cumulative sales of 55 B €, Glivec™ (Novartis) 43 B€ and Imbruvica™ (J&J) 21B €. BMS/ Celgene, Roche, Abbvie, J&J and Novartis are the five most dominant and exposed players. As most of their “rare diseases” franchises have been built through external growth (Biogen and Amgen to be watched closely), the area has been very active for VCs. As a matter of fact, it’s uneasy to find ventures players not involved in rare diseases. Corporate Ventures (Takeda Ventures, Pfizer Ventures, Sanofi Ventures, Chiesi Ventures…) openly focus on rare diseases while dedicated funds such as Sofinnova Telethon (108 MM €) just emerged in 2020 for exclusive investment in genetically rare diseases. Would this extraordinarily new market will continue to grow fiercely? Although 47% of total FDA approved drugs from 2015 to 2019 are orphan drugs there are growing concerns about the perennity of such status as it exists. Endless Marketing exclusivity as seen for Soliris™ (22 years) Revlimid™ (19 years) or Nexavar™ (18 years) have irritated payors, health agencies and limited access to patients. In this connection, a growing number of bills are introduced by the US congress and the EMA is currently analyzing multiple reports attacking the industry monopoly that may lead to potential reforms. While the Orphan status will still facilitate R&D and commercial performances it is likely that it will be more limited and subordinated to sales forecasts. Less monopoly and more competition shall change the landscape and VCs investors should be prepared to this second generation of Orphan Drugs.
ORPHAN DRUGS: VC DILEMNA
INVESTING IN GROWTH
Orphan drug is a protean and ultra-segmented market; a deep franchise with more than 7’000 different diseases that gathered Multiple Sclerosis (2,5 millions of patients worldwide) and Ondine disease (2’000 patients including only 1 in Colombia), Narcolepsy (3 millions of patients) and Cystic Fibrosis (70’000 of patients). 80% of rare diseases are genetic ones and involve one or multiple genes raising opportunities for splicing modulation therapies such as for Duchenne Muscular Dystrophy (Eteplirsen) or Spinal Muscular Dystrophy (Nusinersen). CRISPR therapies such as the one developed by Editas Medicine (Third Rock, Flagship) are particularly promising. The investment perspectives are also very appealing. After oncology, orphan/rare franchise is the most important VC backed therapeutic area exited from 2015 to H1 2020 … but this number tends to decrease slightly over years. Ditto for number of Series A since 2018. Yet rare diseases are able to raise impressive round such as for Spruce Biosciences (Series B 88 MM USD in Feb 20 by Omega and Abingworth), Orbus Therapeutics (Series A 71 MM USD in Oct 20 by Abingworth. Longitude Capital, HIG, Adam Street) or Imara (Series B 63 MM USD in Mar 19 by Orbimed and Arix).
One-product-companies with 1 to 3 potential niche indications raise mountains!
Indeed, with an average of 150 K USD treatment/ year in the US the mean cost per patient is five time more expensive than non-orphan! For Soliris™ from Alexion (to treat less than 3’000 patients) or Naglazyme™ from Biomarin (to treat 200 patients) the average sales per patient/year peaks at 500K USD! If we add the 7 years market exclusivity (10 years in EU), fast track status and regulatory risks in the equation (25% chance to be FDA approved vs. 9% for non-orphan) it sounds that investing in Orphans is a calculated risk. Another important leverage is tight to the definition of this market focusing on low/ very low number of patients. If one shall venture to use marketing words for a sensitive and ethical mission, it is a captive market with no/ limited therapeutic alternatives, a very low number of prescribers and thus a very low S&M expenses. Patient advocacy groups are also particularly well structured and digital health should emphasize patient centricity for this market. Very rare-disease-patients and families are interconnected, facilitating the clinical trials recruitment and sharing awareness on the development of the only therapeutic option that may change their lives.
ORPHAN DRUGS WITH EXPECTED ANNUAL SALES > 10 B USD IN 2024
WHEN DID IT GOES OUT OF HANDS?
Glivec™ (Imatinib) from Novartis is marketed since 2001 for Chronic Myeloid Leukemia but in 2007, the sponsor decided to break the untouchable market exclusivity to support Tasigna™ (Nilotinib) launched by the same laboratory for the same indication.
Nilotinib was discovered when re-engineering Imatinib (Glivec™) in order to optimize selectivity (BCR-ABL1/ oncogene involved in Chronic Myeloid Leukemia) and cellular potency. Significant structural differences were shown leading to significant preclinical and clinical efficacy and side effect improvement.
Owing to the better efficacy/ safety ratio and benefit for patients, it came with no surprise that TEVA working on a generic version of Glivec was not successful to enter the EU market in 2011 as it would infringe the 10 years market exclusivity of Tasigna launched in 2007. Teva claimed that Novartis had abused the Orphan incentives to keep its monopoly but as a matter of fact, while Novartis was in its own right, this story has raised misunderstanding toward Generics players and patients that suspect the sponsor to have bypassed the spirit of the orphan legislation. According to an “unpublished” official evaluation mandated by the EU, only 16% of orphan medicines introduced from 2001 to 2016 would have never reached the market without the orphan legislation. In addition, it appears that only 28% of the registered orphan medicines are indicated for disease having no therapeutic alternative. In the US, the growing pressure of third payors and importance of out of the pocket money to pay medicines _even for life threatening diseases_ are standing up against the monopoly of certain drugs. According to them, access to vital therapies is at stake! Recently this has leads to the orphan drug revocation of Sublocade™ (once a month buprenorphine injection) the reformulation of a well-known drug to treat opioid use disorder. In November 2020, the so called “Fairness in Orphan Drug Exclusivity” bill to limit exclusive approval of Orphan Drugs was agreed unanimously by The House. Even if the likelihood to pass the Senate is poor, attention has been brought and additional actions to curb the industry monopoly shall be expected.
WHAT TO EXPECT FROM THE UNEVITABLE REFORMS?
Looking to the activism of patient groups, the lobbying of Gx, the lack of access to innovative drugs to non G20 countries, the FDA/EMA growing sensitivity to potential law loophole… changes are expected in the coming years. Before taking any decision, Health Authorities shall keep in mind that almost 95% of orphan diseases have still no therapeutic options and the need for pediatric indication is still burning. As Doug Kerr and Geoff McDonough raised in a blog posted in 2018, we may expect “Returning to the Origins of the Orphan Drug Movement”. If one use a rational approach (which is not a given when comes law amendments) we may expect the following:
· Market exclusivity weakened or broken if a new treatment shows superior efficacy/ safety ratio. It’s already in the FDA rules but not fully implemented.
· Cumulative market exclusivity owing to cumulative orphan indications granted shall be more controlled. Sales commitments will be likely expected in this case. Introducing bottom line control (vs. top line) is not realistic which gives a slight advantage to the industry (S&M expected to be very low). Future “nichebusters” will then be looked more closely.
· Exclusivity marketing period is higher in EU. As price difference between EU and the US remains significant, it’s unlikely that the EU will decrease this exclusivity from 10 to 7 years.
As a consequence, I believe that the politico/regulatory frame should be supportive in orphan drug investments when:
· The current Pharmaco-Economic burden for an orphan disease is above six figures per year and per patient. Fighting costs by giving more patients autonomy will still feed Pricing/ Reimbursement negotiations.
· The targeted drug is indeed addressed to chronic disease patients with no therapeutic alternatives (only 28% of approved orphan drugs in EU).
· The targeted drug is addressed to patients with direct life-threatening conditions.
· Attentions should be given to new biologics or NME and more generally to breakthrough chemical entities. Reformulation of well-known compounds will be more easily revoked (e.g. Sublocade™ case)
The "Blue Ocean Strategy" created when Orphan Drugs legislation were approved has shown limits and to a certain extent loophole. This new market weighting today more than 150 B € and growing twice faster than the rest of the industry remains a hot priority target for investors paving the way to major benefit expectation for patients. The recent controversies have bent the stick where VCs used to focus exclusively, in other words in breakthrough sciences, showing major differential features and addressing critical unmet medical need. In short, an invitation to work harder with technology transfers entities and to accept competition when the patient benefit is at stake.
Edouard Caram
edouard@vclife.org