August 3, 2010 / 4:16 PM / 9 years ago

Analysis: Rare diseases lure Sanofi, other big drugmakers

LONDON/BOSTON (Reuters) - In seeking to acquire biotechnology company Genzyme Corp GENZ.O, Sanofi-Aventis (SASY.PA) is hoping to gain entry into a field that has long been dismissed by big pharmaceutical companies: rare diseases.

It’s the clearest sign yet that Big Pharma thinks niche diseases can be a good way to fatten margins, plug holes in product pipelines and partly offset the impact of generic competition on the rest of their portfolio.

Pfizer Inc (PFE.N) and GlaxoSmithKline Plc (GSK.L) have both made moves to enter the field, but Sanofi’s $18.4-billion bid to acquire Genzyme is by far the biggest.

Genzyme is the world’s most successful developer of drugs for rare diseases. Last year it generated sales of some $4.5 billion from drugs to treat rare hereditary disorders such as Gaucher and Fabry disease.

“What Genzyme has taught the world is that the rare disease market can be quite profitable,” said Gary Pisano, a Harvard Business School professor and biotechnology industry expert.

So-called “orphan” drugs for rare diseases can command astronomical prices and rarely face opposition from insurance companies. Costing more than $200,000 a year, Genzyme’s Gaucher disease treatment Cerezyme is one of the most expensive drugs in the world. Last year it generated sales of $1.2 billion.

That is appealing to big drugmakers whose own pipelines of experimental products are, for the most part, lackluster.

“The blockbuster era seems to be on the wane,” said Kevin Gorman, managing partner at Putnam Associates, a consultant to the pharmaceutical and biotech industry. “The dramatically unmet needs are in rare diseases.”

Gaucher and Fabry are hereditary disorders caused by an enzyme deficiency that can lead to critical organ damage and death.

Treating such diseases is a difficult field to enter, however, and big drug companies are not equipped to start from scratch themselves.

RARE SKILLS

From the design and enrolment of clinical trials to the complexity of the manufacturing process, making biologic drugs, and, as importantly, marketing them to such a tiny group of patients — sometimes just a few thousand worldwide — requires a specific set of skills, which Genzyme has all but perfected.

Even so, a contamination at the company’s Allston Landing plant in Boston last year has lead to shortages of two key drugs, slashed earnings and sent Genzyme’s stock price plunging.

Sanofi hopes to benefit from Genzyme’s troubles by acquiring it on the cheap. It has offered $69 a share for the company, according to sources familiar with the situation. That’s far less than the $80 range where the company was trading before the manufacturing crisis hit in late 2008, and Genzyme is unlikely to accept less than $80 a share, according to sources.

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Part of the reason is that Genzyme is a rare asset. Its drugs are not in danger of facing generic competition any time soon, and it has more than 20 years’ experience liaising with patient groups, organizing clinical trials and dealing with regulation and reimbursement. The barriers to entry are high.

“The reason Big Pharma is going for this space now is the reduced generic threat, the ability to roll out a product into other areas and pricing,” said Dominic Valder, industry analyst at Evolution Securities.

Historically, big pharmaceutical companies have focused on drugs prescribed by general practitioners to large patient populations with chronic problems such as diabetes, high cholesterol, heartburn and depression.

These drugs are chemicals that can be easily replicated by generic manufacturers.

Biotechnology drugs, which use complex proteins that typically need to be infused or injected and are prescribed by specialist physicians to small groups of patients, cannot be easily copied.

So a number of Big Pharma companies have stepped into the rare disease area, albeit on a limited scale.

Patrick Vallance, Glaxo’s head of drug discovery, said its move into rare diseases is part of a strategy to improve returns in research and development by focusing on areas with a greater probability of success.

Glaxo took a stake in Japan’s JCR Pharmaceuticals 4552.OS and has struck an alliance with privately held Prosensa, leading to the launch of a pivotal Phase III clinical study for a drug for Duchenne muscular dystrophy in the second half of this year.

Pfizer acquired worldwide rights to an experimental Gaucher disease drug from Protalix BioTherapeutics’s (PLX.A), which if approved would compete with Genzyme’s market leader Cerezyme.

Editing by Sitaraman Shankar

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