The companies operating in the orphan drug category have a distinct advantage over the other players in the health care sector. The orphan drug act [ODC] of 1983 allows the companies to research and develop treatments for rare diseases - which was not possible before. The act allows the companies to charge premium prices, offers tax benefits and marketing exclusivity for the drugs. Orphan drugs are developed for the diseases that affect a relatively smaller number of Americans (specifically, less than 200,000). At the moment, 25 million Americans are affected by rare diseases that can be the possible target market for orphan drug manufacturers. The prospect of premium pricing and tax benefits makes these markets attractive despite the limited number of patients.
Expected Big Winners
Vertex Pharmaceuticals' (VRTX) drug, Kalydeco, is one of the biggest drugs of the future, in my opinion - Kalydeco is prescribed for patients suffering from Cystic Fibrosis [CF], and the drug is approved in the U.S., Canada, Australia and the European Union.
There are about 200 patients in Australia alone, and at $300,000 per patient, the company will be able to bring in about $60 million in revenues from Australia alone. However, the bureaucratic issues are causing a delay in Australia. On the other hand, the drug is reimbursed in the most of Europe and the United States of America. The company has lost some revenue over the past year, however, Kalydeco has the potential to not only replace that fall in revenue but increase the overall earnings substantially. There was an increase of 60% in the revenues from the drug in the second quarter, and I expect the revenue growth to continue over the next two-three years. The drug is prescribed for a rare disease and is the first drug to be approved in the category.
Vertex stock is up about 85% year-to-date. There should be substantial rise in the stock price over the next twelve months as the revenue from Kalydeco starts to flow in. Furthermore, the company is actively trying to expand the spectrum of the drug.
The second company I am going to talk about is Isis Pharmaceuticals (ISIS). The company received approval for its orphan drug, Kynamro, at the start of the year. It is the first drug by the company to make it to the market. The drug is prescribed for the patients with a genetic disease that causes the problem of high cholesterol. However, Kynamro is not the only exciting news about the company - there have been some other developments as well, which have excited the investors. The company has reported extremely impressive results from other drugs in the trial phases. Recently, Isis reported phase II results from its cholesterol management candidate, which showed mean reduction of up to 79% in apolipoprotein and 75% in triglycerides. In addition, there was an increase of 57% in the level of good cholesterol.
This drug is one of the most important candidates for the company and it will become a major contributor towards revenues once the drug hits the market. As a result of these positive developments, there has been a sharp rise in the stock price. In my opinion, Isis will be trading at much higher than the current price levels in the next twelve months.
Alexion Pharmaceuticals (ALXN) is the third healthcare stock, which I believe will be a winner over the next twelve months. Alexion's Soliris is a first-in-class terminal complement inhibitor, which is approved for the treatment of patients with paroxysmal nocturnal hemoglobinuria [PNH], a progressive and life-threatening disease characterized by the excessive destruction of red blood cells (hemolysis). Soliris is the first and only therapy approved for the treatment of PNH to reduce hemolysis.
Wall Street expects the revenues from the drug to go over $ billion over the next three years. For the most recent quarter, the company recorded an increase of over 37% in revenues due to increased demand of Soliris from physicians around the world. The increase in revenue was impacted by the negative movement in price and foreign exchange rates. Recently, the company received marketing approval in Japan for Soliris, which should further enhance revenues. With growing revenues and a strong pipeline, Alexion is set to be a winner over the next twelve months.
These three health care stocks will have substantial gains in the short-term as well as long-term. All of these companies have extremely attractive drugs, which target a specific unmet medical need. Furthermore, the pricing advantage due to being the orphan drugs will allow these companies to bring in massive revenues.