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28 May 2015
New York, May 28, 2015 -- High barriers to entry and high pricing levels of drugs that treat "orphan
diseases" will continue to drive acquisition activity in the pharmaceutical
sector, says Moody's Investors Service in the report "High
Hurdles and High Prices Make Orphan Drugs Appealing M&A Targets."
Orphan diseases are rare, serious conditions that affect fewer than
200,000 patients who require treatment for life at a cost that can
exceed $500,000 per year. To encourage pharmaceutical
companies to produce treatments for these diseases, the regulatory
environment for orphan drugs is very favorable, with longer exclusivity
periods from generic competition than those for more widespread diseases.
"Nearly half of the recent M&A activity in the pharmaceutical
sector has been for deals involving orphan drugs," says Michael
Levesque, a Moody's Senior Vice President. "Favorable
credit characteristics of pharmaceutical companies that produce orphan
drugs include high barriers to entry and the life-threatening nature
of orphan diseases that require patients to stay on therapy for life."
Companies with expertise in orphan diseases include the Genzyme division
of Sanofi (A1 stable), the Baxalta division of Baxter International
(Baa2 stable) and Horizon Pharma (B2 stable).
The high barriers to entry significantly reduce competitive pressures
for orphan drugs. In the US, a drug that has been granted
orphan status has an exclusivity period of seven years, while in
Europe and Japan, the period lasts 10 years.
Patents also protect orphan drugs from competitive threat and often extend
protection beyond the expiration of the exclusivity period. In
addition, it is very difficult for a competitor looking to enter
the space to find patients to enroll in a clinical trial, as the
small number of people with the disease already take the approved drug.
Further, many orphan drugs are also biotechnology products,
which have significantly higher hurdles for generics compared to traditional
products because of their manufacturing complexity.
Despite high barriers to entry and high prices, companies making
orphan disease products still have certain credit risks that are typical
of other pharmaceutical companies. These include highly regulated
manufacturing processes that can face supply disruption if there are quality
problems, and high product concentration risk for some companies.
Moody's subscribers can access this report at:
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This publication does not announce a credit rating action. For
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Michael Levesque, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's: High barriers to entry spur M&A activity in orphan drug sector
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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