NPS Pharmaceuticals, Inc. (NPSP), Eli Lilly & Co. (LLY), Alexion Pharmaceuticals, Inc. (ALXN): Three Justifications for the High Cost of Gattex

Justification 3: Orphan drugs are generally pricey
Orphan drugs usually come with high price tags ranging from $100,000 to $500,000, and even more in certain diseases. The rationale is simple — it costs hundreds of millions of dollars to develop an orphan drug, and with profit being the major incentive, companies need to recover that money and make a profit on top of it. Since patient population is small, the cost of the drug goes up. So far, insurance companies do not seem to excessively mind it, neither do patients co-paying for treatment.

For instance, Soliris from Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), costs nearly $440,000 for the treatment of rare blood disease (PNH), which is pretty high compared to Gattex. The product is highly effective against PNH and well covered by both private and national health insurers. In addition, Soliris is approved in the U.S. and EU for the treatment of atypical hemolytic uremic syndrome, or aHUS. This is also a rare disease, and no treatment is currently available. The fact that the company anticipates continued growth in Soliris just goes to show that no matter what the cost, orphan drugs will sell if they are effective.

Conclusion
So, from all three standpoints — replacement therapy costs, existing drugs, and general orphan drug market trend — Gattex pricing seems to be justified. No doubt, both the patient population and the market will figure that out.

The article 3 Justifications for the High Cost of Gattex originally appeared on Fool.com is written by Kanak Kanti De.

Kanak Kanti De has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.