The best bets on rare diseases
Of the six big pharma firms with the highest proportions of orphan drug sales, only AstraZeneca (LSE: AZN) and Takeda (TSE: 4502) give separate rare disease sections in their pipelines, while Bristol-Myers Squibb (NYSE: BMY) has the highest proportion of sales coming from rare disease drugs. BMS is strong in oncology and also cardiovascular and rare diseases following its Celgene acquisition and has 50 compounds in development. However, although Celgene’s Revlimid for multiple myeloma is projected still to be the second best-selling orphan drug of 2024, with sales of $7.1bn, it faces generic competition from this year, while BMS’s Opdivo cancer immunotherapy faces strong competition from Merck’s Keytruda.
AstraZeneca has 12 orphan drugs in phase III clinical trials or filed for approval (most from Alexion), while Takeda has six in phase III or filed for approval (some from its acquisition of Shire). AstraZeneca also has a strong pipeline of cancer drugs, while Takeda has a fairly strong presence in gastroenterology, immunology and oncology. On balance, AstraZeneca is probably the preferable company. It’s on a price/earnings (p/e) ratio of 15.7 based on forecast earnings for 2023, falling to 13.3 for 2024, at the recent price of 10,030p. Takeda, which is Japan’s largest pharma company, saw its margins improve after the acquisition of Shire, since that deal gave it better access to the US market and a lower proportion of revenue from the more mature Japanese market where margins are lower. But it faces a number of patent expiries and its pipeline of new drugs is mainly early stage (the main risk of failures comes in late-stage clinical trials). The p/e is 16.3 for 2023, rising to 18.7 for 2024, at the recent price of ¥3,735.
Vertex Pharmaceuticals (Nasdaq: VRTX) is the largest orphan disease specialist, with 2021 sales of $7.6bn from four drugs. It has a dominant position in cystic fibrosis drugs: its drug Trikafta, which is predicted to be the fourth best-selling orphan drug of 2024 with sales of $5.5bn, will raise the proportion of treatable CF patients from 50% to 90%. The pipeline has three drugs in phase III. Vertex’s p/e is 15.4 for 2023, falling to 14.6 for 2024, at the recent price of $235.
Of the smaller rare disease specialists, there are three main ones with substantial sales. BioMarin Pharmaceutical (Nasdaq: BMRN) has a monopoly position in several rare disease niches. The p/e for 2023 is 35 falling to 19.4 for 2024 at the recent price of $74.8. Horizon Therapeutics (Nasdaq: HZNP) has a 2023 p/e of 11.6 falling to 9.5 for 2024. Alnylam Pharmaceuticals (Nasdaq: ALNY) has a well-proven methodology for finding drugs to treat rare genetic diseases. The company will still be making a loss in 2023, but should make its first small profit in 2024.
Looking beyond these, Argenx (Nasdaq: ARGX) is making substantial losses and is unlikely to move into profit before 2025. Regenxbio (Nasdaq: RGNX) is also set to be making losses through to at least 2025.
Investors could choose AstraZeneca as a core holding, possibly supplemented by Takeda and/or Bristol-Myers Squibb and then add Vertex, BioMarin and Horizon with Alnylam, Argenx and Regenxbio as riskier further additions.