Shire Finds Big Value in Rare Diseases, and a Strong Growth Path for its Boston Unit
On May 11, Shire (NASDAQ: SHPGY) CEO Angus Russell told a panel of journalists at the Reuters Health Summit in New York that the British drug giant is interested in pursuing gene therapy and stem cells. Those are two areas of science that have yet to prove they can produce effective, innovative new therapies. Still, over lunch later in the day in midtown Manhattan, Russell made a strong case to me that Shire is finding tremendous opportunities on the fringes of pharmaceutical development. “You can’t tar us with making the tenth me-too drug and trying to charge a bazillion dollars a year for that,” he says. “We’re not in that game. I don’t condone that.”
As proof, Russell pointed to Shire’s burgeoning Boston unit, which makes drugs to treat rare diseases. Shire plunged into the rare-disease field in 2005 when it bought Cambridge-based Transkaryotic Therapies (TKT) for $1.6 billion. The unit, which recently moved to a large campus in Lexington, specializes in drugs to treat enzyme disorders, and it is responsible for some of Shire’s biggest hits, including idursulfase (Elaprase) for Hunter syndrome, velaglucerase alfa (Vpriv) for Gaucher disease, and agalsidase alfa (Replagal) to treat Fabry disease.
Shire got a huge head start in Fabry disease and Gaucher disease back in 2009, when competitor Genzyme ran into manufacturing issues. The FDA had not yet approved Shire’s products, but the agency gave the company permission to market them anyway, to help address the shortage resulting from Genzyme’s troubles. “It accelerated the growth of that business,” Russell says. All told, products emerging from the TKT acquisition now account for 30 percent of Shire’s sales—up from 4 percent when the companies first merged.
Russell said he’s amazed by how many drug companies are now embracing rare, “orphan” diseases, which they used to shun as lacking in blockbuster potential. New York-based Pfizer (NYSE: PFE) is among the ranks of Big Pharma companies pursuing new therapies for orphan diseases. “Things have changed,” Russell says. “The classic pharmaceutical model was built around economies of scale, reach, global presence, and sheer size. Everything was focused on getting that physician to write that script.”
Russell believes the new economics of healthcare are driving the drug industry’s flight to the orphan-drug market. “The world is much more holistic now,” he says “We have to factor in payers, we have to factor in the patients being much better informed because of the Internet, and then we’ve got policymakers that are aggressively addressing issues of cost.” As a result, he says, “We’re seeing the shrinking of that mass-marketing model.”
Certainly the economics of rare diseases have been positive for Shire. On April 28, the company announced that revenues in the first quarter jumped 19 percent year-over-year to $972 million. Replagal sales skyrocketed 55 percent to $105 million. Analysts expect the company will report total sales of about $4 billion this year, and Russell has told them the company hopes to achieve “mid-teens growth” through 2015.
Rare diseases have been so good to Shire that the company is now pursuing a niche within a niche: a new “intrathecal” pump that delivers drugs directly to the brain via the spinal fluid. “In these rare genetic diseases, a proportion of patients have the more severe form, which has crossed the blood-brain barrier,” Russell explains. “The intravenous dosing of these proteins doesn’t do anything for those patients.” So Shire is making a bet that delivering its drugs directly into the brain will be the answer for those gravely ill patients. Shire has begun human trials of the pump in Hunter syndrome, where 20 percent of patients suffer from the most severe form, Russell says. The company is planning to test the pump in two other rare diseases, as well.
The pool of patients that might use such a pump is tiny: About 300 people with Hunter would be eligible globally, Russell says. But the CEO is convinced the insurance community will support what is likely to turn out to be a high-ticket treatment. “It all depends on our ability to prove value,” he says. “If you’re the only company producing these products, you can show the value of your drugs over the cost of someone being institutionalized for a decade,” because he is too ill to function independently, he says. “If you look at the opportunity for cost savings, it’s big. That argument has a lot of traction with payers.”
In addition to looking for new opportunities in gene therapy and stem cells, Shire is diversifying its pipeline, which includes finding new uses for existing drugs. The company is currently testing its hit drug for attention deficit disorder, lisdexamfetamine (Vyvanse), in schizophrenia. Russell says the drug may be useful in combination with currently used anti-psychotics, because it reduces what are known as “negative” symptoms—such as lack of emotion and diminished social skills—but doesn’t exacerbate other symptoms such as hallucinations and delusions.
And Shire has been busy boosting its presence in Boston. On May 11, the company was among the investors in a $7 million funding round for Boston-based Prexa Pharmaceuticals, which is working on drugs to treat neurological disorders. And last September, it teamed up with Cambridge-based Acceleron to develop a treatment for Duchenne Muscular Dystrophy. The deal could bring Acceleron as much as $498 million.
During our lunch, it was easy for me to see that Shire’s devotion to rare diseases has become personal for the CEO. Russell told me that he recently met a 17-year-old with Hunter syndrome who has participated in Shire’s clinical trials for 11 years. The teen interned in the marketing department of Shire’s Boston unit, and asked to meet the CEO. During their discussion, the boy asked Russell if he could work at Shire after he graduated from high school. “That was my wake-up moment,” Russell says. “I thought ‘Wow, without the treatment, this kid would have been dead by now.’ Now he’s holding out the prospect of being in a job, paying taxes. His contribution to society will be very valuable.”