Regeneron's Orphan Charms the FDA

It's nice to see that the FDA is still approving some drugs, even as at dallies on others. On Wednesday, Regeneron Pharmaceuticals (Nasdaq: REGN) received marketing approval for a treatment that targets a very rare inflammatory disease.

Regeneron's drug, dubbed Arcalyst, was approved as treatment for cryopyrin-associated periodic syndrome (CAPS), which is a chronic, incurable, inherited inflammatory disease. There are currently no approved therapies to treat this lifelong condition.

CAPS is a seriously "ultra-orphan" indication, as Regeneron described it, as it is estimated to affect only 300 to 500 patients in the U.S. This is even smaller than the several thousand patients that other orphan-drug developers like Alexion Pharmaceuticals (Nasdaq: ALXN) and Shire (Nasdaq: SHPGY) treat with some of their medicines.

Orphan drugs (treating diseases affecting fewer than 200,000 patients in the U.S.) have been one of the few bright spots for drugmakers trying to get their compounds past the FDA in recent years.

Since Arcalyst will be treating such a rare disease, Regeneron won't have to field a sales force to market it. The drug will command a roughly $250,000 price tag annually, and sales of Arcalyst are set to begin in about 30 days. Guidance for 2008 is for $10 million in Arcalyst sales with "substantially higher" revenue from the compound in 2009.

Regeneron has identified approximately 165 patients in the U.S. as on-label candidates for Arcalyst. Roughly 10% of these patients lack insurance (and will presumably be unable to pay Regeneron's premium price) and some of the others will have adverse reactions and have to be taken off therapy.

Based on the above information, I'll tag the near-term U.S. Arcalyst market opportunity at around 150 patients. This puts the market potential for the drug around $35 million at the moment, and higher if more of the remaining 300 to 500 U.S. patients can be identified. Regeneron also is testing Arcalyst in bigger indications like gout, which could expand the drug's market.

Sporting a billion-dollar market cap, Regeneron is best known for its VEGF "trap-eye" phase 3 compound that will compete with Genentech's (NYSE: DNA) Lucentis and QLT's (Nasdaq: QLTI) Visudyne in the macular degeneration market. The approval of Arcalyst is a good validation of Regeneron's regulatory prowess.