It's rare-disease day. The not-so-known celebration is held on the last day of February so that every four years it falls on the somewhat rare Feb. 29.

What are you doing to celebrate? There's a conference at the National Institutes of Health Clinical Center and the FDA Office of Orphan Products Development is hosting a workshop to help companies figure out how to gain orphan drug designation for their products.

Me? I'm investigating drug companies developing orphan drugs that could be good investments.

Rare, but not inconsequential
It's easy to assume that the drugs going after rare diseases aren't worth investing in since the markets for rare diseases are, by definition, small. Fortunately what drug companies lose in quantity, they make up for in price. Drugs that treat rare diseases tend to be insanely expensive.

Despite the high prices, most of these drugs are never going to hit mega-blockbuster status. So the Orphan Drug Act was initiated to help encourage their development.

The FDA gives drugmakers a break by waiving the fees companies pay to get their drugs reviewed. The agency also pays for half of the clinical trial in the form of tax credits. Once the drug is on the market, orphan drugs get some added protection from generic competition; the FDA gives them seven years of exclusivity even if the patents expire before that.

The EU gives companies similar breaks: free or reduced fees for regulatory applications and 10 years of exclusivity for drugs that treat orphan designations.

The best of both worlds
Companies have taken advantage of the orphan drug designation to gain early access to the market, but the companies retain the ability to hit larger markets later on.

Regeneron Pharmaceuticals' (Nasdaq: REGN) Arcalyst is approved to treat a rare disorder called Cryopyrin-Associated Periodic Syndromes, but the company is developing the drug to treat gout where interleukin-1 inhibition might also be helpful.

Similarly, Exelixis' (Nasdaq: EXEL) cabozantinib has orphan drug designation for follicular, medullary, and anaplastic thyroid carcinoma, and metastatic or locally advanced papillary thyroid cancer, but it'll likely make a heck of a lot more money treating prostate or breast cancer if the drug turns out to work for those indications.

A few to keep your eye on
Genzyme (Nasdaq: GENZ) had the Gaucher disease market all to itself, but Cerezyme started to see competition last year when Shire (Nasdaq: SHPGY) launched Vpriv. Pfizer (NYSE: PFE) and Protalix BioTherapeutics (AMEX: PLX) should also have their Gaucher disease drug on the market eventually.

Genzyme is striking back, though, with its new Gaucher disease drug that can be taken orally rather than being injected like the current offerings. The drug, Genz-112638, is worth keeping an eye on, although it'll likely be in the hands of sanofi-aventis, which is buying Genzyme, by the time it's launched.

Sanofi's acquisition also affects BioMarin Pharmaceuticals (Nasdaq: BMRN), another major player in the orphan drug arena. BioMarin has a partnership with Genzyme to sell Aldurazyme. The change in control could result in BioMarin's gaining full control of the drug, but Sanofi looks like it's trying to fight for the right to keep the partnership intact.

And, of course, gaining full control of Aldurazyme would make BioMarin a more appealing takeover target. Including Aldurazyme, BioMarin has four drugs on the market and a couple in mid- to late-stage development. Just keep in mind that no one else went after Genzyme when it went looking for a white knight, so don't buy simply looking for a takeout.

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