Orphan drugs can mean high-risk challenges and years of tough research, but to the investment community they often translate into a big payoff - at least that is the case with enzyme-replacement therapies such as Cerezyme.

But does that mean success for new orphan drugs, such as Alexion Inc.'s paroxysmal nocturnal hemoglobinuria (PNH) treatment, Soliris, slated for U.S. and European regulatory filings in the fourth quarter?

"We've been pretty pleased as investors and analysts following this industry over the last decade with the success of drugs for ultra-orphan diseases," said analyst Eric Schmidt, of New York-based Cowen & Co.

Case in point: Genzyme Corp.'s Cerezyme for Gaucher's disease had sales of $254 million in the second quarter. The FDA approved the therapy in May 1994, when Cambridge, Mass.-based Genzyme predicted revenues to level off at about $200 million by the year 2000. Instead, Cerezyme has earned the company more than four times that amount, up to $932 million in 2005, and expectations are that sales will reach between $970 million and $980 million this year.

In the early 1980s, Genzyme licensed a program from Boston-based Tufts University that eventually led to development and commercialization of Ceredase and Cerezyme for Gaucher's disease.

"We were involved in that disease before there was an Orphan Drug Act," said Dan Quinn, the company's director of corporate communications. The act was established in January 1983 to inspire scientific work for small, financially disadvantageous indications. Companies that develop drugs for diseases affecting less than 200,000 people in the U.S. or that have a prevalence of less than five per 10,000 in a community are rewarded with tax reductions and a monopoly on the market for seven years.

Genzyme's experience in Gaucher's disease eventually led to other orphan products.

"We saw hints early on in our clinical trials of the tremendous clinical impact that an enzyme-replacement therapy could have with that disease," Quinn said.

Follow-on products were Fabrazyme for Fabry's disease and Aldurazyme for MPS I, which is marketed with BioMarin Pharmaceutical Inc., of Novato, Calif. Both were approved in April 2003. Genzyme also received approval this year for Myozyme to treat Pompe disease, and analysts estimate it could earn almost $200 million in 2008.

"What we have seen with all of these products is if you have a therapy that is effective in a disease area that is not well served, it can create a market in that area," Quinn said.

That is why Schmidt and his firm are stepping out of the box, estimating higher sales than consensus for Soliris. While The Street expects it to earn between $200 million and $400 million at its peak, Schmidt believes it could bring in $500 million-plus for Alexion because of its "magic bullet-like efficacy."

Pivotal data demonstrated high significance in co-primary endpoints of median transfusion rate (p<0.000000001) and hemoglobin stabilization (p<0.0000001) over six months.

Schmidt estimated that a patient population of more than 8,000 people in the U.S., Europe and Japan suffer from PNH, and said that consultants think half of all patients will be good candidates for treatment.

While Alexion is expected by some to price Soliris at $100,000 to $200,000 a year, recent orphan drug pricings might enable the Cheshire, Conn.-based company to ask for more. Other orphan therapeutics - such as Myozyme and Elaprase (for Hunter's syndrome, from Shire plc) - are priced at $300,000 per patient per year.

Orphan drugs are attractive investment opportunities, Schmidt said, because they address markets with few, if any, competitive products, the marketing and other costs typically are low and pricing reimbursement hasn't been a problem.

"This has been a gold mine for several biotech companies," Schmidt told BioWorld Today, "and I think Alexion is going to follow."

Estimating drug prices, the size of a market and a penetration rate is not an easy task for analysts and investors. The margin of error "surrounding each assumption is typically wide," Schmidt said in a research note, and the outlooks "carry little value."

Historically, he said, "The Street is typically too optimistic about the success of a new product launch." Most fail to live up to estimates. But drugs for ultra-orphan disorders "have generally been able to buck this trend," Schmidt said.

And that has others following Genzyme's lead.

"Clearly, Genzyme being the vanguard here has enticed other companies like Alexion, [Transkaryotic Therapies Inc.] and Biomarin into the market," Schmidt said, "so I think there are more companies than ever focused on these ultra-orphan diseases."

Aside from developing Aldurazyme with Genzyme, Biomarin also markets Naglazyme, approved in June 2005 for mucopolysaccharidosis VI. It earned $6.1 million in 2005, and $17.3 million through June 30 of this year. TKT's drug Replagal for Fabry's disease is marketed outside of the U.S., and Elaprase - approved in July for Hunter's syndrome - has orphan drug status in the U.S. (Shire Pharmaceuticals Group plc, of Basingstoke, UK, acquired TKT in July 2005.)

But there are high risks associated with those small patient populations. It's never easy to develop a potent drug that is well tolerated, and it's difficult to determine the population size for a disease in which there is no current therapy. Genzyme has focused its marketing efforts on educating physician's about the signs and symptoms of the disease, avoiding delays in diagnosis and access to its therapies.

Quinn said the number of patients taking Cerezyme, Fabrazyme and Aldurazyme "has grown slowly but steadily over the time that the drugs have been on the market" because of the company's physician education efforts.

Aldurazyme is the only orphan drug that has disappointed Wall Street in recent years, Schmidt said: "The initial expectations for that launch were a little bit too bullish, as there was a competing therapy available - bone marrow transplantation."

Some analysts thought the drug would earn as much as $175 million a year, but sales were only $23.5 million in the second quarter.

They still are on the incline, however, and bone marrow transplantation is a risky alternative selected only by the most ill MPS-1 patients, Quinn said.