More MS news articles for September 2000

The Billionaire And The Orphan Drug

The young heir to the Serono pharmaceutical fortune is being thwarted by the U.S. Food & Drug Administration--but maybe not for long.

October 2, 2000
By Lea Goldman

Despite his Hollywood looks, penchant for fast boats and $9 billion net worth, no one calls Ernesto Bertarelli a playboy. When he took the helm of the Swiss drugmaker Serono from his ailing father in 1996, Bertarelli was just 31, the youngest CEO in the company's 94-year history. Since then he has piloted Serono with the same vigor he does his champion speedboats, putting the company on a true course to global expansion.

Serono had sales of $1.1 billion last year, with a product line derived almost entirely from an assortment of biotech therapies that affect fertility, human growth, metabolism and multiple sclerosis. The company's key to growth is the U.S. market, which now accounts for less than a third of revenues but could be much bigger for Serono.

Stumbling block: the U.S. Food & Drug Administration, which last year rejected approval of Rebif, Serono's multiple sclerosis drug. Rebif, with $143 million in sales last year and 5,000 new prescriptions written in the past six months, is a success in Latin America and parts of Europe. But the FDA decreed that it too closely resembled a couple of existing MS drugs whose exclusive market position the agency was obliged to protect.

Bertarelli isn't about to give up: At stake is a potentially larger share of the $1.4 billion market for the 3 million multiple sclerosis patients worldwide.

Introduced in 1998, Rebif treats relapsing-remitting MS, the most common form of this degenerative disease, in which the body's immune system destroys myelin, the protective coating of nerve fibers. The drug prevents that destruction by aiding "communication" between cells of the immune system.

The FDA believed that its action was compelled by the Orphan Drug Act. Because the target population is so small for such maladies as hemophilia and narcolepsy, pharmaceutical companies complained that their returns might never cover their investments. So the U.S. Congress in 1983 enacted that law to reward drugmakers for developing products for rare diseases, otherwise "orphaned" by the industry. ("Rare" means affecting fewer than 200,000 Americans.) The law grants a seven-year monopoly to drugs pioneered for rare ailments and 50% tax credits for clinical trials. Drugs usually qualify for 20-year patents; orphan drugs get shorter but more sweeping monopolies, which makes it harder for me-too drugs to compete.

Berlex Industries beat Serono in the relapsing-remitting MS sweepstakes with a 1993 patent for Betaseron, a similar immune-modulating drug. Delivered every other day by injection, Betaseron reduces the frequency of relapses by 34%. It also diminishes the severity of such relapses, thereby cutting down on hospitalization. Cost: $10,800 a year.

Three years later the FDA approved Avonex, manufactured by Biogen; its privileged status as a protected drug runs out in 2003. These two therapies have negligible differences in price and results in patients. But Avonex causes fewer complications at the injection site. On that basis the FDA deemed the second drug sufficiently different to get around Betaseron's monopoly. "This was not an inconsequential issue. Two people [on Betaseron] had to have their arms amputated," says Dr. Marlene Haffner, director of the FDA's orphan drug office.

Serono knocked on the doors of the FDA, claiming that Rebif was clinically superior to Avonex: Since Rebif is injected at a higher dose and with greater frequency, it delivers a more powerful kick. It also argued that, unlike its competitors, Rebif can be used on patients in both early and late stages of the disease. "From every trial we have performed and all our studies, it is obvious there is a better effect in MS patients," Bertarelli says.

Show us the proof, said the FDA. Bertarelli has ordered a clinical trial that pits Avonex against Rebif in a population of 700 patients. The preliminary results will be announced next year; if they favor Rebif, the FDA will presumably soften its opposition to the new drug.

While it pursues the patient competition, Serono is mounting a legal attack, too, challenging the FDA's interpretation of the Orphan Drug Act. Bertarelli thinks the law should protect only the exclusivity of Avonex's injection method, not the drug's ability to combat multiple sclerosis.

Bertarelli has taken his case to Congress. In so doing he has opened the door to a possible revision of the entire law. That could help or hinder his company. The Orphan Drug Act has historically been good to Serono, which has relied on it for Serostim, a drug that responds to AIDS-related symptoms and pulled in $137 million from the U.S. last year. But the MS market is the real prize. This year Avonex could rack up $750 million in worldwide sales.

Which means we can expect to see a lot more of Bertarelli. This summer he took Serono on an American road show, raising $2 billion with an ADR listing on the New York Stock Exchange (Serono trades on the Swiss Exchange). With its stock at $27 a share, the company is worth $19.1 billion, a hefty 107 times trailing earnings. That price won't be vindicated unless Bertarelli bags a blockbuster or two.