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Profitability and Market Value of Orphan Drug Companies: A Retrospective, Propensity-Matched Case-Control Study

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  • Dyfrig A Hughes
  • Jannine Poletti-Hughes

Abstract

Background: Concerns about the high cost of orphan drugs has led to questions being asked about the generosity of the incentives for development, and associated company profits. Methods: We conducted a retrospective, propensity score matched study of publicly-listed orphan companies. Cases were defined as holders of orphan drug market authorisation in Europe or the USA between 2000–12. Control companies were selected based on their propensity for being orphan drug market authorisation holders. We applied system General Method of Moments to test whether companies with orphan drug market authorization are valued higher, as measured by the Tobin’s Q and market to book value ratios, and are more profitable based on return on assets, than non-orphan drug companies. Results: 86 companies with orphan drug approvals in European (4), USA (61) or both (21) markets were matched with 258 controls. Following adjustment, orphan drug market authorization holders have a 9.6% (95% confidence interval, 0.6% to 18.7%) higher return on assets than non-orphan drug companies; Tobin’s Q was higher by 9.9% (1.0% to 19.7%); market to book value by 15.7% (3.1% to 30.0%) and operating profit by 516% (CI 19.8% to 1011%). For each additional orphan drug sold, return on assets increased by 11.1% (0.6% to 21.3%), Tobin’s Q by 2.7% (0.2% to 5.2%), and market to book value ratio by 5.8% (0.7% to 10.9%). Conclusions: Publicly listed pharmaceutical companies that are orphan drug market authorization holders are associated with higher market value and greater profits than companies not producing treatments for rare diseases.

Suggested Citation

  • Dyfrig A Hughes & Jannine Poletti-Hughes, 2016. "Profitability and Market Value of Orphan Drug Companies: A Retrospective, Propensity-Matched Case-Control Study," PLOS ONE, Public Library of Science, vol. 11(10), pages 1-12, October.
    • Handle: RePEc:plo:pone00:0164681
    DOI: 10.1371/journal.pone.0164681
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    References listed on IDEAS

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    Cited by:

    1. G. Kent Fellows & Daniel J. Dutton & Aidan Hollis, 2018. "Making Sure Orphan Drugs Don’t Get Left Behind," SPP Communique, The School of Public Policy, University of Calgary, vol. 10(6), August.
    2. Daniel Tobias Michaeli & Thomas Michaeli & Sebastian Albers & Tobias Boch & Julia Caroline Michaeli, 2024. "Special FDA designations for drug development: orphan, fast track, accelerated approval, priority review, and breakthrough therapy," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 25(6), pages 979-997, August.
    3. Pejcic, Ana V. & Iskrov, Georgi & Jakovljevic, Mihajlo Michael & Stefanov, Rumen, 2018. "Access to orphan drugs – comparison across Balkan countries," Health Policy, Elsevier, vol. 122(6), pages 583-589.

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