NEW YORK (CNN/Money) - Ever heard of Gaucher disease?

Gaucher disease is a rare, inherited disorder that causes harmful buildups of fatty substances in the spleen, liver, lungs, bone marrow and brain. If you haven't heard of it, that's because it only affects about one in 100,000 people.

Drug makers used to shun treatments for rare diseases like Gaucher because they didn't generate enough sales to make the research costs worthwhile. But this changed in 1983, when the Food and Drug Administration established the Orphan Drug Act to ramp up "orphan" drug development for rare diseases. The act provides tax cuts on research costs and seven years of market exclusivity to any company putting an orphan drug on the market.

The passage of the act goaded development dramatically. In the decade leading up to 1983, only 10 orphan drugs entered the market, according to the FDA. Since the act was passed, 269 orphan drugs were put on the market, primarily by biotechs.

"The law was passed to try and spur the companies to make drugs they wouldn't make because there just wasn't enough interest," said Fran Hawthorne, author of "Inside the FDA" and "The Merck Druggernaut." "The ones who tend to make these orphan drugs, by and large, are the biotechs. They're the ones that are on the cutting edge of everything."

Orphan sales are often slim and biotechs are more willing than Big Pharma to take the risks, according to biotech analyst Mark Monane of Needham & Co.

"Biotech takes big risks in areas of unmet need and they do that in an innovative way," said Monane. "As [Capt.] James Kirk [of the fictional starship Enterprise] says, it's not afraid to go where nobody else has gone before."

In some cases, the risk-prone development of orphan drugs really pays off.

Despite its tiny target population, Gaucher treatment has been the biggest money maker for biotech Genzyme Corp., which has produced six FDA-approved orphans. The company's top-selling drug, Cerezyme, treats 4,500 patients with Gaucher and generated $839 million in 2004 sales. The Boston-based biotech projects this year's Cerezyme sales to top $890 million as new patients are diagnosed. This represents a considerable chunk of Genzyme's (up $1.26 to $61.01, Research) revenue, which was $2.2 billion last year.

So how did an orphan drug with a small target population get to the point where it's flirting with blockbuster status? The price.

"If you're going to develop an orphan drug, you're going to have to charge a substantial price for the drug in order to make it worthwhile," said Matthew Geller, analyst for CIBC World Markets.

Genzyme charges up to $200,000 a year for Cerezyme treatment, according to Genzyme spokesman Dan Quinn. But insurance companies are willing to pick up the costs because of the drug's efficacy, said Quinn.

"We've priced the drugs in a way that the equation works," said Quinn. "The cost per patient is high, but the value of the drug is high, as well. [Cerezyme] takes a patient that is suffering from a debilitating disease and returns them to a normal way of life. So insurance companies have shown a willingness to support that."

But it's not just efficacy. Insurers aren't afraid of high-cost orphans like Cerezyme because there are comparatively few claims, said Philip Nadeau, analyst with SG Cowen & Co.

"Any insurance company will probably only have a handful of patients [with Gaucher,]" said Nadeau. "For the insurance company, it's not a huge cost."

Genentech, a $4.6 billion biotech based in South San Francisco, has had success with its orphan Pulmozyme, a inhalable drug that manages the symptoms of cystic fibrosis, a genetic disease affecting about 30,000 Americans. The disease causes inflammation and infection to the lungs, digestive system and other organs.

Pulmozyme sales totaled $178 million in 2004 and is one of Genentech's (down $0.39 to $82.60, Research) top five drugs.

"I wouldn't say we single out orphan medications, but if there is an unmet medical need it's something we look at," said Genentech spokesman Ed Lang. When it debuted in 1994, Pulmozyme was the first cystic fibrosis drug to be launched in more than 30 years.

Of course, developing an orphan drug is not generally the path to massive sales. Genzyme and BioMarin Pharmaceutical Inc. (up $0.24 to $7.63, Research) have co-developed Aldurazyme, a treatment for Mucopolysaccharidosis 1, or MPS 1, a genetic disease the prevents enzyme production. According to the MPS Society of Bangor, Maine, about 1 in 100,000 people have MPS 1.

Aldurazyme sales totaled $43 million in 2004. Genzyme projects sales to reach $60 to $66 million this year. But the company is losing money on the orphan, an analyst said.

"[Genzyme and BioMarin] spent $100 million developing Aldurazyme and it hasn't been profitable yet," said Nadeau, the SG Cowen analyst.

Nadeau said that Aldurazyme's annual marketing costs of $60 million to $65 million have eclipsed revenues. "It will take this product some time in 2008 before it can break even," said Nadeau.

But from a health care perspective, Aldurazyme is a great success in providing the first, and so far the only, treatment for MPS 1, said MPS Society executive director Barbara Wedechase.

"These are expensive drugs," said Wedechase. "But up until now, there have been no treatments available. So these families are very excited. We have not received any calls to this office from families who have had problems getting insurance."

The analysts do not own stock in the companies mentioned here and their companies do not do business with them.

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