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A rare genetic disorder known as hereditary angiodema (HAE) is attracting a great deal of attention from drugmakers these days.

On Tuesday,

ViroPharma

(VPHM)

said it will spend a minimum of $443 million to buy

Lev Pharmaceuticals

(LEVP)

, which is currently in a tight race to get the first HAE drug approved in the U.S.

The deal comes a week after U.K. specialty drugmaker

Shire

( SHPGY) announced its deal to acquire Germany's

Jerini

for roughly $520 million. Jerini received European approval for an HAE drug Tuesday; Shire is expected to pursue a U.S. approval as well.

ViroPharma and Shire join fellow drugmakers

Dyax

(DYAX)

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and

CSL Behring

in seeking regulatory approval for new HAE treatments, a disease that affects 10,000 patients in the EU region and 7,000 patients in North America, according to Shire.

Small numbers of patients can still lead to big profits, especially when drugs for rare genetic diseases can carry price tags in the hundreds of thousands of dollars per year, as companies like

Genzyme

( GENZ) and

Alexion Pharmaceuticals

(ALXN) - Get Alexion Pharmaceuticals, Inc. Report

have already proven.

A Race for the U.S. Market, and Exclusivity

HAE is a disorder caused by a defect in the gene C1-INH, which causes periodic, acute episodes of painful swelling in a patient's extremities, gastrointestinal tract and, most dangerously, the airway passages. It's estimated that about 30% of HAE patients die due to suffocation caused when their airway swells shut.

While treatments for HAE have been marketed in Europe for more than 30 years, the U.S. remains an untapped commercial opportunity.

Lev Pharmaceuticals and Behring both have upcoming U.S. regulatory approval decisions on their respective products, Cinryze and Berinert P. Both treatments are administered intravenously and are essentially identical.

This sets up an interesting race to approval because the small number of U.S. patients afflicted with HAE affords orphan-drug status and with it seven years of market exclusivity in the U.S. to the first drug approved to treat the disease.

Lev (now to be ViroPharma) sought Food and Drug Administration approval for Cinryze first, but the agency issued an approvable letter on Jan. 30, requesting more information. On May 2, an FDA advisory panel recommended approval of Cinryze to prevent HAE attacks. Lev responded to the FDA's information request and is now expecting to hear on Cinryze's approval on or before Oct. 14.

Behring is seeking approval for Berinert P as a treatment for acute HAE attacks -- not as a prophylactic, or preventive treatment for the disease. The FDA is expected to make its decision on or before Sept. 6, provided that it receives a priority review.

Susquehanna Financial Group biotech analyst Jason Kolbert, who follows the HAE companies closely, says the FDA may sidestep the hard decision of granting market exclusivity to either Cinryze or Berinert by approving both drugs for slightly different indications.

Cinryze could be approved for the prophylactic treatment of HAE while Berinert could be approved for patients undergoing acute HAE attacks, he says.

An HAE drug approved in the preventive setting means substantially more revenue per patient -- $250,000 to $350,000 a year -- compared to an acute treatment drug, which may cost about $25,000 a year per patient, says Kolbert.

This helps explain why ViroPharma agreed to pay $443 million, and possibly even more, to acquire Lev and gain access to Cinryze.

High-Risk Competition

Not everyone is happy with ViroPharma's decision. The stock is off about 15%, dipping below $11 a share, in the wake of Tuesday's announcement, in part because some investors worry the company paid too much for a drug that may never generate sufficient returns.

"With so much intense competition expected in the HAE space ahead, we wonder if prophylactic therapy will be supported by payors, especially if good acute therapies are available," notes Kolbert. "The glaring price difference would suggest to us that only the most severe patients will qualify for prophylactic treatment."

Kolbert covers both ViroPharma and Dyax, and he has neutral ratings for both stocks.

The second round of HAE entrants to the U.S. market include Dyax and now, feasibly, Shire, which last week announced it was buying Jerini and its lead product HAE drug Firazyr in a deal valued at $521 million.

Both companies are developing HAE drugs that can be given to patients with a simple injection under the skin, instead of intravenously, which may make them more convenient and stronger competitors when launched.

Dyax is expected to file its drug, DX-88, for FDA approval at the end of the year, pending results from an ongoing phase III study that should be completed in the current quarter.

Shire's Firazyr was rejected by the FDA in April, and Wall Street is speculating that approval in the U.S. will require another clinical trial. Jerini didn't have those resources, but with Shire's support it's now feasible and likely.

Drugs to treat HAE are well-established in Europe. Behring's Berinert is already approved there and sold in several countries. Shire's Firazyr was approved for European use Tuesday. Analysts expect the drug could reach global peak sales of $350 million to $400 million.

ViroPharma and Dyax are also expected to seek European approval for Cinryze and DX-88, respectively.

With both Jerini and Lev each fetching premium takeout prices, investor attention may shift to Dyax. The stock, closing at $3.71 on Wednesday, is up well over 20% since the beginning of July.

"We believe Dyax shares are undervalued for a late-stage company, noting an estimated technology value of only approximately $140 million and the recent Jerini purchase by Shire for over $500 million and ViroPharma proposed acquisition of Lev Pharmaceuticals for over $400 million," wrote Needham biotech analyst Mark Monane in a note Tuesday. He has a buy rating and an $8 price target on Dyax.

But in this competitive environment for new HAE drugs, the pressure is mounting. "It becomes critical that Dyax not make any further missteps in its delayed efforts to get DX-88 to the U.S. marketplace," Susquehanna's Kolbert says.

And when it comes to competition, of course, more may mean less. "You are going to have four or five companies competing in this niche orphan space, and I'm concerned that that it's going to be not-so-profitable for any one company," he adds.