Financing drug discovery for orphan diseases

• Main Authors: Gromatzky, Austin A. (Contributor), Stein, Roger Mark (Contributor), Fernandez, Jose-Maria (Contributor), Fagnan, David E. (Author), Lo, Andrew W (Author)
• Other Authors: Massachusetts Institute of Technology. Computer Science and Artificial Intelligence Laboratory (Contributor), Massachusetts Institute of Technology. Department of Biology (Contributor), Massachusetts Institute of Technology. Operations Research Center (Contributor), Sloan School of Management (Contributor), Sloan School of Management. Laboratory for Financial Engineering (Contributor), Fagnan, David Erik (Contributor), Lo, Andrew W. (Contributor)
• Format: Article
• Language: English
• Published: Elsevier B.V., 2014-10-09T16:58:33Z.
• Subjects: Article
• Online Access: Get fulltext

Recently proposed 'megafund' financing methods for funding translational medicine and drug development require billions of dollars in capital per megafund to de-risk the drug discovery process enough to issue long-term bonds. Here, we demonstrate that the same financing methods can be applied to orphan drug development but, because of the unique nature of orphan diseases and therapeutics (lower development costs, faster FDA approval times, lower failure rates and lower correlation of failures among disease targets) the amount of capital needed to de-risk such portfolios is much lower in this field. Numerical simulations suggest that an orphan disease megafund of only US$575 million can yield double-digit expected rates of return with only 10-20 projects in the portfolio.
MIT Laboratory for Financial Engineering