Rare Diseases

Note to Readers: This entry was co-written with Eileen Moison of Osage University Partners.  This is Part I of a two part series.

Rare disease medicines represent a promising therapeutic investment class for both venture capitalists and strategics.  VCs are attracted to rare disease investment opportunities because they typically require less capital to achieve valuable inflection points and the regulatory process is often more straightforward than other therapeutic classes.  For strategics, rare diseases have become a viable business model for even the largest of pharma companies.  

As a foundation, it is helpful to know the various players involved in the rare disease market.  The graphic below breaks down rare disease companies into 3 segments: private & independent start-ups; publicly-traded small-cap companies; and publicly-traded large-cap companies.  As there is no mid-cap category (the slide only had so much space), some companies like Shire are depicted as bridging both the small- and large-cap categories.

Spacing limited me from adding all of the major players in the rare disease space but the slide does a pretty good job of highlighting the variety of companies, both by company maturity and focus.  Having multiple players involved at all stages of company development highlights the robustness of the rare diseases drug development space.

What I find somewhat interesting is how people commonly view rare disease investing by VCs as a new phenomenon.  The reality is that VCs have long invested in rare disease companies like BioMarin, Alexion, and Genzyme.  Below is a chart listing the most active venture funds in the rare disease segment.  

According to recent PhRMA stats, there are 450+ rare disease medicines in active clinical development (Link Here). Many of these 450 assets have been financed by venture capital firms; however, it generally wasn’t until the last few years that large pharma started paying attention to rare diseases.  

The challenge for rare disease investing over the last 2+ decades has been a lack of acquirers.  Looking back at Alexion, Genzyme, BioMarin, InterMune, etc., all of the venture investors in those companies achieved exits through IPOs.  That trend is changing now that many of the original rare disease start-ups have matured into mid- and large-cap companies that are able to acquire younger companies.  Genzyme and other former start-ups have proven that the rare disease business model works, which has provided a blueprint for pharma to dip its toe into the rare disease market.

Novartis has long been at the forefront of rare disease drug development.  Other large-cap pharma companies such as GSK, Roche, Pfizer, Sanofi, and AstraZeneca are all ramping up their efforts in the space.  This should have a positive impact on venture investment and start-up creation as there are more exit opportunities than ever for rare disease companies.

University IP Drives Rare Disease Investment

Rare disease research is primarily conducted at institutions that specialize in basic research, such as the University of Florida, Penn, and Yale.  I think its great that there is such a diversity of institutions that conduct rare disease research, including land-grant universities, private universities, and specialized research centers.  Given the diversity of licensing institutions (see graph on the right), it makes me think that there is a lot of great rare disease IP out there waiting to be uncovered.  

With over 6,000 different types of rare diseases and over 450 medicines in the clinic, rare diseases provide a number of interesting current and future investment opportunities for VCs and strategics.  Should reimbursement rates hold firm, rare diseases will continue to be a hot investment area for the foreseeable future.