Thursday, 3 July 2014

A New Way to Fund Orphan Drug Discovery

Orphan drug development is more difficult to fund as they tend to be required for the treatment of diseases that are rare compared with illnesses such as heart disease, asthma etc - such as to treat aspergillosis. If the market for these drugs is small then there is likely to be difficulty getting an adequate return on sales to cover the huge cost of development - at the very least there is a high risk of little or no profit so drug companies cannot find financial backers. 

This recent article offers the possibility of a new type of funding for these drugs: Megafunding.

Quoting Drug Discovery Today journal:

In the face of pharmaceutical industry productivity decline over the past several years, the authors of an article published in Drug Discovery Today propose a novel method of financing drug discovery. Fagnan et al. introduce the concept of ‘megafunds’ to attract investments into risky orphan drug research and development projects. A megafund would raise funds by issuing ‘research-backed obligations’ (RBOs), i.e. bonds on potential revenues from future sales of orphan drugs and intellectual property. Instead of relying on venture capitalists and other investment funds, megafunds could attract capital into orphan drug portfolios from a much larger investor base, usually unable to invest in early-stage drug discovery.
Based on their simulations and the assumption of high success rates, the authors suggest that megafund portfolios containing ten to twenty investigational compounds could deliver potentially, albeit uncertain, high returns on investment. While Fagnan et al. admit their simulations are only indicative of megafund potential, they maintain that novel financing models, such as RBOs to constitute megafunds, should be developed to address growing drug discovery challenges. By pooling and diversifying resources, the authors believe that megafunds spread their risk and offer greater financial flexibility whilst ensuring more efficiency and lower drug development costs.

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