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Rare diseases business model

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.

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