March 25, 2015
A paper published in Science Translational Medicine demonstrates how financing a programme used by the National Center for Advancing Translational Sciences (NCATS) – the megafund model – could reduce the risk associated with investing in developing orphan drugs.
A megafund is a “financial investment fund in which investors commit capital to develop a portfolio of orphan drugs and receive the proceeds of these investigational drugs or intellectual property rights as they are sold to venture capitalists or licensed by pharmaceutical companies”.
The authors apply this concept to evaluate the risks and benefits of a simulated portfolio based on a real-life rare-disease NCATs portfolio. The authors calibrated the pooled data from the portfolio of research projects (to develop orphan drugs) funded by NCATs on key model parameters. They then sought the opinion of a panel of experts active in the biotech industry. The authors estimated that, following a period of 11 years, the annualised returns of this hypothetical megafund were 5% and 8% for senior and junior bondholders, respectively. They also predicted a 14.7% return for equity holders which is equivalent to an internal rate of return of 21.6% using typical venture-capital metrics. The authors state that this study illustrates how a rare-disease megafund based on the NCATS business and operation model provides a live example with which to calibrate megafund simulations for orphan drug portfolios.