Garrett Black December 12, 2014
Venture capital’s interest in rare disease and orphan drug startups is quickly growing. The increase in VC funding for these companies has been forecast for some years now, but it appears to be finally coming to fruition.
VCs and pharma giants are pushing resources into early stage opportunities because, as is the case in quite a few other industries, a near-monopoly in a niche space is better than fierce competition in a larger market. After poring through PitchBook news coverage and valuations of the most valuable rare disease startups, a few key factors emerge as to why the rare disease space could be lucrative:
1. Potential market: With genome sequencing rapidly becoming cheaper, the number of those diagnosed with rare diseases (as well as the number of diseases) has only proliferated.
2. Lower production costs: In the U.S., for one, the Food and Drug Administration is still pushing for faster approvals, allowing smaller clinical trials and shorter turnarounds.
3. Scarcity of treatments: Most of the estimated 7,000 rare diseases currently known have no treatments, which speaks to the difficulty of drug development for little-known disorders, as well as the potential reward of monopoly on the only viable drug candidate.
The PitchBook Platform reveals how VCs appear to be willing to take that risk: $346 million has flowed into the pockets of rare disease/orphan drug startups worldwide so far this year, a record for the decade, while financing activity has surged since 2012. Looking across a sample slew of PitchBook profiles, auto-immune and neurological disorders appear to be popular areas of focus. The aforementioned genetic sequencing, combined with more sophisticated computational modeling and crowdsourcing research (both exemplified by protein folding projection programs like Foldit) have also enabled greater understanding of patients’ genetic profiles. In addition, and similar to crowdsourcing research, natural history tools—wherein patients worldwide can input info such as biomarkers, genetic and environmental variables and more—have become more common, pointing toward an increasingly crowd-sourced, global model of understanding patterns in rare disorders.
Median valuations have declined somewhat since a peak in 2012, yet a solid number of companies have reaped hefty valuations this year. Some notable ones include:
To uncover more about which companies are attracting the most venture investor interest, and to explore their financing history, contact us here.