A Financial Public Private Partnership to Cure Rare Diseases

GCFP co-director and Sloan professor Andrew Lo testified last month before the House Financial Services Committee in support of “The Rare Disease Fund Act of 2019.” Known for short as the RaD Fund Act, the bill would create a government fund to acquire and manage a diversified portfolio of biomedical research assets. The fund would then be privatized through sales of bonds and stocks to private institutional investors.

The legislative proposal builds on Professor Lo’s extensive research on the use of novel financial structures and public private investment partnerships to help overcome the ‘‘Valley of Death’’ — a term coined by healthcare industry professionals to describe the steadily widening funding and resource gap that currently exists between basic research and clinical development, effectively limiting the field of potential novel therapies, technologies, and treatments for patients. A critical insight is that while individually very risky, large numbers of research projects combined into mega-funds can produce much more predictable, and hence more attractive, returns to investors.

According to Professor Lo, “Although any single rare disease affects only a relatively small number of patients, it is estimated that there are over 7,000 rare diseases, affecting as many as 30 million Americans in total, more than the estimated number of Americans with cancer.”

Professor Lo sums up his testimony by saying, “The Rare Disease Fund Act would establish a megafund prototype to channel more resources into the “Valley of Death” and transform it into more verdant pastures of biomedical innovation. More capital implies not only a larger number of new therapies, but also better therapies by allowing individual entrepreneurs to take on more innovative but riskier projects rather than playing it safe, and then spreading these risks over a larger pool of investors. Quantity and quality can both be improved through better financing tools and business models.