Financing repurposed drugs for rare diseases: a case study of Unravel Biosciences

Abstract

BackgroundWe consider two key challenges that early-stage biotechnology firms face in developing a sustainable financing strategy and a sustainable business model: developing a valuation model for drug compounds, and choosing an appropriate operating model and corporate structure. We use the specific example of Unravel Biosciences—a therapeutics platform company that identifies novel drug targets through off-target mechanisms of existing drugs and then develops optimized new molecules—throughout the paper and explore a specific scenario of drug repurposing for rare genetic diseases.ResultsThe first challenge consists of producing a realistic financial valuation of a potential rare disease repurposed drug compound, in this case targeting Rett syndrome. More generally, we develop a framework to value a portfolio of pairwise correlated rare disease compounds in early-stage development and quantify its risk profile. We estimate the probability of a negative return to be 80.8% for a single compound and 56.1% for a portfolio of 8 drugs. The probability of selling the project at a loss decreases from 79.2% (phase 3) for a single compound to 55.4% (phase 3) for the 8-drug portfolio. For the second challenge, we find that the choice of operating model and corporate structure is crucial for early-stage biotech startups and illustrate this point with three concrete examples.ConclusionsRepurposing existing compounds offers important advantages that could help early-stage biotech startups better align their business and financing issues with their scientific and medical objectives, enter a space that is not occupied by large pharmaceutical companies, and accelerate the validation of their drug development platform.