Lessons Learned: What Works (and Doesn’t) In Rare Disease Investing

Aug 21, 2019

The rare disease space has long been a key investing focus for NEA’s healthcare practice, given several ideal characteristics for biopharma innovation capital: high unmet need; rapidly advancing science; and favorable clinical development paths. Rare genetic diseases often have severe or even fatal manifestations, with few treatments available, while emerging genetic data and new treatment modalities such as gene therapy are rendering monogenic diseases more tractable. Regulatory and legislative initiatives such as Breakthrough Therapy designation, which makes it easier to work with the FDA on tailored trial designs, and the Orphan Drug Act, which provides seven years of regulatory exclusivity, have also encouraged development in the space.

In ten-plus years at NEA, I’ve been involved in about a dozen rare disease investments, including our Boston-based accelerator Cydan. A number of these companies have gone public and/or been acquired, including the recent acquisitions of Clementia Pharmaceuticals by Ipsen for up to $1.3 billion and Nightstar Therapeutics by Biogen for $877M. More generally, venture investment in the rare disease space—and FDA approvals of rare disease drugs—have skyrocketed, and pharma companies continue to grow their rare disease franchises via both internal innovation and acquisitions.

After many investments—and numerous successes—in the rare disease space, it seems like an appropriate time to take stock of lessons learned. What has made our rare disease practice successful? What common traits do the “winners” share? And where should we as investors, and the industry in general, exercise caution as we seek to responsibly bring these innovative therapies to patients?


Clarissa Desjardins, Ph.D., CEO & Founder of Clementia

Passion for the underlying science, while critical for all biopharma management teams, is even more important in the rare disease setting. Although the conditions are often devastating for patients, they are typically not as well understood as diseases with greater prevalence. As such, translating a therapy from animal models to clinical efficacy in a rare disease population is seldom straightforward. Clementia provides a compelling case in point.

Clarissa Desjardins founded Clementia based on the exciting promise that a small molecule oral therapeutic called palovarotene demonstrated in preclinical models of fibrodysplasia ossificans progressiva (FOP). FOP is an ultra-rare, severely disabling disease in which soft tissue transforms into threads and sheets of extraskeletal bone. Most affected individuals are wheelchair-bound by their 30s, with risk for early mortality by their 40s. Elements of the natural history of FOP were previously unknown, and the clinical data for palovarotene took a number of interesting, and at times confounding, turns.

Clarissa maintained tremendous focus throughout and moved swiftly on every element of the company’s strategy, from clinical trial plans to building the pipeline. She and Chief Medical Officer Donna Grogan worked closely with the FDA on a unique pivotal trial design that allowed for interim looks with the potential to stop the trial early based on successful data. Interim analyses can be especially valuable in rare disease indications, since novel/composite endpoints are often being used, effect sizes are hard to predict, and patients are desperate for a new therapy. Clarissa also persevered through significant challenges to deliver compelling preclinical data for palovarotene in a second severe bone disease, multiple osteochondromas.

In the rare disease setting, passion for and belief in a drug’s potential, relationships with a small group of leading researchers, and deep familiarity with patient advocacy groups can be more important in a CEO than experience taking a company public or launching a commercial product. Founding CEOs like Clarissa are often best-positioned to lead the helm in bringing a new therapy to patients suffering from these conditions.


Prosensa, which developed exon skipping therapies for Duchenne muscular dystrophy, offered a lesson in perseverance in the rare disease space. While the lead molecule drisapersen’s Phase 3 trial (run by partner GlaxoSmithKline) failed on its primary endpoint, the management team and directors strongly believed that the drug was effective. The Phase 2 studies, which had been run in less severe patients, had demonstrated compelling efficacy. The team’s strong conviction led to a dialogue with the FDA in which the agency expressed willingness to look at the total package of data, and those productive discussions eventually led BioMarin to acquire Prosensa in 2014 for $680M upfront and up to $840M in total. Although unfortunately the drug did not gain regulatory approval, the process undertaken demonstrates an important point: looking post-hoc to see which subsets of patients responded (generally a no-no in drug development) is often essential in the rare disease space, given the progressive nature of many genetic diseases. The fate of drisapersen also reflects the inherent binary clinical and regulatory risks that make biopharma investing challenging. Successfully deploying innovation capital in biopharma always involves a careful analysis of when to exit and leave remaining clinical and regulatory risk to an acquiror (or public investors), and when to keep investing to build more value.

Still, selling a biopharma company is almost always bittersweet. While the acquiror has generally more capital to develop a pipeline of drug candidates as well as commercial capabilities to ensure a successful launch, acquired programs don’t always maintain priority. Larger companies may also take a different approach to clinical development than smaller teams, such as with Shire’s acquisition of Lumena Pharmaceuticals, which was developing drugs for rare liver diseases.

NEA Partner Ed Mathers led Lumena’s $45 million Series B round in March 2014; two months later, Shire announced its acquisition of Lumena for $260 million in cash plus undisclosed potential milestones. Shire later announced disappointing trial results for the lead compound, maralixibat, and by 2018 was considering out-licensing the compound as pipeline priorities shifted ahead of Shire’s merger with Takeda. Lumena CEO Mike Grey viewed the trial results differently, with a strong belief that clinical proof of concept had been demonstrated in both Alagille syndrome (ALGS) and progressive familial intrahepatic cholestasis (PFIC). In fact, the FDA had granted Breakthrough Drug designation to maralixibat in PFIC based on a Phase 2 subgroup analysis.

Mike Grey and a group of former Lumena executives acquired the program back from Shire in late 2018 and launched a new company, Mirum Pharmaceuticals, with a $120 million financing backed by NEA and others. Mirum, which also recently completed a $75 million initial public offering, will launch Phase 3 trials for maralixibat in both ALGS and PFIC this year. Given the uncertain fate of drug programs in acquirors’ hands, “structured deals” may only be attractive if a significant portion of the consideration is upfront; and given the waxing and waning interest some pharmas have shown in the rare disease space, it pays to stay close and be opportunistic.

Winner Takes All

Developing therapies in the rare disease space is typically a “winner take all” scenario—scientifically, clinically, and commercially. This was the case with Nightstar, which built a pipeline of ophthalmology gene therapy programs starting with chorioderemia, an X-linked degenerative retinal disease which leads to tunnel vision and eventually blindness. Dr. Robert Maclaren of Oxford, a retinal surgeon and pioneer in gene therapy for retinal disorders, published promising initial Phase 1/2 results in choroideremia with the gene therapy that eventually became Nightstar’s lead program. Due to Dr. Maclaren’s central role in perfecting the surgical technique to deliver the gene therapy, his close involvement was vital to Nightstar’s ability to train retinal surgeons in the larger Phase 3 trial.

As demonstrated by Nightstar, early alignment with the leading academic researchers is key. Often academic programs are not ready for institutional investment—they may lack a team or adequate preclinical data set, which makes approaches such as our rare disease accelerator Cydan particularly advantageous. David Mott, General Partner and head of NEA’s healthcare practice, founded Cydan in late 2012 to capitalize on exciting but nascent academic and biotech efforts we were seeing in the rare disease space. The Cydan team brings in assets that need more de-risking—whether that’s replicating experiments, narrowing down a set of molecules to a development candidate, or validating a commercial opportunity—and then spins those assets out into NewCos which have a ready-made Series A syndicate in the Cydan investors.

For gene therapy companies, which aim to provide a one-time cure, there is also a massive first-mover advantage. The prevalent population is likely to be treated within a few years of approval, meaning competitors trailing by several years are likely to see their commercialization prospects confined to a tiny incident population. In addition, there are regulatory constraints imposed by the Orphan Drug Act on closely related molecules. It remains to be seen how the legislation will be applied within the gene therapy space, but in theory orphan protection should block closely related products from entering the market unless they demonstrate clinical superiority around efficacy, safety or convenience. There are also practical and even ethical limitations to testing a new drug in a small population affected by a severe disease, if those patients have ready access to an effective standard of care. Thus, orphan diseases, particularly those treated with one-time therapies such as gene therapy, are the exception to the rule that “best-in-class” trumps “first-in-class.”

Validating the commercial case for rare disease drugs—whether gene therapies or more traditional small and large molecules—can be tricky due to limited or unclear exclusivity periods and large undiagnosed populations. Many rare disease programs are based on molecules for which composition of matter patents have expired, and therefore they rely on Orphan Drug Act protection, which provides seven years of exclusivity in the U.S. While orphan drug exclusivity may be sufficient, acquirors will be more compelled if broader intellectual property can be secured.

Vtesse provides a telling example of this dynamic: in 2017, the Cydan spin-out was conducting a Phase 3 study in Niemann-Pick C, a devastating and fatal neurological disorder. A late-stage clinical program targeting a high unmet medical need already meets key criteria for pharma acquirors to take a closer look. Yet it was shortly after a critical patent on a high-purity version of Vtesse’s drug VTS-270 was issued that the company was acquired by Sucampo for $200 million upfront and substantial back-end economics. When intellectual property rights are secure, acquirors seem more comfortable with the challenges around low diagnosis rates, as history has demonstrated that diagnosis rates and overall prevalence estimates for rare diseases often skyrocket once a therapy is available.

Obtaining the clinical proof of concept data that motivates acquirors requires finding and enrolling appropriate patients for the trials. As we’d learned with Prosensa, it can be incredibly challenging to identify a population in which the disease is progressing but there is still the opportunity to reverse or slow the pathogenesis. To combat these challenges, Vtesse worked closely with patient advocacy organizations and provided assistance such as coordinating travel to clinical trial sites.

Even in this “winner takes all” landscape, success can be a long and winding road for the victor. No matter how advantageous a company’s position with respect to speed to the clinic, patent protection, and academic and advocacy group relationships, the characteristics highlighted earlier—passion and perseverance—play an invaluable role.

It's Worth It

Investing in rare disease companies is not for the faint of heart. The immense potential of disease-modifying agents for severe, genetically-defined rare diseases is counterweighted by the fact that the natural history may not be fully characterized, the clinical development paths and endpoints may require creativity and revision, and a majority of patients with a particular underlying genetic disorder may yet be undiagnosed. Investing responsibly and successfully in the space requires not just cutting-edge scientific advances but the engagement and support of disease experts; deeply committed and resourceful management; motivated advocacy groups; and plenty of patient capital. Backing a talented team with an exciting, potentially disease-modifying therapy for a devastating genetic disease is an important first step in delivering a new drug to patients (and ultimately, a return on the investment to NEA’s limited partners). We relish the opportunity to build companies from the first step to the last, and hope to continue to share our learnings along the way.