Risk and Reward in the Orphan Drug Industry ANDREW W. LO AND RICHARD T. THAKOR ANDREW W. LO ABSTR ACT: Thanks to a combination of TOPICS: Mutual funds/passive investing/ is the Charles E. and Susan scientific advances and economic incentives, the indexing, security analysis and valuation, T. Harris Professor at development of therapeutics to treat rare or orphan performance measurement* the MIT Sloan School of Management, director of diseases has grown dramatically in recent years. the MIT Laboratory for With the advent of Food and Drug Administration– Financial Engineering, approved gene therapies and the promise of gene he term orphan disease typically and a principal investigator editing, many experts believe we are at an inflec- refers to rare conditions that affect at the MIT Computer tion point in dealing with these afflictions. In relatively small patient popula- Science and Artificial this article, the authors propose to document this tions, such as amyotrophic lateral Intelligence Laboratory in inflection point by measuring the risk and reward Tsclerosis, chronic myelogenous leukemia, Cambridge, MA, and an external professor at the of investing in the orphan drug industry. They and Gaucher disease. Many are fatal or Santa Fe Institute in Santa construct a stock market index of 39 publicly traded extremely debilitating. Although any single Fe, NM. companies that specialize in developing drugs for orphan disease is by definition uncommon,
[email protected] orphan diseases and compare the financial perfor- it is estimated that there are over 7,000 types mance of this index, which they call ORF, to the of such diseases and that the population of RICHARD T.