Again, imagine that you are an investor evaluating the gene therapy described in the previous page (which could help babies’ eyes reverse a protein buildup that would otherwise cause them to go blind). What questions would YOU ask the drug developers?
For example, you might want to know:
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How many babies are born with this condition every year? Where do they live? Would the drug treat everyone affected by this disease or only work in a subset of patients? If a subset, how would you identify patients who would be good candidates?
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Is there a good animal model for this disease, and if so, what do preliminary results in the model suggest? How confident are you that the observed effect could translate to humans, and what specifically gives you that confidence?
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Would physicians who work with patients with this disease be enthusiastic about administering a product with the profile you’re proposing? Why or why not?
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Would families who have a child affected by this disease be willing to enroll that child into a clinical trial? What level of potential benefit would make the risk of doing so worthwhile? How long would that trial have to last to judge whether the drug was working?
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How much would it cost for your company to produce and administer this drug? How many doses would you have to sell each year to adequately pay the scientists, lab workers, quality control specialists, manufacturers, shippers, and storage facilities to profitably provide the drug?
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Will this drug provide such a clear benefit to recipients that health insurers will basically have to acknowledge its effect and cover it, or will there be anything associated with the drug’s profile that will allow them to get away with refusing to put it on their formulary?
Investors’ core questions can be influenced by a variety of different variables that we represent as part of an investment equation.
Listen to the Executive Director of RA Capital’s TechAtlas Research division, Erich Scheller, explain the investment equation in depth here at timestamp
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For another perspective, check out this article from Halle Tecco [OPTIONAL]. But note, there is more complexity here. For example, what if this round is priced a bit high, but unless you invest now you won’t be able to invest later when the valuation might be very attractive? In this case you have to ascribe some of the return from the next round to the current round. Essentially you are paying for an option on an allocation in the next round. An investor can’t just assume that any deal is available to them at any time. Sometimes they pay to play in subsequent rounds by “overpaying” in the prior round. Sometimes they pay by offering the company more than cash (i.e., services). As you can see there is a lot that goes into these complicated investment decisions!