Financial Engineering in Helping Cure Cancer and Rare Diseases

Can Financial Engineering Help Cure Cancer, Rare Diseases, And Other Afflictions?
Name:
Department:
Course:
Professor:
Date:
Can Financial Engineering Help Cure Cancer, Rare Diseases, And Other Afflictions
Introduction
The pharmaceutical industry, especially the research and development of drugs, is undergoing significant challenges despite the enormous technological and scientific progress over the past few decades. Fagnan, Fernandez, & Stein (2013) argues that the critical problem facing research and drug development is primarily attributed to the low financial returns. This issue has forced many investors to withdraw capital from the biotechnology and pharmaceutical innovation sector (Fagnan, Fernandez, & Stein, 2013). From an economic and financial perspective, the research and development of drugs remain excessively expensive, risky, and lengthy. The risk, cost, and long trial length mean that the research and development of drugs through financing vehicles of such investments, such as private and public equity, are no longer adequate because the needs of shareholders are not within their expectations (Ortiz, Stone, & Zissu, 2020). This means that the old business model used by pharmaceuticals to convert research into drugs is no longer viable and has for many years pushed investors to focus only on projects with less risk and more timely payoffs. At the same time, while private equity investment is a potential option, the degree of capital investment has always been lower, which means that the issue of funding continues to limit the most important sector – drug research and development. Financial engineering and innovation, particularly securitization and portfolio theory, is the new alternative to funding biomedical innovation.
Financial Engineering and cancer/rare disease mega-funds
Financial engineering refers to mathematical methods and techniques used to solve financial problems. Overall, financial engineering brings together tools and knowledge from several fields such as economics, statistics, computer science, and applied mathematics to help address emerging financial issues and help innovate new financial products. One key goal of financial engineering is to help organizations attain the desired efficiency and effectiveness in operations (Ortiz, Stone, & Zissu, 2020). Financial engineering allows analyzing, managing, and transferring risk within and across sectors or organizations. So far, the cost of developing drugs that cure diseases such as cancer, rare diseases, and other affliction is huge, and adopting financial engineering methodology stands as an alternative.
According to Voss (2013), financial engineering is the weapon in humans’ quest for cancer and other rare disease cures. Financial engineering is an ideal strategy because of its portfolio theory and securitization framework. Securitization allows issuers to design marketable financial instruments by merging and pooling several financial assets. In contrast, portfolio theory offers a practical method where investors select investments in a specific order to maximize returns at an acceptable risk level. While today’s science has made breakthrough therapies for some cancers, rare diseases, and H...