Monday, April 26, 2010

Accessing "Smart Money" for Medical Innovations

By Kristin Schneeman, Program Director, FasterCures

A panel of international financial innovators in health and nutrition agreed today that there is an urgent need to bridge a widening funding gap between early-stage research and product development, not just with more money but with “smart money.” In describing their models, they demonstrated that government and nonprofit intermediaries can be ideally positioned to play that role, if they take novel and thoughtful approaches.

Moderator Margaret Anderson, Executive Director of FasterCures and Glenn Yago, Executive Director of Financial Research at the Milken Institute laid out the challenges and the urgency in addressing them. The funding “valley of death” in medical research is real and widening; companies and venture capital are increasingly risk-averse, and information gaps between academia and industry are growing. The slow progress in addressing poverty and disease around the world is inhibiting global growth.

Noting that Germany suffers from a lack of entrepreneurialism, especially in life sciences, Stephan Gutzeit, Executive Director of Stiftung Charité, outlined his organization’s model. The foundation makes grants to academic labs, and then when the work is advanced enough to build a start-up company around, a for-profit venture arm invests in those companies, providing wrap-around support to move ideas along. Gutzeit echoed the words of Scott Johnson, founder of the Myelin Repair Foundation, from an earlier panel, when he said that nonprofits can play a unique role as “systems integrators” to bring together the players in the research and development system.

Ora Dar, Head of the Life Sciences Sector of Israel’s Office of the Chief Scientist briefed the group on a new program, the Life Sciences Fund, the Israeli government has embarked on to support its vibrant start-up community, which the government already supports with direct grants to young companies. Four management teams were selected and are in the process of raising funds. In addition to investing directly in all four funds, the government will provide upside sharing of its net profits and downside protection to other investors.

Craig Courtney, Special Advisor, Innovative Finance for the Global Alliance for Improved Nutrition infused the discussion with his learnings from nutrition. GAIN works to address constraints in the market and draw private capital in to improving global food markets. In all cases GAIN is creating partnerships, leveraging its global scale, and de-risking investment by private sources.

While experiences differ from country to country, and between organizations addressing developed world and developing world needs, many of the funding challenges are strikingly similar, and there is a need for more intermediaries to help bridge gaps and address market constraints. One panelist noted that in many cases the models being discussed weren’t terribly novel from a financial markets perspective. Several panelists appealed for a thoughtful role for government and not a knee-jerk reaction to merely inject more capital into the market.

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