Novel models that manage risk and encourage innovation are needed for funding early-stage medical research, according to an expert panel at the 2012 Milken Institute GlobalConference. The discussion focused on a variety of different financing approaches, including innovative partnerships with biopharmaceutical companies and research securitization.
Moderator Melissa Stevens of FasterCures framed the discussion by describing the gap in
translational research funding and asking the panelists why they think there is
a lack of capital for early-stage research.
Bernard Munos, founder,
InnoThink Center for Research in Biomedical Innovation, described the
culture change that began in the biopharmaceutical industry 15 years ago that
led to increased risk aversion across many of the major companies. He spoke
optimistically of the need for these companies to re-harness their innovation
infrastructure: “Innovation is in our DNA… Unfortunately, the DNA does not
always express itself the way it should.”
Other panelists mentioned organizational structure as well
as increased regulatory hurdles as impediments to innovation and changed risk
profiles in the industry.
Chris Varma, president
and CEO, Blueprint Medicines, described a recent deal around Warp Drive
Bio that resulted in a risk reduction for each partner. Novel approaches like
this, he said, are indicative of pharmaceutical companies knowing they need to
change and having the flexibility to structure creative deals that meet their
needs.
Aya Jakobvits, president
and CEO, Kite Pharma, and venture partner, Orbimed Partners, also discussed
a new model, the Israeli Life Sciences Fund, which features the Israeli government
as the silent partner in a recently closed venture fund that focuses on life
sciences investment. She described how the government sees the fund as “a
pillar in the ability of Israel to gain more value” and offers additional
benefits to partners, including downside protection and upside amplification. The
panelists discussed the potential of exporting this model to other countries.
In addition to government-backed ventures, philanthropy-backed
ventures are increasingly playing an important role in early-stage drug
development, both through providing funding and sending a signaling effect to
the market. Kathryn Smith, managing
director, Fast Forward LLC, described the importance of Fast Forward,
founded by the National MS Society, as “opening doors to potential partners,
not necessarily because of the money but because of the society and the network
of MS experts.” Varma also highlighted the increasingly important role of
philanthropic foundations, saying “I think organizations and companies that
don’t talk to foundations are at a competitive disadvantage.”
The final model discussed was the research securitization
model, which was motivated from observations made during the financial crisis.
Andrew Lo, Harris &
Harris Group Professor, MIT Sloan School of Management, explained that
by creating vehicles of debt financing we can tap into pools of larger capital
that can be used to transform the medical research industry. Such a model would
create long-term financing for a large pool of research assets with financial products
based on different risk/reward portfolios, allowing for patient capital to be
funneled toward a variety of projects that are in need of financing at variable
time scales. The other panelists were generally supportive of the concept, but
raised questions about how to prevent the degradation of science in the portfolio
and ensuring that investors can understand how much risk they are undertaking.
Finally, Stevens drew a contrast between models designed to
bring more capital to new ventures with models that are designed to decrease
overall capital costs, such as open source research and development, product
development partnerships, and data sharing.
All of the panelists agreed that a variety of new financing
mechanisms are important for early-stage drug development to meet the unmet needs
of patients.
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