Tuesday, May 1, 2012

Innovations in Financing Early-Stage Medical Research

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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