LOS ANGELES— The world of medicine has long been divided— between developed countries that can afford cutting-edge treatments and developing ones whose poor populations too often go without urgently needed care. Because the eradication of diseases like TB and malaria would make a dramatic impact on emerging economies, investors in these countries— including multinational aid providers, foundations, corporations and institutional funds— must work together in innovative ways to increase the pool of capital available to drive drug discovery.
A new report from the Milken Institute, "Innovative Financing for Global Health R&D,
? explores ways to broaden the flow of capital to bridge the divide— and get more treatments for diseases that primarily affect the developing world.
To explore the most effective financial models to fund the development of drug treatments and vaccines, the Milken Institute convened a Financial Innovations LabA(R) with support from the Bill & Melinda Gates Foundation. Lab participants, who included global health advocates and public- and private-sector investors, concluded that research and development for developing-world diseases can now represent opportunities to engage investors, apart from the traditional donors, with demonstrable financial and social returns.
"There has never been enough money in the system to adequately support global health R&D— leading to tragic outcomes for too many people and also disrupting economic development,
? said Glenn Yago, senior director at the Milken Institute and founder of its Financial Innovations Labs. "During the Lab discussions, it became clear that there are market opportunities along the global health value chain; it's just a question of how you structure the investments and align incentives for all industry stakeholders.
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In almost all cases, funds for finding treatments for diseases primarily affecting the developing world have come from charitable or governmental donations. This is partly due to the economics: diseases whose sufferers— and their governments— are not able to pay prices that cover the costs of what can be billions of dollars are not the priority for drug development. The result: the wide divide between health care available in developed versus developing nations. From 1975 to 2000, 1,393 medicines were developed for the global market, yet only 16 targeted diseases that primarily affect vulnerable populations in the developing world.
Moving beyond the traditional, aid-reliant funding structure, global health organizations, including product development partnerships— not-for-profit, public-private organizations that pool expertise, support R&D, and share ownership— have used innovative financial tools to leverage existing, insufficient philanthropic and public capital to attract private sector financing. These investment products are attempting to achieve both a financial and social return. The models vary from fixed income products to private equity funds, and they can diversify funding sources for drug discovery while also providing investors with a risk-mitigation tool that can improve long term profits.
The Institute's report outlines strategies for improving and expanding the use of financial tools to engage the largest pools of capital available, including:
• Developing more efficient ways for donors to be involved
• Implementing blended-capital mechanisms that spread risk among funders with different needs
• Implementing capital market-based models that can bring new investors to R&D
• Exploring new private-sector models that rely on mechanisms such as exchange-traded funds and GDP-linked securities
• Creating innovative partnerships that pair funding organizations with entities that have local-market expertise and infrastructure.
As one asset manager at the Lab suggested, in taking a more macro approach to investment, a dollar spent on improving human capital through healthcare R&D can have as much impact on a firm's profitability as a dollar spent on technology, energy, and telecommunication companies. This means that those willing to support medical advancement can make a profit on those funds while also helping stabilize the health of countries where they have assets at work, creating a win for everyone.
"We need to restructure how donor funding is used so that it can be used as a catalyst for private investment. Many of the finance models already exist; however, there needs to be greater market research to assess their feasibility and move the models towards funding and implementation,
? said Kari Stoever, Vice President of External Affairs at Aeras. "The opportunity— and the challenge— we're facing today is translating what the world of finance has shown can work to increase the investment appeal of solutions for global health needs, based on the varying risk tolerance and patience of funders and investors of different types.
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Copies of "Innovative Financing for Global Health R&D,
? are available for download here.