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Financial Innovations for Translational Medical Research
July 19, 2011
New York

Turning science into medical solutions requires innovators to leap all kinds of hurdles, but one of the biggest is the financial "Valley of Death," where many underfunded early-stage ventures meet their demise.

To help bridge this funding gap, dozens of investors and innovators convened for a Financial Innovations Lab to explore the approaches being used to advance initiatives in medicine and other industries. Organized by FasterCures and the Milken Institute, the Lab was designed to explore whether these financial tools could be applied to translational medical research.

The Lab spotlighted models for partnering in research and development, and identified finance instruments and incentives, some of which are described below.

  • The "distributed partnering model" utilizes product definition companies (PDCs) that identify and license promising early-stage assets from research institutes, manage product definition research, and sell de-risked assets to later-stage stakeholders. The PDCs make $3 million to $5 million investments aimed at attracting additional funding.

  • BioPontis Alliance is a hybrid investment fund and product development company that aggregates technologies from a consortium of universities. It screens these assets, develops them through a translational development network and then licenses them to strategic pharmaceutical partners. Its activities are supported by a $50 million fund. The model encourages sourcing of early-stage assets from academia by pooling and sharing the value of intellectual property, and helps ensure later-stage funding by establishing relationships with pharmaceutical companies. This proposition is made more attractive to universities via a master IP licensing agreement that expedites the process and grants universities a pro-rata share of the total value created by the assets.

  • Fast Forward, a wholly owned subsidiary of the National Multiple Sclerosis Society, represents a new venture philanthropy model. It provides leveraged, philanthropic funding to translate academic research and further develop biotech research into new treatments. The technologies are identified and evaluated by scientific and business advisors. Fast Forward makes investments in the range of $250,000 to $1 million.

  • The Israeli Life Sciences Fund uses a standard venture capital-structured fund with the government and the private sector as limited partners. The Israeli government, which takes the first loss before the other limited partners, has committed $80 million to boost returns for private investors.

  • Flow-through shares, which originated in the Canadian resource industry, encourage higher-risk investments through tax incentives. Oil and mineral exploration companies issue these shares as a way to pass government tax deductions for exploration on to investors, effectively halving the risk of investment.

    There was broad agreement that the medical research system has much to learn from financial models that have worked in other industries such as filmmaking, telecommunications, and oil and gas. But participants cautioned against simplistic analogies, noting the unique circumstances that define the medical research process. Science is unpredictable, and failure to fully vet a product has consequences that are measured in terms of life or death.

    Results from the Lab "Fixes in Financing: Financial Innovations for Translational Research" can be found here. For more information, contact Caitlin MacLean, manager of Financial Innovations Labs, at cmaclean@milkeninstitute.org.