#micfm

Background

FasterCures, a center of the Milken Institute, has had a longstanding interest in philanthropy as a source of funding for innovation in medical research. People sometimes wonder why, since philanthropy regularly represents only 2-3 percent of the U.S. investment in medical research every year. However, while philanthropy may be small in size, it can be unique in its role as a source of capital. Like venture capitalists, venture philanthropists are inclined to fund novel, high-risk research. They view philanthropy as a form of capital that can afford to take risk—particularly in the early stages of R&D where costs are relatively low but risks are relatively high.  

For the last dozen years, FasterCures has convened a network of patient-driven foundations that fund medical research and share a desire to be strategic and outcomes-driven with their funding and other resources. Our TRAIN (The Research Acceleration and Innovation Network) program has been a platform for these organizations to share information and best practices and for networking with other stakeholder groups. It also provides insights into the systemic challenges and unmet needs in the biomedical innovation ecosystem that foundations are trying to understand how to address with scarce resources.  

Private Session Discussion

Participants in the conversation at the Future of Health Summit heard an overview of existing philanthropic investment models that are working. . For example, over the last 11 years, the Leukemia and Lymphoma Society’s Therapy Acceleration Program has sought to de-risk the path for young companies by investing $120 million in 60 programs, with two U.S. Food and Drug Administration (FDA) approved products and a third on the way. Funding opportunities go through a very rigorous due diligence process, and terms are flexible depending on the company (e.g., convertible notes, equity, collaborative licensing).

Baiju Shah, CEO of BioMotiv, part of the Harrington Project for Discovery and Development started by the philanthropic Harrington family, provided a different perspective. Harrington features a nonprofit academic granting arm and a for-profit accelerator arm (BioMotiv) and is not disease-specific. It brings not just financial investment, but also development expertise and partnerships. This approach is useful in getting the assets that it invests in across the stages of translational research, where is there a high risk of failure, and into clinical development, which Shah described as “an effective machine for moving really exciting academic discoveries to the point where patients are benefitting from them.”

Participants also discussed several emerging models. Efforts to create hybrid funds, pooling nonprofit and for-profit capital, or staging different types of capital, have been tried in the past but now appear to be gaining traction. For example, Ed Walters and his partner, David Bates, of Tamarisc Ventures have been advising a family office on the creation of a philanthropic entity focused on mental and behavioral health. It is structured to maximize flexibility as a charitable trust with a for-profit LLC and private foundation built in. The foundation can be funded annually, as well as the investment capital for the LLC, and everything eventually flows back into the charitable trust. During the session, Walters explained, “We spent a lot of time asking our network and other experts out there for advice on what the optimal structure was and, to be honest, we're still looking,”, which produced knowing nods from many around the table.

Lisa Ryerson of AARP explained the well-known advocacy organization’s interest in supporting ventures that benefit the aging population, including as a significant investor in the Dementia Discovery Fund, as well as other social impact enterprises. This led to a discussion of the availability of new players to help scale venture philanthropy approaches. Finally, Garen Staglin, founder and chairman of One Mind, gave an overview of a new effort to create a large-scale social impact bond in collaboration with stakeholders such as the World Bank and the Society for Neuroscience. This endeavor will put more resources behind R&D in the high-risk area of neuroscience with the aim of alleviating the enormous economic and social costs of mental health disorders around the globe.  

As individuals in the private session made clear, philanthropy is playing an important role in high-risk therapeutic areas such as neuroscience and rare disease, as well as in particular stages of R&D such as translational science and early-stage clinical research. Later-stage clinical development is also an area in which new hybrid business models are incorporating elements of philanthropy or social responsibility. The group heard from Freda Lewis-Hall, Chief Medical Officer at Pfizer and a member of FasterCures’ advisory board, about a new business model that harnesses socially responsible investing to develop compounds that have been deprioritized by companies but that may still have the potential to be developed into new treatments to address unmet patient needs. “The question was, can you build a fit-for-purpose business model that allowed you to get these late-phase compounds developed as quickly as possible and into the hands of the patients that need them?” One approach described by Lewis-Hall was the creation of SpringWorks Therapeutics, a benefit corporation, which was initially funded by a group of other socially responsible investors, including Pfizer, and which was launched with rights to four compounds licensed from Pfizer. SpringWorks also has partnerships with patient organizations around individual assets.  

Following these discussions, several critical points on the key questions raised at the session’s outset were discussed:

1. Why philanthropy?

It can play a unique role in de-risking promising research for further investment.

Philanthropies can provide value other than financial resources, such as access to key opinion leaders, development expertise, and commercial partnerships.

Philanthropies tend to take a systemic approach and look for levers of change.

By nature, philanthropy can have a lower expectation of financial return than other investor types.

Two interesting questions that surfaced were:

Is there an important distinction between “venture philanthropy” and “impact investing”?

Does investing philanthropic capital potentially dissuade other types of market capital from coming in early or introduce undesirable conditions into the equation?

2. What are the challenges of venture philanthropy? 

Identifying optimal deal structures is hard.

Identifying/sourcing opportunities for investment can be challenging, especially in non-disease-specific contexts.

Philanthropy has a natural interest in openness and sharing, which can come into conflict with intellectual property and other professional/commercial considerations.

Financial and organizational capacity at philanthropies to do this kind of deal-making is usually limited – though success helps build capacity.

As health-care costs continue to rise, many patient-driven organizations are feeling pressure to try to exert influence on pricing and access.

There is little agreement on what reasonable and appropriate return on investment is.

Interest areas of foundations/philanthropists can be narrow.

3. How can these approaches be scaled?

Existing models and best practices should be more widely shared—there is no need to reinvent the wheel.

New players such as AARP could turn their attention and resources to investing in medical research.

A mega-fund of research projects could be securitized for investment.