Join us online at COVERGENCE OCT 22-23
The University Tech/Startup Gap Fund and Accelerator Summit
- 20 in-depth gap fund/accelerator program reviews
- Breakout and group discussions on common challenges
- Corporate and Investor partnering panels
- Networking web-site and associated materials
There is no shortage of diseases and conditions for which a cure is desperately needed. Just think of cancer, Alzheimer’s, and autoimmune disease. Despite the strides made in recent years in developing treatments, the road to a cure for many of these conditions can be a meandering path beset with pitfalls, frustration, and failure to hit pay dirt.
Hence, there is a never-ending need for funding drug research and development. Traditional private equity investment and venture capital have been around for years. In many instances, these types of investment have had a positive impact on therapeutic research and commercialization efforts.
But now, enter impact investing; environmental, social, and governance (ESG) investing; and venture philanthropy—a version of impact investing. Along with them come opportunities for the socially-conscious to influence drug development, and reap benefits—positive health outcomes as well as a financial return.
Creating social impact
Impact investing and venture philanthropy entail generating beneficial social or environmental outcomes by investing in certain industries or social efforts, in addition to obtaining financial gain for oneself. These investments give socially-conscious investors a results-based approach to investing. They differ from traditional philanthropy in which donors do not expect to receive financial reward. These investors challenge researchers and company executives to contribute to the public good as they create profit.
Impact investing and venture philanthropy tend to be in the realm of high net-worth people. And then for those who do not have millions in assets, there’s ESG investing, in which people determine how to invest based on their individual value system, explains Les Funtleyder, healthcare portfolio manager at E Squared Capital Management, and a Pharm Exec Editorial Advisory Board (EAB) member.
Investing in pharmaceutical R&D would appear to be a good fit for these types of investors, who could be an individual, a group of individuals, or venture-like funds. “By definition, if you create a drug that cures people, you’re having a positive impact on society,” says Funtleyder, who also teaches healthcare investing at Columbia University.
Funtleyder says that while ESG is more common in Europe, it is expected to grow in the US, especially among millennials who want to invest in organizations that align with their values. In healthcare, ESG investors would avoid companies that are involved in mercenary pricing of their drugs, for instance. ESG investors would look for organizations with diverse employment or diversity on the boards of directors. In developing countries, ESG investors might seek out organizations trying to improve access to healthcare through the establishment of local clinics.
Ideally, investing in a company would be based on an investor’s values, such as developing drugs for unmet needs. Targets might include acute, orphan, or pediatric diseases. “Generic companies have a role to play. They could be the guys in the white hat, lowering costs,” notes Funtleyder.
Opportunities in pharma
Surprisingly, the Global Impact Investing Network’s eighth Annual Impact Investor Survey found that only about 5% of impact investment efforts were directed to the healthcare sector in 2018. The survey’s findings represent more than 200 respondents’ perspectives on how the impact investing industry overall continues to evolve.
The lower percentage of healthcare investments may be attributable to the belief that healthcare investing may be more risky, explains Funtleyder. But there have been many missed opportunities in the pharma area, and much of that may be due to a lack of communications on the part of the industry, he asserts. “Many people don’t necessarily understand how difficult it is to make (and receive regulatory approval for) a drug,” says Funtleyder.
He believes the pharmaceutical industry has not articulated its “value proposition” well in a way that would resonate with socially-oriented investors; people generally do not understand the process involved in producing a drug, says Funtleyder. “You don’t often see biologists or medicinal chemists in ads talk about how cool the science is, and what they have to do to get a drug to market,” he notes.
Still hope for dementia
One investment fund focused on a specific disease is the Dementia Discovery Fund (DDF). The fund facilitates the development of effective drugs for the treatment of dementia. It aims to invest in early-stage research and is an example of a venture capital fund amenable to impact investing and venture philanthropy.
The DDF is the first venture capital fund to specialize in dementia. By focusing the 2013 G8 meeting on the global challenges of dementia, David Cameron, former UK prime minister, advocated for the disease as well as for more investment.
Then, the newly formed World Dementia Council worked with the UK’s Department of Health and Social Care to address dementia specifically. This led to a partnership with the charity Alzheimer’s Research UK and some major pharma companies. Together, they formed the initial investment in the DDF. SV Health Managers LLP currently manages the fund.
The DDF has four key areas of scientific focus:
- Inflammation, immunology, and microglial function
- Membrane contact site biology
- Mitochondrial dynamics
- Synaptic physiology and structure
Angus Grant, CEO of the DDF, explains that the fund invests in early-stage projects that might not receive company or government support because of the large amount of innovation and investment needed. “We hope to fill an area where there’s a void by funding early research, and de-risking it for biopharma to step in,” says Grant.
“We have to be very disciplined in our investing strategy,” he adds. “Our focus is on patient benefit. Patients benefit when a physician can prescribe a drug. We have to find the right early-science projects—invest in them, nurture them, and get them into late-stage clinical trials where biopharma can take over.”
The DDF looks for projects in which scientists have identified specific pathways in patients that could be modulated for clinical benefit. But the fund also looks downstream to see if the research will lead to a drug that could be prescribed. To find projects with potential, DDF relies on a team of scientists with expertise in
neurodegeneration, inflammation, and other fields. They scour the scientific literature, attend scientific conferences, and meet with academic and company researchers, advocacy groups, and others. DDF started off with about $130 million in investments and eventually reached about $325 million with help from a diverse group of investors, including patient advocacy groups, industry, AARP, Bill Gates, commercial insurance companies, and the NFL Players Association. “Usually these investment funds are set up to have a return on investment in a 10-year window,” says Grant. “But because dementia is a very difficult area to tackle, it is a 15-year fund.”
The DDF’s investment efforts have begun to pay dividends. In February, Alector, a clinical stage biopharmaceutical company in which the DDF invested, commenced trading as a public company, following the successful completion of its $176 million IPO. The company is pioneering immuno-neurology, a therapeutic approach for treating neurodegeneration. Alector was the DDF’s first investment in 2015, and the completion of its IPO is a significant milestone that supports DDF’s mission. Alector is one of 16 companies and translational projects in which the DDF has invested.
Investing in repurposing
Meanwhile, Cures Within Reach is utilizing venture philanthropy and impact investing to generate financing for medical repurposing research, and to drive less expensive treatments to patients more quickly. In repurposing, the organization aims to advance new indications of already-approved drugs, devices, and nutraceuticals.
The organization looks for technologies that are affordable to test, and which can be quickly incorporated into clinical settings. Newly validated repurposed therapies usually have completed Phase II clinical trials. They often are generic drugs.