Team:Evry/Practices/Innovative
Innovative funding approaches
Since 2000, the business model of the pharmaceutical industry has been challenged by numerous issues. Indeed, while regulatory bodies approve fewer new medicines, it has to face the « patent cliff », where many blockbuster drugs patents expire, leaving the industry to cope with a financial loss that often represent a large proportion of its income. For example, in 2009, Pfizer lost patent protection on its most profitable product lipitor which accounted for 27% of its total revenues. As a result sales growth of prescription drugs is on a declining trend. When a drug is under patent protection, only the pharmaceutical company that holds the patent is allowed to manufacture, market the drug and eventually make profit from it. When the patent goes off, after about fifteen years depending on the countries, the drug refered to as « generic drug » can be manufactured and sold by other companies and removing market monopoly from the company that produced the patented drug.
Although pharmaceutical companies can renew the patent by implementing significantly the original compound, this new competition results in a significant drop in drug costs, but also put pressure on the pharmaceutical industry to reduce drug research and development expenditure as they get more and more expensive. Plus, improving already patended drugs may require new clinical trials and re-application of the patent. In other words, « translating » scientific discoveries into useful therapetics is directly impacted by these issues, even if the pharmaceutical industry had foreseen the patant cliff and prepared for it in several ways, including mergers, acquisitions, agreements with generic producers post-patent expiry and investing into biopharmaceutics development. Nevertheless, with more than 60% of all worldwide deaths caused by heart diseases, stroke, cancer, chronic respiratory diseases and diabetes according to the World Health Organization (WHO), medical innovation is greatly needed. It was estimated that new drug innovation was responsible of 40% of the two-year increase life expectancy from 1986 to 2000 (Lichtenberg 2005). This particular economic situation, greatly influenced by health preoccupation contributed to the develoment of new funding approaches to support innovative drug development. Here we explored some funding alternatives to traditional funding approaches.
From Rock band to innovative drug development : The Crowdfunding
Watch the interview video
Developped in the eighteenth century, Crowdfunding was first recorded successful in 1997, when a British rock band funded their reunion tour through online donations from fans. Then, in the last decade, this new method of funding evolved as an industry and emerged as a popular option for entrepreneurs to validate their ideas, gain exposure and funding. As a result, crowdfunding revenue tripled from 530 million dollars in 2009 to 1.5 million dollars in 2011. Crowdfunding grew so important that it led Barack Obama to sign the Jumpstart Our Business Startups (JOBS) Act into law more commonly known as the « crowdfunding bill ». The JOBS Act was finalized earlier this year in March 2015, as the Securities and Exchange Comission (SEC), a governmental organization whose aim is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, approved the final rules to activate implementation of Regulation A+, which represent a major breakthrough in the crowdfunding as it allows startups and small businesses to raise a maximum of 50 million dollars through crowdfunding under law.
As much of an interesting way to fund innovative drug developpment crowdfunding represents, we are still far from the 1 billion dollars needed to go through every stages of the drug development. Furthermore, an article from the NewsRX Health published on August 30th 2015, titled « Patient-funded trials may do more harm than good, ethicist warn », was concerned about taking advantage of sick patients desperate to live: « But patient-funded trials often attract people who are seriously ill and therefore willing to take large risks. They also allow clinics to pop-up that are clearly motivated by profit under the guise of offering new interventions, some of which do not have sufficient basic science findings to support them ».
The participatory funding or Crowdfunding, is a way for companies, associations and private person to finance their project. This system allows pooling person and skills around project and to promote a start-up or an association in development. The funds collected can have four origins:
The donation: In the case of simple donation, a natural or legal person (company) gives money for a Company or an association receiving. The donator earns nothing, only the satisfaction of having contributed in a project; this funding form is an act of solidarity. In general, this kind of funding is more specific to the association’s donation.
The reward: A natural or a legal person gives money in exchange of reward. This kind of transaction look like to the triad of Marcel Mauss present in his essay “Essai sur le don” translated “Essay on the donation”. This essay discuss of the donation observed in archaic societies. The reward involved three-fold triple obligation: give-collect-pay back. The project manager could offer different types of reward:
- If the willingness of the project is to product something and not a service, the donor could receive a product in exchange of his contribution.
- The reward may also take the form of gifts, goodies or promotional products, to give some examples.
Bank loan: A natural or legal person gives bank loan instead of to finance a project. In return, the money borrowed has to give back, with or without bank interest.
The equity: It is an investment: the natural or legal person co-finance the project by the acquisition of shares in the companies involved. This last funding for is an exchange regulate by a contract between the stakeholders. Naturally, the contract has to be in concordance with the law of state. In this context, the term Cowdequity is used.
Crowdfunding platform examples:
Music: Sellaband (Hollande, 2006) , Spidart (France), Akamusic (Belgique), My Major Company (France).
Cinema: Touscoprod, YourMajorStudio, Movies Angels or People for Cinema.
Video games: Digital Coproductions (2010), Gamesplanet Lab, (2012).
Plastic arts: Fabrique d'artistes.com
Edition: Mymajorcompanybook.
Press/ media: NowPublic, Mediapart
Sports and leisure: Tennis Angels, My Poker Squad, Myfootballclub.
Innovative drug development through drug royalties, it works !
Another article published in 2014 by the Journal of Investment Management, titled « New funding methods in the biopharma industry : a case study of Royalty Pharma, inc. » profiled a successful business model that allow the patent-holders, mostly universities, hospitals, and biomedical research centers to sell a portion of their future royalty streams in order to fund new research initiatives. Founded in 1996 by an investment banker called Pablo Lagoretta, Royal Pharma is a privately owned alternative investment company that focuses on the acquisition of pharmaceutical royalty interests. It currently manages 10 billion dollars in assets, consisting of 39 approved and marketed biopharmaceutic products and two products in clinical trials and/or under review with the United States Food and Drug Administration (FDA) and/or the European Medicines Agency (EMA). In exchange of its royalties, the patent-holders receive liquidity, the investors then perceive a royalty payment in the form of a percentage of sales or a fixed amount per unit sold that is derived from the use of a proprietary asset. Payments based on future earnings allow smaller companies to work with more established firms and academia without affecting their already difficult funding situation.
The downside of this funding system is that at the moment it focuses on drugs with blockbuster potential that are marketed by leading pharmaceutical and biotech companies.
Funding cancer through a « megafund, a safer investment » !
Following a talk given on TED.com in November 2013 by Roger Stein, PhD, an MIT research affiliate and a managing director at Moody's in New York. We took a look at his article published in Nature Biotechnology.
He and his coauthors proposed a “megafund” valued at between 2.5 and 30 billion dolars, that would combine debt securities (such as bonds) with traditional equity (stocks). Debt holders would be paid in interest on varying time scales, while equity holders would cash in only when development transactions are completed, explains Roger Stein. “Insurance companies, pension funds, and others who steer away from high-risk investments might be interested in this approach because it offers more reliable, albeit modest, returns,” he says.
The success of a few funded ventures could generate enough profit to offset losses incurred by the majority that fail. Simulations with a hypothetical cancer drug megafund, described in an article in the October issue of Nature Biotechnology, suggest that yields on debt securities could range from 5% to 8%, while returns on the high-risk equity could range up to 11.4%.
According to Stein, the megafund might advance drug approvals in cancer and other diseases because it would allow more compounds to cross a financial “valley of death” between early- and late-stage developments.
Watch video on TED.com! https://www.ted.com/talks/roger_stein_a_bold_new_way_to_fund_drug_research?language=en#t-570612
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