Commercializing biomedical research through securitization techniques

Nat Biotechnol. 2012 Oct;30(10):964-75. doi: 10.1038/nbt.2374.

Abstract

Biomedical innovation has become riskier, more expensive and more difficult to finance with traditional sources such as private and public equity. Here we propose a financial structure in which a large number of biomedical programs at various stages of development are funded by a single entity to substantially reduce the portfolio's risk. The portfolio entity can finance its activities by issuing debt, a critical advantage because a much larger pool of capital is available for investment in debt versus equity. By employing financial engineering techniques such as securitization, it can raise even greater amounts of more-patient capital. In a simulation using historical data for new molecular entities in oncology from 1990 to 2011, we find that megafunds of $5–15 billion may yield average investment returns of 8.9–11.4% for equity holders and 5–8% for 'research-backed obligation' holders, which are lower than typical venture-capital hurdle rates but attractive to pension funds, insurance companies and other large institutional investors.

Publication types

  • Research Support, Non-U.S. Gov't

MeSH terms

  • Biomedical Research / economics*
  • Capital Financing / economics*
  • Financial Management
  • Humans
  • Investments / economics*
  • Neoplasms / economics
  • Technology Transfer*