For Fun and Profit

I was glad when I heard that the professional global health policy wonks at the Results for Development Institute’s Center for Global Health R&D Policy Assessment had cranked out a report on “The Global Health Social Enterprise” (R4D report), but more sad than glad when I read it.  As I learned from at a webinar the week before, the “enterprise” of the title encompassed for-profit companies developing products for under-served global health markets, a topic in which I claim to have a strong interest and some experience.  Moreover, I see a need for the non-profit/academic global health complex, so ably represented by R4D, to understand better the actual and potential contribution of for-profit enterprises to global health and thought the report may have addressed that need.  But, as with previous R4D reports I’ve read (e.g., “Open Source Sesame”), the author and editors have good intentions but miss the mark.  Here is my quick list of points at which the report goes off (and then on) track followed by some points I think the report could have made.

  • The report started with a faulty view of the economics of global health (page 8).  A more accurate starting point is not that patients in low- and middle-income countries (LMIC) “lack purchasing power” (did you pay the full price of your last doctor visit or did your insurance company?), but that the economies of the LMIC do not currently support affordable, insurance-based health care (but then neither does ours).
  • The base of information about the biotech/pharma business was too limited, e.g., a main source was interviews (page 9 and page 48 where only five of the twelve interviewees listed were from companies) and not include readily available information (e.g., Bruce Booth’s blog post on alternative models in biotech, New Biotech Structures).
  • The author identified a main problem for global health social enterprises (GHSEs) as the absence of “metrics” to measure social benefit (pages 9, 11, 37, and 43) which first, is a problem common to all social benefit organizations (and ignored by most) and second, may actually easier for companies developing global health products since public health experts have a well-developed methods for measuring the benefits vs. costs of interventions.
  • The report failed to explore (or even comment on) the role of for-profits companies in developing global health products in parallel with products for the well-reimbursed markets despite noting “in recent years, for-profit biotechnology companies started viewing NTD markets as financially lucrative in and of themselves and structuring their business models to serve those markets for financial gain” (page 15).
  • There was an assumption of trade-off between financial return and meeting a social mission (page 17) and that investors will only consider an investment that delivers a high ROI when in reality the two are completely compatible since the goal of the company is to be successful by delivering a needed product at a price that returns a profit.  For investors, the first question is whether there will be any return on their investment in the company and its business, and then when, and last, how much.  In fact, the company owners (both the directors and investors) realize that the goal bringing social benefit will not happen unless the company is also profitable and stays in business.
  • The report implied that for-profit enterprises can’t receive grants (page 25).  They can, but grantors are strongly biased against them (unreasonably so to my mind).
  • The author noted “many independent impact investors [investors seeking social benefit] lack the bandwidth and technical understanding to assess the social impact of GHSEs” (page 28) but did not propose how to overcome the lack of knowledge even though two companies were mentioned that were successful in getting this type of investor.
  • The author rightly pointed out that conducting clinical trials is expensive, but by citing a top end figure of $800 million (page 30) did not recognize that the cost is highly dependent on the product (e.g., the Meningitis Vaccine Project brought the MenAfriVac to market for less than $50 million).  He also ignored the potential for corporate licensing and co-development deals to support trials although partnerships are mentioned as one of four sources of funding for GHSEs in the summary table on page 43.  Moreover, this funding option was not discussed elsewhere in the report, even though it is a primary part of most biotechs’ business plans.
  • The report incorrectly used the term “repurposing” to mean developing a new drug for use in more than one indication (page 32), whereas repurposing more commonly means taking an existing, off-patent drug and developing it for an indication different than the original.
  • The author asserted that a purchase or merger is a negative for a company (page 38) and did not recognize that a buyout is good because first, it brings money to owners and investors and validates the business model; second, can be structured so that a new, better-funded, entity can be created to pursue global health products; and third, the cashed-out owners can put their money to work in another global health enterprise.
  • I am pretty sure that the reference to a “Carol Macey” (page 39) should be to Carol Nacy, founder of Sequella who was CSO for EntreMed when we first met when I did tech transfer at Boston Children’s Hospital.

Three of the more on track points made are:

  • The report provided a helpful summary of two new corporate structures that may benefit GHSEs, the Benefit and Flex C structures (Pages 19-21), but did not add much in the way analysis (for a much better discussion, see the Bioworld article the author cited).
  • The author concluded that GHSEs have several advantages over traditional for-profits and non-profit PDPs:  access to investment capital, flexibility to pursue market and social opportunities, and a legal authority to purse social benefit objectives.
  • The Appendix had a nice summary of seven companies developing global health products (page 47) although the author could have also included pharmas like Cipla, NEED Pharma, and Epsilon Therapeutics and diagnostic companies like Diagnostics for All and Daktari.

As for additional points, I think the report should have included:

  • rather than creating a new “social enterprise” global health business model, the recognition of the value and role of a the “traditional” for-profit model that can easily incorporate developing products for global health markets and providing an acceptable ROI;
  • recognition that early-stage funding is vital to the risky business of product discovery and development and foundations should be encouraged to realize that they can give grants to for-profits as a better bang for the buck than giving it to academics or non-profits that have a poor record of turning technology into products;
  • education of “impact investors” about the biotech/pharma industry and risks and rewards of investing in it;
  • another advantage of for-profits over non-profits is that they expect, and welcome, engagement by and accountability to investors; and
  • since PDPs have a stranglehold on the flow of Gates money, rather than passing it through to their buddies in academia, they should contract with the GHSEs and other for-profits for product development.
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