Rxs for Vxs

The international and multilateral effort to deploy vaccines against the infectious diseases of childhood and poverty has resulted in millions of lives saved and illnesses averted, contributing substantially to personal and national health and well-being.  But at the same time, there are scientific and political challenges that are limiting the extension the benefits of vaccination.  To overcome these challenges, the experts of the vaccine community have identified a set of goals.  In the technical/scientific category these include:

  • Vaccines that confer long-lasting immunity with a single dose (e.g., through new adjuvants);
  • Vaccines that do not require refrigeration;
  • Alternatives to delivery via injection;
  • Antigen design especially for parasitic diseases; and
  • Curative vaccines (see Gates Grand Challenges 1-6 and 12).

Under policy goals there are:

  • Expansion of funding options, especially for the low- and middle-income countries;
  • Strengthening immunization delivery and monitoring systems;
  • Improving public acceptance of vaccination; and
  • Utilization of evidence-based vaccination programs (Cochi 2011).

Often overlooked by the experts though is the role the biopharmaceutical industry can have by improving existing vaccines, inventing new ones, and increasing access and affordability through competition.  Thanks to the Bill & Melinda Gates Foundation, progress was announced on three efforts involving industry in the past month.

In early October, PATH’s program to help Chinese vaccine manufacturers enter the global health vaccine market reached a milestone (PATH is a Seattle-based product development program largely funded by the Gates Foundation).  WHO announced that it had added a vaccine for Japanese encephalitis made by China National Biotec Group (CNBG) to its list of prequalified vaccines, meaning UN agencies like UNICEF can purchase the vaccine for their immunization programs and purchases by eligible countries may be subsidized by the GAVI Alliance (WHO press release).  PATH has spent a substantial sum (I’m not sure how much) and has provided expertise over the past ten years to Chinese companies and the Chinese drug regulatory authority to meet the stringent requirements of manufacturing quality and processes of prequalification program (see the 2011 interview with PATH’s China program leader).  Japanese encephalitis is an important vaccine target since the mosquito-borne disease is endemic in much of south Asia and causes 10-15,000 deaths per year and the other available vaccine is expensive and requires multiple doses (WHO JE vaccine).  To achieve prequalification status, PATH provided CNBG $39 million since 2004, and CNBG invested about $131 million (China Daily article).  According to the Financial Times, the CNBG vaccine costs $.30 per dose, eight times lower than the retail price of a competing vaccine (FT blog and FierceVaccines article).

Also, last week at the 9th annual Grand Challenges Meeting held in Rio de Janeiro, two steps were announced to involve industry and increase competition.  In the first, Trevor Mundel, president of global health for the Gates Foundation, said that the foundation is starting a Vaccine Discovery Partnership program (VxDP) through which it will be funding research at companies from preclinical to Phase II trials to “reduce the risks associated with early-stage vaccine research, and increase the likelihood that the most promising new vaccines are developed quickly, and at lower cost” (Mundel blog post).  Also announced were the first two company participants, GlaxoSmithKline (GSK) and Sanofi.  According to its press release, GSK and the VxDP will devote a combined $1.8 million to explore how to make adjuvants, compounds that are co-administered with vaccine antigens to stimulate a robust immune response, more heat stable and thus improving he heat-stability required for vaccines to be used in under-resourced environments where refrigeration is lacking (GSK press release).  Specifically, the work will focus on the adjuvant, AS01, that is a component of GSK’s malaria vaccine candidate, RTS,S.  RTS,S is in Phase III testing in partnership with the Gates-backed PATH Malaria Vaccine Initiative.  Also given in the release were the details that VxDP projects may include multiple partners including academic and not-for-profit organizations, that companies will agree to match foundation funding and to provide global access, and that projects may also address nontechnical problems like the affordability and delivery of vaccines.  Sanofi Pasteur, the vaccine group of Sanofi, also announced its participation in the VxDP in a press release but did not specify its projects or funding (Sanofi press release).  While the VxDP’s emphasis on funding early-stage and higher risk projects is good, as I have noted in the past, the Gates Foundation often shies away from providing meaningful funding for highly speculative research, such as may be found at small biotech companies, and the requirement for matching funding will likely exclude them.  But then until the VxDP puts up a website with information on how to apply for participation, the amounts and commitment of funds, and its coordination and management functions, the potential of the program to help vaccine development broadly is not clear.

Also announced at the conference was the Gates Foundation’s first grant, as far as I know, to a government to make a vaccine, and hence possibly improving the competitive landscape and resulting in lower prices cost and increased availability.  As was reported by Reuters (Reuters article), Brazil’s minister for health, Alexandre Padilha, said that Bio-Manguinhos, a unit of the government’s Oswaldo Cruz Foundation (Fiocruz), will make a new measles/rubella vaccine specifically for export to developing countries in Africa, Asia, and Latin America.  The Gates is providing a grant of $1.1 million and possibly additional funds for development.  The goal will be to produce 30 million doses per year starting in 2017.  Measles is a potentially fatal viral disease for children and rubella, while mild in children can be spread to pregnant women causing miscarriage and defects.  Combined vaccines now reach 80% of the world’s children before the age of one year, but an estimated 158,000 children still die of measles annually (WHO Fact Sheet).  This is a small, but possibly meaningful, step given that Fiocruz will need at least tens of millions of dollars more to get the vaccine to market, the vaccine will not be on the market for 4-5 years, and its market share will be small, 10-20% (according to the WHO 225 million doses of combined measles vaccines were given in 2011).  But Fiocruz is a unique government entity having extensive experience in vaccine development and production, including being the recipient of the transfer of the technology for the measles vaccine production from GSK (for more about Fiocruz, see the Fiocruz website and my 2010 posting, “Fio-Cruise”).  I’m guessing that the Gates grant is a one-time deal, but if it is part of a wider plan to improve the ability of vaccine manufacturing programs of governments to meet their and other countries’ needs for basic vaccines, it could be a significant move.

Tossed from the Balcony

Last week, it was announced that the world’s first investment fund dedicated to global health product development had completed raising money and was ready to start investing.  In a press release, the aptly-named Global Health Investment Fund (GHIF) stated that $94 million had been committed by twelve foundations, government agencies, and companies to be invested in organizations that have products in clinical development and nearing commercial use (new drugs, vaccines, diagnostics, and child-friendly formulations of existing products are mentioned) or that are expanding manufacturing capacity (GHIF press release).  Although the release did not specify the types of investee organizations, in an interview JP Morgan Chase’s head of corporate responsibility said the primary investees will be the not-for-profit product development programs (PDPs) and then “pharmaceutical companies, emerging biotech companies, academia and developing world manufacturers of innovations that fall outside of the current PDP pipeline” (One.org article).  The fund-raising has been in the works for almost two years led by the Bill and Melinda Gates Foundation which is using a chunk of its “program-related investment” program money as I noted in a post last January, “Nothing Ventured”.

From the GHIF website and poking about elsewhere, I learned the full list of fund partners (below) and that the fund will be managed by London-based Lion’s Head Global Partners which will identify and structure the deals (LHGP).  The fund will provide mezzanine financing (as in a floor added to an existing building), a type of funding that is typically used by established companies to grow and is in the form of a loan that gives the lender rights to ownership/equity if the loan is not fulfilled (Investopedia terms).  As for the return on investment, the GHIF investors apparently will receive a minimum of a 2 percent return plus 80% of the returns greater than 2%, according to Impact IQ post from last September (Impact IQ post), not the more lucrative venture capital returns of hundreds of percent.  The investors will also be protected from loss in that Gates Foundation and Sida of Sweden will guarantee 60% of the fund’s capital; 20% of invested capital will be fully covered and 50% of the rest (GHIF About).  I did not see an estimate of the time frame for yielding returns, but I am guessing, if everything goes right (unlikely), a first product may complete trials, be approved and launched, and generate revenues in 6-8 years.

I’m in the dark on several other points.  It is not clear on how many investments will be made in a year and how much each will be.  The GHIF noted the fund has identified more than 200 new products in development “including drugs and vaccines against the full spectrum of global diseases including cholera, diarrhea, HIV, malaria, and TB, as well as products for improving global nutrition and family planning.”  I would think there are many more opportunities since this number is 1.5% of the 14,570 or so projects underway throughout the world, according to the 2012 G-Finder database.  At $94 million the GHIF is a bit light for a life sciences investment fund.  Current early- to mid-stage life science investment funds are in the $200 to 400 million range (e.g., the recent announcements for Wellington Partners and Frazier) and typically invest at least $12 million into four start-ups annually (Timmerman Xconomy).  For the GHIF, because a Phase III trial costs about $20 million (based on the mean cost per patient of $10,000 and an average of 2000 patients (CISCRP Facts), a single investment in an organization with a late-stage drug development program may be $10-20 million.  I’m guessing the GHIF will be able to handle 2-3 investments of this size over two years, a more modest rate of investment than that of VC firms.  Its also not clear if the GHIF investment is intended to cover the other costs associated with getting a product to market such as the cost of regulatory filings and tooling up manufacturing and distribution.  Theoretically some or all of these costs will be borne by a commercial partner who may also pay upfronts which may or may not be considered returns on investment.  As an example of the type of project it will invest in, the GHIF cited the meningitis vaccine, MenAfriVac.  This product was brought to market by the Meningitis Vaccine Project, a PDP, at a cost of $50 million and a price of $0.05 per dose with the Serum Institute of India as a commercial partner (my post, “Watch Out Big Pharma?”, and Meningitis Vaccine Project).

It is also not clear how investment decisions will be made.  I see several key parameters that need to be weighed:  the potential impact the product will have on global health, the scientific/technical risk, the likelihood of regulatory approval (if sought), the availability of alternatives on the market or in development, and the involvement of a partner that will actually put the product into commerce and use.  The GHIF did note one criterion to be considered, those products with public health applications in both developed and emerging markets.  In contrast, one of the more successful VC firms and locally-based Third Rock Ventures uses three criteria according to a recent interview in Nature and a Fierce Biotech story:  “Projects must be no more than three years away from clinical trials; companies must be able to replicate their key findings without spikes in toxicity; and Third Rock doesn’t pull the trigger unless it’s sure Big Pharma isn’t going to step in and compete.”  Of course, Third Rock funds early stage companies and is looking for a higher return on investment like 5x in 5 years.

I also wondered if GHIF will be bringing more than money to the party.  Successful investors are involved in their investments (some times too much).  Will GHIF bring in experts in clinical design, take seats on boards, promote specific commercial partners, advise on where to run tests, seek approvals, launch products?  More importantly, will it be able make tough decisions on when to reinvest (a typical result) or when to write-off an investment (a distinct possibility)?  Looking at the management structure of the GHIF (GHIF Leadership) and the added complication of working through a fund manager, I’m concerned that its size and complexity will prevent rapid and effective decision-making.  But then, I’m glad the GHIF is up and running and look forward to the lessons to be learned through its efforts.


* Investors: Bill & Melinda Gates Foundation, Grand Challenges Canada, KfW Bankengruppe, the Children’s Investment Fund Foundation, the Swedish International Development Cooperation Agency (Sida), the International Finance Corporation, Glaxosmithkline, Merck, The Pfizer Foundation, Storebrand and JP Morgan Chase’s Social Finance


More Not Less

Last week, multiple sources reported that Bob More, an experienced health care venture capitalist, started this month as the senior advisor for venture investing at the Bill & Melinda Gates Foundation.  Bob (he seems like the kind of guy you’d address by his first name) was  general partner at Frazier Healthcare Partners starting in 2008 following 12 years at Domain Associates, also as a general partner, as noted in the San Francisco Business Times and elsewhere (SFBT article).  As reported by Luke Timmerman, the Seattle-based national biotech editor for Xconomy who follows the Gates Foundation (Xconomy article), Bob had the following to say to his colleagues on his new role:

“My role will be focused on developing and executing a venture-capital initiative to support the goals of the Foundation, focused primarily on diseases that affect the poorest people in the world. … We want to encourage and support entrepreneurs to pursue ideas that will solve these problems. And we want our partners to flourish as businesses. … Entrepreneurs create markets where none existed before. The challenge we face is the ability of many people to pay for products and services. But that is often a challenge for which we are willing to bear responsibility for finding solutions. … And I am here because I believe that entrepreneurs can solve these challenges. My task, simply, is to focus the efforts of great entrepreneurs to achieve these goals.”

Luke also provided a list of the companies the Gates has invested in (the Gates does not):

Company Total Invested Date(s) of Investment
Atreca $6 million 2012
Genocea Biosciences Part of $30 million 2012
Liquidia Technologies $10 million 2011
Visterra Part of $13 million 2012

As some readers may remember, I have been posting on the Gates Foundation’s potential to make investments (rather than grants) in companies developing products with global health applications and criticizing the few investments that it has made.  Actually it looks like I’ve posted once each year since 2010, starting with “PRIs for Global Health”,” followed by “BMGF Ventures LLP”, “A Toe in the Water”, and “Nothing Ventured” in 2011, 2012, and 2013, respectively.  My general criticisms included:

  • being a participating co-investor rather than leading the charge as a led investor;
  • investing minor amounts of money (as little as one-fifth of what the other investors bring to the table) resulting in little influence;
  • not taking a board of directors seat resulting in very little influence;
  • not vetting the technology for its application to global health nor publicizing the company’s commercialization plan for a global health product;
  • not having an announced investment strategy; and
  • not having a transparent process for submitting business plans relying instead on the Gates old-boy network.

My amateur’s advice to the Gates investment team on stuff they need to do was:

  • do thorough technical, competitive, and risk assessments (to be sure the Foundation is not being scammed);
  • figure out how to work with the other investors with whom it will not be in complete alignment (the Foundation will measure its return on investment in both monetary and non-monetary terms);
  • learn how to influence the company as a later-round (less leverage) and physically distant (less communication) investor;
  • have its board of directors representative understand start-up companies and the biotech/pharma industry;
  • have a clear understanding of how the product will be commercialized and made accessible in both major and rest-of-world markets;
  • have an exit plan if the company or product is acquired;
  • figure out how to track and respond to the progress (or lack of) by the company toward its global health-related objectives; and
  • assure the IRS that its investment is aligned with its charitable mission.

A bit disconcerting was that the Foundation apparently did not feel that Bob More’s appointment was worthy of a press release and that I could not find any information on the Foundation’s “program related investing” on its website as I had before.  So the bottom line is that Bob has his work cut out for him but seems to be up to the challenge.


Dx Rock Stars

The market for new point-of-care diagnostic tools for global health (POC Dx) got a major boost last week when it was announced that Alere, a mega-diagnostics and health management company based in nearby Waltham, MA, was receiving more than $40 million in funding from the Bill & Melinda Gates Foundation (Fierce Med Devices article and Alere press release).  My spin is that, by accepting the funding, Alere is acknowledging the profit potential in diagnostics for global health (albeit initially for two of the Big Three diseases- HIV/AIDS and tuberculosis) and value in investing in the R and D needed to adapt its products for sale in resource-constrained settings.  Given my interest in POC Dx as a potent tool in improving health care delivery (see my posts tagged diagnostics), I thought it would be interesting to take a closer look at the deal and at a competing company.

Alere is a up-and-coming company with a core strategy to provide relatively simple, non-lab-based tests to patients and health care providers along with systems to monitor, inform, and ultimately improve health while lowering costs (Alere and Investor presentation 2012).  And it is doing well.  It is publicly-owned with a $2 billion market capitalization, 14000 employees, and 2012 annual revenues of $2.8 billion which are up 16% over 2011 (Boston Business Journal article 1).  Alere has grown through acquisition, buying six companies since late 2011, boosting revenue but also taking on a big debt of $3.4 billion (Boston Business Journal article 2).  The Gates funding has two parts:  a $21.6 million grant for R and D for incorporation of a TB test into the Alere Q platform (said to be “a compact, portable, and robust device intended for molecular testing”), and a $20.6 million loan for expanding the capacity of a German-based factory for the manufacturing of Alere’s POC TB Nucleic Acid Test and POC HIV Viral Load Test which are currently in the final stages of development.  The press release implies the latter is to reduce the cost and improve the supply of the tests via automation.   Apparently the money comes with the typical Gates strings.  According to the press release, “The Gates Foundation will provide these loans in exchange for commitments from Alere to make these diagnostics available at an affordable price to people in need in developing countries.”  I have yet to read one of these global access agreements but imagine each includes a large amount of wiggle room in terms of how, when, and at what price the products will be made available.  For its TB Dx, Alere may learn from how Cepheid is selling its GeneXpert system, a expensive and non-POC machine whose development was also partly funded by the Gates (my post, “TB Dx:  Getting There”).

Interestingly, the underlying technology for the Alere Q platform came from one of the recently acquired companies, Ionian Technologies, that also was a Gates grantee.  In 2009, the company got a $665K grant to develop its “NEAR POC” for TB (Gates press release).  Ionian began as a startup in 2000 out of the Keck Graduate Institute, one of the Claremont Colleges and therefore a sister institution to Pomona College, an outstanding liberal arts college near to my heart and wallet.  So when (if) the Alere Q/TB test gets to market, it will be more than 13 years in development, so don’t let anyone (like me) tell you that Dx product development is faster than therapeutics development.  As for the $21.6 million for the TB test development, I think this is a generous amount and assume that some of the grant will be used to incorporate other tests for bad bugs into the platform since the ultimate value of POC Dx will be a box that can differentiate between the many possible infections afflicting those with limited access to medical care.

In contrast to the multi-year and multi-million dollar saga of Alere’s POC TB test is the story of QuantuMDx, a UK-based company started in 2008 that has an express mission to develop Dx for “third and first world nations” (QuantuMDx).  According to the company, its most advanced product is the Q-POC, a hand-held device for diagnosis of tuberculosis, HIV/AIDS, and sexually transmitted infections and their drug-resistant strains.  The device will deliver results in less than 20 minutes at a fraction of the cost of lab-based tests and will be launched this year (Q-POC).  The company is using a number of technologies in its products (QuantuMDx Technology):

  • DNA extraction from raw samples via simple flow-through (invented by the founder when the company was garage-mode);
  • Nanowire biosensors for analyte detection (licensed from NanoSys, a Harvard start-up [GEN article]);
  • Single or multiple step PCR; and
  • Mobile apps for Dx support.

The funding of the company is less than clear.  The company has no corporate sponsors or licensees and in 2012 received shares of two UK government grants (which totaled about $7 million) that were  for cancer and malaria Dx R and D.  That seems a bit thin to support a 35-person company but then one founder is a “Biotech Rockstar” (O’Halloran blog) so maybe the company self-funded.  It is also not clear what data have been obtained using the platform; I could find no reported test results, published or unpublished.  Be that as it may, if the company is able to market a device capable of quickly profiling a range of infectious organisms, bacterial and viral, with minimal sample preparation, it will be in a good position to offer a competing product to the Alere Q, and competition is good for the public health buyers.  Presumably, the company has talked with the Gates Foundation, the Wellcome Trust, PATH, Alere, and other major diagnostics companies about funding the testing and approval and manufacturing development and building phases.  If not, there is no time like the present.

BVGH: RIP or Reboot?

Recently, I heard from a colleague that last November BIO Ventures for Global Health (BVGH) released most its employees and essentially ceased operations.  Checking the website for validation, I found two managers listed and no news or blog postings since August 2012 (BVGH).  Well-known in the global health sector, BVGH is/was a San Francisco-based organization that was founded in 2004 with the mission “to engage companies to drive partnerships and invest in global health initiatives that result in the new drugs, vaccines, and diagnostics that will save lives in poor countries.”  BVGH was primarily funded by grants (mostly from Gates, Rockefeller, and the bioindustry trade organization, BIO), so I assume the proximal cause of its demise (or substantial reduction in operations, your pick) was non-renewal of its grants, but I also think it had deeper problems.  While BVGH succeeded in increasing visibility for the role of biotech innovation in global health and in generating a several useful tools, it suffered from not having a clear understanding of its client base, a too diffuse mission, and poor operational execution.

Way back in 2004, BVGH was one inspiration for my interest in global health.  I was peripherally involved with the organization then as a volunteer member of a “Technical Advisory Group” tasked with selecting a contractor to write a business case for new product opportunities in malaria.  That project did not come off and, although I did a few bits of volunteer work afterward, I never ascended to the inner circle of advisers and only followed progress from afar.  As regular readers know, BVGH has been one of my favored topics for posts and I often offered prescriptions for improvement.  To test the power of my foresight with the 20/20 vision of hindsight, here is a retrospective of my advice.

In one of the earliest posts I wrote in September 2009 (“BVGH at a Critical Juncture”), I noted the departure of the founding director and suggested four projects for the new director to purse to better serve the organization’s designated clients, biotechnology companies.  These were:

  • advocating for an SBIR program specific to the development of products for neglected disease;
  • pushing for a change in the R and D tax credit program to favor R and D for neglected diseases;
  • working with the not-for-profit product development partnerships (PDPs) to offer a resource database for companies seeking drug development guidance especially in the design, funding, and initiation of clinical trials; and
  • improving its partnering conferences by bringing in potential investors in global health, e.g., “social impact” funds, to attract  companies needing investment.  Not surprising, none were tried by BVGH.

In “Beached” in August 2010, I wrote that BVGH was headed in a direction away from it client base of biotech companies and that was not a good sign.  I criticized their mission statement as weak and uninformative, the redesigned website as emphasizing individual donations and using pictures of crying or smiling kids, and their resource list as not being updated in two years.  I noted a lack of progress on their “Global Health Connect” plan and their move their from a good place to influence US government policy (DC) to a sunnier clime (San Francisco), and, while applauding their lead role in administering the IP pool started by GlaxoSmithKline (later to become part of Re:Search, see below), wrote the organization seemed to be struggling to find its way.

In “Nuts and Bolts” (May 2011), I reported on my participation in the second BVGH-organized “Partnering Forum for Global Health”, this one in conjunction with the annual BIO meeting.  I noted several ways to improve the event:

  • include speakers with practical experience in getting products on the market;
  • make the breakout sessions more interactive by giving the panelists’ presentations to attendees in advance to generate questions, discussion, and action items;
  • track participants and outcomes to demonstrate the value of participating;
  • invite specific participants who may have deals to pitch or those needing deals; and
  • engage participants with the attendees of the more mainstream BIO conference, e.g., by including special session titled “how to sell your idea for a global health product” in which attendees go into the exhibit hall to pitch their ideas and share what they learned from the many attendees who are there to find money and deals to make or keep their companies profitable.  This Forum was also the last.

In “Window Dressing”  (November 2011), I criticized BVGH for diverting its attention from advocating for the biotech industry and its involvement in global health to managing a United Nations-backed patent and research database called Re:Search.  I wrote that I thought the program had several fatal flaws, like limiting sales of resulting products to the most unprofitable markets and providing no uniform license format.  I concluded that Re:Search was a nice start, but without commitment of all the needed information, technical expertise, and funding and an orientation toward commercialization, it will be pretty useless in generating innovations for global health (for the program’s current status see Re:Search press room).

In my post in April 2012, “BD Needy”, I criticized BVGH’s lack of business orientation as illustrated by one of its primary offerings, the Global Health Primer, a database of global health R and D programs at PDPs, universities, and companies (last fall BVGH transferred the management of the Primer to Emory University [GH Primer]).  I wrote that while the Primer is a good first step in that it provides information, it is passive and marginally helpful to companies wanting to enter or build their global health businesses.  I recommended that BVGH provide tools and information more useful in business development; for example, for each project, BVGH should report the quality of participation (e.g., funds, personnel) of each partner and which party was the originator so one can follow the money and figure out who is funding what.  BVGH could find and list technologies relevant to global health products that are available for companies to license from academic and research institutions and opportunities for PDPs to work with biotech companies as partners rather than contractors.  It could also report on which major pharma companies have experience in developing and commercializing which products, which developing world companies are seeking biotech partners, and, most importantly, identify whom to contact.  I concluded that building relationships and developing business takes time, planning, research, analysis, and dedicated people, and, after eight years, it was time for BVGH to undertake more proactive business development effort for itself and its customers.

Alas, in my most recent post on BVGH last November (“Downsize or Down Hill?”), I reported on its reorganization, loss of funding, and shift of focus from projects like its reports (see my positive review of BVGH Case Studies in the post, “Converting Inspiration to Investment”) and the Primer to managing Re:Search.  I offered several ideas for BVGH to improve its finances and reorient its efforts, suggesting that BVGH could reduce its operating expenses by finding a less expensive office location than San Francisco and paying its executives more modestly (the 2010 BVGH Form 990 has the top four managers’ compensation plus outside consultants expenses at $1.4 million or about 50% of all expenses [BVGH 2010 Form 990]).  To increase its income, in addition to passing the hat among the usual donors for its new projects (below), I wrote BVGH could get a revenue stream by starting a low-cost consortium with fees based on company size with the product offering being networking opportunities and by providing custom consulting and report writing by using volunteer consultants to keep operational costs low (at one time, BVGH solicited volunteers on its website but I never got a response to my offers).

As for short-term, low-cost, client base-building projects, I suggested BVGH:

  • build a value proposition and pitch deck for global health R and D and use it at any and all venues including going on the road to the mid-sized biotechs and pharmas who may find a small market products (under $100 million) attractive;
  • create a newsletter specifically aimed at companies with interest in markets in ROW and ROW companies interested in new product opportunities;
  • attend and represent the interests of US-based biotech companies at international business meetings;
  • assemble a database of low-cost resources to help biotechs with their preclinical work;
  • run a business development plan competition for companies with products in development needing partners to gain visibility and engage potential partners; and
  • find sponsors for and conduct a global health venture accelerator ala MassChallenge (MC).

While this post may turn out to be like Samuel Clemens’s comment that reports of his death were greatly exaggerated, I hope the BVGH advisory board retools the organization and relaunches it.  Sometimes rebooting works.  BVGH’s basic premise is sound and its successful execution is very much needed.

Nothing Ventured

One of my hobby horses has been the possibility of a “BMGF Ventures Fund” emerging from the slow-as-molasses program-related investment (PRI) efforts of the Bill & Melinda Gates Foundation.  To recap, PRIs are IRS-sanctioned investments or loans that a charity may make in/to other organizations, like companies and investment funds, that are aligned with its mission.  The Gates PRI program started in 2009 and now has $1 billion to invest in “revenue-generating enterprises” in health and education (Gates PRI).  After hearing a presentation by a Gates PRI officer at BIO 2012 last spring, I wrote about my disappointment (“BIO Bits”), noting that the program:

  • Had no clear investment philosophy or criteria;
  • Offered no way for interested parties to submit business plans for consideration like many of the VC firms;
  • Seemed not to have professional management;
  • Had made only one investment to date ($10 million into Liquidia, a company with a nanotechnology platform applicable to vaccines but no global health focus); and
  • Seemed not to be taking an active role in the companies in which it invests (e.g., taking a real, not an observer, seat on the company board).

The good news since then is that another PRI officer, Julie Sunderland, wrote in a blog post last June that more PRI will be going into biotech companies, but the “scale-up” would be over the “next couple years” (Gates Foundation blog).  More recent good news is that the Gates made PRIs in two more biotech companies in the second half of 2012, so its rate of investment doubled between 2011 and 2012.  The foundation invested an undisclosed share of a $30 million C round  in Genocea, a vaccine development company using a T-cell antigen generation platform (Genocea press release) and was a co-investor with another company in a $13 million A series for Visterra, a company that uses “network analysis of proteins” to generate antibody drugs aimed at infectious disease (Visterra press release).  [Although some sources have stated that a company called Atreca received a Gates PRI, I’m pretty it was a research grant (Atreca press release).]

I also noticed that the Gates may be starting a “Global Health Investment Fund” (GHIF) using its PRI budget.  According to a venture philanthropy advisory firm, Impact IQ, the GHIF is “seeking to raise $100 million to invest in technologies to tackle tuberculosis, malaria, HIV, diarrhea and maternal and infant mortality,” offers a 2% return plus 80% beyond the 2%, and has a novel “downside protection” clause (Impact IQ blog).  It also appears that fund’s management company is Lions Head, a UK investment bank rather than a VC firm (Lions Head projects).  Since active bio/medtech venture capital firms invest at least $12 million into four start-ups annually (Timmerman Xconomy), I’d say the Gates PRI program is still in low gear and needs to ramp up if it wants be a significant source for funding and a push for global health in the biotech industry.

So if I worked for the PRI program (for which there is a very small chance since I have no one has replied to my application to the position posted in December [Senior Program Officer]), what opportunities would I recommend the Gates throw a few millions at?  Here are few listed by increasing levels of risk.

In the existing-early-stage-company category are:

  • Vaxxas (Vaxxas) which is developing a “nanopatch” delivery system for vaccines which I wrote about recently (“Vax Patch”), the rationale being that the system has a high potential for cost savings in manufacture and deployment and needs a few critical tests in humans for proof-of-concept; and
  • NKT Therapeutics (NKT) of nearby Waltham, MA, which is developing drugs to target “natural killer T-cells” to reverse inflammatory conditions like sickle-cell anemia (SCA), the rationale being that SCA is a neglected disease of children in Africa (see my post, “Virtual Reality Biotech Reprise” ) and the company has a candidate monoclonal antibody ready for clinical studies and is run by two capable managers I know from my days at Wyeth and GlycoFi.

In the existing-company-ripe-for-a-buy-out-and-reboot category are:

  • Medicine in Need (MEND) which has a promising nanotech approach to thermo-stable vaccines but I think has run through its funding and has AWOL management (see my post, “Ringing in Another Year” ); and
  • Millennium Biotechnology, Inc., based in Hendersonville, NC, whose owner is selling its line of RDTs (rapid diagnostics tests) for global  diseases like dengue, Chagas, and typhoid and some RDT manufacturing equipment, could be a nice turn-key buy.

In the raw-startup-company category, there are two opportunities I have noted:

  • “PharmaCheck” which is a prototype device for field evaluation of drug quality (good or finding counterfeit drugs) that is being developed by Prof. Muhammad Zaman at Boston University (MassHighTech article), the rationale being that the inventor just got a grant for testing and, if the technology works on many drugs, it may have dual market use; and
  • the “V-Chip” which is a pretty cool diagnostic system using mini-wells and channels etched in glass with a visual readout and under development by its inventors, Prof. Lidong Qin and colleagues at The Methodist Hospital Research Institute, Houston, Texas (Fierce Med Devices article and Nature Communications), the rationale being the technology needs much product design and development that the inventors can’t do and the University of Texas Medical Branch (a likely co-owner) is a signatory of the equitable access statement promulgated by the Association of University Technology Managers (Nine Points statement) and should be pleased to have a licensee for global health applications.

If so inclined, send your checks and preferred investment(s) to me and I’ll be in touch.

A Free Lunch

The US business press is pretty parochial, focusing on US markets and US financial industry as the primary motivators of the world economy.  So I was not surprised when I learned only recently about an innovation in funding drug discovery and development that was launched last month in the UK.  The innovation in financial engineering is a fund now trading on the London Stock Exchange called the Battle Against Cancer Investment Trust (BACIT) and it is specifically designed to generate funding for research and development of new cancer drugs.  As is my wont, I wondered about applying this scheme to the discovery of drugs for global diseases to close the funding disparity between reimbursable diseases, like cancer, and those left behind by the traditional market forces,  As toted up annually by the Policy Cures organization in their G-Finder survey, all R and D spending on products for neglected diseases totaled $3.6 billion in 2010 (G-Finder Summary) while R and D spending by the pharma industry about twenty times more or $68 billion (Reuters article).  Of that $3.6 billion, the majority (64%) is from governments, 19% from foundations, and 14% from companies, so adding a new source of money, especially one tied to a stock exchange with a $3 trillion capitalization, sounds like a good idea.

As I understand it, the BACIT’s basic format is as a fund-of-funds (FoF) that allows the average (but well-heeled) investor to buy into a range of hedge funds run by highly-paid and crafty managers who are expected to deliver an annual return of 10-15% over the life of the fund.  In addition to delivering returns to investors, the BACIT will also distribute 1% of its net asset value (NAV) annually, half to the British nonprofit, the Institute of Cancer Research (ICR), and half to the BACIT Foundation for further charitable distribution, plus invest 1% in companies through the ICR’s enterprise/spin-out group.  But unlike the typical FoF, the BACIT will have very low management expenses resulting from two generous and unusual features.  The first is that the investment team will be paid its director, Tom Henderson, not by the fund.  Henderson, a former hedge fund manager, has pledged to pay annual operating costs up to $250,000 (and also will invest $25 million of his own money).  The second is that Henderson was able to persuade 30 or so top-notch funds not to charge the BACIT management or performance fees, nearly a free lunch as said by one publication (Money Observer article).  I am guessing that the various managers agreed essentially to donate their fees to cancer research because Tom Henderson is a popular and persuasive guy, the BACIT investment will help them leverage their own funds, they make scads of money already (I hear you can’t take it with you), and everyone likes the warm glow that comes with giving money away.  More info on BACIT and its set-up is at the fund’s website (BACIT Ltd.) and in a Financial Times article (FT article) but note that US investors are not welcome.

So far, the BACIT has been well-received by at least one rating company which gave it four stars (BestInvest) and by investors who bought up $334 million in shares when the BACIT went public in late October (Reuters article).  If you have several million and would like to rebalance your portfolio ala BACIT, the fund announced its initial investments on November 20:  20% in equity hedge funds, 16% in commodity hedge funds, and the rest in equity (14%), fixed income (8%) and emerging markets (7%) funds (Investment Week article).

So what about a BANDIT (Battle Against Neglected Diseases Investment Trust)?  Although I like the name as an attention-getter, I’m not sure if its impact on neglected disease drug development would be meaningful.  Even if BANDIT was similar in size to BACIT, got a fantastic 10% annual return, and put 2% of its net asset value into research, it would add just $7 million each year to the pot or less than 0.2% of total spending, not much (but then the BACIT is adding even a smaller drop into the very well-funded cancer drug enterprise).  And worse, that dollop of funding would be spread over the 12 or so neglected diseases, meaning less bang per buck.  Another problem with BANDIT, if it followed BACIT’s scheme of seeking high returns, is high risk and the possibility of one or more low-return years, which means intermittent funding, not good for doing drug discovery which needs stable funding.

Of course, the answer to generating large and steady returns is to have a huge fund investing in a vanilla blend of stock and bonds.  Using the math skills I learned in fifth grade, I calculate the fund would need a NAV of $5 billion to generate a respectable $100 million annually for R and D.  Seems like a lot for a fund but then one of the most popular stock index funds, Vanguard’s 500 Index, has total assets of about $6 billion (Morningstar Vanguard 500) and the astute reader will remember that last month I wrote about a megafund of securitized debt for funding cancer research (also) that was proposed by MIT economics prof and hedge fund manager, Andrew Lo, that would have a value $5-15 billion (“Mega-fun”).

In my fantasy financial world, I would get BANDIT started pre-IPO with an investment from the fund behind the world’s leading global health philanthropy, the Bill and Melinda Gates Foundation Asset Trust, which has assets of about $34 billion (Gates Financials).  I think $2 billion would do it; after all, the Trust’s investments are doing well and it is getting about $1.5 billion annually from Warren Buffet and more when he dies.  Next, I’d ask Warren to head the BANDIT investment team with the main job of persuading the managers of  multiple funds of his choosing (he’s good at that) to participate in BANDIT without fees.  As for the average investor, who wouldn’t want to do good while doing well?  Finally, I’d have that annual 2% free lunch go into two programs to accelerate global health product development.  Half will go into investing in start-up or growth-stage companies through a venture capital-type firm with the expectation that one of five to ten will succeed in developing a new product.  A good model for the costs and timeframe for this program is the “Global Health Innovation Quotient Prize” published in 2011 by BIO Ventures for Global Health which is designed as a financial incentive for small companies to engage in neglected disease research and development (BVGH IQ Prize).  The other half will go into funding a business plan competition/venture accelerator program similar to the MassChallenge, but specific to entrepreneurs with ideas for products and services to improve global health (MassChallenge).  Personally, I think the Gates people would jump at the chance to start up BANDIT since the Foundation has made a few moves recently toward making investments in enterprises in addition to giving money away to academics and NGOs (see my posts, “Toe in the Water” and “Free Advice, Trevor”).  Now, where did I put Bill Gates’s phone number?