More on the Business of Global Health (No. 4)

Here are a few items I spotted over the past two weeks.

FierceDiagnostics reported on the clinical test of a concept for a new diagnostic to identify patients with arteminesin-resistant malaria (Fierce article). Almost all the patients studied (about 1200) had parasites with a unique gene, meaning that the quick test could be used to improve treatment (a longer course of arteminesin or combinations of drugs) or to monitor a population being treated prophylaticly (so-called mass drug administration or MDA). MDA is a controversial approach since it may generate stronger resistance (WHO 2011 report on MDA for malaria).

The ever-inventive research group at Harvard University led by George Whitesides is working on a new approach to portable diagnostics using electrochemical analyses. As reported in FierceMedicalDevices (another Fierce article) and published in the Proceedings of the National Academy of Sciences (Nemiroski et al. 2014), the team demonstrated the device’s function using four tests: the detection of blood glucose, trace heavy metals in water for environmental monitoring, sodium in urine for clinical analysis, and a malarial antigen in blood. Fierce also noted that the team wrote software that allows data transmission via basic, not-smart, cell phones and that the whole system is being tested in India. No word on whether Prof. Whitesides, on whose technology the company, Diagnostics for All, is based, has plans for commercial development.

The product development organization, the Global Alliance for TB Drug Development, and Novartis announced the licensing of all the assets of Novartis’s TB therapeutic development program to the Alliance (TB Alliance press release). The assets included a class of promising drug candidates called indolcarboxamides that the Alliance stated it will continue to study. Not addressed in the press release was why Novartis was giving up on TB therapeutics and whether the Alliance tried to get some cash from Novartis to support its work.

One may hope that the Ebola crisis in western Africa may increase the public’s awareness of the lack of foresight and investment by our global society in the development of treatments for neglected diseases, medical infrastructure in Africa, and international health organizations’ ability to response to infectious disease epidemics. And maybe awareness will result in change. A blog post by Julia Fan Li (Li blog post) and a follow up table of the Ebola product pipeline (Bioentrepreneur table) in Nature’s Bioentrepreneur provided concise and cogent statements of the problem and status of developing treatments for Ebola.

Scott Kirsner, the innovation economy correspondent for the Boston Globe, wrote a column recently entitled the “Losing strategy in Mass. on education and health care” (Kirsner column). His point is a valid one: “Where are the voices talking about expanding access to education and health care, and driving costs down? In Massachusetts, they’re scarce. And that’s a losing strategy.” It is a losing strategy for the long-term health of our local economy which is widely viewed as an exemplar for the future of the US economy. As some readers may remember, I have tooted my horn on the potential for profit in providing low-cost, affordable health care (e.g., my post “Missing the Boat”) and I thank Mr. Kirsner for adding his push.

The Business of Global Health (No. 3)

Thanks to the broad and deep coverage of the biotech and medtech industries by the editors and reporters of the Fierce newsletters, I noted the following recent stories relevant to global health.

Last week an article in Fierce Medical Devices reported that a not-for-profit organization, Engineering World Health (EWH) recently received a $1.5 million grant from the GE Foundation to expand its program of training technicians in the repair of medical devices into Nigeria, in addition to previous GE support (Fiercemedicaldevices article). EWH was started in 2001, became an independent, volunteer organization in 2008, and runs 3-4 year programs in Cambodia, Rwanda, Ghana, and Honduras, with about 50 students enrolled each year. Also two recent studies found marked improvement in equipment “up-time” in the hospitals with EWH-trained technicians and improved technician productivity (another FMD article). It looks to me as if EWH is a good funding and good works opportunity for a medtech company looking to enter developing world markets. It also runs a small product design competition (EWH Competition).

As some readers may remember, I have written about the need and potential for therapeutics to treat Sickle Cell Disease (SCD), especially in Africa where it is a major cofactor in mortality (“Still Neglected”). So I was pleased to learn of another company, Global Blood Therapeutics (GBT) with a promising preclinical SCD drug candidate. San Francisco-based GBT was launched in 2012 with a $41 million Series A funding by Third Rock Ventures, so its likely first market will be the US (about 100,000 patients out of a world total of 15 million).

Also some readers may remember that earlier this year I wrote about Knight Therapeutics receiving FDA approval for a drug that is effective against leishmaniasis, a protozoan infection that occurs annually in about 1.3 million people and causes 20-30,000 deaths (“GUD Knight”). In addition and since the disease is neglected and without any good treatments, Knight also received a Priority Review Voucher, which confers to the holder expedited regulatory review for a product and therefore 6-10 month sooner market access.   Fiercebiotech recently reported Knight is offering the voucher for sale but also that, because the FDA is expediting approvals in other ways, its value is uncertain (Fiercebiotech article). To his credit, Knight’s CEO, Jonathan Goodman, is also quoted as saying the company’s goal (in addition to getting funds) is to “set the bar high to encourage others to invest in R&D for neglected tropical diseases.”

Finally, Fierce also reported that PanVax, a vaccine company “committed to providing both attractive financial returns and social returns,” has expanded its marketing team with the addition of vice presidents for North American and global sales and marketing and five U.S. sales people (another FBT article). This personnel is added to that obtained when the company acquired an approved oral typhoid vaccine last month (“More Bits and Bytes”).

 

Bad Air Replay

As with our national “leaders,” I am kicking the can down the road this with week with a replay of a posting from the first week of 2014.

Recently I got around to reading two reports that were released in early December [2103] on what funding levels and targets are needed to continue the progress toward eliminating one of the big three global diseases, malaria. The reports, “From Pipeline to Product: Malaria R&D Funding Needs into the Next Decade” and “Estimating Costs and Measuring Investments in Malaria R&D for Eradication” (copies here and here), were written by staff of Policy Cures, a global heath contract research group based in Australia and best known for its annual survey of funding for global disease product development, G-FINDER. Although Policy Cures’ focus is on governments, philanthropic funders (e.g., the Gates and Wellcome Foundations), and global health advocacy groups (their clients), the organization generates data and reports that can be used by companies looking for product and funding opportunities in global health. These reports provided me landscape view of malaria R and D and product development but unfortunately make recommendations aimed at their main clients and overlooked the role and value of commercial product development.

Here’s a quick summary of the “Pipeline” report. After noting the progress that has been made since 2001 (274 million fewer cases and 1.1 million fewer deaths, a reduction of 26%), the authors reported on the past funding on malaria R and D (which has increased from $131 million in 1993 to $610 million in 2011) and its distribution (25% in research and 75% into development). Of this amount, the public sector (governments, primarily the US) accounts for around half of all funding, the philanthropic sector for a third (primarily the Gates Foundation but also the Wellcome Trust), and industry for a fifth. The authors also stated in general but provide no specific details, that there are “at least 96 malaria products in development, including 13 new vector control active ingredients and new formulations, 37 drug candidates, and 46 vaccine candidates.” Then for each of four areas (basic research, diagnostics, drugs, vaccines, and control agents [insecticides]) the report provided a breakdown funding by product type or stage of development and the types of products needed based on “globally-agreed R&D targets.” The authors then summarize their projections of funding needs in each of these areas, but more useful to companies were the details of the projections were given in Annex 2.

In Annex 2, the authors listed the products (“ideal portfolio targets”) that are needed as determined by the main malaria research and public health groups: Foundation for Innovative New Diagnostics (for diagnostics); Medicines for Malaria Venture, Malaria Eradication Research Agenda Consultative Group, and Malaria Eradication Scientific Alliance Task Force (for drugs and vaccines); and the Innovative Vector Control Consortium (for control agents). Then using information the phase of development of the products, an estimate of the costs of completing each phase, and the probability of success at each phase (defined as percentage of candidates successfully reaching the next phase), the authors projected the required funding. To account for failures, the authors assumed that the goal was one successful product for each target within a decade and added in the cost of backup R and D required to account for attrition to reach desired number of successfully registered products. While this approach is sound, I did not verify the underlying data (e.g., probabilities of success vary by indication with cancer having a higher failure rate) and confirm that their methods were widely accepted (I noted that of the ten or so consultants used by the authors only one was from industry).

As for the recommendations made, not surprising, the primary one is that funders need to come up with an average of $700 million per year over the next decade, or about $100 million more than was allotted in 2011, with more of a slant toward product development. They also recommended that more coordination of basic research and product development is needed, but, again not surprising, made no recommendations on increasing incentives for involvement of companies. Although R and D spending by companies is only 17% of the total, companies like Novartis, GSK, and Ranbaxy have played and are playing key roles in the development and deployment of new drugs and vaccines and many smaller companies have made possible the widespread availability of inexpensive rapid diagnostics. Also, as the authors noted on page 39, public and private funders and need to act more like for-profit product developers: “Unfortunately, funding decisions are often disconnected from the product development occurring on the ground. Ideally, funding should be flexible and should respond to changes in the pipeline: if a malaria vaccine candidate enters late-stage clinical trials, then the funding required is significantly higher than in the earlier stages of the development pipeline. Industry, and to an extent, philanthropic funders (particularly those with the resources to closely follow R&D developments or whose funding contracts are milestone based) tend to be responsive to these fluctuations in the pipeline and in funding needs. Public funders, however, are often much less responsive. Funders should be aware of R&D developments in the global portfolio and progress against agreed-upon goals in order to direct their funds to the areas where they are most needed.”

The good news in the world of product development for malaria is that it has been funded fairly steadily over the past ten years by a diverse group of funders (pubic, private, and corporate) and that is likely to continue, and that there has been a lot of effort into identifying what products are needed. Less good news is that two of the funding groups (pubic and private) are also footing the bill for on-going malaria control efforts, now about $ 1.5 billion per year (said to meet only about half the need) and that up-coming stage of bringing products into use will require expensive trials and registration. Hence, some one or some group needs to make funding decisions based on return on investment and triage of less promising programs, something companies are good at but governments and foundations are not. My recommendation is that the global malaria eradication community would benefit from forming up a “commercialization agenda consultative group” soon.

Vector Vax

Malaria is a nasty disease resulting from an infection by the Plasmodium parasite that occurs via injection by an infected mosquito, and that, according the WHO, happened to about 200 million people in 2012 (WHO Malaria Facts).  Fever and chills ensue and, if untreated, death, and this happened to about 600,000 people, mostly children in Africa, in 2012.  While drug treatment exists and is being improved by newer drugs, combinations, and better distribution and measures like preventing bites with netting and killing mosquitoes and destroying their habitat are helping reduce mortality, a malaria vaccine has been a long-sought goal of the global health community.  A vaccine is a major challenge though.  The parasite goes through a number of stages in the human host and the insect vector (see a nice graphic at Malaria Vaccine Initiative) and how, when, and where the human immune system mounts a successful response are not known.

Vaccine developers have taken three vaccine approaches (also at Malaria Vaccine Initiative).  The first is to aim at the early stage of an infection when the parasite is infecting the host liver; the most advanced vaccine, GlaxoSmithKline’s (GSK) RTS,S AS01 in Phase 3 clinical trials, is of this type.  The second is to generate an immune response to the parasite while it is rapidly reproducing in the host red blood cells, reducing the severity of the disease and allowing time for the innate immune response to occur.  The third, using a transmission-blocking vaccine (TBV), is my favorite because it targets the parasite while it is reproducing in the mosquito using antibodies obtained from the host.  Essentially the vaccine turns a human into a system to deliver antibodies to treat the vector’s malaria.  The idea for a TBV has been around at least since 1987 when studies confirmed that the blood of malaria sufferers contained antibodies that reduced the number of parasites in mosquitoes (e.g., Mendis et al. 1987 in which the researchers dissected out the mosquito gut to look for parasites), but it has only been in the last three years that candidates have advanced into clinical trials.  The primary sponsors of the trials have been the Malaria Vaccine Initiate (MVI is run by the Seattle-based global health product developer, PATH, and funded by the Gates Foundation) and the NIH’s National Institute for Allergy and Infectious Diseases.

MVI’s lead TBV candidate was Psf25-EPA, so named because it consists of  antigens to a Plasmodium surface protein and a detoxified version of an immune-stimulating bacterial protein.  Unfortunately, it failed to generate a strong enough response in a Phase I trial in 2012 (MVI Call for Letters of Intent).  While a number of companies and academic groups have expressed a variety of the parasite’s surface proteins in a range of expression systems (I noted one in yeast and another in algae), the Fraunhofer Center for Molecular Biotechnology (FCMB) evidently had the best proposal and was selected by MVI to fill the gap left by the failure of Psf25-EPA.  Also apparently FCMB was able to move its candidate, Psf25-CP, into trials quickly.  Recruiting for Phase I started last November (Clinicaltrials.gov entry), and the trial got under way this past month (FierceVaccines iBio press release, FierceVaccines iBio press release).  Since I’m interested in how multiple parties collaborate to develop global health products, I looked into the background of this project and found not all the players on the same page.

The FCMB is part of the globe-spanning Fraunhofer Gesellschaft, a German-based research and development non-profit that has 67 institutes in Germany and offices and centers around the world including 11 in the US (Fraunhofer).  The Fraunhofer has 23,000 employees and $2 billion plus budget, 30% from the government and 70% from government and industry contracts (Fraunhofer Wikipedia article).  The FCMB is in Newark, DE, and has 90 employees focused on recombinant protein expression in a proprietary plant-based expression system (FCMB).  It has a GMP-compliant pilot plant and projects for vaccines and antibodies for influenza, Trypanosomiasis (sleeping sickness), yellow fever, hookworm, HPV, and malaria, the last supported by a Gates grant of $9.85 million received in 2009 (FCMB press release).

As noted in the above-cited press release, apparently FCMB has a commercial partner in the development of the expression system and in the malaria TBV project, a company called iBio, Inc.  iBio has a 2011-dated website (iBio Inc.), that seemed to be light on details, but since it is a public company listed on the NYSE, I looked at its SEC filings and analysts’ reports.  iBio appears to be struggling financially, facing delisting (see Middle Market article) and floating stock with the aim of raising $10 million but securing only $500K in 2013 (but had $5 million cash on hand at year’s end; see the latest iBio 10Q).  I looked at the US patents assigned to iBio and the three key ones are either co-assigned to Fraunhofer or have Fraunhofer employees as inventors.  I am guessing this co-ownership resulted from iBio’s sponsoring of the expression system’s development at FCMB (with FCMB scientists being the actual inventors).  Such an agreement and its recent modification to less expensive terms for iBio are mentioned in the company 10Q filing (iBio is committed to $1.5 million in payments to FCMB through 2015).  I also noted the company is co-located with the FCMB.

All this suggests to me that iBio is a shell company whose main assets are patents on the expression system and future revenues are dependent on FCMB’s success in using the system to develop products with partners like MVI and FioCruz (a Brazilian governmental institute with whom FCMB has a contract to build a plant for a yellow fever vaccine; see my post, “Procurement Power”) and those products being licensed to a commercial entity to conduct full-scale trials, registration, distribution, and sales.  If the FCMB wrote its contract with iBio correctly, or used the recent renegotiation opportunity correctly, it may have the right to pursue commercial partners independent of iBio, just owing a royalty.  I hope this is the case so that FCMB can find partners for the malaria TBV and other products that are committed to global access.  I assume that the FCMB management and  board has thought through its product development strategy perhaps with help from the Gates and/or PATH (the latter have successfully launched one global vaccine, MenAfriVac®).  There is no statement of a strategy on the FCMB website, and I noted its management team is all scientists (FCMB Leadership ) and its advisory committee is all solid citizens of Delaware with no pharma/biotech/medical experience (FCMB Committee).

Bad Air

Recently I got around to reading two reports that were released in early December on what funding levels and targets are needed to continue the progress toward eliminating one of the big three global diseases, malaria.  The reports, “From Pipeline to Product:  Malaria R&D Funding Needs into the Next Decade” and “Estimating Costs and Measuring Investments in Malaria R&D for Eradication” (copies here and here), were written by staff of Policy Cures, a global heath contract research group based in Australia and best known for its annual survey of funding for global disease product development, G-FINDER.  Although Policy Cures’ focus is on governments, philanthropic funders (e.g., the Gates and Wellcome Foundations), and global health advocacy groups (their clients), the organization generates data and reports that can be used by companies looking for product and funding opportunities in global health.  These reports provided me landscape view of malaria R and D and product development but unfortunately make recommendations aimed at their main clients and overlooked the role and value of commercial product development.

Here’s a quick summary of the “Pipeline” report.  After noting the progress that has been made since 2001(274 million fewer cases and 1.1 million fewer deaths, a reduction of 26%), the authors reported on the past funding on malaria R and D (which has increased from $131 million in 1993 to $610 million in 2011) and its distribution (25% in research and 75% into development).  Of this amount, the public sector (governments, primarily the US) accounts for around half of all funding, the philanthropic sector for a third (primarily the Gates Foundation but also the Wellcome Trust), and industry for a fifth.  The authors also stated in general but provide no specific details, that there are “at least 96 malaria products in development, including 13 new vector control active ingredients and new formulations, 37 drug candidates, and 46 vaccine candidates.”  Then for each of four areas (basic research, diagnostics, drugs, vaccines, and control agents [insecticides]) the report provided a breakdown funding by product type or stage of development and the types of products needed based on “globally-agreed R&D targets.”  The authors then summarize their projections of funding needs in each of these areas, but more useful to companies were the details of the projections were given in Annex 2.

In Annex 2, the authors listed the products (“ideal portfolio targets”) that are needed as determined by the main malaria research and public health groups:  Foundation for Innovative New Diagnostics (for diagnostics); Medicines for Malaria Venture, Malaria Eradication Research Agenda Consultative Group, and Malaria Eradication Scientific Alliance Task Force (for drugs and vaccines); and the Innovative Vector Control Consortium (for control agents).  Then using information the phase of development of the products, an estimate of the costs of completing each phase, and the probability of success at each phase (defined as percentage of candidates successfully reaching the next phase), the authors projected the required funding.  To account for failures, the authors assumed that the goal was one successful product for each target within a decade and added in the cost of backup R and D required to account for attrition to reach desired number of successfully registered products.  While this approach is sound, I did not verify the underlying data (e.g., probabilities of success vary by indication with cancer having a higher failure rate) and confirm that their methods were widely accepted (I noted that of the ten or so consultants used by the authors only one was from industry).

As for the recommendations made, not surprising, the primary one is that funders need to come up with an average of $700 million per year over the next decade, or about $100 million more than was allotted in 2011, with more of a slant toward product development.  They also recommended that more coordination of basic research and product development is needed, but, again not surprising, made no recommendations on increasing incentives for involvement of companies.  Although R and D spending by companies is only 17% of the total, companies like Novartis, GSK, and Ranbaxy have played and are playing key roles in the development and deployment of new drugs and vaccines and many smaller companies have made possible the widespread availability of inexpensive rapid diagnostics.  Also, as the authors noted on page 39, public and private funders and need to act more like for-profit product developers:  “Unfortunately, funding decisions are often disconnected from the product development occurring on the ground. Ideally, funding should be flexible and should respond to changes in the pipeline: if a malaria vaccine candidate enters late-stage clinical trials, then the funding required is significantly higher than in the earlier stages of the development pipeline.  Industry, and to an extent, philanthropic funders (particularly those with the resources to closely follow R&D developments or whose funding contracts are milestone based) tend to be responsive to these fluctuations in the pipeline and in funding needs.  Public funders, however, are often much less responsive.  Funders should be aware of R&D developments in the global portfolio and progress against agreed-upon goals in order to direct their funds to the areas where they are most needed.”

The good news in the world of product development for malaria is that it has been funded fairly steadily over the past ten years by a diverse group of funders (pubic, private, and corporate) and that is likely to continue, and that there has been a lot of effort into identifying what products are needed.  Less good news is that two of the funding groups (pubic and private) are also footing the bill for on-going malaria control efforts, now about $ 1.5 billion per year (said to meet only about half the need) and that up-coming stage of bringing products into use will require expensive trials and registration.  Hence, some one or some group needs to make funding decisions based on return on investment and triage of less promising programs, something companies are good at but governments and foundations are not.  My recommendation is that the global malaria eradication community would benefit from forming up a “commercialization agenda consultative group” soon.

(Not So) Wayback Machine

Readers of a certain age (“old”) will note my reference to a machine imagined by one of the most creative minds in animation, that of Jay Ward.  For those of more tender years, there is Wikipedia.  Since this is a good week to spend time with friends and loved ones which I hope you are doing as I am, I pulled out my version of the Way Back Machine to check up on the subjects of a few of my posts from the past year.  Here are my updates in reverse chronological order.

Epirus Biopharmaceuticals is a VC-backed company based in Boston with an explicit business plan for developing biosimilars (generic versions of successful biological therapeutics) made by proprietary manufacturing technology for the non-US/EU/Japan, rest-of-world markets (“Soup to Nuts” in July 2013).  The company had noted that is was in discussions for a deal on its lead product, a biosimilar for the anti-inflammatory drug, Remicade, and I posited that their model, that requires packaging products and services from technology suppliers, may make deal-making hard.  It was nice to see last month that Epirus closed its first big deal with Orygen Biotecnologica, a new Brazilian joint venture, to seek approval and then to manufacture the drug for Brazil to be followed by other Epirus products.  Orygen will build a new facility utilizing Epirus’s system and will pay the company, if all goes well, up to $275 million in milestone, royalty, and service fees (Epirus press release).  Orygen is a unique joint venture with partners being three Brazilian pharmas (Biolab Farmaceutica, Eurofarma, and Cristália) and encouragement from the government to build biologics manufacturing capacity in Brazil (Orygen BIO 2013 profile).

Back in June, I posted on Emory University’s new spin-out company called Drug Innovation Ventures at Emory (DRIVE) that was “to provide global solutions to address worldwide drug development and commercialization needs” (“Model or Muddle?”).  At the time I wrote my post, details were few and my concerns were several:  the source of molecules/lead candidates for DRIVE’s development program, whether it had the substantial funding needed for development, who will be liable for resulting products’ performance (the company or Emory), how involved Emory will be in the management, and whether the company could attract experienced management.  Recently, I noted that DRIVE has a better website although still lacking pertinent info (DRIVE) and that it had appointed Abel De La Rosa as CSO (DRIVE press release).  I noted previously Dr. De La Rosa’s experience is more in business and not science, and I am still muddled.

The Global Health Innovative Technology Fund (GHIT) was launched in May of this year by the Japanese government, the Gates Foundation, and several big Japanese pharmas, and I wondered about its impact on its stated goal of developing treatments, diagnostics, and vaccines for neglected infectious disease (“GHIT Ready”).  I posited that the program seemed to favor large companies and institutions, had too much bureaucracy, and may not award any one project sufficient funds to make a difference.  Earlier this month, GHIT announced its first awards that by design needed to be collaborations between a Japanese and a non-Japanese organization or company (FierceBiotechResearch article).  A total of $5.7 million was awarded to six groups, the largest (more than $3 million) going to two projects of the Takeda/Medicines for Malaria Venture team to fund pre- and clinical study of two new anti-malarial compounds.  It was nice to see awards also went to teams with smaller partners (three biotechs in US and Japan) and that about $500K will go to a project between Eisai, a Japanese drug company, and the Broad Institute, a research affiliate of MIT and Harvard.  The Broad has a substantial capability for identifying lead compounds unlike most academic institutions (Broad Therapeutics Platform) and is currently running about 50 screens including more than ten on global disease targets (Probe Pipeline).  I did not see in the GHIT announcement that projects will be funded for multiple years, but they should be.

About a year ago I reported on a new company in our local biotech community, Vaxxas, a start-up that is developing a nano-needle patch for vaccine delivery based on technology from an Australian researcher (“Vax Patch”).  Unfortunately, I found no news of note, and Merck remains the company’s only strategic partner.  My (free) advice is for Vaxxas to maintain its PR buzz with regular bits of news and to up its partnering effort.

Also last year (January), I reported on the take-over of the “non-profit pharmaceutical company” One World Health (OWH) by PATH, the Gates-backed global health product development program (PDP) (“Too Big to Flail”).  My rap against One World, and to a certain extent PATH, is that it had a large and expensive administration, spent too much on fund-raising, and had no clear path to commerce for its few products in development and no accountability to its backers (including me due to its tax-exempt status).  While OWH has a new website (OHW website) and a “A New Model of Drug Development” (really the standard PDP model in which commercialization [real use] is left to imagined company licensees), I did not see my concerns addressed.  On the plus side, I noted the recent announcement of practical project to develop an injectible form of an anti-viral drug for HIV prophylaxis with a potential commercial partner, Janssen (the pharma division of Johnson and Johnson) (OWH press release 1) and that it hired Ullrich Schwertschlag as CMO, an experienced drug developer and former colleague of mine at Wyeth (OWH press release 2).

Happy Thanksgiving, y’all.

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