Continuing the Conversation…

17Apr09

Three weeks ago a global health conversation started on this blog from a single lecture on a Cambridge/MIT study tour and driven by a solitary question: Between early stage scientific discovery and last mile product delivery, who funds product development?

One alternative proposed is if the Gates Foundation set up distinct a Venture Arm to facilitate the market commercialization opportunity for a product profile aimed at developing world markets.

Subsequent discussion flowed from the post, inspired a whiteboard brainstorming session, numerous offline email responses and verbal calls and responses. Thank you.  It’s a global challenge and thanks for your input from around the world.

Last week – an opportunity was had to ask this question to the Gates Global Health Team in person.  This post is based on a summary of an informal conversation with Dan Kress and Erik Iverson of the Gates foundation about these issues. The discussion summary below is not a transcript, but a way to structure thinking on these issues. 

·      The Global Health grant-making strategy has four primary areas:

o   Discovery: research to understand the science behind major diseases in order to gain insight into potential new interventions.

o   Development: partnerships to translate scientific discoveries into new vaccines/drugs/tools for developing countries

o   Delivery: local, national, international efforts to ensure effective health tools reach people who need them most

o   Advocacy: efforts to increase the visibility of global health successes and ensure a receptive environment for funding and implementing global health solutions

o   Each of the above categories are then cross-servicing individual disease areas (eg. HIV/AIDS, TB, etc – 11 in total) in a matrix structure.

A question that had not yet come up in any blog conversation to date on this subject matter was then discussed – What is the Business Model of the Gates Foundation? 

·      By definition and original purpose, the foundation is set up as a GRANTOR  – it core operational mandate is to GIVE GRANTS

·      Making “investments” in global health = aka giving grants

·      The Foundation has a structured granting process and has visibility of programs and transparency of endowment dollars spent

·      The Foundation “gives” in three ways:

o   1) Grants (primary avenue) – allows the recipient to pursue their own work.  Business model being the Foundation believes your work aligns with areas of focus and here is the grant $$ – go and do your good work.  (eg. Rotavirus research grant to University Lab)

o   2) Contract – directed engagement business model where scope of assignment is determined by the Foundation and Foundation owns the rights to the deliverable (eg. Hiring consultancy to determine market demand of Rotavirus vaccine in Kenya)

o   3) Project Related Investments (PRIs – rare and infrequent) – in the absence of any other source of funding, the Foundation is able to invest a small role in the form of equity/loan/convertible loan or another type of financial commitment.

It is certainly the third “Give” that seems the most interesting to the potential possibility of a Venture Arm.  However, in reality PRIs are seldom used by the Foundation and no formal track record has yet been established.  

Question: Why not a Gates Venture Arm?

Current day answer: Objectives can be achieved through current business model grant-mechanisms. 

Objective: to decrease product development risk.

Current day solution: have the Foundation make non-dilutive grants to innovative companies engaged in this space.  Example: world’s first not-for-profit pharmaceutical One World Health (link) benefited from a founding Gates grant.

Objective: by having the Gates Foundation involved, signals to other stakeholders validity of project

Current day solution: Gates Foundation is not going to fund one single therapeutic/diagnostic entirely from inception, through clinical testing to commercialization. It can however, attract additional investors and create leverage and pull by early-action investing (ie. granting).

Objective: to decrease investment risk of private market investors in social enterprises

Current day solution: giving grants to enterprises with global health social objectives is indirectly subsidizing private market investors due to non-dilutive cash injections in their potential future portfolio companies.

Objective: to minimize conflict of interest

Current day solution: research is a global activity – there can be many scientific groups conducting research on the same valuable topic around the world.  Giving grants to wide array of technologies / early-stage research in areas of strategic focus for the Foundation allows it to objectively keep open its doors of scientific support.

Question: Is there a potential for Gates Ventures Arm in the future?

Current day answer: While the Gates Foundation is exploring the possibility of expanding its use of Project Related Investments for companies that are developing health solutions in its focus areas, a “Venture Arm” per se isn’t being contemplated at this time. There is a recognized product development gap in social enterprise.  However, this gap is not unique to global health, it’s a gap inherent in the biomedical community between risky science and clinical validation of safety and efficacy.  Through grants, the Gates Foundation thinks this is currently the best model to push translational technology forward and decreasing the development risks in hopes to leverage private market investors to step in at a appropriate stage.

Global health does not occur in a capsule with just science and technology tools, but involves the will and contribution along the entire value chain including business/private sector/legal/political will.  And the reality of product development for global health will need to integrate with all aspects of the value chain. 

Through additional readings/discussions/other blogs: It has also been a pleasure to learn that others are also discussing this exact same topic at various stages of the value chain around the world.  And it is a promise the conversation will continue here on BioBuzz – please feel free to join as frequently and in as much depth as you would like.

*Sources suggested by the Gates Foundation for further reading and interest:

– Book “Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases” by Michael Kremer

– Research by Peter Singer on global healthcare delivery value chain (University of Toronto)

BioVentures for Global Health: Building biotech solutions for diseases of the developing world.  

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4 Responses to “Continuing the Conversation…”

  1. 1 Ali

    powerful point-
    Global health does not occur in a capsule with just science and technology tools, but involves the will and contribution along the entire value chain including business/private sector/legal/political will.

    Which makes us sometimes think- why are we so health centric. Yet the value of many projects is not to throw life savors to people floating down a river. Rather, it is to look upstream and see why the bridge broke (or in today’s case why the ice is melting 🙂 )

  2. This is a very cool conversation – and I’m very impressed that you’ve jump started it here with your blog, but I’m still curious as to why this has centred on the Gates Foundation. To me, this is like deciding that MacDonalds should be the one to open a gourmet restaurant chain because it already has a global presence, rather than talking to a high end chef about expanding his/her operations.

    Why not start talking to VC’s that are looking to diversify, rather than talk to Non-profits that are already in the Developing world?

    Anthony

  3. 3 biobuzz

    Great point – there are many developing models of social venture capital – some small and centered around community based projects and some larger level focused on green/renewable energy or IT solutions. Haven’t seen social VCs in the drug development / medical space yet.. but will be posting thoughts when they are seen and I encourage you to post too!


  1. 1 Social Venture Capital for Health.. Two Years On (Mar2009-Mar2011) « BioBuzz Blog

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