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The writer is Managing Partner of Federal Financial Analytics
Each day seems to bring more bad news about US financial-market valuations, with the only cheer to be found in stories speculating that things have got so bad that we’re at “capitulation” or rock bottom. However, there’s one market many of us don’t consider that is struggling: private financing for early-stage biomedical treatments and cures.
We should be concerned about the money that’s vanished from a sector essential to easing pain, prolonging life and helping millions to better see, hear, move and even think. Quickly restoring private capital funding for early-stage biomedical research isn’t just about rescuing investors — it can and will save lives.
Biomedical finance’s travails are the result of investor stampedes away from any sort of risk. These fail to distinguish the latest sort of stablecoin from a promising drug that might treat advanced cancer or reverse a life-threatening genetic defect. These projects are far from risk-free, but the risks can be evaluated, priced and even reduced by astute investors. The problem is that early-stage biomedical finance has long relied on venture capital rather than government funding, and VC is now fleeing.
After record Covid-fuelled fundraising, the market capitalisation of biotech companies in the US as of mid-May was down 60 per cent from their February 2021 high, the largest downturn in at least the last 20 years. The situation is worse still for small companies because they have very limited funding sources. Philanthropic resources remain hard-hit following the pandemic while VC funding for this sector was down 46 per cent in the first quarter according to GlobalData and is expected to crater for the rest of the year.
If small biotech companies go begging, then vital research goes missing. The most innovative biomedical research comes from companies that are focusing on a small number of patients suffering from the most complex challenges. These typically do not meet the short-term, big-buck incentives that often propel later-stage biomedical research at large biopharma firms.
Tech companies that make it through this downturn will pick up the entrails of their competitors on the cheap and continue their sector’s advance. Sidelined biomedical research, however, cannot be so quickly reinvigorated. It can take years to find new funds and years more to restart a once-promising trial.
The pandemic forced many researchers suddenly to shutter promising trials in cancer, blindness and many other fields. A quantitative study of what this did to pancreatic-cancer research in particular and oncology in general concludes that treatment and cure were set back an untold number of years.
We can’t just wait this out. In the US, public funding for biotech is largely dedicated to basic research housed in the National Institutes of Health. Other nations are more generous with funding for the “translational” research that turns basic biomedical research into treatments and cures, but public spending is now under acute strain due to pandemic-driven deficits and the growing pressure of acute inflation. Nothing cries out more for innovative finance than early-stage biomedical research. Lives are literally at stake.
One solution is pending in the US Congress: legislation to authorise a federal guarantee backing “BioBonds”. These are low-interest, government-backed bonds that package together loans from the sector. Pioneered by the Foundation Fighting Blindness, of which I am a director, they could bring a disciplined, deficit-efficient option to meet this urgent need.
BioBonds are designed for institutional investors such as pension funds and life insurers. They are no different structurally than US mortgage-backed securities — packages of lots of small loans to borrowers likely to repay them eased into the secondary market via federal guarantee. If biotech companies want these bonds, they would have to win approval for their research from the US Food and Drug Administration as well as demonstrate ability to repay.
We know the power of private finance mustered for the public good when it comes to climate change but those of us who suffer with medical needs now may not live long enough to know whether climate risk is as great a threat as it currently appears. We can and should quickly mobilise the financial force of private capital when it comes to this urgent, unmet need: speeding treatment and cures across the spectrum of disease, disorder and disability.
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