Medical Research & Philanthropy - Social Impact Bonds & Big Pharma

I am a pharmacist's daughter. Some of my fondest childhood memories consist of weekends and school breaks spent working in my father's downtown pharmacy. That may seem strange, seeing as chemistry, biology and mathematics were not my strongest subjects. It was at this "job" that I was first exposed to business and commerce.  At an early age (elementary school) I learned how to work a cash register and count change - on a machine that didn't tell you how much change was owed; when I got my driver's license I was delivering prescriptions to seniors and those who were shut-in; and March break consisted of a weekend doing inventory for year-end.  Some really basic business and life skills were gleaned from watching how my father operated this small business.

When I saw the Tweet that Dr. Brian Goldman was going to be in Calgary for the Alzheimer's Society event earlier this month I wanted to get his take on something that I had been thinking about for some time; the role that Big Pharma plays in medical research and development.  More specifically, how medical foundations market themselves to donors for research funding that is then turned over to major pharmaceutical companies, who, in turn make millions on new drugs.  My question is around the transparency of how the funds, which were initially secured in a charitable foundation to support research conducted in laboratories, is then funnelled (by way of completed, and perhaps patentable research) into pharmaceutical companies. 

When I shared with my dad the question I was posing, he pointed out the time it takes from idea to production of a major drug, can be years if not decades.  The role that private philanthropy plays is a critical one in getting pharmaceuticals to market.  This question is not one about whether private philanthropy should be facilitating medical research, but rather, how should that type of financial transaction be recognized.

What follows are some of my thoughts around this topic that stemmed from a "thumb-numbing" Twitter conversation with Dr. Goldman, and of course, the guidance from my Dad.

What is the result of private philanthropy funding medical research conducted in charitable laboratories (university or foundation based)? 

• New drug for consumers,
• Increased revenue for the drug company, 
• A medical solution to an illness (out-right eradication...)
• If the relationship is stewarded properly, increased funding grants back to the laboratory,
• If the drug is really successful, then perhaps it could even lead to decreased healthcare costs associated with that disease

Here's where I think things break down:

I am not familiar of any other sector or industry, whereby private donation dollars are being used to make for-profit companies millions of dollars.  In the case of the pharmaceutical companies, their front-end research costs are off-set by private donors funding the research.  Most companies carry the R&D costs over to the end product that they sell to the consumer.

Dr. Goldman asked me about water-pump manufacturers who make money by selling their pumps to NGO's in developing countries.  My response was that there is a difference between an NGO buying a completed product using funds provided by donors who's intention was to purchase that water pump. As opposed to donors who's intention was to solve cancer and not subsidize upfront research and development costs to large corporations.  In the case of the water pump, if the donor's money was being used to research the best way to pump water out of the ground, develop a patent for this new technology and then have the company own that patent (instead of the NGO), we might have something comparable.

So is there a new model for this type of medical philanthropy and research development? 

The Canadian Cancer Society whose mandate is to, “...focus on the eradication of cancer and to improve the quality of life of people living with cancer.”  A core component of their activities is funding medical research that is conducted alongside Big Pharma.

What would it look like, for example, if my donation was actually seen as an investment in the partnering pharmaceutical company?  The Society acts as the conduit for the transaction (which for all intents and purposes it is doing now). 

Here's how the idea could be structured: Funds provided by private donors to academic laboratories (i.e. charitable labs) for research leading to a profitable product for a for-profit company are converted into a Social Impact Bonds.  An ROI is given once the product goes to market.  The base value of the bonds could be backed by the government, the university, the pharmaceutical company or a financial institution.  If however, the research just ends up being research for purely academic purposes, the transaction remains a donation and a charitable tax receipt is issued. 

The net results:

1. A tool that could drive more funds into research from the private sector,
2. An evolution of the academic research landscape leading to the development of the best medical solution for that disease (or drug modification),
3. A new way of securing long-term funding from the private sector, and
4. Increased transparency of the relationship between the pharmaceutical companies and the university laboratories they support

In looking at how this sector is evolving, it is time that we started using some of the financial tools that are available to really make a difference in the organizations and businesses that form the very fabric of our society.  Something like the Social Impact Bond, can move organizations out from the "Please sir, can I have some more," fundraising model, to one that fosters real business relationships with their strategic partners.