Commercializing Biomedical Research Through Securitization Techniques
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cancer_Final.pdf
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Author(s)
Fernandez, Jose-Maria
Stein, Roger Mark
Lo, Andrew W.
Date Issued
September 2012
Journal
Nature Biotechnology
Publisher
Nature Publishing Group
Citation
Fernandez, Jose-Maria, Roger M Stein, and Andrew W Lo. “Commercializing Biomedical Research Through Securitization Techniques.” Nature Biotechnology 30.10 (2012): 964–975. CrossRef. Web. 4 Apr. 2013.
Version
Author's final manuscript
Abstract
Biomedical innovation has become riskier, more expensive and more difficult to finance with traditional sources such as private and public equity. Here we propose a financial structure in which a large number of biomedical programs at various stages of development are funded by a single entity to substantially reduce the portfolio's risk. The portfolio entity can finance its activities by issuing debt, a critical advantage because a much larger pool of capital is available for investment in debt versus equity. By employing financial engineering techniques such as securitization, it can raise even greater amounts of more-patient capital. In a simulation using historical data for new molecular entities in oncology from 1990 to 2011, we find that megafunds of $5–15 billion may yield average investment returns of 8.9–11.4% for equity holders and 5–8% for 'research-backed obligation' holders, which are lower than typical venture-capital hurdle rates but attractive to pension funds, insurance companies and other large institutional investors.
MIT Department
Massachusetts Institute of Technology. Computer Science and Artificial Intelligence Laboratory
Massachusetts Institute of Technology. Department of Electrical Engineering and Computer Science
Sloan School of Management
Sloan School of Management. Laboratory for Financial Engineering
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1038/nbt.2374
