Roger Stein, a senior lecturer in finance at MIT’s Sloan School of Management and research affiliate at the MIT Laboratory for Financial Engineering, gave a TED Talk describing a new financial model he and some colleagues at MIT have been developing to make drug funding more feasible. He describes how drug funding is a bottleneck because developing new drugs is extremely risky and expensive. As an expert in financial engineering and risk mitigation, Stein decided to conduct research on the possibility of making drugs financial assets. He theorized a megafund to back hundreds of trials in which capital could be raised by issuing securities (debt and equity) that would generate cash flows to fund the drug research.
As the drugs move through the various phases of the trials, they gain value and can be put up for sale. Once sold, the interest is then paid back and the remaining money can be reinvested to fund the next round of trials. At the end of the transaction, the portfolio can be liquidated to pay back bondholders and give a decent return to investors. In effect, this becomes an efficient self-funding model to progress drug research and ultimately save lives.
Right now, about 20 years’ worth of potentially life-saving drugs are sitting in labs untested because they can’t get the funding to be sent to trials. With Stein’s new financial model, hundreds of more drugs could be moved into the testing pipeline and hundreds of more lives could be cured as a result of using megafunds to revolutionize drug research.