After Hurricane Matthew struck Haiti last year, touching down in a country still rebuilding from the devastating 2010 earthquake, people relied on whatever sources of water they could find. But fecal matter containing cholera — an infectious and often fatal bacterial disease — had made its way into the rivers from which they drank. As cases grew in a nation already crippled by a years-long cholera epidemic that had seen more than 9,000 deaths in six years, doctors struggled to contain the epidemic. The outbreak, however, could have been far more destructive had the nation not been able to obtain emergency vaccinations for 800,000 people — even in the midst of a worldwide shortage.
Though the global supply of cholera vaccines had by then dropped to levels too low to meet the demand of countries in the event of an outbreak, Haiti’s requests were met thanks to a private investment fund that was established to finance the development of drugs, vaccines and diagnostics, including an oral cholera vaccine. In the end, more than a million people were vaccinated.
Trevor Mundel, president of the global health division at the Bill & Melinda Gates Foundation in Seattle, Washington, said such situations showed the crucial role to be played by the private sector in global health financing.
“We hope that the Global Health Investment Fund will confirm our theory that private investment capital can advance charitable goals in the global health sector by supporting the development of lifesaving products for the poor in low- and middle-income countries,” he told Devex via email.
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The Bill & Melinda Gates Foundation has explored various financing models to support research and development of cures for infectious diseases affecting poor people in developing countries. To create the Global Health Investment Fund, or GHIF, a social impact investment fund that would ensure both a social return to neglected populations and a financial return to investors, it worked with J.P. Morgan. In the nearly four years since it was launched, the fund estimates that it has saved 4,200 lives and improved the lives of 1.5 million people through its investments.
Beyond these social impact measures, the financial return will not be clear until the fund sells assets and distributes funds, but portfolio companies are generating revenues and increasing in value, suggesting that the results may be good for investors. While it is still early days, staff at the Bll & Melinda Gates Foundation and J.P. Morgan said they hope that GHIF will not only fill a void in funding for R&D for neglected diseases, but also demonstrate that it is possible to generate social impact, reduce costs to health care systems, and deliver financial returns to investors at the same time.
“The foundation was grant funding a ton of early stage clinical development work for drugs and vaccines targeting neglected diseases, but once you get past the phase one and phase two stages of clinical development, then you start talking about a pivotal phase three study with hundreds or thousands of subjects,” said Glenn Rockman, a partner at GHIF. “Those big dollar signs required for those pivotal studies is what kind of scared the foundation into thinking: How do we marshal a fraction of the trillions of dollars of investment capital that are put to work each year and put some of that into neglected disease candidates that might have dual market applications?”
GHIF is one of many examples of new funds to emerge either directly or indirectly from the Bill & Melinda Gates Foundation to address financing challenges in global health by complementing philanthropic resources with commercial investment capital.
“But on the R&D side there aren’t many or any other competitors trying to earn a traditional financial return while delivering grant-like impact,” Rockman said.
For example, the Bill & Melinda Gates Foundation launched the Global Health Innovative Technology Fund along with the Japanese government and a group of Japanese pharmaceutical companies, but while it invests in the discovery and development of new health technologies, it does not target a traditional financial return.
If GHIF proves it can work as a new type of sustainable financing structure, the fund could open the flood gates to bring in new sources of capital into public health development, experts told Devex. But transformative R&D takes time. Studies suggest the world is only investing half of what it needs in global health R&D, meaning the global health community needs to act quickly in order to reach the levels of investment needed to achieve the Sustainable Development Goals, said Dan Pawson, vice president at Global Health Strategies.
GHIF is important “because it concentrates on getting high-potential products over the hump, from late-stage development to actual distribution, which is where so many potentially transformative products die,” he said, and “because we need sustainable mechanisms for funding global health R&D, and if GHIF’s model succeeds, it has the potential to usher in a whole different stream of funding not subject to political whims.”
Pawson said he sees GHIF as part of the mix of models needed to finance global health R&D. He mentioned the Coalition for Epidemic Preparedness Innovations launched earlier this year as yet another example. “They all take slightly different approaches, borrowing virtues from philanthropic, government and private equity investing,” he said. “We need some people offering staged funding, some making big bets on longshots, some for immediate needs, some on long time horizons that work for governments or private foundations but not for equity investors.”
“We need sustainable mechanisms for funding global health R&D, and if GHIF’s model succeeds, it has the potential to usher in a whole different stream of funding not subject to political whims.”— Dan Pawson, vice president at Global Health Strategies
GHIF was incorporated in 2012, and J.P. Morgan led the sales and marketing effort, with a year and a half of fundraising to get to $108 million. The assumption was that high net worth individuals and family offices would take most of the risk on this first time investment model, but it ended up being a mix of institutional, strategic and high worth individuals, Rockman said. GHIF raised the capital from investors including the German Federal Ministry for Economic Cooperation and Development, Grand Challenges Canada and the International Finance Corporation at the World Bank Group, which published a case study earlier this year on the GHIF model.
“Its greatest success is in the development of new treatments and tests that improve people’s lives in developing countries,” said Chris McCahan, IFC chief investment officer and global sector lead for health care.
So far, three GHIF companies have commercialized products, three are in clinical trials, and one is in the pre-commercialization stage, McCahan noted.
“Needs are vast. The work of the Global Fund, PEPFAR and GAVI is very important. But if we can go further with a sustainable approach to funding cures for neglected diseases and products tailored to the needs of developing countries, then we can make a difference on an even larger scale,” he said. “GHIF hopes to encourage entrepreneurs to pursue new products and find sources of revenues beyond grants.”
Rockman references a Venn diagram to describe the kind of investments he and his team consider in the diligencing process.
“The left circle is the universe of innovations that would obviously be appropriate and save lives in resource-limited settings, and the right circle is commercially investable business models, products you can bring to market and conceivably earn a financial return on,” he said.
GHIF investments, which will grow to a portfolio of 10 to 11 projects, are in that intersection. Examples include an investment in EuBiologics, a biopharmaceutical development and supply company, to increase the global supply of affordable cholera vaccines. Its portfolio also includes Moxidectin, a treatment for onchocerciasis, or river blindness, which the fund invested $10 million in through a partnership with Medicines Development Limited, a nonprofit global health company. And the fund has partnered with with Clarus, a health care investing firm, and PATH, a global health organization based in Seattle, on a $25 million financing in tribendimidine to improve treatment of intestinal worms.
Financial return can come from a variety of business models. One example is dual market applications, where GHIF products earn profits in wealthy countries while securing commitments from the manufacturer to offer the products at affordable prices in developing countries. Another GHIF investment strategy relies on incentive schemes, such as vouchers for priority review created to incentivize drug companies to work on medicines for neglected diseases, Rockman said.
GHIF is using incentives created by the U.S. Food and Drug Administration’s Priority Review Voucher program to raise funding for manufacturing, clinical trials and registration of Moxidectin, the river blindness treatment whose development had been stalled for lack of a viable commercial market.
“In economics, they always teach us that supply and demand are supposed to intersect, but when you have things that have huge fixed costs of development, then the question is which of the users is paying that back? In this case, the low income people are paying none of that back,” Bill Gates said in September 2013 in conversation with Jamie Dimon, CEO of J.P. Morgan. “Because we have countries at so many different levels of wealth now, we can take a product, get it created, and do tiered pricing where the price for the middle income countries and the rich countries gives a return to the fixed costs of R&D.”
The fund is intended to make a 5 to 7 percent return for its investors, Dimon said. While the Bill & Melinda Gates Foundation has committed to taking the first 20 percent of any loss that might occur, then sharing the 50 percent of remaining loss, the hope is of course that investors get their 5 to 7 percent return with no loss. If this model works, and Gates and Dimon said they hope it will, perhaps one day there may be no need for these kinds of guarantees, and investors may spread the word about their experience with the fund, so that the model might be replicated over and over.
While GHIF is technically independent from the Bill & Melinda Gates Foundation, the foundation has veto rights on all investments if they feel they do not advance the charitable objectives of the fund, and also serves as a resource for ideas, Rockman told Devex.
“We don’t just pay lip service to making the products affordable in low and middle income countries,” he said. “We have binding terms in all of our investment agreements with our investees saying they must deliver the product based on either a formula or an absolute price.”
That formula or price is negotiated in collaboration with the Bill & Melinda Gates Foundation and members of the GHIF charitable oversight committee, which includes leaders at the Gates Foundation as well as David Shoultz of PATH, Peter Singer of Grand Challenges Canada, and representatives from KfW Development Bank in Germany and the Swedish International Development Cooperation Agency.
Aid agencies will continue to be critical in combating neglected tropical diseases, said Ellen Agler, chief executive officer of the END Fund, the first private philanthropic donor fund dedicated to neglected tropical diseases. She said she believes that GHIF can complement but will never supplant development finance. Private capital, plus pharmaceutical donations, plus smarter philanthropic, developmental and sovereign capital must all work in concert to end NTDs, Agler said.
“Our role is to get donated meds to the disease-endemic population who, for the most part, cannot pay for the treatments,” she said. “There is very little commercial application and therefore little commercial incentive for investors.”
The few innovations she said she has seen in the global health innovative financing space, such as the International Financing Facility for Immunization and the Global Financing Facility, rely on developmental aid as a source of repayment precisely because there is no commercial application and therefore no commercial returns possible for investors, Agler said.
While GHIF is currently more focused on interventions with established delivery chains, with multilaterals such as the Global Fund, PEPFAR or GAVI buying in large quantities and doing the legwork, as the fund matures, it is likely to move beyond traditional health delivery systems and support drugs, vaccines, and diagnostics with innovative delivery models, Rockman said.
“Part of what we’re talking about for the next generation of this work with the Gates Foundation is how do we do that market building?” he added. “Dragging in more traditional impact-agnostic investors is really exciting because that’s where the trillions are.”
Update, May 25, 2017: This article has been updated to clarify that the name of the fund is Global Health Investment Fund.
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