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Harnessing venture to accelerate medical progress

Juan Carlos López1* and Christian Suojanen2 Lack of financial and human continues to hinder the development of successful biotechnology hubs. Venture philanthropy could be an important part of the solution.

As governments around the world try to fulfil the and people. Among them, people — human capital with translational and economic potential of the biomedical the necessary expertise to run a start-up​ — is the hard- research they fund, one common strategy has been the est to find. In our interactions with venture , creation of start-up​ incubators and seed funds. The ulti- the concern that most often keeps them from funding mate goal is to foster a fully-​fledged biotechnology hub a start-up​ is not the science, but the management team. — an ecosystem with all the elements for the develop- If the investors do not know the team, they will be much ment of new therapies: high-quality​ academic and clini­ more cautious with their . This helps explains the cal centres, sufficient , strong presence dominance of Boston and San Francisco; the experi- of the pharmaceutical industry and a vibrant cluster of enced, well-​known management teams mostly prolifer- biotech . ate in these hubs1, leading venture investors to fund new Unfortunately, most such efforts have so far failed biotech companies in those regions. to achieve anything like the success of hotspots of bio­ medical innovation like Boston and San Francisco1. Here, Venture philanthropy as the catalyst we highlight some of the reasons and propose venture So, the missing capital to create biotech hubs is both philanthropy as one potential catalyst for the creation of financial and human, and these are closely linked; the successful hubs. absence of enough money to launch robust start-​ups translates into an inability to properly compensate and Why hubs need more than money attract top managerial talent. The failure to create hubs is partly due to the assumption An insufficiently explored source of funding to that the key obstacle to creating successful start-​ups is address this dual shortage of capital is philanthropy. purely economic, which leads governments to repeat the In the United States, for example, the federal budget for same mistakes. They build incubators that lie fallow, and research has decreased or stayed flat over the past dec- provide seed money for start-​up creation, but quickly ade, but overall funding has remained constant, owing in pivot to other ventures because drug discovery time- good measure to philanthropic contributions2. lines are longer than election cycles. They set quotas for More specifically, venture philanthropy has come to how many companies ought to be launched in a region, the fore as an important source of financial resources. a figure that often exceeds the number of high-​quality This type of philanthropy does not treat funding as a ventures that can be created with local intellectual pro­ charitable grant, but as an investment that aims to perty. And they often use job creation as a key metric of achieve social goals and provide tangible solutions. For success, even though biotech start-ups​ typically prefer to example, a venture philanthropist interested in cancer outsource most of their operations in order to use their might prefer funding an experimental therapy in the capital efficiently. clinic than curing cancer again in a mouse model. Politically, such a ‘shotgun’ approach to launching The relationship between venture philanthropy and start-ups​ allows governments to take credit for support- venture capital is clear; both expect a return on invest- ing the creation of companies and jobs. However, the ment, management oversight and operational efficiency. resources committed — mostly public money — are However, there is a key difference: venture philanthropy

1The TTS Global Initiative, rarely enough to have an enduring impact, and often primarily expects the generation of social benefits, Miami, FL, USA. end up being wasted owing to poor access to venture whereas venture capital is driven by financial returns. 2Haystack Science, New York, capital for follow-​on investment or to policies that Indeed, whereas both types of use similar finan- NY, USA. prevent founders from raising funds with cial concepts and techniques, venture philanthropists *e-mail:​ [email protected] international investors. tend to be more tolerant of risk than traditional venture https://doi.org/10.1038/ Moreover, kickstarting a biotech hub requires at least funds because their main goal is to move the needle in d41573-019-00129-1 three ingredients that seldom converge: science, money the direction of new therapies. Because of this difference,

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venture philanthropy could be the missing catalyst for The interest of prospective philanthropists is often the successful incubation of academic start-ups​ and the focused on a specific disease. So, identifying enough creation of new biotechnology hubs. projects for investment on a given disease in a small The impact of venture philanthropy on biomedical region could be another challenge. Although attracting innovation has been on the rise since the Cystic Fibrosis projects from regions outside the new hub is possible, Foundation sold its royalty rights on the drug Kalydeco the right incentives for distant universities and scien- to Royalty Pharma for US$3.3 billion. Inspired by this tists to ‘export’ their science are not always easy to align success, other disease foundations have begun to invest with those of the investors. Alternatively, it might be in biotech start-​ups. However, we think that venture possible to convince philanthropists to remain disease-​ philanthropy can have a more profound impact on bio­ agnostic and simply invest in the best projects, or per- technology if the philanthropists themselves take the haps even to form a syndicate of philanthropists with driver’s seat in helping create new companies and in different interests in different locations, which could be building the innovation ecosystem for them to thrive. supported by a single financial team. One strategy to achieve this goal is to identify wealthy Also, although venture philanthropy could kindle individuals with philanthropic interest in biomedical a hub, it will not be enough alone. Other strategies research, and channel this interest towards the creation are needed, which could include efforts to recruit sea- of start-​ups to develop cures. In this scenario, inno- soned bioentrepreneurs to run companies (as China vation specialists with the right expertise can bring has been doing3) and offering incentives to Boston- and together the key stakeholders (scientists, entrepreneurs San Francisco-​based life science venture funds to open and authorities) to help inform potential philanthropists branches in other regions and share their expertise. on how a therapy is developed, what the probability of It took decades for Boston and the Bay Area to success is and where the risks are; in short, to convince become the hubs that they are today. It is therefore them that investing in start-​up creation is a powerful important to take the long view and set realistic mile- vehicle to make a difference for patients. stones while building a hub. Nevertheless, philanthropy-​ Clearly, this approach is very different from asking a backed initiatives can make an impact in a relatively donor for a research grant or for funds for a new build- short time. For example, Harvard’s Blavatnik Biomedical ing at a university. At its best, venture philanthropy pro- Accelerator advances academic discoveries in the direc- vides not only funds, but also the network of experts, and tion of the clinic without the immediate need for man- the management discipline and oversight that agement teams to lead start-​up companies. Initiatives are required to create successful ventures. So, venture of this type are beginning to obtain clear results4 and philanthropy could also help address the human capital could help venture philanthropists ‘get their feet wet’ challenge highlighted earlier at two levels. First, by pro- and provide a blueprint for large-​scale biotechnology viding enough financial resources for nascent start-ups,​ investment. venture philanthropy may attract top talent that can be For the model to work, governments must move compensated properly. Second, as robust companies away from the idea that creating a knowledge-​based begin to leverage the financing and the high-​ net- economy around biomedicine solely requires incuba- works of effective venture philanthropy, the budding tors and seed funds, and also stop using job creation as hub will start attracting pharmaceutical companies, a metric of success. Real success must be measured in patient advocacy groups, additional donors and other terms of companies sold or taken to the , elements of a fully-​fledged biotechnology ecosystem. products that reach the clinic, or inflection points in Thus, by launching a cadre of strong start-ups,​ a venture the value of a company that result in objective returns philanthropy-​backed hub could create a talent-​friendly of financial or human capital. Finally, scientists, aca- ecosystem to effectively compete for human capital and demic authorities and innovation experts must earn to create its own pool of top management teams. the trust of philanthropists, informing them on how science moves from bench to bedside, and exposing Challenges to realization them to truly compelling projects that may indeed reach Venture philanthropy-​backed start-​ups lie at a peculiar the clinic. intersection of financial gains and societal benefits, and so 1. Booth, B. Why Biotech's talent, capital and returns are present a series of challenges. For example, it is not clear consolidating into two key clusters. Forbes https://www.forbes. what the appropriate financial return on a philanthropic com/sites/brucebooth/2017/03/21/inescapable-​gravity-of-​ biotechs-key-​clusters-the-​great-consolidation-​of-talent-​capital- investment might be. Similarly, the ideal deal structure returns (2017). for a philanthropic investment in a company that might 2. Mervis, J. Data check: federal share of basic research hits new low. Science 355, 1005 (2017) generate a substantial is not obvious. This is parti­ 3. Khan, N. ‘Sea turtles’ give China’s drug startups a shot in the cularly critical in regions that promote philanthropy arm. Bloomberg https://www.bloomberg.com/news/articles/2016- 06-26/-sea-​turtles-give-​china-s-​drug-startups-​a-shot-​in-the-​arm through tax exemptions, such as the United States. (2016). At the other end of the spectrum are countries that 4. Timmerman, L. No more peanuts: Merck pays $20M for Harvard cancer drug. Forbes https://www.forbes.com/sites/luketimmerman/ offer no fiscal incentives to foster philanthropy. Indeed, 2016/03/22/no-​more-peanuts-​merck-pays-20m-​for-harvard-​cancer- if governments are interested in biotechno­logy, they drug (2016). could work with prospective philanthropists on solving Competing interests some of these financial challenges in their countries. The authors declare no competing interests.

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