Bridging the Valley of Death: The Role of Impact Investing
By: Maria Oldenburg and Baiju R. Shah
One of the many challenges academic researchers face in the discovery process is the limited funding resources available to translate their discoveries into medicines. While government grants, disease foundations, and philanthropists can all be helpful, their funds are typically not sufficient for advancing a discovery forward to the point where traditional venture capital firms or industry are interested.
Impact investors—who aim to both do good and do well—have rapidly emerged as a new source of capital to translate exciting discoveries into promising medicines, filling the void known as the valley of death. In many cases, these impact investors are driven to health care investment opportunities for personal reasons – to find and fund cures or treatments for specific diseases that affect family or friends. The critical funding opportunities they provide for a project, whether structured as equity investments or convertible notes/grants, play an integral role in advancing the discovery forward and addressing the significant financial hurdle facing academic researchers. In addition to contributing to bringing new therapies forward for patient use, impact investors can also be rewarded financially when those products are ultimately commercialized.
Impact investments are intended to be self-sustaining. While an individual or entity may make a one-time donation to advance scientific research within a disease area, a biotech impact investor funds a project with the intention of ultimately profiting when the research is translated into a therapeutic. This allows them to not only recoup the costs associated with the investment, but it gives the investor the opportunity to reinvest profits in new impact investments—creating a domino effect of funding, all with the intention of accelerating drug development and ultimately benefiting patients.
We foresee a continued rise in the influence of impact investing within biotech, especially as the popularity of sustainable investments widens and the structures of purpose-driven organizations and companies—venture philanthropists, B-corps, disease foundations, and more—becomes more flexible.