Healthcare Finance

Funding for translational medicine is becoming scarcer, and at the worst possible time—when we now have the scientific and engineering expertise to make major breakthroughs in our understanding of the molecular basis of many deadly diseases and how to treat, cure, or prevent them. The so-called “Valley of Death” in translational medicine is the result of many causes, but a common thread among them is increasing financial risks in the biopharma industry and greater uncertainty surrounding the economic, political, and academic environments within the biomedical ecosystem.

The LFE’s healthcare finance initiative explores new business models and financial vehicles for raising and deploying funds to support biomedical innovation. We apply tools of financial engineering—portfolio theory, securitization, credit default swaps, and other techniques—and propose a new type of “megafund” that will offer investors a set of attractive securities with unique risk/return profiles while multiplying the resources available for scientific research. By spreading the risk of translational medicine across a much larger pool of investors and increasing the number of “shots on goal,” the risk to all investors may be lowered and the chances of one or two successes becomes much higher.

Our ultimate goals are to offer a practical solution to this challenge, to design new funding vehicles for accessing previously untapped pools of capital for supporting translational medicine, and to demonstrate that structured finance can play a significant role in addressing some of society’s biggest challenges.

Current Research

  • A Portfolio Approach to Translational Medicine: A Case Study of NCATS
    Austin Gromatzky, Andrew W. Lo, Manita Singh, and Nora Yang
  • Optimal Capital Structure, Risk, and R&D Decisions: Theory and Evidence from the Pharmaceutical Industry
    Richard Thakor and Andrew W. Lo
  • Is the FDA too Conservative?: Bayesian Decision Analysis of Clinical Trials
    Vahid Montazerhodjat and Andrew W. Lo
  • Funding Translational Medicine via Public Equity and Debt Markets: The Business Development Company
    Monica Shilling, Sandra M. Forman, Andrew W. Lo, and Grace Sweeney
  • Financing Drug Discovery via Dynamic Leverage
    John Frishkopf, Andrew W. Lo, and Vahid Montazerhodjat
  • Investment Management Meets Clinical Trials
    Andrew W. Lo and Vahid Montazerhodjat