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Frederico Santos

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How much capital does it take to find a cure for a given disease? Would there be a reason for you to allocate your capital to this?

It’s fairly certain that great breakthroughs require great geniuses, but what’s the role of capital in all of this? I want to explore the impact of capital inflows into medical research through the creation of investment funds with the sole purpose of increasing the probability of discovery.

How much of your own capital would you give away to increase the probability of finding a cure? Truth be told, you would probably want to give more than you actually have. After all, who wouldn’t want to eradicate a disease…

But what to do when the capital I can spare to this is meaningless when compared to the big picture?

With today’s global world I believe we can be much more ambitious in how we intervene in the gathering of capital. If you look at the advancements in the “typical” capital raising and the development of crowd-funding platforms it could be relatively simple to raise large amounts of capital from small investors.

How would this differ from the usual investment fund created to research a specific drug? Besides the fact that the way we are gathering capital would be very different, the fund’s return objectives would be significantly different as well. Having the fund’s objective solely as “increasing the probability of a given disease” would make all type of research beneficial simply because the investors are not looking to research the drug that would maximize their financial returns.

On the link below I take on a more descriptive role of the reasoning behind this idea. It is still a working project and at the moment I’m more focused on the practical aspects of such a fund.

https://www.dropbox.com/s/dlr6qorhg10h9wx/Doc_Ted.1.pdf

Hope this reading had made your live a bit more interesting has I’m sure your comments will make mine.

Fred

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    Nov 23 2013: Trying to understand a time line here.
    Being capital allocation managed by a scientific board (scientists peeking the "best" laboratorys or research centers), in principle that board will change according to the specifications of each new goal established or suggested (always open for discussions) by the shareholders, and of course they always come first in matters of raising capital, but in wich way: from the bottom (they come to you), or from the top (with the board already as a consultant, you go to them)?
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      Nov 25 2013: This is actually the first metric I am working on.

      This can change, but so far, the way I see it would be the following. For example, the fund should look for diseases with a combination of factors such as the number of individuals affected; the impact of research (some diseases have great impact in the world but due to lack of income from individuals that have them, they don't need more research, they need access, which it's a different objective) and the estimated required capital to make an impact in the research vs the expected potential capital raised (for example, if you have a disease that affects mainly low income individuals but requires a high level of capital for research if we choose this disease we probably wont be able to have the expected impact).

      After the disease is chosen, the fund would be created, and the idea and fundraising present/marketed to everyone. Assuming the necessary fund are achieved the fund is created, so you know before hand where you capital is going. The fund will continue to invest his capital until there are opportunities to do so or until it reaches his particular objective.

      Several funds can be created, but we are looking to make an impact. We believe that in order to have the highest impact we need to be very aware of the research objective we pick. It's always a good cause to try to eradicate a disease but if we fail to find the "perfect" match between interest (from the people potentially affected) and the capital they can contribute we'll probably won't be able to achieve what we are proposing.
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    Nov 23 2013: Hi Fred.
    Read your papper.
    I'm interested in knowing more and exploring this idea in your above opening statement:
    "the investors are not looking to research the drug that would maximize their financial returns", their aim would be: increasing the probability of eradicating a given disease.
    1)the real goal is to increase a probability, not assure the outcome (eradicate the disease)
    2)this can be done by investing in human and physical capital , as you put it, the more the better
    3)this investment (humanphysical) can be measured

    I take all three propositions as true, but the link between the 3rd and 1st are not clear to me. Assuming that the objectivity proposed in 3 by measuring the investment in 2 is done, depending on these results the probability in 1 will increase or decrease. Where is the direct link? In the papper you say that you "have been developing several metrics to control and regulate a fund such as this in order to guarantee that on principle we are better off with it", are these metrics the missing link? Could you tell me more please.
    The pragmatic problem you put it quite well:
    What’s stopping us from creating a fund with private capital from everyone interested same as any other fund, but with a different way of measuring return?"
    Question: the different way of measuring return is the increasedecrease in probability of eradicating the disease or in the form of scientific patents? Its true that one can involve the other (prob-»patents), how do you see the posibles relations between the two?

    I get the feeling that you are proposing a fund very similar how for instance a social health care system (in your case scientific research) should function, meaning that it also should not be guided towards the maximization of their financial returns, we all want to believe that the doctor is not keeping us sick to pay for a new car. What're the main differences?
    Nice work by the way.

    Cheers
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      Nov 25 2013: Hey,

      Thanks reading and for your questions.

      Regarding your third point. When you say "investment can be measured", do you mean the potential returns of the fund? Or do you mean the way the investment is made?

      If you mean the first, I have to disagree because I see the probability was always increasing. The specific disease chosen for a fund such as this, as mentioned on the paper, would probably be a mortal or life impairing disease (like one of the various forms of cancer) that would affect many. If this type of disease is "still around" it means we are probably far away from an eradication. If you inject a couple of billions in capital to fund research of a specific cancer you cannot guarantee 100% success of course (or even any % figure), but given that finding a "cure" comes in stages of success, not a single discovery, every step would be a % point close. Small discoveries would either improve medication/treatment or even cure minor cases of the disease, these discoveries (which the patents will be controlled by the fund) can be the starting point of other researchers outside the fund. Given that this fund is not looking to have excess profit over the capital invested you can easily see that on the worst case scenario we are able to pass on the discoveries has a starting point for other researchers (assuming the fund capital for the research is gone). So even if you're not able to eradicate a disease with an initiative like this, most likely really, we will be able to improve the knowledge of said disease.

      If you mean the second point, the capital invested can be easily measured and disclosed publicly. Typically the investment would be split off among research start-ups created specifically for a research objective and 100% capital controlled by the fund.

      Sorry, if this wans't what you meant.

      Regarding your question, there are a lot of similarities between this fund and the tipical one. The main difference on my opinion is the fund research decision.
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      Nov 25 2013: (continue)

      The fund research decision come from individuals with no cash-flow generation expectations, that could make some research areas, determined unprofitable, possible.
      The other difference is how the fund would measure the outcomes, discovery/patents. Typically you can fund a biotechnology firm, created to research a specific drug, if you get a discovery you move for an approval and then commercialization, has a shareholder you would collect the profits from this. On our case, the objective is not to achieve profits per se, so you get two outcomes, you either find an effective treatment and you can commercialize it at cost or close to it or if you only got small improvements, not an actual final form of treatment, you can share those patents with other researchers that would continue, have a fresh view on your research. On the latter case you wouldn't sell your patent but you would need to make arrangements with the interested private labs.

      I agree in theory that works on a similar manner, we are in fact talking about a pool of capital working towards a common good, but in practice there are several differences.

      For one, this wont be a black box fund, which means the fund will not collect capital to fund for instance "improvements in medical research" but instead will be created to fund specific research. In our social health care system we fund several things.
      For other, this would be a global fund and more important then the fact that being global helps achieving capital objectives (more individuals implies more funds) we have access to the best available human and physical capital on a global perspective. You would look to have the best lab with the best people. Sadly is very complex to have a system funded by a particular nation (like the common health care system) having a global reach.