Global Dementia Legacy Event: Ms. Cathrin Petty


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Session Four: Exploring the financial mechanisms that can be harnessed to increase investment in

Ms. Cathrin Petty, Managing Director Co-head of Healthcare, Europe, the Middle East and Africa (EMEA), JP Morgan

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  • Goal we set was to change the trajectory of Alzheimer’s by 2025
    Millions are dying
    No scientific breakthrough in sight
    We stymie innovation by the fragmented approach we are currently taking
    This will require an increase in commitment of public resources (to a more appropriate allocation of resources)
    Change in “business as usual” is needed… but how will we get there?
  • Global Dementia Legacy Event: Ms. Cathrin Petty

    1. 1. Cathrin Petty Co-Head of Healthcare EMEA, J.P. Morgan 1
    2. 2. Dementia has suffered from chronic underfunding Source: Alzheimer’s Disease International, NIH website, J.P. Morgan social finance Note: “Dementia” includes NIH spending on Alzheimer’s and other dementias in line with new dementia category introduced in 2013 Average NIH annual R&D spent 2011-2013 ($mm) 2,018 5,448 4,212 534 Cardiovascular Cancer Infectious Diseases Dementia 3.8x 10.2x 7.9x Multiple of Dementia spent 2 2 7 9 10 5 2 3 1 10 6 13 14 11 8 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total unsuccessful drugs 1998-2011 = 101  1 new approval = Number of approvals Total drug candidates assessed in trials = 3 104 2.9%  1 new approval  1 new approval  Poor understanding of potential pathological targets  Challenging early diagnosis – disease typically advanced before first clinical detection  Inability to select early stage patients for trials to test true “disease modifying” potential  Lack of clear objective endpoints and relevant biomarkers  Long and complex clinical trials with high risk of failure  Reduces in market patent life  Patient access / compassionate use rarely supported  Increased perceived risk of litigation Number of Alzheimer’s drugs no longer under development Obstacle to investing in dementia
    3. 3. A clear inequity of risk and reward that can be addressed through financial structuring 3  Portfolio diversification  Different trial phases  Diagnostics and therapies  Underlying pathophysiological mechanisms  Funding structures for the investments – E.g. milestone-linked payments vs. royalties  Adjacent disease research – E.g. Parkinson’s associated dementia  Capital protection  First-loss catalytic capital  Guarantee – Partial or full – For some or all investors  Leveraged capital structure  Tranched capital structure accommodates different investors’ risk/return appetites – Debt tranches can be rated, with lower risk – Equity tranche can benefit from the leverage of debt investors  Outcomes-based payments  Linking investor returns to government savings as milestones are achieved Routes to lower the risk Routes to increase the reward Source: J.P. Morgan social finance
    4. 4. Construct an impact thesis and define use of proceeds 4 The building blocks and key considerations Impact thesis Investors Investment pipeline Research and sector expertise Structure Governments/ Stakeholders Construct an impact thesis with a targeted and measurable impact Construct an investment strategy that leverages the deepest scientific expertise Identify a sufficiently large, high-quality investment pipeline to justify a large capital allocation Test investor appetite, identify anchor investors and attract a preferred investor mix Ensure investment strategy complements government initiatives and is aligned with stakeholders Identify an optimal structure to improve the risk / return profile for investors Source: J.P. Morgan social finance
    5. 5. Determine an appropriate funding vehicle 5  Potential funding structures:  Purple Bond: Corporates, Supranationals or Governments raise capital from institutional investors with ring-fenced assets for a specified use of proceeds  Premium Bond: governments raise capital from retail investors with prize-based coupons  Capital markets vehicle: bonds issued that raise funding today to be repaid by future financial commitments from governments  Venture capital fund: equity and/or debt raised from institutional investors taking risk against a portfolio of pharma R&D, similar to Global Health Investment Fund  Potential issuers:  Single issuer: government, corporate, supranational  Multi-stakeholder special purpose vehicle  Potential loss-protection features:  Loss protection/guarantee to cover partial loss for all investors (either first-loss or pari-passu)  A guarantee for senior debt tranche investors  Other structural considerations include for example:  Outcomes-based development payments to improve return for investors linked to promotion from one phase to the next  Tenor of funding – perpetual or long-term vs closed-end structures  Identifying an appropriate manager for the vehicle Determine the funding vehicle, loss-protection features and fund manager Source: J.P. Morgan social finance
    6. 6. Preliminary and illustrative structure of a Dementia R&D fund 6 Dementia Fund Investor Advisory Committee Investment Manager Approves investment recommendations from Investment Manager Making investment recommendations 1 2 3 4 Investments Investment Committee Catalytic capital / Downside protection Impact Investors Traditional Investors Governance Management Investors Oversees conflicts of interests and consulted on strategic matters Catalytic capital Debt Equity Source: J.P. Morgan social finance
    7. 7. Conclusion 7 Manage social burden for future generation  Increase capital to  Catalyse academic and pharmaceutical research  Invest further in diagnostics and clinical biomarkers  Work with governments and regulators to improve translation and clinical trial design to accelerate new products to patients