BioBonds Use Wall Street Tools to Fund Medical Research

In the development of disease treatments, the stage between basic research and advanced clinical trials is known as “the valley of death.”

While ample public grants fund early-stage research and pharmaceutical companies are willing to fund studies on proven solutions, research at the “translational” stage, when basic findings are applied to potential treatments, is notoriously difficult to finance. Some promising treatments are never pursued as a result.

The pandemic made this perilous valley “a whole lot deeper,” said Karen Petrou, the co-founder and managing partner of Federal Financial Analytics, a financial services consulting firm in Washington that created a new financial instrument designed to help solve this problem.

During the pandemic, clinical trials were halted, resources were diverted from labs, attention was focused on immediate needs, and much funding dried up. New research projects were difficult to kick-start.

At the same time, the value of funding scientific research became even clearer: Without the initial efforts of academic labs, it would have been impossible for big pharmaceutical companies to fast-track vaccine development.

Ms. Petrou’s proposed solution, known as BioBonds, gained traction.

The program would create low-interest, government-backed loans for translational research. These would be packaged into a bond, similarly to how mortgages are, and sold into the secondary market for risk-averse institutional investors like pension funds.

In May, Representative Bobby Rush, Democrat of Illinois, and Representative Brian Fitzpatrick, Republican of Pennsylvania, introduced legislation that, if passed, would create $30 billion worth of these loans over three years.

Ms. Petrou, who was diagnosed with retinal degeneration as a teen and went blind in her 40s, first stumbled upon the “valley of death” in 2013. She was raising funding for studies to speed up treatment for retinal degeneration, but potential investors told her translational projects were too speculative — they needed results that show a potential idea works, preferably involving a large population that will rely on pills.

She refused to accept that as a final answer. Many countries support private-sector funding for biomedical research and each does it differently, Ms. Petrou said: “We needed an American model.”

Ms. Petrou and her husband, Basil, had been advising Wall Street executives and regulators for decades. (She recently wrote a book on monetary policy driving inequality.) They had thought a lot about mixed public-private markets during the mortgage finance crisis. Inspired by green bonds — publicly-backed loans that since 2007 have created a $750 billion private market in sustainability projects — they started working on the idea that became BioBonds.

“It’s a lifeline,” Attila Seyhan, the director of translational oncology operations at Brown University and a former Pfizer scientist, said of the idea. He said his colleagues were similarly intrigued.

Unlike with grants, researchers would need to repay BioBonds loans. Still, getting no-strings funding is a “constant struggle,” Dr. Seyhan said, and “there is an enormous amount of frustration about lack of alternatives.”

He believes university business units will get “creative” to make BioBonds work. “There will be losses,” he said. “But if 1 percent succeeds, you pay off the losses. This is how drug development works.”

Many schools already encourage scientists to find money outside of grants with which to pursue their ideas. Increasingly, scientists say they have to think like venture capitalists, keeping commercialization in mind when they design clinical trials so that they are able to raise money from private companies to fund them.

“There’s a recognition now that even if we discover something, universities now have to help researchers transition to commercialization,” says Dr. Richard Burkhart, a surgeon and researcher at The Johns Hopkins University School of Medicine. Currently, his work is funded by the National Institutes of Health, but he is working with the Technology Ventures team at his institution on trying to commercialize his work.

While grants are preferable, they aren’t abundant. Dr. Burkhart believes BioBonds bonds may help scientists and institutions navigate the difficult translational space.

Meanwhile, the couple’s understanding of the need for more translational research evolved, tragically. Mr. Petrou was diagnosed with pancreatic cancer in 2018. After undergoing surgery in 2019 as part of a clinical trial run by Dr. Burkhart, Mr. Petrou was believed to be cancer-free. But in April of last year, a routine screening revealed the disease had reappeared.

The Petrous were determined to find another trial, but thousands of them were being halted because of the pandemic. Stuck at home in lockdown, they decided to revisit their BioBonds idea but think bigger. They repurposed their first proposal, expanding it to address added stress on the already ailing translational space.

“When we began to hear about devastation in the clinical trial context, I was quickly able to pivot,” said Valerie White, a recently retired financial services lobbyist, formerly at Akin Gump. She had helped shepherd the original bond concept and immediately began talking to contacts in Congress about BioBonds.

The legislation that Mr. Rush and Mr. Fitzpatrick introduced in May, called the “Long-term Opportunities for Advancing New Studies for Biomedical Research Act,” or LOANS for Biomedical Research, would require the secretary of health and human services to guarantee $10 billion a year for three years to fund loans for universities and other labs to conduct F.D.A.-approved clinical trials. The bill has 14 co-sponsors and support from about 20 organizations, including the Alliance for Aging Research, the Alzheimer’s Drug Discovery Association, the Blinded Veterans Association, and the Juvenile Diabetes Research Foundation.

“This should, quite frankly, capture the attention of a lot of different sectors in Congress,” said Ms. White. From her perspective, more biomedical research won’t just save lives but will also lead to increased military readiness and economic viability, among other things.

She has volunteered four years to the project and said she would keep going for as long as it takes for the BioBonds bill to become law.

Mr. Petrou will not be there to celebrate if that day comes. He died in March. Ms. Petrou believes that the surgery he underwent as part of the clinical trial would have saved his life but for other complications.

Ms. Petrou is determined to see the LOANS Act passed, to pay tribute to her partner of more than a quarter-century. She thinks a lot about all the pain people go through now, anguish that might be avoided in the future if there were more work being done on cures of all kinds, including for cancer and for blindness.

“This was their baby from inception,” said Ms. White, who was present at the couple’s wedding and remained friends with them over the years. “It’s almost ironic that this whole project started with eye bonds that could have helped Karen, but in the end, it was Basil who could have benefited if this idea had existed before.”

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