By Josh Jacobs, LGO Director of Operations and Partner Integration
In a recent MIT Leaders for Global Operations webinar titled "Can Financial Engineering Cure Cancer?" MIT Sloan Professor Andrew Lo described how the same tools that were used to catastrophically inflate U.S. mortgage debt markets could be used to fuel a "cancer megafund" to distribute the risks and rewards of breakthrough research across the vast global bond market.
Lo, who directs MIT's Laboratory for Financial Engineering and also leads a hedge fund he created in 2003, is noted for applying tools from various disciplines to provide new insights on key issues in finance. In recent years, driven by the impact of cancer on friends and family members, he wondered if the resources of global capital markets could be used to accelerate progress toward solving pressing global challenges in health and energy.
Working from his expertise in financial markets, Lo described his concept for how the greed and financial engineering that drove a six-fold increase in U.S. mortgage debt in the 2000s might be focused to more altruistic aims. Recognizing that a huge global bond market—vastly bigger than the venture capital market—is looking for ways to secure reasonable returns, Lo proposed a $30 billion cancer megafund that would invest in more than 150 promising drug development projects. He discussed his cancer proposal recently with both the Economist and the Boston Globe.
In his March 1 presentation, Lo demonstrated that spreading the typical cost, risk and return on cancer drugs across such a broad range of potential successes would present very attractive potential rates of return to bond investors. This potential fund would address the current negative trend for investment in biotech, driven by very long development timelines as well as dry cancer-drug development pipelines.
While $30 billion is not a very large target in the context of global bond and sovereign wealth investment resources, it's equal to the current overall budget for the National Institutes of Health—and, more importantly, it would provide a longer-term horizon than venture capital investors now offer for drug development efforts.
In response to a question by an LGO student about the governance procedures that would be needed to prevent a "cancer bubble" along the lines of the housing bubble, Lo said that despite the lessons learned from the housing finance crisis, "the price of innovation may be some false positives." However, he added, with proper oversight and financial structuring, the net impact of the cancer megafund would be overwhelmingly positive, particularly in light of declining governmental support for such research.
Lo, who was recognized by Time as one of the World's 100 Most Influential People, is convening a conference this June at MIT on the cancer megafund project with key stakeholders from the biotech industry, government, the investment community, and cancer researchers. More details will be forthcoming soon on his website.