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New Funding Models for Biomedical Innovation with Andrew Lo | Markus Academy | Ep. 51
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Researchers, investors, policymakers, and entrepreneurs interested in the financial aspects of developing new medical treatments and technologies.
TL;DR
This video explores new funding models for biomedical innovation, highlighting the shift from large corporations to startups and the crucial role of venture capital. It discusses how government subsidies, demand-pull mechanisms, and patent systems can incentivize R&D, while emphasizing the need for optimal risk-sharing and a resilient ecosystem.
Key Takeaways
- Innovation, particularly in ideas, is non-rivalrous, meaning it can be shared widely without diminishing its value for others.
- Research and development (R&D) expenditures create positive externalities, often leading to underinvestment without external support or incentives.
- Governments can stimulate innovation by subsidizing R&D costs, creating demand pull for end products, granting temporary monopoly rights, or offering prizes for inventions.
- The traditional model of R&D within large corporations is shifting towards a startup model, where smaller firms innovate and are later acquired by larger companies.
- Venture capital plays a crucial role in funding startups, providing not only capital but also valuable advice and expertise across different ventures.
- The venture capitalist system's approach to failure and bankruptcy stigma influences the willingness of entrepreneurs to take risks in pursuit of innovation.
- Biomedical innovation faces significant financing challenges and bottlenecks, despite scientific breakthroughs, which can be addressed through improved financial models and systems.
- Personal experiences with cancer and its treatment highlighted the profound impact of finance on drug development and the pace of medical innovation.
In This Video
- 00:04Introduction to Biomedical Innovation Funding
The webinar begins with an introduction to the topic of funding for biomedical innovations, highlighting its importance, especially post-crisis.
- 00:35Nature of Ideas and Innovation
Ideas are non-rival goods with positive externalities, leading to underinvestment and the need for strategic funding models.
- 01:51Government's Role in Innovation
Governments subsidize basic research, absorb risk, and can use demand-pull or price incentives to foster innovation.
- 03:26Traditional vs. Startup Innovation Models
The shift from large corporations conducting R&D to a startup model, where firms acquire successful startups, is discussed.
- 04:54Venture Capital and Risk Tolerance
Venture capital is crucial for startups, with bankruptcy laws and limited liability influencing risk-taking and innovation.
- 07:12Personal Motivation for Healthcare Finance
The speaker's involvement in healthcare finance stems from personal experiences with cancer and observing finance's role in drug development.
- 09:03Biomedical Field Inflection Point
Despite scientific breakthroughs, the biomedical field faces bottlenecks that better financing could address, marking an inflection point.
Questions & Answers
What are the two main innovation models discussed?
The two main innovation models are the traditional model of large corporations conducting R&D and the startup model where startups perform R&D and are later acquired by larger firms.
How does the government typically subsidize innovation?
The government can subsidize investment costs, create demand pull by buying end products, grant patents for temporary monopoly rights, or offer prizes for specific inventions.
Why is venture capital funding crucial for startups?
Venture capital is crucial because most biomedical innovations are considered real options, requiring optimal risk-sharing. VCs also provide valuable advice and expertise across different startups.
What is the role of limited liability in innovation?
The limited liability principle allows for more risk-taking by entrepreneurs. Without it, the strict liability principle could stifle innovation due to the potential for complete financial ruin.
What is an 'idea' in the context of innovation?
Ideas are non-rival goods, meaning they can be shared widely without diminishing their value or costing the sharer. This is exemplified by the idea of mixing salt and water to fight diarrhea.
What are positive externalities in R&D?
Positive externalities mean that R&D expenditures benefit society beyond the direct financial returns to the innovator, often leading to underinvestment because the full social value isn't captured by the innovator.
Key Terms
- Non-rival goods — Goods that can be consumed by one person without preventing another person from consuming it.
- Positive externalities — Benefits that are experienced by third parties as a result of an economic transaction.
- Venture capitalists — Individuals or firms that provide capital for startups and small businesses with perceived long-term growth potential.
- Real options — A business approach where managers can alter business strategies in response to changing market conditions, similar to financial options.