Burdened by declining productivity and innovation, biopharma is seeking new ways of financing its growing needs. According to the Tufts Center for the study of Drug Development (CSDD), the cost to develop a new prescription drug is pegged at $2.6 billion. This marks a 145% increase from 2003 estimates, according to an article republished on Scientific American.
According to the same article, the figure is based on the sum of the industry’s average out-of-pocket cost ($1.4 billion) and opportunity cost on investment — estimated at $1.2 billion within the span of 10 years or so. These figures point to a non-ideal scenario where capital-intensiveness is coupled with high capital risk. Research and development in biopharma is notoriously known for churning out a very small percentage of commercially viable and publicly accepted drugs or treatments.
If you notice on the graphic below, biopharma R&D produces a funnel-like effect where substances at the beginning of the research cycle are progressively narrowed until it reaches an outcome of 1 drug per 5,000 to 10,000 compounds at the end of a 10 to 15-year cycle.
Having this low-yield model which has been called by some as “stochastic” and “painful” (refer to Forbes innovation crisis article) can only mean a state of statistical decline of the number of drugs that will be introduced to patients in the future.
Statistics have already predicted the productivity rate of biopharma as approaching zero (0%) by 2020. By all indications this rate will continue into a negative figure in succeeding years, if nothing is done to curb the trend.
The biopharma and medical industries are under great pressure to change course and innovate, or otherwise suffer the fate of a vicious cycle of revenue loss, rising cost, increasing regulation, and eventually decreased output resulting in a disservice to patients.
There have been many efforts by governments, corporations and non-profit organizations to address this issue. Various researchers, think tanks, and independent industry efforts have brought up the idea of reconstructing the entire business model of the biopharmaceutical industry. The one thing they cannot agree on is how. We are embarking on something very new here, something that goes against the highly industrialist, deeply centralized/oligopolistic global corporate model of the past.
The newest suggestions on revamping the biopharma business model have revolved around the following: 1) monetizing intellectual property (IP) throughout the process of drug development 2) external sourcing of R&D assets (the usual recourse for large companies) which involves either licensing, M&A or JV’s 3) blockchain-based models focusing on equity tokens or similarly structured assets (STOs).
Of these examples, we are primarily concerned in evaluating 1 and 3, because they have direct relevance to the tokenization phenomenon happening in blockchain, and model 2 is failing due to high CRO (contract research organization) and CMO (contract manufacturing organization) current cost.
Intellectual property can be digitized and tokenized and offered to the public in a number of ways. There are some proposed blockchain models that exclusively apply this to the health industry; others are marketed as platforms that allow anyone to create their own tokens that correspond to patents and rights. The issue with these models is that they can become very complex. IP rights can be distributed to a large number of owners, and at their infancy stage — before the invention becomes commercial — thus, theoretically, allowing investors to profit from their early bets. Inventors or scientists can then benefit from this economy through using this tokenized model to fund their early research and create revenue streams very early on, even without a product to sell.
This corresponds to a (partial) research supported model, granted that IP rights can be fully legally distributed among many owners, and also that in the end there is a corresponding increase in the overall value of the token offered. It also raises the question of how rewards will be distributed in the future — will they be solely dependent on token price, or are there other ways to ensure that people recoup their investments? With regard to the demand for such IP rights, it could very well occupy a niche in the effort to push R&D forward.
Equity-based blockchain models have also been proposed. Through STOs (security token offerings) it releases tokens that correspond to a type of ownership in a biotechnology company and/or its individual assets. This provides research-stage financing for the company and possible benefits to token holders should this research reach commercial stages and become successful. It has recently been used to finance a single asset (drug molecule) under a company.
But what about the massive market of patients that wait for their treatments? Is there no way to directly harness that?
Patient Benefits First
Aevolve’s model began as a concept of offering direct simplicity. It focuses on the direct need of patients to access and receive drugs and treatments. For patients, no time is better than now. It is important to be able to offer a highly user-friendly environment in a marketplace that is designed for patients — not traders or speculators.
Aevolve’s proposed marketplace, Biospheres, offers reservations to various medical treatments or products from different biopharmaceutical companies. It is strictly a reservation protocol — not a direct-to-consumer shipment platform. Biospheres offers reservations to commercial (FDA-approved and available), pre-commercial and research-stage treatments, procedures or products touted as “offerings” under participating companies’ names.
The purchasing token, corresponding to credits in the Biospheres marketplace, is called AVEX. The reservation tickets, which represent rights to the goods or services, are called Spheres — aptly named, corresponding to components of an ecosystem of life.
Overlaid on this patient-driven business model is a securitization layer. AVEX.AI is a securitization pathway that allows traditional investors to invest in AVEX without participating in the utility market, thus separating the investment/speculative layer from the purely utility-based layer.
This hybrid model is to ensure that investors who want to invest in the performance of AVEX can do so via tracker certificate offered on a Swiss ISIN, without confounding the simple patient access model. The AVEX offered on the tracker is classified as the underlying, vaulted by a Swiss institution as part of a structured product conforming to Swiss law.
The Best of Both Worlds: De-risking Life Sciences Investment + Helping Patients
This ingenious model places innovations in patients’ hands and de-risks investor participation in life science innovation investment. It makes investing in blockchain-based assets easy, because investors do not have to tackle issues of custody and security. It appeals to crypto funds and traditional funds alike, opening the gate to the trillion-dollar derivatives market.
The bi-layered model allows distinction for both patients and investor markets. It also creates a need-based demand metric that has not been seen in biopharma before. Through blockchain technology, token activity can be measured and can stand as a new tool in capturing unmet needs on the patient side.
Is blockchain a cure-all for the health industry?
Aevolve does not believe in blockchain being a panacea for everything that ails the health industry. We consider it as a tool — alongside a far-reaching financial structuring model, marketing, and patient-friendly tech — to achieve the goals that were not possible as early as a decade ago.
With immutable ledgers, tokenization and smart contracts, the integration of large, previously fragmented markets is now possible. We are using blockchain as an accounting, access and integrative tool, rather than an all-encompassing solution. There is much more work to be done in terms of patient education, adoption and user simplification of this revolutionary technology. What we will say, though, is that it has reached far beyond the confines of finance and currency and has reached health in a practical way.
We believe that it is time for this integrated model that brings together the advancements of fintech on the one hand and the advances in medical research on the other, to accelerate progress and save the health industry from innovation collapse.