The Foundation in the News

May 13, 2019

Here’s a new way to raise money for medical research: Selling bonds to Wall Street

Want to advance hard-to-fund medical research? Get Wall Street to pay for it.

From The Health 202, May 13, 2019, courtesy The Washington Post

That's one way finance analyst Karen Petrou and her husband, Basil, are seeking to enlist the private sector in seeking a cure for blindness. Their idea: Packaging research loans into government-backed “Eye Bonds” and selling them to pension funds, insurance companies and other long-term investors.

The loans would be for projects traditionally hardest to fund, those in the preclinical trial phase in which scientists try to connect the basic science of disease with human medicine by conducting testing on animal or tissue samples rather than people.

Under their plan — which two members of Congress introduced as legislation last week — up to $1 billion in loans over five years would be made available to organizations doing this kind of early-stage research on blindness.

Petrou — who describes herself as “very blind” from retinitis pigmentos, a disorder that causes gradual vision loss — hopes that the concept will one day be used to raise research funds for not just blindness, but a whole spectrum of other illnesses.

“What we’re really looking at is eye bonds as a pilot to create a new class of investments,” Petrou told me in a phone interview last week.

Here’s the problem the couple is trying to solve: The government funds a lot of basic medical research. And biopharmaceutical companies spend heavily on clinical trials to get new medicines to market. But bridging those two phases is a bit of a no man’s land.

Investors are reluctant to take risks on potential treatments in such early-stage research, so much so that this translational research phase is popularly referred to as the “valley of death.” Promising findings from basic research often fail to make their way into clinical trials, missing out on the chance to be developed into a therapy for patients.

But under the Petrous’ plan, researchers carrying out projects deemed especially promising by the National Eye Institute would get loans backed by the government. Through an Eye Bond Trust, financial institutions would package and sell the loans to investors in the form of 10-year bonds. The federal government would partially repay investors if the labs couldn’t.

“Bonds would provide funding for exciting therapies such as eye transplants that could restore vision for blinded wounded warriors, prevent and cure age-related macular degeneration and other inherited retinal diseases, address diabetes retinopathy, cover glaucoma, and otherwise hold out hope for vision for millions of Americans,” Petrou wrote in a summary of her plan.

Photo of Rep. Cathy McMorris Rodgers (R-Wash.)

Rep. Cathy McMorris Rodgers (R-Wash.) (Rajah Bose for The Washington Post)

The idea has bipartisan support on Capitol Hill. Last summer, Rep. Sanford Bishop (D-Ga.) introduced a bill to create Eye Bonds. He reintroduced the measure last week with Rep. Cathy McMorris Rodgers (R-Wash.) as a co-sponsor.

Bishop said if the pilot program is successful, the approach could be used to raise private funds for researching other diseases including cancer, Alzheimer’s and Parkinson’s.

“For far too long, we have had federally-funded research sitting on the shelf, waiting for private investors to put it into practice,” Bishop said in a statement. “When it comes to turning research into cures, we must seek new ways to tackle old problems.”

Medical research is one area Republicans in Congress have recently agreed should be funded more generously. Over the past four years, Congress approved significant increases to the budget for the National Institutes of Health, after a decade in which the agency’s finances had remained relatively flat. In contrast, the Trump administration has sought to compress NIH’s spending in all three of its budget blueprints.

Petrou, who sits on the board of the Foundation Fighting Blindness, said she got the idea for Eye Bonds after experiencing frustration that the foundation couldn’t afford to fund more blindness projects. Ophthalmic research is blossoming, with advanced cures on the horizon, but the funding isn’t always there, she said.

“We were looking at it on the board and seeing, say, 10 projects coming at us in applications, and we could only fund two,” Petrou said. “That means eight really great things we couldn’t fund aren’t moving forward.”