Impact Investing in New Zealand: Opportunities to Create Impact Through Social Impact Bonds
Impact investing is an interesting puzzle piece which is increasingly relevant to the social impact sector. The impact investing scene is broad, including ethical kiwi saver funds, seed funding for social enterprises, dedicated investment funds focused on ESG (environmental, social and governance) factors, and Social Impact Bonds. This blog explores Social Impact bonds as a useful mechanism for driving investment into activities with positive social impact and deep-dives into a localised example with commentary from one of our members.
Social Impact Bonds (SIBs) are a relatively new concept but have been utilised by governments and companies across the world, in particular in the UK. The principle is a pay-for-success model, where the government or bond-backer issues a number of bonds (a promise to pay) for the solving of a social issue (i.e. reduce risk of diabetes for a certain group by 10%). These bonds are managed and distributed by an intermediary, who sells the bonds to investors and manages the contracts awarded to the ‘doers’ – the companies attempting to solve the social issue. If the project is successful, the government pays the investors out the success fee, delivering a return for investors and government alike.
From the government’s perspective, this mechanism shifts the risk of failure to the market, and presents an opportunity to solve social issues in a cost effective way. In theory, the government’s costs to pay for both the contract for services and the investor success fee should be lower than the alternative cost they would pay to address the social issue at hand. For example, investing in healthcare education and preventing diabetes, if successful, should be significantly cheaper than paying for the healthcare costs of supporting a diabetic population.
The theory is that SIBs can generate innovative solutions, target focus on preventive activities (as these are the areas with the opportunities for the highest return on investment), and represent a way to bring new money in to support social outcomes, meaning change can be pursued without having to increase debt or decrease public spending in other areas.
One of our newest SVA members, Crowd Funded Cures, are experts on this topic and are working to bring an SIB to New Zealand in the health sector.
Savva Kerdemelidis, Founder of Crowd Funded Cures,
Crowd Funded Cures is an initiative of the Medical Prize Charitable Trust, a NZ-based charity established in 2013 by Savva Kerdemelidis, a NZ and Australian Patent and Trade Mark Attorney and legal adviser. Their mission is based on the topic of Savva’s LLM thesis,[1] which is to encourage development of new therapies that lack private incentives under the current patent system, and they are currently exploring SIBs as a mechanism to do this.
As soon as drugs go off patent (after 20 to 25 years) they become “generic drugs” which are cheaply available from multiple vendors. This means that even if there is a new use or indication for the generic drug, it is not possible to recover the costs of conducting the clinical trials to test this new use by charging a monopoly price, as the drug is already available off patent. The result is that generic drugs cannot obtain any private funding to repurpose them, and require public funding which is difficult to obtain for large clinical trials.
The proposed solution of Crowd Funded Cures is to fix this gap by using “pay for success” contracts such as SIBs to provide such incentives for large clinical trials, with an initial focus on Covid-19 as a pilot. They plan to expand to other disease classes if the pilot is successful.
The reason to focus on Covid-19 is that even with a vaccine on the horizon, an affordable and effective antiviral treatment is urgently required to treat people that get sick from the virus. Various off-patent/generic drugs could be used to treat it, including cimetidine or famotidine, dipyridamole, fenofibrate or bezafibrate, and sildenafil citrate,[2] with the likely path forward including a combination of generics and determination of optimal dosing regimes.[3] However, as noted above, such clinical trials for repurposing off-patent/generic drugs rely completely on grant funding via healthcare payers (including governments, health insurance companies, charities or NGOs) who can suffer political backlash and allegations of cronyism or corruption if the clinical trial fails.[4] Payers also do not tend to get involved in large definitive clinical trials due to the expense (e.g. US$1–20m+ per Phase II clinical trial) and high risk of failure.
The “audacious goal” of the Medical Prize Charitable Trust is to raise an SIB of $10–50m to repurpose generic drugs to treat Covid-19. The fund would be distributed to independent Contract Research Organisations to conduct clinical trials with the aim of demonstrating that an off-patent/generic drug will reduce viral load. The outcome payment would be transferred to investors upon demonstration of successful results. Of course, reduction in viral load is only one example, and it will be possible to design other success criteria according to the health outcomes desired by the backers of the SIB (e.g. reduction in hospitalisations).
SIBs are a relatively new concept, but Crowd Funded Cures hopes that they represent an opportunity to drive support into a new and disruptive approach to incentivising private medical innovation and to address these deadly gaps in the patent system.
If you have any questions about Crowd Funded Cures and the proposed Covid SIB, please contact Savva at savva@crowdfundedcures.org.
If you are interested in becoming a member of SVA or being featured in our blog, please contact info@socialvalueaotearoa.nz.