Under the leadership of former governor Jeb Bush, the state of Florida rightly recognized the future growth opportunities for the life sciences industry. After all, health care is now 20% of US GDP spending, and the US and the rest of the world has a large and aging population. However, simply giving away a billion dollars and tax incentives to move jobs from research institutes to Florida does not create a wealth of new businesses with a high multiplier effect. It’s possible for this to happen, but much more needs to be put in place. The same is true for the rest of the US.
The plan which was launched in Florida has provided over $1B and other incentives to expand in Florida the research facilities of a number of the world’s leading research organizations, including Scripps Research Institute, Torrey Pines, The Burnham Institute, and The Max Planck Institute, among others.
In the state of Florida, only a handful of new businesses have been created from the research coming out of these institutes, and most of these are starving for cash, or have been looking to move to other states where funding is more readily available, hardly what Jeb Bush had envisioned.
So, what can be done to remedy the situation so that more products are brought to the market more efficiently, while creating new jobs? The US leads the world in the innovation of life sciences on most fronts by a large margin, and we have a plethora of developments spinning out of NIH grants. But, how do we close the funding gap between well-meaning initiatives like those in the state of Florida and the NIH and bringing a product to the market?
The benefit of these organizations attracted to Florida is they do fundamental research and development on leading edge life sciences. The disadvantage from an economic development standpoint is that most of this research and development is 10-20 years from being ready for the market, and hence, the huge funding gap. The same is true of the $30B spent annually by the National Institute of Health (NIH) in the form of over 40,000 grants, essentially free venture capital for promising next generation life science developments.
There are two solutions. One, provide an additional level of funding for the most promising developments that come out of individual state initiatives, such as Florida, and the NIH grants and research institutes, thereby reducing the time and cost to market. The second solution is to streamline the approval process for these products.
Both in Florida and nationally, these investments do not have a form of bridge financing to bring them to the market. There is nothing to fill the 10-20 year void. Many of the most promising development muddle along on skimpy grants for many years, until finally a fortunate few are close enough to market for a venture fund to develop.
Part of the problem is systemic and part is economic.
Systemically, it cost more and it takes more time to gain approval from the US FDA than its counterparts in every other major country in the world. Hence, it’s cheaper to gain approval and begin developing revenues outside the US than in the US. Effectively, this means many of the best developments that result from the $30B of NIH grants end up being exported abroad before they come to market in the US. In turn, this creates an industry of medical tourism, where Americans are forced to go abroad for the most advanced therapies. Since investors do not want to wait 10-20 years for their returns, one fix is to streamline the approval process at the FDA on all fronts. There is no good reason for much of the time it takes to gain FDA approval of medical advancements. This would cut several years off the time to market.
To cut several more years off the time to market, another approach is to create an NIH superfund. Such a fund would provide larger investment amounts, some of which could be in the form of matching funding for the most promising ideas that come out of the tens of thousands of NIH grants. In Singapore, the Economic Development Board (EDB) provides 25% non-dilutive funding to the most promising projects. The rest of the money needs to come from other sources. One vertical market government venture fund in Singapore specializes in advancing medical devices, while another favors therapeutics. In addition, there is a private venture capital industry to fill in the remainder. This deleverages the risk for investors, while speeding along developments to market, thereby creating more jobs more quickly and making Singapore a vibrant, attractive center for life science development.
Furthermore, Singapore has established its own non-profit contract research organization (CRO), the SCRI, whereby 50% of the CRO cost for a clinical trial is paid for by the government. This is forward thinking, and it has attracted many of the world’s largest medtech companies that need to deliver real products to the market in the next few years, not a decade or two away.
Essentially, what Florida and the rest of the US needs to do to better to leverage its billions of dollars of investment in life science R&D is build upon the Singapore model. This will serve to shrink the gap to market, since developers will not have to muddle along, sometimes for decades, dependent on small grants from the NIH or whatever particular state in which they happen to reside.
However, this is just a part of the solution. Another important component to bridge the gap to market is to lower taxes on early to mid-stage venture capital gains. After all, the money is taking a higher risk for a longer period of time. The highest multiplier jobs are not in hamburger stands, but rather in manufacturing and housing. Investing wisely in innovation drives both of these important parts of our economy.
Building more public sources of funding for the most promising of ideas, streamlining the FDA and lowering the capital gains tax on early to mid-stage venture capital will serve to attract many tens of billions to life science venture capital and create millions of the right kind of jobs for the US. Otherwise, our present system is highly wasteful and only serves to export innovation to countries better positioned to build upon our discoveries.
Proof that this system works lies in the fact that despite having no natural resources, Singapore has turned a profit in nine of the last ten years, while lowering corporate income tax from 27% to 17%. They do it by smartly guiding their economy with government support strategically placed in the right ways. The US can do this, too.
Systemically, it cost more and it takes more time to gain approval from the US FDA than its counterparts in every other major country in the world. Hence, it’s cheaper to gain approval and begin developing revenues outside the US than in the US. Effectively, this means many of the best developments that result from the $30B of NIH grants end up being exported abroad before they come to market in the US. In turn, this creates an industry of medical tourism, where Americans are forced to go abroad for the most advanced therapies. Since investors do not want to wait 10-20 years for their returns, one fix is to streamline the approval process at the FDA on all fronts. There is no good reason for much of the time it takes to gain FDA approval of medical advancements. This would cut several years off the time to market.
To cut several more years off the time to market, another approach is to create an NIH superfund. Such a fund would provide larger investment amounts, some of which could be in the form of matching funding for the most promising ideas that come out of the tens of thousands of NIH grants. In Singapore, the Economic Development Board (EDB) provides 25% non-dilutive funding to the most promising projects. The rest of the money needs to come from other sources. One vertical market government venture fund in Singapore specializes in advancing medical devices, while another favors therapeutics. In addition, there is a private venture capital industry to fill in the remainder. This deleverages the risk for investors, while speeding along developments to market, thereby creating more jobs more quickly and making Singapore a vibrant, attractive center for life science development.
Furthermore, Singapore has established its own non-profit contract research organization (CRO), the SCRI, whereby 50% of the CRO cost for a clinical trial is paid for by the government. This is forward thinking, and it has attracted many of the world’s largest medtech companies that need to deliver real products to the market in the next few years, not a decade or two away.
Essentially, what Florida and the rest of the US needs to do to better to leverage its billions of dollars of investment in life science R&D is build upon the Singapore model. This will serve to shrink the gap to market, since developers will not have to muddle along, sometimes for decades, dependent on small grants from the NIH or whatever particular state in which they happen to reside.
However, this is just a part of the solution. Another important component to bridge the gap to market is to lower taxes on early to mid-stage venture capital gains. After all, the money is taking a higher risk for a longer period of time. The highest multiplier jobs are not in hamburger stands, but rather in manufacturing and housing. Investing wisely in innovation drives both of these important parts of our economy.
Building more public sources of funding for the most promising of ideas, streamlining the FDA and lowering the capital gains tax on early to mid-stage venture capital will serve to attract many tens of billions to life science venture capital and create millions of the right kind of jobs for the US. Otherwise, our present system is highly wasteful and only serves to export innovation to countries better positioned to build upon our discoveries.
Proof that this system works lies in the fact that despite having no natural resources, Singapore has turned a profit in nine of the last ten years, while lowering corporate income tax from 27% to 17%. They do it by smartly guiding their economy with government support strategically placed in the right ways. The US can do this, too.
By the way, while the US spends 20% of its GDP on healthcare, Singapore spends just 4.5%. Before you think that perhaps the quality of health in Singapore may be less, according to the World Health Organization, Singapore ranks 6th in overall health in the world, while the US ranks 30th – a definite sign the US can do much better on the healthcare front.
Perhaps we should take a few notes from Singapore.
Perhaps we should take a few notes from Singapore.
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