Cathrin PettyCo-Head of Healthcare EMEA, J.P. Morgan

Changing the Game: How to Increase Resources

Devoted to Alzheimer’s part 2

1

Dementia has suffered from chronic underfunding

Source: Alzheimer’s Disease International, NIH website, J.P. Morgan social financeNote: “Dementia” includes NIH spending on Alzheimer’s and other dementias in line with new dementia category introduced in 2013

Average NIH annual R&D spent 2011-2013 ($mm)Average NIH annual R&D spent 2011-2013 ($mm)

Cardiovascular Cancer InfectiousDiseases

Dementia

2,018

5,448

4,212

534

3.8x 10.2x 7.9x Multiple of Dementia spent

2

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2

79 10

52 3

1

106

13 1411

8

Total unsuccessful drugs 1998-2011 = 101

1 new approval

= Number of approvals

Total drug candidates assessed in trials=

3

1042.9%

1 new approval

1 new approval

Poor understanding of potential pathological

targets

Challenging early diagnosis – disease

typically advanced before first clinical

detection

Inability to select early stage patients for trials

to test true “disease modifying” potential

Lack of clear objective endpoints and relevant

biomarkers

Long and complex clinical trials with high risk

of failure

Reduces in market patent life

Patient access / compassionate use rarely

supported

Increased perceived risk of litigation

Number of Alzheimer’s drugs no longer under developmentNumber of Alzheimer’s drugs no longer under development Obstacle to investing in dementiaObstacle to investing in dementia

A clear inequity of risk and reward that can be addressed through financial structuring

3

Portfolio diversification Different trial phases Diagnostics and therapies Underlying pathophysiological

mechanisms Funding structures for the

investments– E.g. milestone-linked

payments vs. royalties Adjacent disease research

– E.g. Parkinson’s associated dementia

Capital protection First-loss catalytic

capital Guarantee

– Partial or full– For some or all

investors

Leveraged capital structure Tranched capital structure

accommodates different investors’ risk/return appetites– Debt tranches can be rated, with

lower risk– Equity tranche can benefit from the

leverage of debt investors

Outcomes-based payments Linking investor returns to government

savings as milestones are achieved

Routes to lower the risk Routes to increase the reward

Source: J.P. Morgan social finance

Construct an impact thesis and define use of proceeds

4

The building blocks and key considerationsThe building blocks and key considerations

Impact thesis

Investors

Investment pipeline

Research and

sector expertise

StructureGovernments/ Stakeholders

Construct an impact thesis with a targeted and measurable impact

Construct an investment strategy that leverages the deepest scientific expertise

Identify a sufficiently large, high-quality investment pipeline to justify a large capital allocation

Test investor appetite, identify anchor investors and attract a preferred investor mix

Ensure investment strategy complements government initiatives and is aligned with stakeholders

Identify an optimal structure to improve the risk / return profile for investors

Source: J.P. Morgan social finance

Determine an appropriate funding vehicle

5

Potential funding structures: Purple Bond: Corporates, Supranationals or Governments raise capital from institutional investors

with ring-fenced assets for a specified use of proceeds Premium Bond: governments raise capital from retail investors with prize-based coupons Capital markets vehicle: bonds issued that raise funding today to be repaid by future

financial commitments from governments Venture capital fund: equity and/or debt raised from institutional investors taking risk

against a portfolio of pharma R&D, similar to Global Health Investment Fund

Potential issuers: Single issuer: government, corporate, supranational Multi-stakeholder special purpose vehicle

Potential loss-protection features: Loss protection/guarantee to cover partial loss for all investors (either first-loss or pari-passu) A guarantee for senior debt tranche investors

Other structural considerations include for example: Outcomes-based development payments to improve return for investors linked to promotion from one phase to

the next Tenor of funding – perpetual or long-term vs closed-end structures Identifying an appropriate manager for the vehicle

Determine the funding vehicle, loss-protection features and fund managerDetermine the funding vehicle, loss-protection features and fund manager

Source: J.P. Morgan social finance

Preliminary and illustrative structure of a Dementia R&D fund

6

Dementia Fund

Investor Advisory

Committee

Investment Manager

Approves investment recommendations from Investment Manager

Making investment recommendations

1 2 3 4

Investments

Investment Committee

Catalytic capital / Downside protection

Impact Investors

Traditional Investors

Governance Management Investors

Oversees conflicts of interests and consulted on strategic matters

Catalytic capitalDebtEquity

Source: J.P. Morgan social finance

Conclusion

7

Manage social burden for future generation

Increase capital to

Catalyse academic and

pharmaceutical

research

Invest further in

diagnostics and clinical

biomarkers

Work with governments

and regulators to improve

translation and clinical

trial design to accelerate

new products to patients