It is not uncommon for pharmaceutical companies to see cutting-edge research as a high-risk venture. For this reason, more pharmaceutical companies are choosing to allocate fewer resources to the development of novel drug therapies to fight cancer. Innovative medical research takes time; scientists often spend years in the lab before their work yields a breakthrough.

Clinical trials and lengthy drug approval processes to which new medicines are subject represent costly investments–of both time and money–for corporate shareholders, who in turn pressure pharmaceutical firms to invest in projects whose profitability is more immediate.

The social cost of not investing (or underinvesting) in cancer research that is speculative, but potentially transformative and profitable, is not insignificant. MIT researchers estimate that in a single year, underinvesting in such research results in a loss of 890,000 life-years among people diagnosed with cancer.

How can this problem be fixed? What financial models can scientists appropriate to ensure research dollars are invested in socially valuable ways?

  1. Cancer Research Venture Capitalists 

    Organizations like the Cancer Research Foundation use the strategy of taking “long-shot” bets with relatively small sums of grant money. By leveraging the collective knowledge and experience of the Foundation, its allies, and its past grantees, these organizations award grants that increase scientific knowledge–and therefore carry more value–than an average grant of an equivalent amount could. These organizations see themselves as  “cancer research venture capitalists,” in that they invest early in ideas that are difficult to fund through more traditional sources.

  2. Financial Engineering

    Andrew Lo, an economist who oversees the Lab for Financial Engineering at the MIT Sloan School of Management, sees an opportunity to apply principles of financial engineering to strategies for investing in promising treatments for cancer. Lo believes that pharmaceutical companies can employ a financial engineering model to spread risk among investors and provide incentives to research labs that develop successful new cancer treatments. To bridge the funding gap between cancer research and commercial drug development, Lo has proposed creating a kind of “megafund.” The megafund Lo envisions would function much like a portfolio does, by mitigating individual investors’ risk and through diversification, increasing the probability of developing a successful drug.  

  3. Crowdfunding

    Earlier this summer, a team of scientists at Queen’s University set out to find new ways to fund research ideas that their lab budget couldn’t afford. To gauge crowdfunding’s potential to finance research, the team created an account with the online crowdfunding platform Indiegogo. Their experiment, which recently made its debut, currently offers three different funding projects to choose from.

  4. Interdisciplinary Collaborations

    The Initiative in the Economics of Cancer, a new collaboration out of the University of Chicago, aims to perform rigorous analyses of new cancer treatments to determine the economic, medical, and biological value that each new drug or treatment therapy offers. Led by economist Dr. Ya-Chen Tina Shih, the team wants to examine questions that are often left unanswered by clinical trials. For instance, conducting a cost-effective analysis can measure if the efficacy of a new drug is enough of an improvement over the current standard of care to justify coverage by health insurance companies. Currently, no formal health care policy or process exists to quantify these medical and economic complexities.