Biotech Needs Charity, and Profit Motive, To Flourish
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for diseases that have a hard time attracting venture capital. They want to create a product that can save human lives. With some new, creative approaches, the non-profit research institutions in Seattle are in a unique position to do much more than just provide research for biotechs to develop. They could develop the drugs themselves.
Stewart Lyman described a method to support drug development outside of the traditional venture-backed for-profit model. He proposed the creation of a non-profit institution by the state that acts like a biotech company. It operates as an NRDO, concentrating on drug development, not research but remains a non-profit. Stewart’s suggestion could focus getting drugs into people, drugs that might not turn the profit needed to sustain a commercial entity.
But there are some possible difficulties with such a non-profit, especially if the state sponsors it. My suggestion would be that instead of asking the state government to directly finance such a research charity, we push for Washington to approve a new business structure that has recently come on the scene – the low-profit limited liability corporation (L3C).
These novel organizations allow a non-profit to invest in a societal problem, such as global health, while incorporating many of the trappings of a for-profit company. Support of the L3C by charities, foundations, corporations and venture capital firms is greatly simplified. The L3C can attract capital from both private and philanthropic institutions. It can distribute profits in ways that benefit both non-profit and for-profit institutions. In essence, the ability to include support from non-profit sources allows venture capital to receive higher returns with reduced risk.
The need for a return on investment, required for other corporate entities, is substantially altered, allowing long-term support for research and development that directly affect social ills, such as human health. This hybrid structure, which has been approved in several states so far, would permit the creation of novel research institutions that could investigate innovative drugs and develop new therapies while attracting capital investment from both for-profit and non-profit sources.
Seattle is poised, as few other cities are, to take advantage of the research dynamo that our non-profit research institutions represent. With a little tweaking by our state government, new avenues for development of this research into innovative therapies could take place with capital investment from a variety of new sources.