The Scale of Institutional Investment into Commercial Biomedical Research & Development
Biofinance examines the intersection of biomedical research and financial markets. Large citizen segments in high-income countries are co-owners and co-funders of biomedical research - typically via their pensions and/or insurances.
There are USD 63 trillion of pension assets and USD 40 trillion of insurance assets worldwide1 - managed by institutional asset owners on behalf of very broad beneficiary bases (we can collectively call these broad beneficiary bases "citizens"; in some cases institutional asset owners literally have nation-wide mandates).
For instance, the USD 1.8 trillion Government Pension Investment Fund (GPIF) of Japan manages the pension reserve fund for National Pension - a public pension system participated by all persons aged 20 to 59 years who have an address in Japan, which provides benefits called the "Basic Pension" due to old age, disability, or death2.
A large share (an estimated 45%1) of pension assets is invested in equity securities, including equity securities of companies in the global USD 6+ trillion3 biotechnology & pharmaceutical industries.
Owners-shareholders are Patients-beneficiaries
Through institutional asset owners, many citizens are co-owners/co-shareholders in the biomedical research enterprise on one hand, and on the other hand they are (on average, or in aggregate) patients-consumers benefiting from the output technologies, such as medicines, vaccines and medical devices.
Institutional asset owners worldwide have slightly different mandates but generally adhere to a common 'fiduciary duty' principle requiring them to act in the best interests of the ultimate beneficiaries.
There is a considerable diversity as to how institutional asset owners translate their fiduciary duty into investment policy when it comes to investments in health. For example:
- No policy on health investment (healthcare sector investments are made merely due to a cross-sector diversification strategy)
- Dedicated provisions on health investment in their investment policy
With a policy or no policy, institutional asset owners continue to be major investors into commercial biomedical research. Biofinance examines this practice: its implementation and its outcomes; as well as develops tools: methodologies, benchmarks, model policies, etc. to improve those outcomes.
Biofinance could be seen as a subfield in the area of sustainable finance / impact investing - an investment approach pursuing both financial and non-financial objectives - next to other subfields, such as green / climate finance.
Returns on Investment in Health: The Potential and the Reality
What is the main motivation for biofinance? People value good health. And pharmaceutical innovation had previously delivered significant value, both in terms of wealth gains and health gains:
- 3.3 years in life expectancy gains in the United States from 1990 to 2015, of them:
- 35% (1.2 years) attributed to pharmaceuticals.
- 44% (1.5 years) attributed to public health (e.g. reduced smoking).4
Yet, in the recent decade, returns on investing in biomedical research have diminished:
- In the United States, life expectancy peaked in 2014 and has not recovered since.5
- Healthy Life Expectancy (HALE) similarly peaked in 2010-2012 at 66.6 years.6
- This slowdown is not limited to the United States: in the Netherlands, women had higher life expectancy in 2014, then a decade later in 2024.7
When progress in health improvements stalls, the public faces an enormous shortfall in well-being: it is estimated that the monetary value of 1 additional healthy life year for the entire population (comparable to what pharmaceutical innovation had delivered in the period from 1990 to 2015) would reach $38 trillion in the United States alone8.
Instead, the pharmaceutical industry has recently made a major contribution to a decline, not increase in life expectancy: prescription opioids have been described by economists as "technological regress"9. In this case, health value destruction for patients was conjoined with financial value creation for pharmaceutical companies in the short-term. However, in the long-term such a business model is not sustainable - legally, socially, and financially.
To give one example, in 2021 a coalition of attorneys general reached a settlement with Johnson & Johnson, a manufacturer of prescription opioids - for "actions that fueled the opioid addiction epidemic". Johnson & Johnson was ordered to pay up to $5 billion10.
Resources for Investing in Health (R4IH)
How can investors determine whether the financial value created by their investee companies is based on health value creation rather than its absence - or even health value destruction?
Resources for Investing in Health (R4IH) aims to address this question and empower investors to contribute to measurable health outcomes. Welcome to the website!