Hedge-fund beta-replication manager and finance professor Andrew Lo wants to turn Wall Street's method to curing cancer.
Lo has proposed a $30 billion "megafund" to pour money into potential cancer drugs. And he argues that doing so would do good by doing good, offering investors annual returns of between 7% and 10% while spreading the risk across thousands of investors and getting much-needed resources to potential breakthroughs.
"Only with massive scale can you reduce the risk of this early-stage research," Lo, who runs AlphaSimplex Group and teaches at the Massachusetts Institute of Technology, wrote in Nature Biotechnology. "Finance is a means to an end. It's a way to allow us to collaborate on problems of unprecedented scale."
The current pharmaceutical business model isn't up to that task, Lo argues, and spending on such research is falling by some measures.
"I've shown that when you actually look at the numbers, when you look at the financing, you can actually do a lot of good," Lo told the Boston Globe. "The cancer folks don't understand this stuff. Because they're trying to cure cancer."
Lo's proposed fund, which he would not run, but whose management team he would hope to help pick, would invest in as many as 150 experimental drugs. And even though most drugs fail to produce positive results—even after an average $200 million investment and the eight-plus-years it takes to get a pharmaceutical into human testing—a successful product can earn $2 billion a year, more than making up for the dead-ends.
The oncology fund could also be the progenitor of a new derivative instrument, "research-based obligations." It would also take portions of future royalties or proceeds of the sale of intellectual property. If anything, Lo said, the fund would be similar to drug-royalty investment groups, although unlike such firms, it wouldn't focus only on late-stage drugs.
Lo lost his mother to lung cancer last year. "I felt pretty helpless," he said. Now, however, he hopes to convene a conference of scientists, investors and money managers next year to hammer out the practical details of his fund.