Pharmaceutical company Eli Lilly & Co. is taking an unusual step to help advance two drugs in its pipeline for treatment of Alzheimer's Disease—it is allowing a hedge fund, TPG-Axon Capital, to invest directly in the drugs. The investments, totaling $325 million, will help cover the costs to finish development and conduct clinical tests on the two drugs. In return for its investment, TPG-Axon will receive milestone payments as the drugs progress through the pipeline and a percentage of revenues if either of the drugs makes it to market. This is not the first time Lilly has taken this type of investment. Lilly allowed NovaQuest, an organization that helps drug companies manage the risks of developing and launching drugs, to invest in Cymbalta, an antidepressant. Since then, NovaQuest has reaped 8.25 percent of Cymbalta's sales.
Lilly has a history of thinking outside the box when it comes to drug discovery, development, and marketing. In 2001, the company spun off its eLilly initiative as InnoCentive (which I've blogged about here and here), an organization that uses the power of crowds to solve problems for companies whose own researchers have struggled to solve them.
Could investing in individual drugs be the future of the pharmaceutical industry? Would structuring a drug company in such a way allow people who are victims of an illness or family members of victims to drive development of treatments? But more importantly, is it possible that this could lead to drug companies whose motivation is to keep researching drugs rather than marketing them? For instance, if an illness has a low incidence, could a drug company make more money by stringing along treatment in exchange for further investment, rather than releasing and marketing the drug?
Those are tough questions to answer now, but as this business model spreads, answers will be revealed.