The announcement last Friday of the Trump administration’s plan to decimate funding for medical and scientific research and disease prevention sent shockwaves through the global scientific community.
Industry players, philanthropists and private investors know the pressure is on to put more capital to work in the life sciences sector.
“It is galvanizing Big Pharma, nonprofits, family offices, venture capital firms – all of us – to figure out how we navigate this current environment,” says Glenn Rockman, who has allocated $300 million to 19 biotech companies through VC firm Adjuvant Capital. “The goal is to continue supporting as much research as possible to signal confidence about the momentum behind today’s best scientific and engineering concepts.”
The US government is by far the biggest backer of medical and health research in the world. If the budget were approved as is, the biomedical research agency the National Institutes of Health’s annual budget would be cut by $18 billion, or 40%. The Centers for Disease Control and Prevention would lose half its annual budget. The National Science Foundation, 55%.
Thomas Frieden, former head of the CDC under President Barack Obama, told The New York Times “decades of progress” are on the line.
“Everyone recognizes that the US has historically been the global engine of healthcare innovation,” says Rockman. Tens of billions of dollars in annual federal research and grant funding isn’t a gap the private sector or even other countries could readily step up to fill.
Filling gaps
Pushing health innovation forward amid uncertainty and scarcity is something Rockman knows a thing or two about. He founded Adjuvant Capital with former Gates Foundation health investor Jenny Yip in 2019 to invest in biotech companies developing treatments and vaccines to neglected infectious diseases – mostly ones that threaten women and children in vulnerable communities.
The firm, which he started with Yip, a former strategic investments partner at the Gates Foundation, helps fill a funding gap for companies that have graduated beyond government, academic and philanthropic grants and need capital to complete clinical trials and commercialize treatments.
Adjuvant has backed late-stage treatments for rabies, yellow fever, group B streptococcus, chikungunya, Covid-19 and more. Many of the companies Adjuvant invests in are based in the US and Europe, so it structures its deals to ensure that drugs will be accessible and affordable to low-income people globally.
For example, Adjuvant invested in San Francisco-based Excision BioTherapeutics, which is developing gene therapies that it hopes can cure HIV and Hepatitis B. Adjuvant is working with the company to reduce the cost of producing its gene therapies, which remain prohibitively expensive for patients in most of the world.
“Venture capital and startups across the biotechnology, med tech, diagnostic and manufacturing sectors have played a huge role in [the health] innovation ecosystem,” says Rockman.
Capital creativity
Developing low-margin drugs and vaccines, especially for diseases like river blindness that aren’t prevalent or common globally, can be a tough sell to drug companies and manufacturers. The firm has an arsenal of tools to ensure the development, production and distribution of such treatments make financial sense. Adjuvant uses a blended-finance structure and was seeded with a $75 million program-related investment from the Gates Foundation to attract other investors, including pharmaceutical giants Merck and Novartis. All investors have the potential to earn the same return, but a senior class of investors can get to the target return hurdle faster.
“Blended finance is an amazing tool for putting complicated investment structures together for public health R&D,” says Rockman.
Adjuvant also leverages mechanisms like manufacturing volume guarantees and procurement contracts to ensure that companies will be able to sell treatments at the volumes they need to make the financials work.
“There are many creative ways that you can earn a return that most VCs aren’t familiar with,” Rockman notes.
One tool Adjuvant uses was borrowed from a precursor fund with a similar strategy, the nonprofit Global Health Investment Fund, launched by the Gates Foundation and JPMorgan Chase in 2015 and for which Rockman was an advisor. The mechanism involves selling priority review vouchers portfolio companies attain from the US Food and Drug Administration to fast-track the review process for one drug once a company is approved for a different treatment. The vouchers are tradable for anywhere between tens to hundreds of millions of dollars.
GHIF portfolio company Medicines Development for Global Health, for example, secured a priority review voucher after its river blindness treatment, moxidectin, was approved by the FDA. The nonprofit drug developer sold the voucher to Novo Nordisk for $40 million, covering the $13 million it needed for the final phase of moxidectin’s development and generating a return for GHIF.
Even investments that haven’t gone as planned could still pay both impact and financial dividends. Adjuvant invested in 2020 in 54gene, a Nigerian biobank whose goal was to ensure more African genetic data is used for drug discovery and vaccine development. After raising $45 million from investors, the company closed down in 2023.
“The physical assets, like the genetic sampling equipment and biobank samples, are custodied at a research institute in Nigeria, and those are still being used for research and could still be monetized,” says Rockman. “Most importantly, we want to see that these samples advance public health.”
Disease threat
Use of innovative financing mechanisms for critical health issues like infectious diseases will only become more pressing if such drastic federal funding cuts in the US are enacted.
“It’s a difficult investment environment at the moment. New drugs with potentially lower margins and new vaccines under an uncertain regulatory environment can be hard to attract interest from Big Pharma, or investment from VCs for clinical trials,” says Rockman.
But everything is cyclical, he adds, and Adjuvant is sticking to its thesis and strategy. The firm is reportedly raising its second fund, with a target of $200 million to $300 million. Rockman declined to comment on whether the firm was fundraising, but noted that its work is taking on new urgency even in the wealthy markets where the bulk of its portfolio companies conduct their research and trials.
“North American and European populations are also increasingly a part of our global health investment strategy,” he says. Drugs approved by the FDA and the European Medicines Agency “are increasingly important considering the emerging risks of diseases like monkey pox, Zika, malaria, measles and others in high-income markets like Canada, the US and Europe.”
An outbreak of measles in the US – a disease virtually eradicated for some 20 years, thanks to mass vaccination – has spread to 11 states and infected nearly 1,000 people.
Adjuvant is committed to ensuring new infectious disease treatments are made affordable in low- and middle-income countries even if the need increases in high-income countries. For that, blended finance remains central to the VC investment equation for now.
“There is a very specific and prominent universe of investors that is committed to the concept of a double-bottom-line investment thesis,” in public health, says Rockman. “They’ve seen ups and downs in global health over the past three decades. ‘Plugging gaps’ is something they’re comfortable with.”He also believes the commercial case is there. “The capital flows to the biotech sector will likely be closely tied to the duration of the current uncertainties in the regulatory and public funding environments,” he says. But: “We believe that if you solve an unmet medical need, people will ultimately buy your product.”
