Our donors are “doers” who want their philanthropy to reflect their own style and personality. We bring the combination of business experience and first hand understanding of the social sector to make it all work smoothly… for the philanthropist and the community.
We´ve all had that nagging feeling of “how can I possibly make a difference when the problems are so huge?” at least once or twice. Even Bill Gates makes clear that his Foundation´s billions are nothing relative to the magnitude of health problems they are trying to address (read more here.) In the world of medical research philanthropic dollars are completely dwarfed by public and pharmaceutical funding. Yet the breakthroughs aren´t coming fast enough for some ambitious philanthropists, many of whom have very pressing and personal reasons driving their impatience.
Scott Johnson is one of the nonprofit “social entrepreneurs” whose model is demonstrating how donors and foundations can get maximum leverage even from their “drop in the bucket” support of medical research. Scott is a serial Silicon Valley entrepreneur who founded the Myelin Repair Foundation in 2004. Since then the scientific collaborations funded by the foundation led to the publication of more than 100 peer-reviewed scientific articles, the identification of more than 100 novel potential myelin repair treatment targets and the discovery of multiple new research tools—animal models and assays—that may help to accelerate research on all neurological diseases. Two patents have been awarded on this work.
Here´s the interview which first we first published in the October 2012 issue of Compromiso Empresarial
What motivated you to found the Myelin Repair Foundation? I am an engineer, was part of a successful joint venture with Dupont, then led two more startups. I´ve also had MS since I was 20… I never imagined I would be dedicating myself fulltime to medical research … and that it would be by far the most fun I have ever had. I work with really smart, dedicated people to solve a huge problem. It is a tremendous honor.
It began when I learned about a potential breakthrough in MS treatment that no one was focusing on. I concluded that a focus on this approach, myelin repair, could have significant implications for MS patients
Then I learned something even more interesting: medical research is incredibly dysfunctional. If you tried to design a system that was slower and less efficient, you’d have a hard time. It’s 30 to 50 years from the time a discovery is made to when anything gets to patients. And you have lots and lots of participants in the value chain: academic scientists, NIH (the biggest funder of medical research), pharmaceutical companies, the Federal Drug Administration, nonprofits, doctors and patients. But there is zero overall coordination. Even in academic research, there is no road map, no master research plan.
Over 800,000 medical research papers were published last year, at a cost of 60 billion dollars. Most of them have very little relevance for any disease. And most research can’t be replicated. To give you an idea, the pharmaceutical company Amgen recently identified 53 academic papers that were relevant for cancer. They could only replicate 6 of them, even when the original scientists guided them.
What is your model? Coming from the business world it almost embarrasses me because it’s so simple,
1. We focus intensely on a specific approach to treating a single disease. Most foundations attempt to address all aspects of the disease they have chosen.
2. We ask what expertise we need, identify the absolute best people in the world with that expertise, and bring them together
3. We have a research plan with very clear and measurable goals
4. We protect the intellectual property of everyone involved so it will be worthwhile for companies to invest in getting these discoveries to market. The universities own the patents but we hold sole licensing rights and full control.
What makes the Myelin Repair Foundation so revolutionary? Almost all nonprofit funders of medical research follow the NIH model. They attempt to fund “the best science.” Scientists´ proposals are peer reviewed for scientific merit. That means they only fund incremental experiments. Anything that is perceived as risky science, clever ideas, will never make it through the process.
We get the best people and encourage them to do things that are different. We´ trust that between their ability, our ability, and our advisors’ knowledge, we´ll only fund things that may appear risky, but have a good chance for success and would make a big difference if they worked. We manage the process very closely. But to do that we provide academic researchers so much value that they collaborate with us!
How do you make it attractive for the best scientists? In the traditional science world, if you´re a brilliant scientist, you only get to brainstorm with your own team. You need to protect your idea so you get credit when it´s published. We have created a protected environment in which brilliant scientists can brainstorm and be completely open with each other. All data is shared and the scientists find it very stimulating. We´ve also got a phenomenal advisory board whose members who are very active with our teams. Our scientists will tell you they are doing better science than they ever did before.
How did you get started? I started calling up scientists and learning all I could about myelin repair in my spare time. Then I formed an informal group of advisors, friends from the business world. We met every 6 weeks to talk about what I had learned and where I should go next. Next I identified the best individual researchers and flew them out all to San Francisco together. I said “if you are willing to work as a team, we´lll come up with a plan of attack and we´ll fund you.” Amazingly, they all agreed. They were all tenured researchers doing interesting work, but I think, deep down, they weren´t sure their work was ever going to reach patients.
Since we were in Silicon Valley, we treated this just like another start-up. I went out and raised seed money. Most of the philanthropists who joined us were entrepreneurs themselves who could see why our completely different approach had merit. The name recognition of the scientists who had signed on helped, as did Stanford University agreeing to the intellectually property deal.
Aren´t other funders doing similar things? A lot of funders are using the buzzwords: collaboration, sharing, innovation, etc. They may have a team of star scientists, but the academics are managing themselves. The team doesn´t have a coach. We are the coach and the overall coordinator. We also bring the strong connection to the pharmaceutical industry so that potentially valuable drugs don’t get stuck in the Valley of Death. Would you believe 24 out of 25 potential drugs fail in Phase 3 Clinical Trials? (See the three minute video here.)
Our staff have more than 100 years of pharmaceutical experience. We also built a translational medicine platform. It identifies the compounds that are most likely to make it through clinical trials, so that these findings move more rapidly out of the lab. We invested in creating tools, assays and models and getting quality data to the pharmaceutical companies. Now companies are coming to us because our lab is superior or complementary to what they can do themselves.
We take full advantage of our nonprofit status. We can get scientists to collaborate. Because we’re a neutral party, companies will approach us to do things that can help the whole industry. We can be an honest broker. This allows us to softly manage and coordinate the entire continuum.
How do you leverage your finite dollars? In eight years we have completely shifted the field of research on MS. After five years, when we had spent only $25M, 15-20 companies expressed interest in myelin repair. Moving forward, our goal is to raise another $80M to develop a myelin repair therapeutic by 2019. We’ve raised $50M to-date.
About half of our funding comes from people who are deeply interested in MS, typically because of a family member. The other 50% see us as a demonstration project that has implications for all diseases. Because we’re a foundation funder who’s small and agile, we can pioneer a new approach.
What advice do you have for others?
- Work only with the very best people. Don’t compromise.
- Be very strategic. Our $10M per year is a drop in the bucket next to $30BN spent in US government medical funding annually, so we have to be strategic.
- Be committed. I am both the patient advocate and the founder. I’m involved 24/7.
The New York Times broke the latest philanthropy story yesterday. The Wall Street Journal, NPR and USA Today all followed with their own versions today. What’s all the hype about? How did a “bond” story make the mainstream news? It’s not just Goldman Sachs’ PR machine or a “Wall Street Does Good” story, though the idea of Goldman Sachs investing in young men coming out of Rikers Island does catch your attention.
As a business person who’s spent the last 12 years in the social sector, I’ll tell you why I’m excited about social impact bonds:
1. Social Impact Bonds pay for results, not for services which may or may not work
There’s a reason Social Impacts Bonds are also called “Pay for Performance” bonds. Instead of paying a nonprofit or private provider to carry out a service, the government only pays for the results actually achieved, based on targets agreed upon beforehand. Because the government doesn’t prescribe how accomplish the goal, nonprofits’ aren’t stuck doing things that don’t work. They can, and must, constantly adjust what they are doing and the mix of services they are providing to make sure they’re going to reach their goals. Goldman Sachs will break even on New York City’s first Social Impact Bond only if least 10% fewer of the 3,400 young men they serve each don’t return to Rikers Island. Today 50% are back in jail within a year. The nonprofit providers need to ensure at least 170 more adolescents each year get their lives back on track.
2. More total dollars will go to programs that can demonstrate results.
To quote George Overholser, “the Social Impact Bond shines a spotlight on what works.” (Read more from Third Sector Capital Founder and successful VC in our interview, here.). The Bond holders take the risks so the government can figure out what actually works and allocate its billions of dollars to the best programs. As George summarizes, “Magically, we may end of spending less money but getting more good stuff happening.”
3. Nonprofits can get the cash they need upfront and negotiate for enough money to do the job right.
By being able to achieve costs savings for the government greater that are greater than their program costs, nonprofits can avoid having to live hand to mouth in ways undermine the effectiveness of their programs. And nonprofits don’t have to float the government. Private investors who have other ways to hedge their risks can do it.
4. We open up the door for huge new sources of capital to makes investments that pay off for us all, but we haven’t been able to afford
Because the bond structure offers a return to investors willing to take the risk, government and nonprofits can potentially access a much, much greater pool of capital to finance programs which benefit society AND save the public money at the same time. With Rikers Island Goldman Sachs could earn as much as $2.1 million in profit on its $9.6M loan. And to sweeten the deal, Bloomberg Philanthropies, Michael Bloomberg’s foundation, has put up a loan guarantee so that Goldman can’t lose more than $2.4 million on its investment. Why? Mayor Bloomberg describes it as “an innovative way to fund promising new programs at no cost to taxpayers.” For the Foundation, it’s an investment that will simply turn into a grant it things go south.
Are Social Impact Bonds complicated, maybe even convoluted? Yes Will the first social impact bonds be very expensive to pull off, as a recent McKinsey study argued? Yes.
Are they an experiment that’s worth carrying out? Absolutely. And we’ll be tracking the results. Stay tuned.by Kristin Majeska
By Kristin Majeska
Recently a writer interviewed me for my college´s alumni magazine, the Carleton Voice, “As a Philanthropy Advisor,” she asked, “what makes you optimistic in 2012?” Of course I rattled off things that filled me with hope: giving was up 7.5% in 2011, nonprofits (and their boards!) are increasingly focused on efficiency and collaboration, businesses are becoming more sophisticated forces for good, new tools such as social impact bonds are emerging and an enthusiastic generation of social entrepreneurs are working in the nonprofit, for-profit and hybrid worlds. There was plenty of good news for me to share.
The big surprise came when my magazine arrived in the mailbox and I flipped to the This Will Make You Feel Better feature. Carleton had chosen 12 experts to interview on 12 different topics. I could immediately see how philanthropy was contributing in 11 of the 12 areas! Generous individuals, families, foundations and companies are making a difference everyday in aging, education, music, recycling, health , housing, conservation, politics, publishing (Carleton profiled a nonprofit literary publishing house), and even the internet (think wikipedia!) The 12th area was the stock market… that would have been a stretch…. But thoughtful givers, big, medium and tiny, are having a profound influence on the world and on our communities. That should make us all feel good!