Hudson Institute of Medical Research is one of Australia’s top medical research institutions. It has a mutually beneficial relationship with Melbourne’s Monash University and a history of successful commercial partnerships with both government and pharmaceutical companies. Even with all these advantages, like many NFPs, it struggles to secure sufficient funding.
Now it has come up with an innovative way of increasing and diversifying its capital base.
Rob Merriel, Hudson Institute’s Chief Financial Officer, explains:
“We often come up with commercial ideas, or research findings, but it’s a very long, expensive road to turn these into a new therapy or diagnostic. We need access to capital to support these opportunities and help get them to market. However, getting external funding for commercially focused projects takes considerable time – it can take 2-3 years to get investment. If you already have a pool of funds available, then you can shorten that time frame dramatically."
Hudson Institute’s specialty is translational medical research. This is research focused on helping people – creating new treatments which improve patient outcomes, in any area of medicine. While this is an area of medical research which traditionally attracts the attention of both investors and government, it’s still difficult to find funding according to Rob:
“There’s government funding for translational research but the mandatory requirement is that you match that funding. This is where we’re at a disadvantage as we don’t have the discretionary funds. If we had our own pool of funds, then we could go into these opportunities, get the matched funding and turn $1 million into $2 million.”
Solving the funding equation
Hudson Institute had the idea of bundling up its research discoveries with the greatest commercial potential and seeking investment for the whole package. This would reduce the amount of time it spends seeking funding, give it the capital for intellectual property discovery, validation or enhancement and allow it to access matched funding from government.
To do this however, the Institute would need a new kind of business structure. Rob Merriel asked around the medical research community for guidance, but didn’t get far:
“We couldn’t find another medical research institute in Australia that has done this. The universities have done something similar, to invest in university technology, and it’s more common in the US where the venture capital pool and philanthropic funds are much larger, but we may be the only medical institute in Australia proposing to launch a commercial investment fund.”
Daniel Tomé, Hudson Institute’s Perpetual adviser, says that diversifying revenue sources can be a smart move for NFPs:
“These new emerging structures for funding mean that philanthropists can start to put their capital to work for impact in the same way they do their granting capacity. Yes, there’s risk – but there’s also the chance of enormous reward, both for the community and for financial return.”
In the absence of precedent, the Institute engaged specialists Gilbert and Tobin lawyers to help it establish Hudson Commercial, a for-profit entity, which is looking to raise an initial $5-10 million in investment capital. If successful, profits from the investment vehicle would be returned to investors as well as used to fund further innovative and commercially valuable research.
What will investors be funding?
Hudson Institute doesn’t specialise in a particular area of medicine, its research ranges from cancer to infant and child health and reproductive health and pregnancy. While the exact makeup of the investment fund is still being decided, here are three of the most exciting commercial opportunities:
- Stopping cancer spreading: Hudson Institute researchers have found a molecule which is critical to cancer metastasis (spreading from infected areas to new, healthy tissue). Blocking this molecule can prevent metastasis in some types of cancer, ovarian cancer is a prime example.
- Exosome therapeutics: Exosomes are very small vesicles (liquid, sub-cellular structures) released by all cell types. Researchers from the Institute have developed a way for exosomes to combat fibrotic diseases that affect the heart, liver, kidneys and lungs.
- IVF enhancement: a new, non-invasive way of testing whether the endometrium is ready for an embryo to be implanted during IVF. An unreceptive endometrium is one of the most common reasons that IVF is unsuccessful.
Who will invest?
Rob Merriel says that Hudson Commercial is designed for both philanthropists and professional investors with patience, who are looking for commercial and community returns:
“It’s a long-term investment. Medical research and development is a long and a difficult road but the outcomes can be life-changing. The people who invest in Hudson Commercial are likely to be those that are more focused on the philanthropy than the return, but the structure will be there to provide a good potential return to investors and this is a desire of the Institute and the proposed fund.”
Want to learn more?
If you’re interested in considering Hudson Commercial as part of your overall wealth plan, chat with a Perpetual financial adviser.