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Can finance cure cancer?

How do you drive investors to spend money on cutting-edge cancer treatments? One idea, according to economist Andrew Lo, is to sell securities in a megafund of research projects. Economics correspondent Paul Solman explores how financial engineering could be the starting point for curing cancer.

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  • Judy Woodruff:

    But first, using financial engineering to find cures for disease.

    Our economics correspondent, Paul Solman, has the story.

    It's part of his series, Making Sense, which airs Thursdays on the NewsHour.

  • Andrew Lo:

    Within the space of about four years, I lost five people to cancer.

  • Paul Solman:

    Not long ago, MIT finance guru Andy Lo's world was leveled.

  • Andrew Lo:

    My mother died. Svetlana Sussman, the head of my lab, she died. David Stalen, a colleague in engineering, died. Charles Harris, the donor of my chair, died. My childhood friend Suzette Loh died, all of different kinds of cancers.

    Four years. I felt like I was the cause of cancer. Knowing me was carcinogenic.

  • Paul Solman:

    At first, Lo felt helpless. What could a financial economist do to help fight the famously deadly disease?

    But then he met with researchers developing experimental treatments for his mother's lung cancer.

  • Andrew Lo:

    I asked, does your source of financing have any influence on your scientific agenda? And the chief scientific officer looked at his CFO, ironically, and said, influence? Our source of financing drives our scientific agenda.

    And I have got to tell you that, as an economist, I understand, because you have got to pay for things. But as the son of a patient, I was absolutely outraged by that answer.

  • Paul Solman:

    Outraged, but motivated because, Lo thought:

  • Andrew Lo:

    That's something that finance can do something about.

  • Paul Solman:

    In fact, Andy Lo believes finance can actually help cure cancer. His idea is to securitize cancer drugs, create a mega-fund of drug development projects to sell to investors as securities.

  • Andrew Lo:

    We securitized auto loans, credit cards, student loans, music royalties, as well as mortgages. Why not securitize cancer drugs?

  • Paul Solman:

    Wait a second. Why not?

  • Ann Curry:

    World financial markets are way down today following dramatic developments.

  • Brian Williams:

    The largest single point drop in history.

  • Man:

    Share price continue to tumble in the aftermath of the Lehman collapse.

  • Paul Solman:

    It was securitization that brought the global economy to the brink of collapse almost a decade ago, mortgage-backed securities flooding the housing market with easy money, driving prices up and up.

    The movie "The Big Short" used a Jenga tower to help explain.

  • Ryan Gosling:

    And then that happens.

  • Steve Carell:

    What is that?

  • Ryan Gosling:

    That's America's housing market.

  • Andrew Lo:

    What I saw during the financial crisis made me sick, because I saw huge amounts of money being completely destroyed by bad decisions, bad risks, bad business models.

    We didn't have the crisis because those techniques didn't work. The crisis occurred because those techniques, they worked way too well. These are powerful tools. Finance is the ultimate tool for crowd-sourcing and being able to pull together large amounts of resources for focused purposes.

  • Paul Solman:

    Essentially, Lo wants to repurpose securitization for cancer cures, instead of liar loans.

    His ideal portfolios would be financed with both equity, for the big risk-takers like hedge funds, and debt, for the risk-averse.

  • Andrew Lo:

    They want to take their money and earn maybe a smaller rate of return, but they want to make sure that they get their money back. So these are the bond investors, investors that put their money in market funds, treasury bills, corporate bonds. There's a whole new set of investors that traditionally haven't invested in biotech that could do so now.

  • Paul Solman:

    So, bigger funds, more conservative, don't want to take as much risk, therefore willing to accept a lower rate of return, and you're saying to them, hey, wait a second. You can invest in something that you want to invest in, and we can almost guarantee you a return that's better than what you're getting elsewhere.

  • Andrew Lo:

    If it's a big enough portfolio and if it's structured in the right way, absolutely. The key is size, because a single cancer drug is very, very risky, probability of success, 5 percent. But if you take 150 of these and put it into a portfolio, at some sufficiently large scale, the risk actually goes down.

  • Paul Solman:

    That's the great insight of don't put all your eggs in one basket. Diversification.

  • Andrew Lo:

    Right.

    And in the field of cancer, it requires on the order a couple of hundred million dollars per project. And so, if you want 150 projects, that's $30 billion.

  • Paul Solman:

    The billions would be used to further explore all kinds of cutting-edge treatments, from immunotherapies that use your own immune system to fight cancer, to small-molecule drugs that may cause cancer cells to die.

  • Andrew Lo:

    We now have the opportunity to treat disease in many, many different ways. We just don't have enough money to explore all of the different pathways. Shouldn't we? Shouldn't we raise the money to be able to do that? Clearly, it'll benefit everybody, and everybody will make plenty of money at the end of the day.

  • Paul Solman:

    Now, if all this seems way too good to be true, the fact is that Lo has begun putting his theory into practice, as founding investor of Palo Alto-based BridgeBio Pharma, which has a portfolio of treatments for genetic diseases.

  • Andrew Lo:

    A rare genetic disorder is a mutation in your gene. And so the typical kind of therapy for one genetic disorder is going to be almost, by definition, statistically uncorrelated with the success or failure of another kind of rare genetic disorder.

  • Paul Solman:

    I see. So, rare diseases have built into them diversification?

  • Andrew Lo:

    Exactly right. You don't need 150 of them to get diversification; 10 or 15 are enough.

  • Neil Kumar:

    We have added three new programs all in the genetic disease space.

  • Paul Solman:

    Lo's former student Neil Kumar is chief executive officer of BridgeBio.

  • Neil Kumar:

    What we're able to do now is to say, you have this mutation, and you're very likely to have this disease, and this is how severe it's going to be. And for diseases that are really that easy to describe, those are easier in our mind to drug than diseases like diabetes or heart failure, where there could be many different causes for the disease.

  • Paul Solman:

    This like Woody Guthrie's disease, Huntington's chorea?

  • Neil Kumar:

    That's right. So, Huntington disease is a classic genetic disease. Sickle cell anemia, Tay-Sachs disease. These are the types of diseases that we're talking about.

  • Paul Solman:

    BridgeBio has 17 drug development projects in its diversified portfolio.

  • Neil Kumar:

    It's very difficult to convince an investor that this sickle cell or this Tay-Sachs or this Huntington approach is the right approach. What one has to do to attract the vast majority of capital in the world to the early-stage space like this is to say, look, it's true, we're going to take mostly losses, but the couple of wins are going to pay us out for those losses.

    In the movie industry, for instance, one wouldn't finance one or two movies hoping that that specific movie is going to be a blockbuster, but rather you're going to finance a multitude of movies, hoping that one or two will ultimately become a blockbuster. It's very difficult to predict.

    If I just take one shot on goal — and shots on goal could take 10 years — the most likely scenario is that I lose, no matter how smart I am.

  • Paul Solman:

    What kind of investor is receptive to your pitch?

  • Neil Kumar:

    We have been lucky to work with, I think, investors across the diaspora, from large institutions, large private equity in generalist hedge funds, to biotech specialists.

  • Paul Solman:

    Kumar and his team regularly audition academics who have new research.

  • Dr. Suneet Agarwal:

    We're basically talking today about targeting a rare set of disorders called telomere diseases using insights from human genetics.

  • Paul Solman:

    Part of a constant effort to expand BridgeBio's portfolio.

    Meanwhile, Andy Lo hopes to scale up his effort to find cures for cancer.

  • Andrew Lo:

    I now measure time in terms of the number of patients that have died each day because they can't get their therapies that we now know how to create. We actually have the tools to do it. We just don't have the resources. And that, to me, is unacceptable.

  • Paul Solman:

    For the PBS NewsHour, this is economics correspondent Paul Solman in Boston.

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