Healthcare Finance

Funding for fundamental science and early-stage translational medicine is becoming scarcer, and at the worst possible time—when we now have the scientific and engineering expertise to make major breakthroughs in our understanding of the molecular basis of many deadly diseases and how to treat or prevent them. The dearth of funding for translational medicine in the so-called “Valley of Death” can be attributed to several factors, but a common thread among them is increasing financial risks in the biopharma industry and greater uncertainty surrounding the economic, regulatory, and political environments within the biomedical ecosystem. Increasing risk and uncertainty inevitably leads to an outflow of capital as investors and other stakeholders seek more attractive opportunities in other industries.

By applying financial techniques such as portfolio theory, securitization, and option pricing to biomedical contexts, more efficient funding structures can be developed to reduce financial risks, lower the cost of capital, and bring more life-saving therapies to patients faster. By taking this course, students will gain the background, resources, and framework to influence the healthcare industry.

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Unit 0: Introduction to Healthcare Finance

• Current Challenges in Healthcare Finance
• Biomedical Megafund FAQs

Unit 1: Present Value

• Market Efficiency, Wisdom of Crowds and Madness of Mobs
• Time Value of Money, and Drug Pricing Examples
• Buying Cures vs. Renting Health
• Inflation

Unit 2: Capital Budgeting

• Cash Flows, NPV and IRR
• Genentech and Herceptin Funding Example
• Volatility, Risk and Uncertainty: Framework and Application to Drug Approval

Unit 3: Stocks and Bonds

• Dividend Pricing Model
• Corporate Bonds
• Debt in the Biopharma Industry

Unit 4: The CAPM and Diversification

• The CAPM
• Arbitrage Pricing Theory
• Portfolio Theory: Examples and Special Cases
• Portfolio Theory in a Biomedical Context

Unit 5: Options

• Option Pricing Theory
• Real Options and Biomedical Examples
• Monte Carlo Simulations

Unit 6: Clinical Trials

• Drug Development & Clinical Trials
• Randomized Clinical Trials
• Statistical Framework for Clinical Trials
• Bayesian Adaptive Trials

Unit 7: Venture Capital and New Business Models

• Introduction to VC financing
• The Term Sheet
• Biotech Valuation
• Venture Philanthropy

Unit 8: Securitization

• The Financial Crisis and Securitization
• Megafunds & Their Limits

Unit 9: Healthcare Analytics

• Risk and Return in the Biopharma Industries
• Clinical Trial Success Rates
• Predictive Analytics for Drug Approvals and Clinical-Phase Transitions
• Bayesian Decision Analysis for Randomized Clinical Trials

Unit 10: Pricing, Insurance & Ethics

• Pricing & Ethics
• Pricing Issues for Cancer Drugs
• Value vs Price