Innovative funding across the healthcare value chain in the Middle East
Insights by Raviraj Dande, Director, Healthcare Consulting – MENA at JLL
The healthcare sector in the Middle East is on a growth trajectory, fueled by a large aging population and the prevalence of chronic and non-communicable diseases. The Middle East’s healthcare sector is booming. Buoyed by a growing interest in preventative care strategies and an openness to deploying emerging technologies, healthcare expenditure in the Gulf Cooperation Council (GCC) is predicted to reach $135.5 billion by 2027. Innovation in the sector is set to reach new heights by introducing new-age technologies like artificial intelligence (AI) and robotics, genomic medicine, and digital healthcare. Moreover, the transformation is also driven by human capital development and the establishment of healthcare innovation hubs.
However, multiple challenges must be addressed, from an urgent demand for research and development to stronger core operations and ensuring enough patients are willing to seek care.
For sustainable development across the healthcare value chain, leveraging innovative financing mechanisms to create a positive social or environmental impact is critical. In this approach, tapping into philanthropic or commercial tools becomes a mandate to scale businesses more effectively. In the last two years, USD 48 billion have been invested globally across the healthcare value chain, with USD 103 million specifically in the Middle East markets.
Potential financing solutions to develop healthcare
Interestingly, innovative finance has the potential to change the face of healthcare, either through private capital sources or private-sector expertise.
Research and development: With a rise in new diseases and a growing demographic of elders, the need for more R&D is palpable. According to research, drug-resistant viruses, bacteria, parasites, and fungi could cause 10 million deaths annually by 2050. Besides, businesses are apprehensive about investing in research and development of new solutions for diseases like dementia (which is on the rise) due to low margins.
Here are some solutions to address this challenge:
If binding contracts by governments or any other financial entity can offer incentives for developing successful medicines, vaccine companies will be more willing to invest in stronger R&D. Another solution is to offer large volumes to such companies in the long run to ensure recurring monetary benefits. However, it is critical to predetermine the price of medicines so that vaccine makers or similar companies can earn a certain ROI. For example, GSK and Pfizer had signed a contract for 10 years, managed by GAVI to provide up to 300 million doses each of their pneumococcal vaccines at a cost that was 90% of their rate in developed markets.
Product development partnerships (PDP) could work well to ensure the introduction of new healthcare drugs and diagnostics. Certain negotiations must be discussed with partners, including determining which countries and sectors have more access and what prices. However, with PDP, there’s assurance that resources are allocated to the most promising projects (not at an early stage of R&D). A good example is Novartis which initiated the development of KAF156, an antimalarial compound, with technical and financial assistance from Medicines for Malaria Venture (MMV) in collaboration with the Bill & Melinda Gates Foundation.
Companies could also leverage impact investment funds, be it venture capital funds or private equity funds, to promote innovation for neglected diseases. Breakthrough innovations can also be supported through crowdsourcing challenges or partnerships to push forward specific areas that haven’t received attention.
Core operations: Facilitating market entry or strengthening new business models to expand access to healthcare is a recurring challenge. The absence of any solution in these cases can impact the final price for consumers. Besides, with hardly any market research data available on the existing market actors, the issue becomes even more complex. While companies can establish local production facilities, there’s a need for more funds to ensure these facilities are at par with international standards.
Also, when setting up new business models, risks like weak infrastructure, low-quality healthcare facilities, and similar issues must be addressed.
Here’s what businesses can do:
Companies can turn to a de-risking mechanism like a volume guarantee to get large orders from medical suppliers, ensuring they can benefit from economies of scale. A binding contract with investors is a good way to commit to a certain production capacity at low prices. Previously, companies like Bayer and Merck & Co have been a part of volume guarantee schemes to provide contraceptive implants.
Getting investments from corporations, either through corporate venture funds or similar mechanisms, often works well. Companies could tap into philanthropic grants and loans or commercial and sub-commercial returnable capital to access better market insights and improve existing conditions. In the past, Bayer Healthcare sponsored the EyeFocus Accelerator, which supports companies that make products for preventing, curing, and living with eye diseases.
Lastly, program-related investments can help social entrepreneurs address the financial gap and create funds where the same money can be consistently invested over the years.
Health systems: The need of the hour is to strengthen health systems for all people. However, as healthcare spending increases, the quality of service will likely decrease if infrastructural challenges plaguing the sector aren’t addressed. This can be done through funding from social impact bonds, corporate and third-party investments, credit guarantees or other mechanisms to ensure everything from point of care to distribution and patient education is taken care of.
These solutions may help ease the challenge:
Companies can be investors or advisors in small and medium-sized enterprise financing to upgrade their operations. They can also take advantage of credit guarantees to take care of any potential losses.
Social or development impact bonds can also drive innovation and affordability in healthcare service delivery. These could be used in cases where service delivery and outcomes are associated with reimbursement.
Patients and customers: Greater access to quality healthcare must also be driven by the willingness of patients to seek care. The reasons could differ, from a lack of awareness of health risks to a high cost of treatment. Even where health insurance schemes exist in countries, many people pay out of pocket for things not covered by these initiatives.
Here are a few solutions to address this challenge:
Promotion of health education and awareness to seek healthcare is the first step to dealing with this issue. The idea is to reach people in communities like schools, markets and religious centers. In this way, innovative finance can help drive demand for healthcare across different strata of society.
Companies can also collaborate with financial businesses to develop health savings accounts, insurance, voucher schemes, loans, and mobile money to ensure that patients are not reluctant to obtain healthcare services due to their lack of affordability.
There are a growing number of opportunities for healthcare companies to partner with the microfinance and insurance sectors. For instance, the BASMAH program is a first-of-its-kind initiative—a partnership between the Dubai Health Authority (DHA), Roche Pharmaceuticals, and AXA-Gulf Insurance— to provide full coverage for breast, colon and cervical screening and treatment for all Dubai residents.
The last word
While there’s high potential for the healthcare industry to grow, the flow of innovative finance needs to be consistent. In the current scenario, several healthcare companies have the intention but lack the resources and expertise to leverage the opportunities. Thus, it is crucial to tap into internal and external expertise, assess opportunities across the healthcare portfolio, and begin with low-risk opportunities to venture into innovative finance.