Applications of Portfolio Theory to Accelerating Biomedical Innovation

Abstract

Biomedicine is experiencing an inflection point in which the origins of many human diseases have been decoded, leading to new treatments and, in some cases, complete cures. Many domain experts acknowledge that the gating factor to innovation is not knowledge, but rather a lack of financial resources to translate theory into practice, the so-called "valley of death"between scientific discovery and the clinical testing that must be done with human subjects before regulators will approve a new drug or medical device. This process of translational medicine is largely an exercise in risk management-organized as a carefully planned sequence of experiments, each one involving a progressively larger number of subjects that may or may not be allowed to continue, depending on the results of the prior experiment. It is, therefore, a natural setting in which to apply modern portfolio theory. The authors describe one such application involving a biotechnology company focused on genetic diseases and the lessons learned from that experience.