Session Four: Exploring the financial mechanisms that can be harnessed to increase investment in dementia. Ms. Cathrin Petty, Managing Director Co-head of Healthcare, Europe, the Middle East and Africa (EMEA), JP Morgan

1. Cathrin Petty
Co-Head of Healthcare EMEA, J.P. Morgan
1

2. Dementia has suffered from chronic underfunding
Source: Alzheimer’s Disease International, NIH website, J.P. Morgan social finance
Note: “Dementia” includes NIH spending on Alzheimer’s and other dementias in line with new dementia category introduced in 2013
Average NIH annual R&D spent 2011-2013 ($mm)
2,018
5,448
4,212
534
Cardiovascular Cancer Infectious
Diseases
Dementia
3.8x 10.2x 7.9x Multiple of
Dementia
spent
2
2
7
9 10
5
2 3
1
10
6
13 14
11
8
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total unsuccessful drugs 1998-2011 = 101
 1 new
approval
=
Number of approvals
Total drug candidates assessed in trials
=
3
104
2.9%
 1 new
approval
 1 new
approval
 Poor understanding of potential pathological
targets
 Challenging early diagnosis – disease
typically advanced before first clinical
detection
 Inability to select early stage patients for trials
to test true “disease modifying” potential
 Lack of clear objective endpoints and relevant
biomarkers
 Long and complex clinical trials with high risk
of failure
 Reduces in market patent life
 Patient access / compassionate use rarely
supported
 Increased perceived risk of litigation
Number of Alzheimer’s drugs no longer under development Obstacle to investing in dementia

3. A clear inequity of risk and reward that can be addressed
through financial structuring
3
 Portfolio diversification
 Different trial phases
 Diagnostics and therapies
 Underlying pathophysiological
mechanisms
 Funding structures for the
investments
– E.g. milestone-linked
payments vs. royalties
 Adjacent disease research
– E.g. Parkinson’s associated
dementia
 Capital protection
 First-loss catalytic
capital
 Guarantee
– Partial or full
– For some or all
investors
 Leveraged capital structure
 Tranched capital structure
accommodates different investors’
risk/return appetites
– Debt tranches can be rated, with
lower risk
– Equity tranche can benefit from the
leverage of debt investors
 Outcomes-based payments
 Linking investor returns to government
savings as milestones are achieved
Routes to lower the risk Routes to increase the reward
Source: J.P. Morgan social finance

4. Construct an impact thesis and define use of proceeds
4
The building blocks and key considerations
Impact thesis
Investors
Investment
pipeline
Research
and
sector
expertise
Structure
Governments/
Stakeholders
Construct an impact thesis
with a targeted and measurable
impact
Construct an investment
strategy that leverages the
deepest scientific expertise
Identify a sufficiently large,
high-quality investment
pipeline to justify a large capital
allocation
Test investor appetite,
identify anchor investors and
attract a preferred investor
mix
Ensure investment strategy
complements government
initiatives and is aligned with
stakeholders
Identify an optimal structure to
improve the risk / return profile for
investors
Source: J.P. Morgan social finance

5. Determine an appropriate funding vehicle
5
 Potential funding structures:
 Purple Bond: Corporates, Supranationals or Governments raise capital from institutional investors
with ring-fenced assets for a specified use of proceeds
 Premium Bond: governments raise capital from retail investors with prize-based coupons
 Capital markets vehicle: bonds issued that raise funding today to be repaid by future
financial commitments from governments
 Venture capital fund: equity and/or debt raised from institutional investors taking risk
against a portfolio of pharma R&D, similar to Global Health Investment Fund
 Potential issuers:
 Single issuer: government, corporate, supranational
 Multi-stakeholder special purpose vehicle
 Potential loss-protection features:
 Loss protection/guarantee to cover partial loss for all investors (either first-loss or pari-passu)
 A guarantee for senior debt tranche investors
 Other structural considerations include for example:
 Outcomes-based development payments to improve return for investors linked to promotion from one phase to
the next
 Tenor of funding – perpetual or long-term vs closed-end structures
 Identifying an appropriate manager for the vehicle
Determine the funding vehicle, loss-protection features and fund manager
Source: J.P. Morgan social finance

6. Preliminary and illustrative structure of a Dementia R&D fund
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Dementia
Fund
Investor
Advisory
Committee
Investment
Manager
Approves investment
recommendations from
Investment Manager
Making investment
recommendations
1 2 3 4
Investments
Investment
Committee
Catalytic capital /
Downside protection
Impact
Investors
Traditional
Investors
Governance Management Investors
Oversees conflicts
of interests and
consulted on
strategic matters
Catalytic
capital
Debt
Equity
Source: J.P. Morgan social finance

7. Conclusion
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Manage social burden for future generation
 Increase capital to
 Catalyse academic and
pharmaceutical
research
 Invest further in
diagnostics and clinical
biomarkers
 Work with governments
and regulators to improve
translation and clinical
trial design to accelerate
new products to patients