25 August 2020
Impact investment by healthcare companies strengthens the impact their commercial operations deliver every day, MSD says, by helping them reach underserved populations. Ahren Lester reports.
Global healthcare company MSD – known as Merck in the US and Canada – says its healthcare impact investments are complementary to its everyday business, and by building a sustainable and inclusive global health ecosystem it can generate both social and business returns.
Speaking on Environmental Finance's "Build Back Better" webinar on "Impact investing in the healthcare sector," MSD impact investing portfolio manager Ken Gustavsen says that the firm's impact investments represent just one of its approaches to expanding access to medicine.
Gustavsen says healthcare impact investing sits in the middle of a "spectrum" of approaches, between its "organic enterprise impact" – that is, the healthcare impact generated by its day-to-day commercial business – and its philanthropic efforts through charitable donations and other similar activities.
"Impact investing falls someplace in the middle of that spectrum," he says. "Looking at intentionally trying to get a social return – in our case, a healthcare-related social impact – coupled with a financial return on that investment."
Gustavsen believes that the financial return element of healthcare impact investment is important.
"We want that financial return on investment because it ensures that you've got performance accountability at the investment level," he says. "Also, it means that as we hopefully develop those financial returns, we can redeploy them to other corporate responsibility-related activities and this provides a degree of sustainability to our impact efforts."
MSD has allocated up to $50 million for impact investments, which the company is undertaking through investments in healthcare impact funds – essentially operating as a fund of funds.
"We want that financial return on investment because it ensures that you've got performance accountability at the investment level"
Among the funds MSD has invested in are the UNICEF Bridge Fund, TEAMFund and Global Health Investment Fund (GHIF) – as well as its successor Adjuvant Global Health Technology Fund – focused on responding to healthcare disasters, expanding access to medical technology and funding development of drugs for neglected diseases (see Box: MSD healthcare impact investments).
To date, just under $40 million has been committed to investments across all the funds with around half of this already deployed.
Complementing its commercial operations
Gustavsen adds that the healthcare impact investment activities undertaken by MSD also paves the way for the firm – and its peers– to bring the full impact of their "organic enterprise impact" into play for underserved populations.
"If we're looking at underserved populations, we want them to benefit from the best that the world can offer in terms of healthcare. And, if existing solutions either aren't adequate or not reaching them, then impact investing is a very clever and responsible way to help bridge that gap"
"Through the types of investments that we make, our impact investing activities are hopefully developing a more sustainable global health ecosystem," he says. "And that has the knock-on benefit of improving the opportunities for MSD as a business to operate in the geographies where impact investments are active."
Gustavsen says that there is a great deal of "complementarity" between the general objectives of healthcare firms such as MSD – through saving and improving lives – and their impact investments.
"If we're looking at underserved populations, we want them to benefit from the best that the world can offer in terms of healthcare," he says. "And, if existing solutions either aren't adequate or not reaching them, then impact investing is a very clever and responsible way to bridge that gap."
Difficulty in judging health impact
In 2019, Gustavsen says that the impact investments made by MSD benefitted over nine million people – through things like visits at hospitals or clinics, delivery of vaccines or pharmaceuticals, use of diagnostic devices.
"One of the challenges is that there are as many types of impact as there are portfolio companies or populations that they're reaching"
"So, we're having a very real and measurable social impact with millions of people each year reached, which we hope will continue as the portfolio grows through the existing investments and new investments that we make in the years to come."
Gustavsen says MSD uses the number of people reached as the key metric for its impact investments to overcome a challenge facing impact investment in healthcare.
"Healthcare impact measurement is a little bit more difficult than some other areas of measuring impact, for example greenhouse gas (GHG) emissions," he says, having experienced this with the funds MSD invest in.
"One of the challenges that they have is that there are as many types of impact as portfolio companies or populations that they're reaching," Gustavsen says. One fund may report on the number of people walking in a clinic or hospital, another on people who received a new vaccine, another on people diagnosed using a new diagnostic device.
"How do you try to align between all those different ways of measuring impact? In our case, we distil it down to just a baseline number of people reached, which is consistent even though the specifics are different," he says.
From returns to redeployment
Overall, Gustavsen is confident that the initial investments made by MSD will continue to deliver impact as the capital goes to work, portfolio companies begin to mature, and exits are made. The funds in which the company has invested have a typical life of between 10 and 12 years, with meaningful financial returns potentially emerging from around the middle of this period.
"When we start getting meaningful returns back, then we will determine specifically how we want to redeploy those funds," he says. "But we do have returns from investments earmarked for other corporate responsibility-related activities, for example, we could increase the size of our impact investment portfolio or dedicate it to another type of initiative."
Watch the full "Impact investing in the healthcare sector" webinar here, including comments from Henry He, portfolio manager at American Century Investments. See upcoming webinars in the Build Back Better series here.
MSD healthcare impact investments
MSD's current impact investments in healthcare include:
UNICEF Bridge Fund: A fund that uses a pool of revolving three-year and five-year bridge loans to address the timing gaps between a health disaster occurring and pledged cash from donors reaching UNICEF.
Global Health Investment Fund (GHIF): Finances the development of drugs, vaccines and diagnostics against diseases that disproportionately affect low- and middle-income countries. Portfolio investments have addressed onchocerciasis (river blindness), preeclampsia and gestational diabetes mellitus, polio, measles and rubella, and postpartum haemorrhage.
Adjuvant Global Health Technology Fund: Incubated by the GHIF, the life sciences-focused fund has investments that include drug development firm 54Gene which is focused on African genetic data, small molecule treatment developer AN2 Therapeutics, which is targeting neglected diseases, and herpes vaccine developer X-Vax.
TEAMFund: Using a team of medical technology veterans, focused on developing and expanding access to low-cost medical devices in low-income countries.
Evercare Health Fund: An affordable healthcare infrastructure firm that has built a portfolio of 30 hospitals, 16 clinics and more than 50 diagnostic centres in Africa and south Asia.
Leapfrog Investments Fund III: A private equity firm that invests between $10 and $50 million in financial and healthcare firms. Healthcare investments include Kenyan pharmacy chain Goodlife, life insurance firm AllLife that provide cover to HIV and diabetes sufferers, and India genetic diagnostics firm Medgenome.
Health Quad Fund II: An Indian healthcare venture capital firm that makes early-stage investments in transformational healthcare solutions that combine meaningful social impact.