Background

A traditional pathway for developing new health products begins with public research institutes generating new knowledge, and ends with the private sector translating this knowledge into new ventures. But while public research institutes are key drivers of basic research in sub-Saharan Africa, the private sector is inadequately prepared to commercialize ideas that emerge from these institutes, resulting in these institutes taking on the role of product development themselves to alleviate the local disease burden. In this article, the case study method is used to analyze the experience of one such public research institute: the Kenya Medical Research Institute (KEMRI).

Discussion

Our analysis indicates that KEMRI’s product development efforts began modestly, and a manufacturing facility was constructed with a strategy for the facility’s product output which was not very successful. The intended products, HIV and Hepatitis B diagnostic kits, had a short product life cycle, and an abrupt change in regulatory requirements left KEMRI with an inactive facility. These problems were the result of poor innovation management capacity, variability in domestic markets, lack of capital to scale up technologies, and an institutional culture that lacked innovation as a priority.

However, KEMRI appears to have adapted by diversifying its product line to mitigate risk and ensure continued use of its manufacturing facility. It adopted an open innovation business model which linked it with investors, research partnerships, licensing opportunities, and revenue from contract manufacturing. Other activities that KEMRI has put in place over several years to enhance product development include the establishment of a marketing division, development of an institutional IP policy, and training of its scientists on innovation management.

Summary

KEMRI faced many challenges in its attempt at health product development, including shifting markets, lack of infrastructure, inadequate financing, and weak human capital with respect to innovation. However, it overcame them through diversification, partnerships and changes in culture. The findings could have implications for other research institutes in Sub-Saharan Africa seeking to develop health products. Such institutes must analyze potential demand and uptake, yet be prepared to face the unexpected and develop appropriate risk-mitigating strategies.

Background

While venture funding has been applied to biotechnology and health in high-income countries, it is still nascent in these fields in developing countries, and particularly in Africa. Yet the need for implementing innovative solutions to health challenges is greatest in Africa, with its enormous burden of communicable disease. Issues such as risk, investment opportunities, return on investment requirements, and quantifying health impact are critical in assessing venture capital’s potential for supporting health innovation. This paper uses lessons learned from five venture capital firms from Kenya, South Africa, China, India, and the US to suggest design principles for African health venture funds.

Discussion

The case study method was used to explore relevant funds, and lessons for the African context. The health venture funds in this study included publicly-owned organizations, corporations, social enterprises, and subsidiaries of foreign venture firms. The size and type of investments varied widely. The primary investor in four funds was the International Finance Corporation. Three of the funds aimed primarily for financial returns, one aimed primarily for social and health returns, and one had mixed aims. Lessons learned include the importance of measuring and supporting both social and financial returns; the need to engage both upstream capital such as government risk-funding and downstream capital from the private sector; and the existence of many challenges including difficulty of raising capital, low human resource capacity, regulatory barriers, and risky business environments. Based on these lessons, design principles for appropriate venture funding are suggested.

Summary

Based on the cases studied and relevant experiences elsewhere, there is a case for venture funding as one support mechanism for science-based African health innovation, with opportunities for risk-tolerant investors to make financial as well as social returns. Such funds should be structured to overcome the challenges identified, be sustainable in the long run, attract for-profit private sector funds, and have measurable and significant health impact. If this is done, the proposed venture approach may have complementary benefits to existing initiatives and encourage local scientific and economic development while tapping new sources of funding.

Background

Incubators are organizations that support the growth of new and typically technology-based enterprises, by providing business support services that bring together human and financial capital. Although the traditional role of incubators has been for economic development, they may also be a useful policy lever to tackle global health, by fostering the development and delivery of local health innovation.

Given its high disease burden, life sciences incubators hold particular potential for Africa. As the most industrially advanced African nation, South Africa serves as a litmus test for identifying effective incubator policies. The case study method was used to illustrate how one such publicly funded incubator founded in 2002, Acorn Technologies, helped to catalyze local health product innovation.

Discussion

Acorn helped to support twelve biomedical device firms. One of them, Real World Diagnostics, was founded by a trainee from Acorn’s innovative internship program (Hellfire). It developed rapid strip diagnostic tests for locally prevalent diseases including schistosomiasis and HIV, and reported $2 million (USD) in revenue in 2009.

Acorn achieved this success by operating as a non-profit virtual incubator with little physical infrastructure. Employing a virtual model in combination with stringent selection criteria of capital efficiency for clients proved to be effective in reducing its own fixed costs. Acorn focused on entrepreneurship training and networking, both critical at an early stage in an environment dominated by multinational biomedical device companies.

Acorn and its clients learned that employing a cross-subsidy business model allowed one to generate royalty revenue through imports to subsidize R&D for local diseases. However, funding constraints and government expectations for rapid self-sustainability forced Acorn to merge with its sister biotechnology incubator in 2009.

Summary

A key to Acorn’s achievements was identifying entrepreneurs with technologies with health and economic impact, and providing them with flexible support from an early stage. A virtual organizational model helped Acorn to focus on supporting entrepreneurs. Governments and funders may wish to consider incubation strategies that draw from these good practices. With the right policies and business models, incubators have the potential to generate both health and economic benefits for Africa.