Becker Friedman Institute
for Research in Economics
The University of Chicago

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

K23: Regulated Industries and Administrative Law

Sharing R&D Risk in Healthcare via FDA Hedges

Adam Jørring, Andrew W. Lo, Tomas Philipson, Manita Singh, Richard Thakor

The high cost of capital for firms conducting medical research and development (R&D) has been partly attributed to the government risk facing investors in medical innovation. This risk slows down medical innovation because investors must be compensated for it. We propose new and simple financial instruments, Food and Drug Administration (FDA) hedges, to allow medical R&D investors to better share the pipeline risk associated with FDA approval with broader capital markets.