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Venture Philanthropy: A New Driver for Research

Massachusetts General
Lauren Arcuri Ware

Nine-year-old Shan Rée of West Vancouver, British Columbia, was no stranger to hospitals. Since infancy, she had been admitted two or three times a year for the intravenous antibiotics and intensive breathing treatments that helped her fight the chronic lung infections of cystic fibrosis (CF), a progressive genetic disease that also disrupts the digestive system. In between hospital stays, she underwent a rigorous daily regimen of chest physical therapy and inhaled medications. She took digestive enzymes with everything she ate, plus daily oral antibiotics and pills for reflux and gastric emptying.

Then, three years ago, she joined a clinical trial of Kalydeco (ivacaftor), a drug developed by the biotechnology firm Vertex with funding from the Cystic Fibrosis Foundation. Now, she has been able to stay out of the hospital and no longer harbors bacteria in her lungs. She still takes digestive enzymes, but needs fewer, and her only medication other than Kalydeco is a multivitamin. She has more energy and breathes more easily, says her mother, Wendy Rée. Her latest result on a sweat test, the classic diagnostic tool for CF, was nearly normal. “Basically, her life is normal now,” says Wendy Rée.

Kalydeco helps only the 4% of people with CF who share Shan’s genetic mutation, known as G551D, but for those patients, it corrects the core defect in chloride transport that the mutation causes. And it has led to many similarly heartening stories, with debilitating symptoms dramatically improving or disappearing. Vertex, with continued financial help from the CF Foundation, is now pursuing drugs that could combine with Kalydeco to treat the most common mutation, Delta F508, which is carried by about 90% of people with CF, as well as treatments for other rare mutations.

The CF Foundation sold part of its share of royalties from Kalydeco sales to generate funds to reinvest in research and clinical trials for these new drugs and others. It’s part of a plan, put into place over a decade ago, that has provided $315 million to for-profit companies to fund research. By absorbing some financial risk inherent in early-stage drug development, the foundation can motivate for-profit companies to develop drugs that could treat CF, a disease that affects only 30,000 people in the United States—and that therefore offers relatively little profit potential for drugmakers.

This novel approach to kick-starting research has been dubbed venture philanthropy, or medical research philanthropy. Traditionally, the CF Foundation and other disease foundations, funded primarily through public donations, have supported academic research into their diseases. Funneling dollars to for-profit companies is a departure, but it’s one that increasing numbers of foundations are pursuing. The Michael J. Fox Foundation, the Multiple Myeloma Research Foundation, the National Multiple Sclerosis Society and many other patient advocacy groups are now funding medical research by pharmaceutical and biotechnology companies.

Many patients, researchers and physicians are thrilled by the results and future prospects of these partnerships. The nonprofits argue that without their funding, Kalydeco and other desperately needed treatments wouldn’t exist. But not everyone is pleased. Foundation investments may blur the line between philanthropy and profit, and concerned physicians, researchers and ethicists are asking whether the benefits of these partnerships outweigh the risks. What are the potential ethical implications, and how can clear boundaries be drawn?

In the late 1990s, finding an effective treatment for CF seemed like a pipe dream. The gene responsible for the disease had been discovered 10 years earlier and scientists had a fairly good idea of the basic physiological defect of CF—because of a faulty chloride transport protein, chloride is trapped in the cells that line the airways and pancreatic ducts, resulting in thick, sticky mucus in the lungs that harbors lung-tissue-destroying bacteria, and a clogged pancreatic duct that causes digestive malabsorption. But attempts to replace the problem gene had failed. So Robert Beall, president and chief executive of the CF Foundation, decided to seek a drug that would correct for the problem protein. That would require high-throughput screening, a technique that allows researchers to rifle through thousands of compounds a day, earmarking ones that meet particular criteria. The CF Foundation awarded a small company,
 Aurora Biosciences, a starter research contract of $2 million to develop a system to screen for chemicals that would facilitate chloride transport, then later gave Aurora $42 million to do the screening. That led to the discovery of Kalydeco and VX-809, one of the most promising drugs being tested in combination with Kalydeco to treat the prevalent Delta F508 mutation. After purchasing Aurora in 2001, Vertex Pharmaceuticals continued developing those compounds with support from the CF Foundation, which committed $31 million more.

The CF Foundation used royalties from TOBI, an inhaled antibiotic it helped develop in the 1990s through a similar process of venture philanthropy, to help fund work at Aurora and Vertex. And it receives royalties for Kalydeco, part of which it has sold to an undisclosed firm to fund additional drug development. The CF Foundation is also funding a second generation of work at Vertex and has invested in collaborations with Pfizer, Sanofi and Proteostasis Therapeutics. “Although the compounds we have look promising, any drug in advanced clinical trials faces a 20% chance of failure,” says Beall. “We can’t wait. We have to make new investments now. Lives are at stake.” Thus far, the CF Foundation has committed $315 million to for-profit companies.

In drug development, much early research is typically done at academic institutions; then biotechnology and pharmaceutical companies use that information to create new treatments. Those companies foot the bill for additional study and clinical trials, and reap the profits of drugs that make it to market. But with a rare disease such as cystic fibrosis, drugmakers are much less likely to recoup costs.

By providing money very early, when the risk of failure is highest, foundations hope to support potential treatments that otherwise might never make it past the so-called valley of death between academic research and clinical trials. "We really want to help investigators or companies get to the point at which their work will attract other investors,” says Todd Sherer, who leads the Michael J. Fox Foundation for Parkinson’s Research. “We take the early risk, so that the next investors will have less risk.”

To disease foundations, even a failure may be valuable, paving the way to knowledge that could eventually lead to an effective treatment or a cure. But these groups require progress toward predetermined milestones, with further payments contingent on success. When an auspicious project moves quickly, they may deliver additional funding. “The only way to accelerate trials is to use business models of metrics and accountability,” says Kathy Giusti, founder and chief executive of the Multiple Myeloma Research Foundation (MMRF).

Developing their own resources—teams of scientists, networks of patients willing to participate in clinical trials, tissue banks and collections of gene sequencing, and other data—has also been crucial for the foundations. “We talk constantly to people in the industry, identify what we think are strong drugs, bring that back to the scientific team here and then send our information to 16 academic centers,” institutions that MMRF has organized into a network for clinical trials and tissue banking, says Giusti. The CF Foundation has an extensive network of accredited care centers and keeps clinical and demographic data on patients. Providing access to patients for clinical trials staged by drug companies helps speed the approval of new treatments.

The sweet spot for most foundations seems to be in supporting young biotech companies that venture capitalists might find too risky. By the time a potential drug gets to a second- or third-phase clinical trial, in which it’s tested on patients for safety and efficacy, it’s often promising enough for a pharmaceutical company or venture capital firm to invest in the trial. “But the bar is getting higher,” says Tim Coetzee, chief research officer at the National Multiple Sclerosis Society, a patient organization that also uses the venture philanthropy approach.

When a drug succeeds, foundations typically get part of their investment back, which can be invested in further studies. “We recognize that it takes a lot of players to develop therapies,” says Coetzee.

Foundations assert that, without their investments, drugs such as Kalydeco would never make it to patients. But Eric Campbell, a sociologist at the Mongan Institute for Health Policy at Massachusetts General Hospital, questions some claims about the importance of foundation support, and he notes that the venture philanthropy model has virtually no downside for drug companies. They gain the partnership of a powerful group that can give them not only money but also access to patients for research. And joining forces with a trusted nonprofit foundation helps drugmakers look better in the public eye.

Campbell worries that dissolving the line between nonprofit organizations and for-profit drug companies could also have negative repercussions for the reputations of disease foundations. “Once a foundation starts drawing revenues, it has, in my opinion, compromised the trust of patients and other supporters,” he says. “Now it has a financial stake. These organizations have to accept that if they’re going to enter these relationships, they’re inevitably going to become part of the massive marketing machine of the drug industry.” (The CF Foundation, likely the only disease foundation to reap profits so far, maintains that its integrity will remain intact.)

He’s not alone in sounding the alarm. Paul Quinton, a cystic fibrosis researcher at the University of California, San Diego, and the University of California, Riverside, and who himself has CF, is one of 28 scientists and physicians who signed a letter to Vertex asserting that the price of Kalydeco is “unconscionable.” “There is a fundamental conflict between selfishness and altruism,” says Quinton. “The CF Foundation must present itself as completely altruistic, while in its partnership with the company, it’s playing a game based on greed. That’s where I get in some kind of moral conflict.” He suggests that whenever a for-profit company takes money from a nonprofit to develop a drug, the drugmaker is entering a social contract. “If we in the CF community ask Vertex ‘What is your part in the social contract?’ what is their answer? At the same time, these contracts demand the ultimate in transparency from the CF Foundation to preserve unquestioned trust in its altruism.”

One possible solution, suggests Campbell, is for an independent organization to provide oversight. He also believes that it’s crucial for nonprofit patient advocacy groups to disclose all aspects of their relationships with for-profit companies and to make sure foundation members have no personal financial relationship with the drug companies or the treatments they develop with the foundation’s support. Campbell says that if foundations want to maintain their stellar reputations, they should be very careful not to engage in anything that could be considered marketing.

For their part, foundations say their goal is pure: to push research forward. And in the case of Kalydeco and several other examples, progress has been dramatic. Data from trials of the cystic fibrosis treatment show patients gaining weight and achieving better lung function, among other positive changes. And Giusti suggests that results for multiple myeloma have been particularly remarkable. “For the amount of money we’ve raised, $225 million, we’ve helped to more than double the lifespan of patients,” she says. “Multiple myeloma used to be 100% fatal, with three years’ survival at best. That’s now up to seven years, and probably better than that because of a lag in data. And since 2003, six drugs have been approved by the FDA,” she adds.

“Discussions about drug pricing get really emotional,” says Giusti. “But our work is done with the absolute best intent. We don’t want to see potential drugs go away, and they will go away if somebody doesn’t put money in the space between early academic research and clinical trials. People forget what it was like when no one wanted to take a chance. These foundations have taken a chance, and it’s working.”

Originally published in Proto, focusing on the promise of biomedicine, published by Massachusetts General Hospital.

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