About 15 years ago, the Cystic Fibrosis Foundation made what was considered a risky foray for a nonprofit organization into the world of business. It began giving money to a small biotechnology company to entice it to develop drugs for the deadly lung disease.
But that funding, a total commitment of $150 million, has now paid off enormously. The foundation is to announce on Wednesday that it will receive $3.3 billion from selling the rights to the royalties to those drugs. That is 20 times the foundation’s budget last year.
The payout is believed to be the largest financial return ever achieved for a charitable organization pursuing treatments for disease and is likely to encourage other patient advocacy groups to seek their own deals with pharmaceutical companies; a growing number are already doing so.
Proponents say it speeds drug development while also providing potential monetary rewards that can pay for even more research.
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“I would like to see them do more to get the price of this drug down to something that is going to be sustainable,” said Paul M. Quinton, a cystic fibrosis researcher at the University of California campuses in Riverside and San Diego, who has the disease himself. “And I have some concern about the possible appearance of a conflict.”
Robert J. Beall, the chief executive of the Cystic Fibrosis Foundation, said the organization had expressed concern over the cost of the drug to the manufacturer, Vertex Pharmaceuticals, but had no power to set the price. He said the foundation’s mission had always been to get treatments to patients, and that financial returns would only help.
“This is a transformational day for people with cystic fibrosis and their families,” he said in an interview. “It gives us an amazing opportunity to accelerate the research we’ve already started.”
The foundation’s grants to Vertex and a smaller company it acquired led to the development of Kalydeco, which was approved in 2012. It is the first drug that treats the underlying cause of cystic fibrosis rather than just the symptoms, slowing the rate of decline in lung function. Vertex, which is based in Boston, is testing two other drugs that have also shown promise in clinical trials. Wall Street analysts project that the family of medicines could eventually have sales of several billion dollars a year.
Rather than receiving royalties on sales of those drugs over the next two decades, the foundation decided to cash in now so it could have more money to put into research quickly. So it sold the rights to future royalties to Royalty Pharma, an investment firm that specializes in buying such assets, for a one-time $3.3 billion payment. Royalty will profit if, over time, the royalties amount to more than it paid.
Executives at Royalty Pharma say it is by far the largest payment ever made for pharmaceutical royalties. The next-biggest transactions were worth around $700 million each, including one in which Royalty Pharma acquired half the future royalties owed to Northwestern University for the invention of the pain and epilepsy drug Lyrica.
Pablo Legorreta, chief executive of Royalty Pharma, said, “This will demonstrate to many research organizations that by getting the royalties they can fuel their future investments.”
In the past, disease foundations might have supported only academic research. But many are now following the lead of the Cystic Fibrosis Foundation in getting involved with companies — an approach often called venture philanthropy.
“If we wanted to get therapies to patients faster, we needed to be partnering with the industry that actually brings those drugs to patients,” said Louis J. DeGennaro, chief executive of the Leukemia & Lymphoma Society. Other organizations pursuing venture philanthropy include JDRF (formerly the Juvenile Diabetes Research Foundation), the National Multiple Sclerosis Society and some groups involved in muscular dystrophy.
Some organizations do not ask for royalties, saying that the return they seek is merely getting a drug to market. But increasingly they are asking for financial returns as well.
Dr. DeGennaro said that, to his knowledge, financial returns for his society and others had so far been modest. “That’s remarkable news,” he said of the payout to the Cystic Fibrosis Foundation.
Dr. Michael Boyle, director of the adult cystic fibrosis program at Johns Hopkins University, which receives financing from the foundation, said it made sense that some of the profit from drugs should benefit patients, not only drug companies.
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Norman
1 hour ago
In 2012, 24 US doctors and researchers involved in the development of the drug wrote to Vertex, “We have invested our lives and careers...
Charlie
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Isn't the bigger issue here the $300,000 annual cost to have the drug administered? We should be focused on that. Our nation has been...
WillT
1 hour ago
If the CF foundation was interested in helping patients suffering from the disease, why not forgo a royalty payout in favor of a more...
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“I think it’s going to transform the whole C.F. community,” and lead to better care, he said.
One risk for the foundation is that donors will see less need to give money or to organize fund-raising events. The foundation raises about $130 million a year from donations.
Dr. Beall said much more needed to be done in the fight against cystic fibrosis. Kalydeco works only for a small fraction of patients, those with particular genetic mutations. And it must be taken every day. The foundation’s ultimate goal is a one-time treatment that can cure everyone.
Experts in the disease say the foundation has helped sponsor much of the work that since 1980 has roughly doubled the life expectancy for those with cystic fibrosis to around 40 years. About 30,000 Americans have the inherited disease. The foundation has sponsored academic research and has provided about $400 million to three dozen companies, Dr. Beall said.
The foundation gave its first money in the late 1990s to Aurora Biosciences, a small San Diego company, to see if its technology for screening compounds could find drugs that might work for cystic fibrosis.
Vertex acquired Aurora in 2001 for the screening technology. Cystic fibrosis was not a priority, and Vertex officials have said the program might have been dropped if the foundation had not been paying for it.
Today Vertex counts on cystic fibrosis for its current sales and future prospects. The foundation is entitled to royalties ranging from a single-digit to a low-double-digit percentage of sales of the cystic fibrosis drugs. The $3.3 billion it is getting from Royalty Pharma is in addition to $400 million it has already received from another party, unnamed, for partial royalty rights.
Dr. Beall said the foundation would establish an endowment but that it was too soon to say how much its research spending would increase.
“This was a dramatic example of risk-taking that has paid off in a remarkable way,” said Dr. Francis S. Collins, the director of the National Institutes of Health, who co-discovered the gene behind cystic fibrosis in 1989 while at the University of Michigan.