Charities Move Into Role Traditionally Held by Drug Companies

Roughly 30,000 people in the United States have cystic fibrosis. Worldwide the total is just 70,000.

Such a small number of potential customers means big pharmaceutical companies can’t afford the risk of spending large amounts of money to conduct research that may or may not lead to new treatments.

Which is why the Cystic Fibrosis Foundation decided to get into the drug-development business itself, and now many other health charities are following its lead.

Since 1998, the Bethesda, Md., charity has invested nearly $260-million in biotechnology companies to pay for early research for new treatments for cystic fibrosis.

The move marked a shift for the group, which for decades had instead focused on giving research grants almost exclusively to university scientists investigating the chronic disease, in which the body produces thick, sticky mucus that clogs the lungs and makes it difficult for the digestive system to break down and absorb food.

But when the identification of the cystic-fibrosis gene didn’t lead to new treatments for the disease, the organization decided to change direction.

The medical returns on the group’s investments in drug research have been considerable: Six new treatments the organization has invested in have been approved to treat cystic fibrosis, and 19 potential therapies are making their way through clinical trials.

“It’s mind-boggling,” says Robert J. Beall, chief executive of the Cystic Fibrosis Foundation. “We’ve got more drugs in clinical trials now than we have had in the history of the disease.”

So far the organization has received a financial return on only one of the treatments it has invested in. After the therapy was approved by the Food and Drug Administration, the charity sold its royalty rights for $17-million.

Mr. Beall says that the Cystic Fibrosis Foundation will receive royalty income on any of the drugs that are now being tested and are ultimately approved.

“It’s a modest income, but it’s going to allow us to sustain the momentum and hopefully move forward,” he says.

‘More Freedom to Act’

Inspired by the charity’s success, other health organizations, including the Juvenile Diabetes Research Foundation, Michael J. Fox Foundation for Parkinson’s Research, Muscular Dystrophy Association, and National Multiple Sclerosis Society, have started drug-development efforts of their own.

The amount of money that nonprofit organizations invest in drug development is very small compared with other sources of capital, such as the pharmaceutical industry, says Kristin Schneeman, program director at FasterCures, a project of the Milken Institute that seeks to accelerate the discovery of new medical treatments.

But because charities are driven by a desire to help patients without regard for profits, they can be more flexible in how they invest their money.

“They have a lot more freedom to act,” says Ms. Schneeman. “They have a lot less resources, but the fact is that they can make their own rules about how they do their business.”

Developing new drugs—even just the initial research—is expensive.

A collaboration between the Cystic Fibrosis Foundation and Vertex Pharmaceuticals, a biotechnology company in Cambridge, Mass., has led to two potential treatments currently in clinical trials.

If successful, the drug therapies would correct the function of a defective protein made by the cystic-fibrosis gene, allowing chloride and salt to move properly in and out of the cells lining the lungs and other vital organs.

The charity paid for a screening program in which Aurora Biosciences, which was later bought by Vertex, tested a large number of compounds looking for ones that had potential in the fight against cystic fibrosis. What started out as a $2-million investment in time grew to $40-million and then $76-million.

But it was money well spent, says Mr. Beall.

Once the two compounds were deemed to be good candidates, he says, the company was then willing to put up the hundreds of millions of dollars necessary to move the therapies forward.

If approved, the drug treatments could make a big difference to people with cystic fibrosis.

“These could be disease changing,” says Mr. Beall. For the first time, there would be a drug that doesn’t just treat the symptoms of cystic fibrosis. “We’re talking about a small molecule that is directed toward treating the basic defect.”

Financial Health

With such large amounts of money at stake, the organization has to evaluate a biotechnology company’s financial health as carefully as its science, a difficult process further complicated by the recession, according to Mr. Beall.

“The biotech industry is fairly precarious,” he says. “Venture capital money has been weak over the last two or three years.”

The Cystic Fibrosis Foundation invested $19-million in Altus Pharmaceuticals to devise a synthetic version of pancreatic enzymes to help people with cystic fibrosis better absorb vitamins and fat.

The product made it most of the way through clinical trials, but the Waltham, Mass., company couldn’t raise the additional money for the final phase of trials and to apply for FDA approval and take the treatment to market.

The charity had to exercise its right, written into its contract with Altus, to take control of the product.

Last year the nonprofit organization announced that it would invest up to $3-million in Alnara Pharmaceuticals, which will complete the long-term safety study of the therapy and the steps necessary for FDA approval.

Health charities that get into the game need to understand that not every deal will succeed, says Mr. Beall.

“It’s not for the faint of heart,” he says. “You are making shots on goal. You hope more work than don’t work.”