Disease Charities Pursue Cures by Investing in Drug Start-Ups

http://online.wsj.com/article/SB123422285836865433.html


We are so fortunate with how innovative the CFF has been... so many other diseases aren't as fortunate

By KEITH J. WINSTEIN

Disease philanthropy has entered the for-profit world.

Until recently, groups like the Juvenile Diabetes Research Foundation and the National Multiple Sclerosis Society spent the money they raised from donors on counseling patients, advocacy in Washington and funding university researchers in the hopes they would discover cures.

But charities, increasingly frustrated with the slow emergence of new disease treatments, are pouring millions of dollars into pharmaceutical start-ups to bring new drugs to market. Starting with a $76 million partnership between Vertex Pharmaceuticals Inc. and the Cystic Fibrosis Foundation, the practice has become an important new source of capital for small drug companies.

It also creates potential conflicts for charities, which are called upon for impartial advice to patients but could end up with financial stakes in high-price treatments. Such investments are a "potential minefield," says Aaron Kesselheim, a doctor at Brigham and Women's Hospital in Boston who studies health policy.

Last month, the Leukemia & Lymphoma Society, a blood-cancer charity, announced a $3.7 investment in closely held Celator Pharmaceuticals Inc., of Princeton, N.J. The charity will fund a midstage clinical trial on a drug to fight acute myeloid leukemia, a blood cancer that kills about 9,000 people a year in the U.S.

In December, an investment arm of the National Multiple Sclerosis Society paid $1 million in exchange for stock warrants in Apitope International NV, a closely held Belgian company. Apitope then sold the rights to its MS drug -- still in early laboratory testing -- to the German pharmaceutical giant Merck KGaA.

All told, about a dozen disease-based charities recently have started funding early-stage drug research at start-up companies -- usually in exchange for royalties or stock options. Most of the charities say they were inspired by the success of the Cystic Fibrosis Foundation in spurring numerous companies to work on potential treatments for the rare genetic disease that kills most patients before the age of 40.

"Academics are really not good at taking good understandings of the basic defect and translating it to new therapies," says Robert Beall, the Cystic Fibrosis Foundation's chief executive. "We had to get the drug companies to start to get involved with cystic fibrosis."

Since 1999, the foundation has paid for most of Vertex's research on cystic fibrosis. In exchange, the foundation will receive an unspecified percentage of Vertex's sales on cystic-fibrosis drugs. Joshua Boger, Vertex's chief executive, says the fibrosis foundation's partnership had turned his company -- whose main focus is a drug candidate to treat hepatitis C -- into advocates for curing the disease.

No drug has reached the market, but in a midstage clinical trial last year, a Vertex pill known as VX-770 improved lung function in a type of cystic fibrosis. Vertex says it plans to start a final-stage study this year that could lead to approval by the Food and Drug Administration. Another Vertex pill, aimed at about 60,000 fibrosis patients, is in earlier testing.

Such investments complicate the role of disease-focused charities. Normally, a patient-advocacy group might be expected to argue for lower prices for pharmaceuticals -- but a group with a royalty stake or equity in a drug maker has the opposite interest as well.

Disease-focused charities also often give recommendations to doctors, patients and the FDA. The fibrosis foundation runs a pharmacy network to dispense drugs, and accredits treatment centers. The impartiality of such activities might be questioned if a group had a stake in one of several competing drugs, says Dr. Kesselheim.

"Equity relationships can create substantial unconscious biases in the way that these foundations conduct their business that might lead them away from the ideal public-health strategies," he says.

"For example, a generic drug might be really useful for patients with MS, or epilepsy, and because the foundation has these sort of close ties with for-profit companies, then they might have subconscious biases against advocating for those sorts of outcomes that might lower costs."

Several charities said they were sensitive to the issue. "I look forward to the day when there are so many things on the market that it becomes a big problem for us," said Timothy Coetzee, who runs the MS society's investment arm. "We talked about, 'How would we feel if we find a blockbuster drug, but it costs $100,000 for the treatment?'," he said. "That is a tricky situation."

Dr. Coetzee said the foundation would probably sell its stake to avoid a conflict of interest. "The financial types will go, 'Well, why are you sacrificing huge royalties?," he said, but "knowing my board, we would exit out so we could avoid that."

Dr. Beall said the fibrosis foundation has an unwritten policy to sell its stake in a drug as soon as it begins generating royalties, and has done this once already. "Our goal is to do anything that would minimize a conflict of interest and work to get these things off our books," he said. "I don't want to really hold the royalty rights to anything."