Charities and the lure of capitalism

Abstract

Many charities employ funding schemes from venture capital to accelerate research and drug development for rare diseases. Though it has yielded new treatments, venture philanthropy prompts raises criticism about the role of charities in marketing and pricing their drugs.

JDRF, formerly the Juvenile Diabetes Research Foundation, in New York, NY, USA, is one of several charities that have taken philanthropy to a new level. The foundation, using a new funding approach often referred to as venture philanthropy, teamed up with KalVista Pharmaceuticals to develop plasma kallikrein inhibitors to treat diabetic macular edema and hereditary angioedema. In the JDRF model, partner companies match the foundation's funds for specific research projects on treating type 1 diabetes (T1D) and its complications carried out by the company. “The Phase 1 US clinical study, which we co‐funded with the company, produced positive results and key proof‐of‐concept data”, said Michael Batten, director of research business development at JDRF, which invested US$2.2 million in this project. He added that the data generated by the co‐funded study allowed KalVista to raise US$33 million in their next round of funding.

… JDRF is part of a growing movement amongst charities whose patients have been frustrated by seemingly glacier‐slow academic research on diseases and who want to control research on new treatments…

Batten said that the foundation's goal during the past decade has been to stimulate research and interest within the commercial sector to address T1D, which represents only around 5%[Link] of the diabetes population. He explained that the foundation's investment in companies aims to “de‐risk” research and development in T1D therapies, particularly in the early stages where the risk of failure is highest. JDRF asks for a modest payback from their for‐profit partners in the form of commercial royalties upon approval of a therapy, which the foundation uses to further support its mission to cure, prevent, and treat T1D, which, unlike type 2 diabetes, starts as early as in childhood. According to Batten, JDRF is part of a growing movement among charities whose patients have been frustrated by seemingly glacier‐slow academic research on diseases and who want to control research on new treatments to some extent.

A new funding model

Philanthropy to support research or other noble causes has its roots in the early 20^th century when Scottish‐American steel tycoon Andrew Carnegie created the Carnegie Foundation to “promote the advancement and diffusion of knowledge and understanding”. But the idea of venture philanthropy—non‐profits investing in for‐profit companies for a social good—started only in the late 1990s to support education and housing, and, was more recently, taken up by disease‐related charities. This new model for developing drugs for rare diseases independent of governments and industry has already led to new treatments but it has not been without criticism of the increasingly tight relationship between non‐profit charities and for‐profit companies.

According to Alexandra Graddy‐Reed, a researcher at the Center on Philanthropy & Public Policy at the University of Southern California, venture philanthropy is not identical to venture capital, but borrows some of its principles. “I define it as a philanthropic strategy that aims making grants to be more like an investment, so the funder would have a more involved relationship with the grantee, provide a more substantial amount of funding to cover the work to be done, require milestones or impact assessment along the way. Evaluation and measurement are key”, she explained. Venture philanthropy is especially productive for charities that focus on rare diseases, which receive little research funding by governments and little attention from pharmaceutical companies. “Venture philanthropy is a good strategy if you can incentivize companies to do the research that has a lot of potential”, Graddy‐Reed said.

Venture philanthropy is especially productive for charities that focus on rare diseases, which rarely receive research funding by governments and little attention from pharmaceutical companies

Liz Philpots, Head of Research and Impact at the Association of Medical Research Charities (AMRC) in London, UK, which represents 138 large and small health British charities, said the idea of charities investing in drug development is relatively newer in Europe than in the USA. The European charity sector also is proportionally smaller, she added. Research!America, which advocates for health research funding, reported that the total expenditure for US medical and health R&D was US$158.7 billion in 2015. Industry invested US$102.7 billion, US federal agencies another $35.9 billion, with US$29.6 billion coming from the National Institutes of Health. Non‐profit foundations contributed US$4.7 billion. Comparable numbers do not exist for the EU where many foundations also pursue different approaches to health. “While most charities in Europe focus on providing services or advocating for patients, charities in the UK, Netherlands and Ireland fund basic and clinical research in all areas of health”, Philpots added.

A partnership between a charity and a major pharmaceutical company has also led to one of the most sophisticated treatments to cure ADA‐SCID

Philpots also noted that a growing number of charities expect that their support leads to new drug targets or treatments and use a variety of approaches to accelerate drug development. On one end are grants for basic research on rare diseases without expectations for new therapies. On the other end is venture philanthropy with milestone payments and even return on investment to fund future research. “Rather than get an academic to do the research, the charities will often get a company to do it”, Philpots added. She noted that many of her organization's members are partnering with major drug companies, such as GlaxoSmithKline, Pfizer, or AstraZeneca.

Profits for charities

The Cystic Fibrosis Foundation has been the poster child for venture philanthropy. The US charity made a US$3.3 billion windfall in 2014 by selling royalties for the drugs Kalydeco (ivacaftor), Orkambi (lumacaftor), and other potential therapies that were developed by Vertex Pharmaceuticals with foundation support. In 2012, the FDA approved Kalydeco, the first disease‐modifying drug for cystic fibrosis, a heritable disease that affects about 30,000 Americans. “(Kalydeco) is the most well‐known of our investments. But it is far from our only success: nearly every CF drug available today was made possible because of the foundation's investments in drug discovery and development”, said Preston W. Campbell III, President and CEO of the Cystic Fibrosis Foundation. “We continue to invest in new research to discover and develop drugs that will help more people with CF, including projects with Genzyme focused on next‐generation modulators, and with Editas to explore gene editing”.

The foundation pioneered venture philanthropy because the pharmaceutical industry did not have enough financial incentives to invest billions of dollars and years of research to develop drugs for diseases such as CF that affect only a small patient population. “The foundation's venture philanthropy model was born out of this need”, Campbell said. “By providing upfront funding and reducing financial risk for pharmaceutical companies, the CF Foundation has made sure that this rare disease has not been ignored”. It invested US$150 million in research projects with Vertex and its predecessor Aurora. Their funding led to Kalyeco and Orkambi, a combination of lumacaftor and ivacaftor, and other potential treatments, which the foundation estimates benefits approximately 8% of CF patients. In 2015, the FDA approved Orkambi as the first drug for treating patients who have two copies of the F508del mutation, the most common cause of CF. However, treatments come at a price: Kalydeco costs $330,000 per year per patient, while Orkambi sells for US$266,000 per year.

The success story with Kalydeco inspired many other charities to employ venture philanthropy. Steve Ford, CEO of Parkinson's UK, said his charity until recently followed the traditional philanthropy model: The public made donations and the organization spent them through grants. But frustrated donors on both sides of the Atlantic have become more insistent that they see new drugs and treatments come from their money. Hence, Ford, a former executive with the National Health Service, said Parkinson's UK adopted a venture philanthropy approach to “bridge the so‐called Valley of Death” between basic and applied research, where most ideas for new medications are lost.

Ford said Parkinson's UK is aiming to increase its funds for research to £11 million by 2020 from £5 million. It has also organized a drug discovery program using what it calls “virtual biotech”. The charity provided £2.5 million to study whether the growth factor GDNF (glial cell‐derived neurotrophic) could slow the advance of Parkinson's, a progressive neurological disease caused by a deficiency of dopamine. “We started with a grant to a hospital—North Bristol Trust—with no sense of any kind of returns at all. But then we realized that actually that was a bit naïve”, Ford said. “So we got an agreement from the biotech company [MedGenesis Therapeutix, London] which had provided the drugs that if the trial is successful they would give back the money that we had invested in the project”. In this case, the charity does not seek profit, but only asked for its investment to be returned should a successful drug be developed.

Big pharma's contributions

A partnership between a charity and a major pharmaceutical company has also led to one of the most sophisticated treatments to cure ADA‐SCID (Severe Combined Immunodeficiency due to Adenosine Deaminase deficiency), a rare disorder that prevents children from developing a healthy immune system, which is usually fatal within the first year of life. About 30 children in Europe and the USA are born each year with the disease. San Raffaele Telethon Institute for Gene Therapy, a joint operation by Ospedale San Raffaele, a Milan hospital where complex diseases are treated, and Fondazione Telethon, an Italian charity, developed Strimvelis, a gene therapy to cure ADA‐SCID. But the non‐profits lacked the experience in getting regulatory approval and bringing the treatment to the market, and so entered into an alliance with GSK.

The Grace Science Foundation expects researchers to share information with labs that otherwise might be their rivals to accelerate drug development

In 2010, Telethon finalized an agreement that grants an exclusive license to GSK on the ADA‐SCID program and options on six additional ex vivo stem cell therapies for other rare disorders. “The agreement foresees an upfront payment of €10 million and further payments upon successful completion of certain development milestones and royalties”, commented Francesca Pasinelli, Director General of Telethon. She added that the deal creates “a virtuous circle to promote innovation which can be delivered—via the pharmaceutical industry—to patients who may benefit from it”.

GSK set the price at €594,000. Pasinelli said Telethon played no role in determining the price. Sven Kili, Vice President and Head of Cell & Gene Therapy Development at GSK, explained the high price tag by manufacturing costs. “[We had to price] this low enough that we were confident that people around the world would able to have access to it”, he said. By way of comparison, Kalydeco, which costs $330,000 per year per patient, has to be taken throughout the patient's life. Strimvelis provides a one‐time corrective treatment, which restores the ADA gene to normal function. Kili said Italian regulatory officials readily accepted the price. “I think most people, regulators included, were expecting us to charge a substantially higher amount than we did. In determining our price, we had consulted a number of reimbursement bodies across Europe. The key was to make the treatment cost accessible through established payer mechanisms and to price it responsibly, to ensure that European patients with this ultra‐rare disease can access and benefit from it” he said.

One sticking point is indeed whether a charity should play any role in setting the price on the drug

Thus far, Strimvelis is only available in Italy, but approvals will be sought in the USA and elsewhere, Kili said, adding that this project will lead to more therapies as GSK and Telethon have developed a platform to develop cures for other rare genetic conditions, including Wiskott–Aldrich syndrome and metachromatic leukodystrophy.

Kili does not consider the cooperation with Telethon venture philanthropy because GSK has been the financial sponsor on the development of Strimvelis from April 2012 onward. Rather, he called it a “strategic collaboration”. “The benefits are that both groups bring their own expertise to the partnership”, he said, “They brought their phenomenal science. GSK brought our ability to scale up and turn it into a medicine, our ability to run and help set up clinical trials, our expertise in working with regulatory authorities, our sales and marketing ability to make the therapy available to more patients”.

The start‐up model

Grace Wilsey was born seven years ago with a rare genetic disorder, NGLY1 deficiency. Her body produces an insufficient amount of N‐glycanase, an enzyme encoded by the NGLY1 gene, which causes seizures, tremors, ataxia, sleep apnea, liver dysfunction, alacrima, the inability to produce tears to keep the eye moist, and scoliosis. “It's a terrible disease”, said Matt Wilsey, Grace's father. “What I tell people often is that the lights are on in the house, but no one is answering the door. She has little moments where I say to myself, ‘Oh, wow, she totally understands something.’ And then the rest of the day I think, ‘I'm not sure she understands anything I'm saying.’ She can't communicate, which is the worst part about the disease”.

Initially, the Wilseys and their friends started supporting research at a handful of academic institutions to understand the disease and look for potential cures. But Wilsey, who has been involved in three startups, one of which was acquired by Twitter, saw that a lot more needed to be done. He and his wife Kristen started the Grace Science Foundation, based on the start‐up model used in Silicon Valley. “It's lean. It's efficient. It's very, very flat. There's no hierarchy. We want to iterate very quickly. We don't look at failure as a bad thing”, Wilsey said. The foundation has raised US$6 million and recruited more than 100 scientists from around the world to search for treatments and ultimately a cure. Wilsey said patients’ families are heavily involved so researchers know firsthand what patients are experiencing.

The Grace Science Foundation expects researchers to share information with laboratories that otherwise might be their rivals to accelerate drug development. Molecular biologist Lars Steinmetz, co‐director of the Stanford Genome Technology Center, and group leader and senior scientist at the European Molecular Biology Laboratory, has worked with them for the past four years. He believes that rare diseases such as NGYL1 call for “new paradigms in how science is done and drugs are developed. Large pharmaceutical companies are unlikely to invest in diseases like NGLY1 deficiency because there are only very few patients”. Steinmetz said the requirement to collaborate among multiple labs enables research to proceed much faster than it would with independent groups that do not communicate with each another. Nonetheless, “[w]hen you come into it from an academic perspective, you have tools that you can launch against the problem, but you cannot replace an industrial setting to bring a drug to market and to do all the controlled experiments and the clinical trials that would be necessary. So that will eventually require a commercial partner”, he said. Indeed, Wilsey plans to launch a drug company—separate from the foundation to avoid conflicts of interest—to develop medications for NGYL1 and related diseases.

Conflicts of interest

Yet, the concept and practice of venture philanthropy raises some questions. Sociologist and ethicist Eric Campbell, Director of Research at the Mongan Institute for Health Policy at Massachusetts General Hospital in Boston, MA, finds venture philanthropy a contradiction in terms. “The notion of venture philanthropy in some ways is oxymoronic. It's like being an amateur‐pro athlete. You're either in a venture‐related business and the goal of that is to make money or you're in a philanthropy. But putting those two together doesn't make much sense”, he said.

We can't keep charging astronomical sums of money for rare disease drugs and expect to treat all 7,000 rare diseases and all 30 million people in the United States

Campbell added that engaging in venture philanthropy will likely change their motivations because they are financially interested in the outcome. “In my opinion, they should be treated no different than a drug company”, he said. Moreover, just like any pharmaceutical companies, they rarely will win the lottery, as the Cystic Fibrosis Foundation did. “These organisations need to think very hard about their likelihood of a success, which to be honest is small. Drug companies that develop drugs for a living experience lots of failures in developing drugs. They rarely hit home runs”.

Paul Quinton has a unique perspective as a scientist specializing in CF at the University of California at San Diego, but also a patient. Quinton, formerly a scientific advisor to the Cystic Fibrosis Foundation, said he was extremely grateful for the work the foundation has done to improve the health and extend the lifespan of patients. At age 72, “I'm twice as old as I'm supposed to be”, he joked. But he is troubled by the price tag for Orkambi and Kalydeco. “That's a lot of people without any disease paying insurance to cover my drug cost. I feel a little guilty about that to tell you the truth. I don't think I'm worth $300,000 a year to society”, Quinton said. “So why should everybody else be burdened with making sure that the CEOs, the CFOs, and Executive Officers are making tens of millions of dollars a year in personal compensation from the cost of our drugs?” Quinton said the high cost for such drugs is unsustainable. “Where will we get the money? And an even better question is where is all that money going to go?”

Moreover, the foundation's investments create a potential conflict for a charity. “It was like a doctor owning a drug company that makes drugs he then prescribes to his patients. He can't do that. That's a conflict of interest. So the CF Foundation was somewhat in the same situation in owning part of a company that provides drugs to their patients”, he explained, adding that charities that get involved in drug development are redefining altruism. “Is altruism for sale? Did the Cystic Fibrosis Foundation sell altruism because the money that they had to invest in Vertex/Aurora came from people who were altruistic?” he commented. “The parents and the friends and the members of the CF community raised money and gave their time and money to the foundation. Is it still altruistic to pursue venture capitalism that profits a few with such extravagant costs to others? It is a rough question”.

One sticking point is indeed whether a charity should play any role in setting the price on the drug. Philpots is skeptical about charities being able to advocate for lower prices even on medications they helped develop. “We know that as patient organisations, we can be a bit more emotional about affordability as we are all too aware how much our patients desperately need new treatments. But we also know emotional arguments to industry won't work”, she said.

The question of affordability

Sharon Terry is the mother of two children with pseudoxanthoma elasticum (PXE), a progressive disorder characterized by the mineralization of some tissue, and co‐founder of PXE International, a research advocacy organization. Terry, who has a theology degree, and her husband Pat, a former construction manager, borrowed laboratory space at Harvard University and, tutored by postdocs, discovered the gene that causes PXE. They subsequently developed a diagnostic test, created a research consortium, and have started clinical trials.

Terry is also president of the Genetic Alliance, a Washington, DC‐based network of organizations aiming to improve the lives of people with common and rare diseases, and critical of drug companies interested in profiting from orphan diseases and the advocacy groups who support these efforts with donated funds. “Most drug companies today, even the very large pharmaceutical companies, have opened rare disease divisions. It's the thing to do now. And the reason they're doing it is because their business model for blockbuster drugs has failed”, she said. “They are looking at the rare disease market with big eyes because they see that these drugs can garner hundreds of thousands of dollars a year per patient”.

Terry explained that drug prices for these medicines will threaten public health care. “We can't keep charging astronomical sums of money for rare disease drugs and expect to treat all 7,000 rare diseases and all 30 million people in the United States”, she maintained. “I think this will cause a major collapse of health care resources”. Terry thus thinks that charities ought to have a hand in setting the price as part of their advocacy mission. “In our case, for example, we're not recusing ourselves”, she said. “PXE International advocates with the drug companies that we're working with, ‘When it comes time to set price points, we're looking for as much affordable drug as we can possibly can get.’ And we're not going to work with a company that's going to go for a killing”.

Despite the new financial arrangements, many charities say they do not expect to abandon basic research. “We will continue to fund basic science through more traditional mechanisms—this new approach only applies to some of our work”, Ford commented. Pasinelli said Fondazione Telethon is not backing away from fundamental research either, which is the basis upon which future therapy will be developed. “Furthermore, development of new therapies through industrial partnerships on the long term generates financial returns that Telethon can reinvest in research”, she said. This could, as Campbell suggested, “create resources that flow back into academic institutions”.