Venture Philanthropy and Drug Development

Historically, disease foundations provide funding for academic research toward treatment or cures. However, a different method of providing support directly to companies, called venture philanthropy, has begun to gain attention.

The nonprofit Cystic Fibrosis Foundation began providing funding to a small biotech company to develop drugs for treating the disease about 15 years ago. The investment, totaling $150 million, appears to have paid off in more ways than one. The biotech company, Vertex Pharmaceuticals, eventually developed Kalydeco, the first drug that treats the underlying cause of cystic fibrosis and slows the rate of decline in lung function. The foundation announced in November that it will receive a one-time payment of $3.3 billion from selling the rights to the royalties to Kalydeco and other drugs resulting from their financial support.

Venture philanthropy has its critics and risks. Generally, disease foundations raise money through donations but people might be less willing to donate money or time for fund-raising if they think the foundations can self-finance through returns on investment. Additionally, critics point to potential conflicts of interest such as the high cost of drugs developed by some of these venture philanthropy partnerships. The price of the cystic fibrosis drug, Kalydeco, is $300,000 per year.

There are definite benefits to the practice as well. Disease foundations are singularly focused on the real-life impact on patients. That means they’re more able to invest in research for treatments or cures that other companies or funding entities might find too risky. Not all nonprofits that invest in companies require royalties, but the ones that do are then able to take those payments and reinvest in more development. The practice seems to be gaining traction.