Economy Makes Disease Foundations Get Choosier

12/15/08

The biotech industry is always on the lookout for cash, so one of the more positive developments of recent years has been the entrance of disease foundations into the pool of potential investors. Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ:VRTX), for one, has said that their efforts to develop VX-770 for treating cystic fibrosis wouldn’t be possible without the support of the Cystic Fibrosis Foundation. But officials at disease foundations say the current financial morass has impacted their own budgets, and the groups are going to be choosier about which companies get their coveted investments.

For sure, disease groups like the CF Foundation, the Juvenile Diabetes Research Foundation, and the Michael J. Fox Foundation for Parkinson’s Research plan to continue to support private companies working to bring treatments to the marketplace. But disease foundations, like much of the field of biotech investors, are subject to the realities of the recession.

“I think we are finding that we are saying ‘no’ more often,” said Robert Beall, CEO of the Bethesda, MD-based CF Foundation, during a visit to Boston last week for the Massachusetts Biotechnology Council’s investors’ forum. He added that the economic climate and the high cost of drug development have caused his organization to fund biotechs’ CF drug programs through late-stage clinical trials, and his group is being careful to invest in companies that have the finances to advance projects with their own money. “Every voluntary health organization is going to have to establish priorities.”

Unlike venture capitalists, which invest in biotech firms to gain equity stakes, disease foundations tend to back biotechs’ for specific programs with direct benefits to its constituents, the patients. For biotechs, the foundation money often provides capital that boosts the value of the company without adding a new supply of shares that can dilute the value of existing ones. Plus, the relationships with the patient groups bring firms all-important access to experts in the field and patients for clinical trials. In return for investments, disease foundations hope to get new treatments for its patients and perhaps some financial return such as royalties on drug sales. But the business model relies in part on biotechs having the financial means to allocate their own resources to these programs, and that has become tougher in this economy.

Allison Formal, vice president of research and business development for the Leukemia & Lymphoma Society, noted that her group has seen a … Next Page »

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