The New Power Players in Drug R&D Are Wearing Bright T-Shirts

10/29/12Follow @xconomy

See all those people signing up for the 10K charity run/walk in your hometown this weekend? Those folks in your Facebook photo album, decked out with colorful T-shirts and uplifting messages about fighting some disease?

You could easily have written off many of these nonprofit fundraisers a few years ago as well-intended, but ultimately ineffective, efforts for coming up with cures. The real action, you could have argued, was only happening in the investor-driven, profit-motivated world of biotech and pharmaceutical companies.

But the gap between the nonprofit and for-profit worlds is narrowing, and it’s a good thing. Those foundations raising money in drips and drops at the local 10K are starting to become much less doe-eyed, more sophisticated agents in the quest to develop new medicines. Instead of just raising money, giving it away to academic scientists, and hoping cures would come out the other end, many foundations have wised up. They know that isn’t how the world really works. And at a time when so many companies are starving for cash to advance their best drug R&D ideas, many nonprofit foundations know they can make an impact by cleverly applying their own blend of money, networks of patients, and sincere advocacy.

Look at what’s happened this year. The Cystic Fibrosis Foundation has basically been on a yearlong victory tour, after it got the credit it deserved for helping Vertex Pharmaceuticals develop the groundbreaking new CF drug ivacaftor (Kalydeco). By mobilizing $75 million of its own money, its network of researchers, its network of patients, and its own organizational moxie, the CF Foundation helped to create a new drug that profit-motivated investors never would have supported. The market looked too small. But now that the drug has been approved by the FDA (and incidentally, the market actually looks pretty big) Kalydeco has become the key case study many other foundations want to learn from. Increasingly, foundations want to say that they, too, financed not just great research, but great products that came from the research.

Nobody has a better handle on this growing trend than the Washington, D.C.-based advocacy group FasterCures. This nonprofit serves as a convener for the various disease foundations who are hoping to be like the CF Foundation. FasterCures now counts 55 foundations in the U.S. that actively form partnerships with biotech and pharma companies. The foundations now collectively put in an estimated $500 million a year into drug R&D programs. And you can expect the number of foundations getting into this “venture philanthropy” business to grow, because many traditional biotech venture capital firms are dying, and startups are looking to find money anywhere they can. Sometimes these foundations give their money in simple grants to companies, sometimes they get equity stakes, and sometimes they strike deals to get royalties from sales of products they support.

Margaret Anderson, executive director of FasterCures

“These foundations are small and scrappy on one hand, but they are mighty and effective on the other hand,” says Margaret Anderson, the executive director of FasterCures. “When you talk to Big Pharma, it’s been a bit humbling for a lot of them to look at (CEO) Bob Beall and the CF Foundation, and say ‘here’s a nonprofit that raises money through walkathons, and look at what they did.’ It’s a profound example of how the system can work. It’s gotten people excited. It’s enabled people to think outside the box.”

Conventional thinking at foundations has gone something like this: It was mostly about raising money for a good cause, giving it away to top-notch university researchers like the National Institutes of Health does, and hope for a discovery. If that discovery came, there was faith in the free markets, which logically ought to pick up on, say, a discovery in the field of Parkinson’s disease and attempt to turn it into a moneymaking product.

Some foundations, sadly, still cling to these outdated notions. But as Big Pharma and biotech company R&D operations have suffered so many expensive failures, companies have … Next Page »

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