$3.3 billion—that’s the sum the Cystic Fibrosis Foundation garnered in its recent sale of its royalty rights for a new drug, Kalydeco.
Kalydeco is a game-changing drug, the first to address the root cause of cystic fibrosis. But this deal is a game-changer too: it demonstrates that disease-focused nonprofits can make huge returns by investing in research not just by government and academics but by pharmaceutical companies.
Nonprofits’ investment in companies to explore new treatment prospects is sometimes called “venture philanthropy,” modeled after the venture capitalists’ investments in new businesses. The CF Foundation put $150 million into the drug company Vertex to develop new drugs and retained rights to royalties from drug sales. In last month’s deal, the CF Foundation sold those rights to a New York investment firm that buys up rights to drug royalties. Some might wonder if this set of transactions is truly best described as philanthropy, but the CF Foundation says this sale epitomizes its “highly successful efforts in venture philanthropy” that have brought it closer to a cure for cystic fibrosis.
Critics of the CF Foundation charged that this rosy presentation of collaboration the Foundation and “big pharma” is hardly philanthropic. They see an unholy alliance that has led the CF Foundation to prefer high prices over affordable prices for the very patients the foundation is supposed to serve.
I’m not an expert in financial affairs, but it would seem that the sale of the royalty rights for Kalydeco would minimize the foundation’s future financial conflicts over the cost of the drug and interest in high prices.
The foundation’s president and CEO, Robert J. Beall, dismissed the supposition that the Foundation was interested in high prices. Speaking to Bloomberg News, Beall asserted:
We would give up our royalties in a second to drive down the prices…
Others don’t see an unholy alliance and argue, to the contrary, that the high cost of Kalydeco raises ethical issues about access and affordability that are surely better to face than the ethical issues raised by venture philanthropy. As one doctor who treats cystic fibrosis patients put it:
Without this relationship [between the CF Foundation and the drug company Vertex] this drug is not being developed. And we are maybe not where we are right now, looking at this ethical dilemma of pricing and availability to patients.
It seems that none of these ethical concerns can be cut-and-dried. Just considering concerns about prices, the investment firm that bought the royalty rights can expect to recoup its $3.3 billion investment only through drug sales at prices that will yield billions in royalties—and the CF Foundation benefited from the expectation of those prices.
But when the president and CEO of the Leukemia & Lymphoma Society described the CF Foundations’ gains as “remarkable news,” you can bet he was wondering how his organization could achieve similar results. As he went on to say:
If we wanted to get therapies to patients faster, we needed to be partnering with the industry that actually brings those drugs to patients.
I think we can be looking ahead to more big paydays—for nonprofits and, more importantly, for patients.