麻豆传媒

When a disease-related charity becomes a venture capitalist, count the pharmaceutical industry among the winners.

To illustrate, consider the 'breakthrough' cystic fibrosis drug Kalydeco (ivacaftor), which is marketed by Vertex Pharmaceuticals.

Vertex developed the drug with the help of a $75 million investment from the Cystic Fibrosis Foundation -- as well as a hefty investment from taxpayers through grants from the National Institutes of Health, which underwrote the cost of early research, which identified the gene that the drug targets.

The Platinum Drug

When Kalydeco came on the market last year, it carried one of the most expensive price tags of any medicine on the planet.

Then, thanks to some well-timed stock sales tied to two separate developments involving the drug, executives of the company grossed more than $100 million by cashing in stocks and stock options. At one point, the value of company's stock increased more $6 billion in a single day.

Vertex Pharmaceuticals now is charging $307,000 per year per patient, for the drug. Since it is based on a rare genetic mutation, the drug only helps 4% of those who have cystic fibrosis, or about 1,200 people in the U.S.

Despite that, Kalydeco sales this year are expected to hit $300 million worldwide and are projected to run into the billions annually if it can be used to treat more people when combined with other drugs now being tested -- drugs from a pipeline that was also funded by the Cystic Fibrosis Foundation.

That's the kind of math that can exist in a world where venture philanthropy can help make profitable treatments for so-called "orphan diseases," those that affect fewer than 200,000 people.

Philanthropy and Profits

In the case of Kalydeco, the Cystic Fibrosis Foundation invested $75 million in the development of the drug, and for that investment it demanded a cut of sales. The exact amount is unclear, but it is a percentage between single digits and the low teens.

Last year, the foundation sold a portion of its rights to Kalydeco royalties to an undisclosed firm for $150 million. It now is using that money to fund more drug development work with Vertex, Pfizer, and Genzyme.

The Vertex-Cystic Fibrosis partnership appears to be an emerging model for many foundations that in the past have funded drug research, often without strings attached, with the hope that the money would lead to innovative new therapies. But in the new era of "venture philanthropy," non-profits are looking for a piece of the pie.

When foundation money is invested with drug companies, it is not unreasonable to expect a financial benefit from taking the risk, said Tim Coetzee, chief research officer with the National Multiple Sclerosis Society, which now is pursuing a similar strategy.

"You should be able to use whatever financial tools are available," he said.

Is the Price Right?

In an email Vertex spokeswoman Nikki Levy said the price of Kalydeco was determined based on how well it worked in patients and the cost of developing it. Since 1989, Vertex has spent more than $5 billion in R&D for new medicines and a significant portion of that involves cystic fibrosis drugs.

"Our collaboration with the Cystic Fibrosis Foundation is regarded as the first and most successful example of venture philanthropy and we are excited that we've been able to bring a medicine like Kalydeco to patients with CF as a result," she said. "Our goal has always been to help as many people with CF as possible."

But David Cornfield, MD, a professor of pulmonary medicine at Stanford University School of Medicine, said the financial arrangement between the foundation and Vertex was "fraught with peril."

He said the foundation should not be financially benefiting at the expense of patients

Lisa Schwartz, MD, a professor of medicine at Dartmouth Medical School, applauded the organization's work in funding development of the drug. Ideally, she said, the money the foundation gets should be used to help cystic fibrosis patients pay for their medications and manage their disease.

"It is concerning that the organization now stands to profit when patients choose to use the drug," Schwartz said. "Financial entanglement with industry, even with the best of intentions, creates a conflict of interest."

Symbiotic Relationship

Venture philanthropy is especially appealing to those interested in developing treatments for so-called orphan diseases, a group of conditions that were often overlooked by the pharmaceutical industry, which did not see a way to turn a profit.

Specialty drugs that treat those disorders can be priced at hundreds of thousands of dollars a year per patient and patients frustrated with the lack of treatment options often have rallied to form research foundations.

"You don't need 10 million patients on your drug to make a return," said John LaMattina, PhD, a former president of global research for Pfizer who writes about the drug industry as a book author and blogger for Forbes. "As long as the pricing holds up, it's a pretty attractive area."

For drug companies, having a non-profit organization in your corner helps.

LaMattina said non profit patient advocacy groups can spread the word about new treatments and work hand in hand with drug companies, helping keep their marketing costs down and profit margins up.

Guidelines -- "The Golden Goose"

One highly effective "marketing" tool for therapeutics is to have them recommended in a guideline.

Last month, new treatment guidelines for doctors treating cystic fibrosis patients strongly recommended use of Kalydeco -- the Cystic Fibrosis Foundation funded those guidelines.

Three of the 10 authors of the guidelines were employees of the Foundation and four others worked for institutions that received grants from the Foundation, according to CFF spokeswoman Laurie Fink.

She said the foundation routinely makes research and training grants to institutions.

"It is definitely a conflict of interest," said Eric Campbell, PhD, an associate professor at Harvard Medical School who has researched conflicts of interest in treatment guidelines.

In the past, drug companies have been criticized for funding treatment guidelines that recommend their drugs. It is no different if the guidelines are funded by a foundation that gets royalties from drug sales, Campbell said.

In December, a Journal Sentinel/麻豆传媒 investigation found that treatment guidelines connected with some of the most lucrative drugs in America were heavily influenced by doctors with financial ties to drug companies. In some cases, the non-profit specialty disease organizations that issued the guidelines also had financial ties to the drug companies.

The three Cystic Fibrosis Foundation employees on the guideline committee said in a disclosure they did not participate in committee work involving Kalydeco.

In an email, Fink said guideline committee members whose institutions received funding from the foundation were among 110 U.S. cystic fibrosis care centers that also get funding. It does not just go to guideline committee members, she said.

While the foundation funded the guidelines, the guidelines themselves were developed by a separate committee of third-party cystic fibrosis experts, she said.

"Each committee member submits conflict-of-interest statements that are reviewed by the group, and necessary action is taken to prevent conflicts," she added.

Peter Mogayzel, MD, chairman of the guideline committee, is a professor of pediatrics with Johns Hopkins University, which, according to foundation tax records, received a total of more than $2 million in grants in 2009, 2010 and 2011. The money involved care center grants, but most was for research, quality improvement and training.

In an email, Mogayzel said the guidelines were based strictly on a careful review of the scientific literature and the experience and judgment of the committee members.

Robert Beall, PhD, president of the foundation, said that without the financial support of the foundation drugs such as Kalydeco would never get on the market. Neither insurance companies nor patients have voiced any concern to him about conflicts of interest, he said.

"They applaud the decision and our business model to the utmost," Beall said. "The patients are excited."

He rejected the idea of using the royalty money to help patients pay for the medical care, noting that foundation needed the money to entice large drug companies such as Pfizer to get involved in risky cystic fibrosis drug research.

Pfizer, the world's largest drug company, will be getting $58 million from the foundation -- part of its royalty money from Vertex -- to help it develop other cystic fibrosis drugs. Another $75 million will be going be going back to Vertex and about $10 million to Genzyme, which is part of the global drug giant, sanofi-aventis.

Indeed, of the $75 million the foundation invested to develop Kalydeco, about $20 million came from a lump sum payment for royalties it was due for the drug Tobi, an inhaled antibiotic it helped develop.

Beall said the foundation did not try to use its influence to get Vertex to lower the price of the drug.

"That would have been a deal-breaker," he said.

He said he could only express his concern about the price and invest funds with other companies that might develop competing drugs that someday could bring the price down.

"The concept of a charitable, not-for-profit taking on the role of a venture capitalist is new and difficult to digest," said Paul Quinton, PhD, a cystic fibrosis researcher at the University of California, Riverside and the University California San Diego.

Last year, Quinton, who has cystic fibrosis, and a group of 28 scientists and doctors who treat people with the disease signed a letter to Vertex calling the price of the drug "unconscionable."

The letter, a copy of which was provided to the Journal Sentinel and 麻豆传媒, said it was unseemly for Vertex to charge patients' insurance plans and strapped state medical assistance plans $294,000 (then the price of the drug) a year. That's 10 times more than what a typical cystic fibrosis patient pays in total drug costs, they wrote.

"This action could appear to be leveraging pain and suffering into huge financial gain for speculators, some of whom were your top executives who reportedly made millions of dollars in a single day," the doctors wrote.

Since then, Vertex raised the annual price of Kalydeco another $13,000.

The Public Investment

The Cystic Fibrosis Foundation's $75-million investment in Vertex for Kalydeco fits the "real money" definition of most Americans, but long before the Foundation put its money on the table, taxpayers had skin in the game.

In the 1980s, Francis Collins, MD, now director of the National Institutes of Health, was a researcher at the University of Michigan and on his way to becoming a renowned gene hunter.

Collins and a team headed up by Lap-Chee Tsui at the Hospital for Sick Children in Toronto collaborated to identify the gene responsible for cystic fibrosis. Kalydeco treats patients with one of the mutations of that gene.

That breakthrough involved funding from the National Institutes of Health, the foundation and the Howard Hughes Medical Institute, said Collins, now director of the NIH.

Another decade of intense basic science followed, much of it funded by NIH.

Collins said in the 1990s, NIH tried to encourage reasonable pricing of drugs developed with the help of its funding, but drug companies were not interested.

"We are not holding the levers," Collins said.

In an email, a Vertex spokesman said that while publicly funded academic research provided important early understanding of the cause of cystic fibrosis, it took Vertex scientists 14 years of their own research, funded mostly by the company, before the drug won approval.

Cashing In

In addition to its clinical success, Kalydeco has proved to be a bonanza for Vertex.

Last May, after Vertex reported positive results from a clinical trial involving Kalydeco, the company's stock jumped more than 70% from $37.41 to $64.85 a share. Coinciding with that surge, five Kalydeco executives and two directors sold off more than $35 million in shares. Those sales initially were reported in the Boston Globe.

Three weeks later, the company said it had overstated the efficacy of the drug in that trial and the stock dropped about $7 a share, and by December the stock was selling for less than $40 a share.

Last month, the company's stock shot up more than 60%, from $52.87 to $85.60, after the company released positive early data from a clinical trial of Kalydeco and another drug it is developing with funding from the foundation. As a result, the company's market value increased by more than $6 billion.

That day, two company executives -- one of whom was executive vice president and chief financial officer Ian Smith -- exercised options to pocket huge profits.

Smith, who purchased shares at option prices ranging from $29 to $39, sold 745,685 shares for $81.50 a share, according to U.S. Securities and Exchange Commission records.

Doing the math on that one-day transaction, Smith grossed more than $60 million.

Both stock sales took place after news about preliminary research into whether Kalydeco can be combined with other drugs to treat more people with the disease.

In an email Levy said any executive stock sales were either part of preexisting arrangements, known as 10b5-1 plans, or followed the company's internal stock trading policy.

In a letter about the 2012 stock sales to the SEC, U.S. Sen. Chuck Grassley (R-Iowa) said the sales were troubling for both pharmaceutical industry investors and the federal government, which pays billions of dollars a year for drugs through Medicaid and Medicare.

Current estimates are that 50% of children and one-third of adults with cystic fibrosis receive healthcare through government programs.

But Vertex estimates that 75% of people on Kalydeco have commercial insurance.

A Tipping Point?

As more high-priced drugs to treat specialty diseases get on the market, doctors are questioning the sustainability of the trend.

Last month, a group of more than 100 cancer experts jointly signed an editorial in a medical journal imploring drug companies to bring down prices for specialty drugs used to treat chronic myeloid leukemia, some of which cost in excess of $100,000 a year.

They noted that of the 12 new drugs to treat various cancers approved last year by the Food and Drug Administration, 11 cost more than $100,000 a year.

"We believe the unsustainable drug prices in CML may be causing harm to patients," the doctors wrote in the journal, Blood.

Collins, the head of the institutes of health, said that as more and more high-priced drugs come on the market, the health care system won't stand for it.

"Drugs that are life-saving ought to be affordable," he said.

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