Cystic Fibrosis Foundation changes the pharmaceutical industry

In a move that may change the industry of pharmacy technology, Royalty Pharma has announced a $3.3 billion acquisition of royalties on Vertex Pharmaceuticals’ cystic fibrosis treatments owned by an affiliate of the Cystic Fibrosis Foundation.¹

This is a major payoff for the nonprofit organization that began investing in biotech companies in order to encourage the development of drugs to treat the disease 15 years ago, according to The New York Times.² 

The Cystic Fibrosis Foundation’s investment was considered risky at the time, especially for a charitable organization. However, with a payoff that is 20 times the organization’s annual budget, they may have set a new precedent for other nonprofits working toward better treatment options for various diseases.² 

Cystic Fibrosis, often abbreviated CF, is a disease that causes mucus to thicken in the lungs, digestive tract and other parts of the body, which in turn can cause infections. CF particularly can block airways or cause serious lung infections. This disease can also affect the pancreas, sinuses, liver, intestines and sex organs.³ It is an inherited disease, meaning that it can pass from parent to child.

What this means for the pharmaceuticals industry

This royalty is a big win for the Cystic Fibrosis Foundation, considering the organization will now have a tremendous amount of money to invest in research. The foundation provided grants for Vertex Pharmaceuticals which led to the development of the drug Kalydeco in 2012, the first drug that slows the underlying cause of declining lung function in CF patients.² The pharmaceuticals company is currently testing two more CF drugs that show promise and could eventually be extremely profitable.

With the offer from Royalty Pharma, the Cystic Fibrosis Foundation was faced with a similar scenario to the lottery in which it could accept the lump sum all at once or receive royalties on the drugs over the next two decades. The foundation opted for the former, choosing to take all of the money at once to invest in research on a faster timeline.

This approach proves to be gaining popularity, as it puts philanthropic organizations in a position to directly encourage pharmaceutical firms to invest in developing drugs for specific diseases. In the future, more organizations may begin using the CFF’s model as an example to propel research forward. In a news release, Dr. Robert J. Beall, president and chief executive officer of the Cystic Fibrosis Foundation elaborated:

“These new funds give us a tremendous opportunity to supercharge our efforts to develop lifesaving new therapies, ensure that the best possible care and resources are available for people with CF, and pursue daring, new opportunities that one day may lead to a permanent, lifelong cure for this disease.”¹

In general, this model is being called venture philanthropy and is as exciting for pharmaceuticals companies as it is for nonprofits. Pablo Legorreta, founder and CEO of Royalty Pharma explained:

“Our goal is to be the premier provider of innovative capital to enable the life sciences industry to accelerate development of important novel therapies.  Furthermore, this transaction represents an important validation of the Foundation’s bold vision under Dr. Beall’s leadership to fund new drug development as part of its successful venture philanthropy model.  These therapies are notable examples of fundamental research leading to breakthrough treatments that dramatically improve patient’s lives.”¹ 

Whether or not the venture philanthropy model will prove to be effective for a broad range of nonprofits is yet to be seen. What is certain is that the CFF took a big risk, and in this case, it paid off remarkably.

¹ “Royalty Pharma Announces $3.3 Billion Royalty Transaction with Cystic Fibrosis Foundation Therapeutics,” Royalty Pharma, News Release. http://www.prnewswire.com/news-releases/royalty-pharma-announces-33-billion-royalty-transaction-with-cystic-fibrosis-foundation-therapeutics-283172211.html

² “Deal by Cystic Fibrosis Foundation Raises Cash and Some Concern,” by Andrew Pollack, The New York Times, Nov. 19, 2014. http://www.nytimes.com/2014/11/19/business/for-cystic-fibrosis-foundation-venture-yields-windfall-in-hope-and-cash.html?_r=0

³ “What Is Cystic Fibrosis?,” National Institutes of Health, Dec. 26, 2013. http://www.nhlbi.nih.gov/health/health-topics/topics/cf/