Science & Society
Charities and the lure of capitalism
Philanthropies dedicated to finding cures for rare diseases explore new models for funding and
cooperation to accelerate research and drug development
Howard Wolinsky
J
DRF, formerly the Juvenile Diabetes
Research Foundation, in New York, NY,
USA, is one of several charities that
have taken philanthropy to a new level.
The foundation, using a new funding
approach often referred to as venture philan-
thropy, teamed up with KalVista Pharma-
ceuticals to develop plasma kallikrein
inhibitors to treat diabetic macular edema
and hereditary angioedema. In the JDRF
model, partner companies match the foun-
dations funds for specific research projects
on treating type 1 diabetes (T1D) and its
complications carried out by the company.
The Phase 1 US clinical study, which we
co-funded with the company, produced posi-
tive results and key proof-of-concept data,
said Michael Batten, director of research
business development at JDRF, which
invested US$2.2 million in this project. He
added that the data generated by the co-
funded study allowed KalVista to raise US
$33 million in their next round of funding.
......................................................
. . . JDRF is part of a growing
movement amongst charities
whose patients have been
frustrated by seemingly
glacier-slow academic research
on diseases and who want to
control research on new
treatments. . .
......................................................
Batten said that the foundations goal
during the past decade has been to stimulate
research and interest within the commercial
sector to address T1D, which represents only
10% of the diabetes population. He
explained that the foundations investment
Freelance Journalist, Chicago, IL, USA. E-mail: howard.wolinsky@gmail.com
DOI 10.15252/embr.201744065
2017 The Author
in companies aims to de-risk research and
development in T1D therapies, particularly
in the early stages where the risk of failure
is highest. JDRF asks for a modest payback
from their for-profit partners in the form of
commercial royalties upon approval of a
therapy, which the foundation uses to
further support its mission to cure, prevent,
and treat T1D, which, unlike type 2 diabetes,
starts as early as in childhood. According to
Batten, JDRF is part of a growing movement
among charities whose patients have been
frustrated by seemingly glacier-slow
academic research on diseases and who
want to control research on new treatments
to some extent.
A new funding model
Philanthropy to support research or other
noble causes has its roots in the early 20th
century when Scottish-American steel
tycoon Andrew Carnegie created the
Carnegie Foundation to promote the
advancement and diffusion of knowledge
and understanding. But the idea of venture
philanthropynon-profits investing in for-
profit companies for a social goodstarted
only in the late 1990s to support education
and housing, and, was more recently, taken
up by disease-related charities. This new
model for developing drugs for rare diseases
independent of governments and industry
has already led to new treatments but it has
not been without criticism of the increas-
ingly tight relationship between non-profit
charities and for-profit companies.
According to Alexandra Graddy-Reed, a
researcher at the Center on Philanthropy &
Public Policy at the University of Southern
California, venture philanthropy is not iden-
tical to venture capital, but borrows some of
its principles. I define it as a philanthropic
strategy that aims making grants to be more
like an investment, so the funder would
have a more involved relationship with the
grantee, provide a more substantial amount
of funding to cover the work to be done,
require milestones or impact assessment
along the way. Evaluation and measurement
are key, she explained. Venture philan-
thropy is especially productive for charities
that focus on rare diseases, which receive
little research funding by governments and
little attention from pharmaceutical compa-
nies. Venture philanthropy is a good strat-
egy if you can incentivize companies to do
the research that has a lot of potential,
Graddy-Reed said.
......................................................
Venture philanthropy is
especially productive for
charities that focus on rare
diseases, which rarely receive
research funding by
governments and little
attention from pharmaceutical
companies
......................................................
Liz Philpots, Head of Research and
Impact at the Association of Medical
Research Charities (AMRC) in London, UK,
which represents 138 large and small health
British charities, said the idea of charities
investing in drug development is relatively
newer in Europe than in the USA. The Euro-
pean charity sector also is proportionally
smaller, she added. Research!America,
which advocates for health research fund-
ing, reported that the total expenditure for
US medical and health R&D was US
EMBO reports 1
EMBO reports
$158.7 billion in 2015. Industry invested US
$102.7 billion, US federal agencies another
$35.9 billion, with US$29.6 billion coming
from the National Institutes of Health. Non-
profit foundations contributed US
$4.7 billion. Comparable numbers do not
exist for the EU where many foundations
also pursue different approaches to health.
While most charities in Europe focus on
providing services or advocating for
patients, charities in the UK, Netherlands
and Ireland fund basic and clinical research
in all areas of health, Philpots added.
......................................................
A partnership between a
charity and a major
pharmaceutical company has
also led to one of the most
sophisticated treatments to
cure ADA-SCID
......................................................
Philpots also noted that a growing
number of charities expect that their support
leads to new drug targets or treatments and
use a variety of approaches to accelerate
drug development. On one end are grants
for basic research on rare diseases without
expectations for new therapies. On the other
end is venture philanthropy with mile-
stone payments and even return on invest-
ment to fund future research. Rather than
get an academic to do the research, the char-
ities will often get a company to do it, Phil-
pots added. She noted that many of
her organizations members are partnering
with major drug companies, such as
GlaxoSmithKline, Pfizer, or AstraZeneca.
Profits for charities
The Cystic Fibrosis Foundation has been the
poster child for venture philanthropy. The
US charity made a US$3.3 billion windfall in
2014 by selling royalties for the drugs
Kalydeco (ivacaftor), Orkambi (lumacaftor),
and other potential therapies that were
developed by Vertex Pharmaceuticals with
foundation support. In 2012, the FDA
approved Kalydeco, the first disease-
modifying drug for cystic fibrosis, a
heritable disease that affects about 30,000
Americans. (Kalydeco) is the most well-
known of our investments. But it is far from
our only success: nearly every CF drug avail-
able today was made possible because of the
2 EMBO reports
New funding schemes for rare diseases
foundations investments in drug discovery
and development, said Preston W. Camp-
bell III, President and CEO of the Cystic
Fibrosis Foundation. We continue to invest
in new research to discover and develop
drugs that will help more people with CF,
including projects with Genzyme focused on
next-generation modulators, and with Editas
to explore gene editing.
The foundation pioneered venture philan-
thropy because the pharmaceutical industry
did not have enough financial incentives to
invest billions of dollars and years of
research to develop drugs for diseases such
as CF that affect only a small patient popula-
tion. The foundations venture philan-
thropy model was born out of this need,
Campbell said. By providing upfront fund-
ing and reducing financial risk for pharma-
ceutical companies, the CF Foundation has
made sure that this rare disease has not
been ignored. It invested US$150 million in
research projects with Vertex and its prede-
cessor Aurora. Their funding led to Kalyeco
and Orkambi, a combination of lumacaftor
and ivacaftor, and other potential treat-
ments, which the foundation estimates bene-
fits approximately 8% of CF patients. In
2015, the FDA approved Orkambi as the first
drug for treating patients who have two
copies of the F508del mutation, the most
common cause of CF. However, treatments
come at a price: Kalydeco costs $330,000 per
year per patient, while Orkambi sells for US
$266,000 per year.
The success story with Kalydeco inspired
many other charities to employ venture
philanthropy. Steve Ford, CEO of Parkin-
sons UK, said his charity until recently
followed the traditional philanthropy model:
The public made donations and the organiza-
tion spent them through grants. But frus-
trated donors on both sides of the Atlantic
have become more insistent that they see
new drugs and treatments come from their
money. Hence, Ford, a former executive with
the National Health Service, said Parkinsons
UK adopted a venture philanthropy approach
to bridge the so-called Valley of Death
between basic and applied research, where
most ideas for new medications are lost.
Ford said Parkinsons UK is aiming to
increase its funds for research to 11 million
by 2020 from 5 million. It has also orga-
nized a drug discovery program using what
it calls virtual biotech. The charity
provided 2.5 million to study whether the
growth factor GDNF (glial cell-derived
Howard Wolinsky
neurotrophic) could slow the advance of
Parkinsons, a progressive neurological
disease caused by a deficiency of dopamine.
We started with a grant to a hospital
North Bristol Trustwith no sense of any
kind of returns at all. But then we realized
that actually that was a bit nave, Ford said.
So we got an agreement from the biotech
company [MedGenesis Therapeutix, London]
which had provided the drugs that if the trial
is successful they would give back the
money that we had invested in the project.
In this case, the charity does not seek
profit, but only asked for its investment to
be returned should a successful drug be
developed.
Big pharmas contributions
A partnership between a charity and a major
pharmaceutical company has also led to
one of the most sophisticated treatments to
cure ADA-SCID (Severe Combined Immuno-
deficiency due to Adenosine Deaminase
deficiency), a rare disorder that prevents
children from developing a healthy immune
system, which is usually fatal within the first
year of life. About 30 children in Europe and
the USA are born each year with the disease.
San Raffaele Telethon Institute for Gene
Therapy, a joint operation by Ospedale San
Raffaele, a Milan hospital where complex
diseases are treated, and Fondazione Tele-
thon, an Italian charity, developed Strim-
velis, a gene therapy to cure ADA-SCID. But
the non-profits lacked the experience in
getting regulatory approval and bringing the
treatment to the market, and so entered into
an alliance with GSK.
......................................................
The Grace Science
Foundation expects researchers
to share information with labs
that otherwise might be their
rivals to accelerate drug
development
......................................................
In 2010, Telethon finalized an agreement
that grants an exclusive license to GSK on
the ADA-SCID program and options on six
additional ex vivo stem cell therapies for
other rare disorders. The agreement fore-
sees an upfront payment of 10 million and
further payments upon successful comple-
tion of certain development milestones and
2017 The Author
Howard Wolinsky New funding schemes for rare diseases
royalties, commented Francesca Pasinelli,
Director General of Telethon. She added that
the deal creates a virtuous circle to promote
innovation which can be deliveredvia the
pharmaceutical industryto patients who
may benefit from it.
GSK set the price at 594,000. Pasinelli
said Telethon played no role in determining
the price. Sven Kili, Vice President and Head
of Cell & Gene Therapy Development at
GSK, explained the high price tag by manu-
facturing costs. [We had to price] this low
enough that we were confident that people
around the world would able to have access
to it, he said. By way of comparison, Kaly-
deco, which costs $330,000 per year per
patient, has to be taken throughout the
patients life. Strimvelis provides a one-time
corrective treatment, which restores the
ADA gene to normal function. Kili said Ital-
ian regulatory officials readily accepted the
price. I think most people, regulators
included, were expecting us to charge a
substantially higher amount than we did. In
determining our price, we had consulted a
number of reimbursement bodies across
Europe. The key was to make the treatment
cost accessible through established payer
mechanisms and to price it responsibly, to
ensure that European patients with this
ultra-rare disease can access and benefit
from it he said.
......................................................
One sticking point is indeed
whether a charity should play
any role in setting the price on
the drug
......................................................
Thus far, Strimvelis is only available in
Italy, but approvals will be sought in the
USA and elsewhere, Kili said, adding that
this project will lead to more therapies as
GSK and Telethon have developed a platform
to develop cures for other rare genetic condi-
tions, including WiskottAldrich syndrome
and metachromatic leukodystrophy.
Kili does not consider the cooperation with
Telethon venture philanthropy because GSK
has been the financial sponsor on the devel-
opment of Strimvelis from April 2012
onward. Rather, he called it a strategic
collaboration. The benefits are that both
groups bring their own expertise to the part-
nership, he said, They brought their
phenomenal science. GSK brought our ability
to scale up and turn it into a medicine, our
2017 The Author
ability to run and help set up clinical trials,
our expertise in working with regulatory
authorities, our sales and marketing ability to
make the therapy available to more patients.
The start-up model
Grace Wilsey was born seven years ago with
a rare genetic disorder, NGLY1 deficiency.
Her body produces an insufficient amount of
N-glycanase, an enzyme encoded by the
NGLY1 gene, which causes seizures,
tremors, ataxia, sleep apnea, liver dysfunc-
tion, alacrima, the inability to produce tears
to keep the eye moist, and scoliosis. Its a
terrible disease, said Matt Wilsey, Graces
father. What I tell people often is that the
lights are on in the house, but no one is
answering the door. She has little moments
where I say to myself, Oh, wow, she totally
understands something. And then the rest
of the day I think, Im not sure she under-
stands anything Im saying. She cant
communicate, which is the worst part about
the disease.
Initially, the Wilseys and their friends
started supporting research at a handful of
academic institutions to understand the
disease and look for potential cures. But
Wilsey, who has been involved in three star-
tups, one of which was acquired by Twitter,
saw that a lot more needed to be done. He
and his wife Kristen started the Grace
Science Foundation, based on the start-up
model used in Silicon Valley. Its lean. Its
efficient. Its very, very flat. Theres no hier-
archy. We want to iterate very quickly. We
dont look at failure as a bad thing, Wilsey
said. The foundation has raised US
$6 million and recruited more than 100
scientists from around the world to search
for treatments and ultimately a cure. Wilsey
said patients families are heavily involved
so researchers know firsthand what patients
are experiencing.
The Grace Science Foundation expects
researchers to share information with labo-
ratories that otherwise might be their rivals
to accelerate drug development. Molecular
biologist Lars Steinmetz, co-director of the
Stanford Genome Technology Center, and
group leader and senior scientist at the
European Molecular Biology Laboratory,
has worked with them for the past four
years. He believes that rare diseases such
as NGYL1 call for new paradigms in how
science is done and drugs are developed.
Large pharmaceutical companies are
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unlikely to invest in diseases like NGLY1
deficiency because there are only very few
patients. Steinmetz said the requirement
to collaborate among multiple labs enables
research to proceed much faster than it
would with independent groups that do not
communicate with each another. Nonethe-
less, [w]hen you come into it from an
academic perspective, you have tools that
you can launch against the problem, but
you cannot replace an industrial setting to
bring a drug to market and to do all the
controlled experiments and the clinical
trials that would be necessary. So that will
eventually require a commercial partner,
he said. Indeed, Wilsey plans to launch a
drug companyseparate from the founda-
tion to avoid conflicts of interestto
develop medications for NGYL1 and related
diseases.
Conflicts of interest
Yet, the concept and practice of venture
philanthropy raises some questions. Sociolo-
gist and ethicist Eric Campbell, Director of
Research at the Mongan Institute for Health
Policy at Massachusetts General Hospital in
Boston, MA, finds venture philanthropy a
contradiction in terms. The notion of
venture philanthropy in some ways is
oxymoronic. Its like being an amateur-pro
athlete. Youre either in a venture-related
business and the goal of that is to make
money or youre in a philanthropy. But
putting those two together doesnt make
much sense, he said.
......................................................
We cant keep charging
astronomical sums of money
for rare disease drugs and
expect to treat all 7,000 rare
diseases and all 30 million
people in the United States
......................................................
Campbell added that engaging in venture
philanthropy will likely change their motiva-
tions because they are financially interested
in the outcome. In my opinion, they should
be treated no different than a drug
company, he said. Moreover, just like any
pharmaceutical companies, they rarely will
win the lottery, as the Cystic Fibrosis Foun-
dation did. These organisations need to
think very hard about their likelihood of a
EMBO reports 3
 EMBO reports
success, which to be honest is small. Drug
companies that develop drugs for a living
experience lots of failures in developing
drugs. They rarely hit home runs.
Paul Quinton has a unique perspective as
a scientist specializing in CF at the Univer-
sity of California at San Diego, but also a
patient. Quinton, formerly a scientific advi-
sor to the Cystic Fibrosis Foundation, said
he was extremely grateful for the work the
foundation has done to improve the health
and extend the lifespan of patients. At age
72, Im twice as old as Im supposed to be, tions, we can be a bit more emotional about
he joked. But he is troubled by the price tag
for Orkambi and Kalydeco. Thats a lot of
people without any disease paying insurance
to cover my drug cost. I feel a little guilty
about that to tell you the truth. I dont think
Im worth $300,000 a year to society, Quin-
ton said. So why should everybody else be
burdened with making sure that the CEOs,
the CFOs, and Executive Officers are making
tens of millions of dollars a year in personal
compensation from the cost of our drugs?
Quinton said the high cost for such drugs is
unsustainable. Where will we get the
money? And an even better question is
where is all that money going to go?
Moreover, the foundations investments
create a potential conflict for a charity. It
was like a doctor owning a drug company
that makes drugs he then prescribes to his
patients. He cant do that. Thats a conflict
of interest. So the CF Foundation was
somewhat in the same situation in owning
part of a company that provides drugs to
their patients, he explained, adding that
charities that get involved in drug develop-
ment are redefining altruism. Is altruism
for sale? Did the Cystic Fibrosis Foundation
sell altruism because the money that they
had to invest in Vertex/Aurora came from
people who were altruistic? he
commented. The parents and the friends
4 EMBO reports
New funding schemes for rare diseases
and the members of the CF community
raised money and gave their time and
money to the foundation. Is it still altruistic
to pursue venture capitalism that profits a
few with such extravagant costs to others?
It is a rough question.
One sticking point is indeed whether a
charity should play any role in setting the
price on the drug. Philpots is skeptical about
charities being able to advocate for lower
prices even on medications they helped
develop. We know that as patient organisa-
to treat all 7,000 rare diseases and all
affordability as we are all too aware how
much our patients desperately need new
treatments. But we also know emotional
arguments to industry wont work, she
said.
The question of affordability
Sharon Terry is the mother of two children
with pseudoxanthoma elasticum (PXE), a
progressive disorder characterized by the
mineralization of some tissue, and co-
founder of PXE International, a research
advocacy organization. Terry, who has a
theology degree, and her husband Pat, a
former construction manager, borrowed
laboratory space at Harvard University and,
tutored by postdocs, discovered the gene
that causes PXE. They subsequently devel-
oped a diagnostic test, created a research
consortium, and have started clinical trials.
Terry is also president of the Genetic Alli-
ance, a Washington, DC-based network of
organizations aiming to improve the lives of
people with common and rare diseases, and
critical of drug companies interested in prof-
iting from orphan diseases and the advocacy
groups who support these efforts with
donated funds. Most drug companies
today, even the very large pharmaceutical
companies, have opened rare disease
Howard Wolinsky
divisions. Its the thing to do now. And the
reason theyre doing it is because their busi-
ness model for blockbuster drugs has
failed, she said. They are looking at the
rare disease market with big eyes because
they see that these drugs can garner
hundreds of thousands of dollars a year per
patient.
Terry explained that drug prices for these
medicines will threaten public health care.
We cant keep charging astronomical sums
of money for rare disease drugs and expect
30 million people in the United States, she
maintained. I think this will cause a major
collapse of health care resources. Terry
thus thinks that charities ought to have a
hand in setting the price as part of their
advocacy mission. In our case, for example,
were not recusing ourselves, she said.
PXE International advocates with the drug
companies that were working with, When
it comes time to set price points, were look-
ing for as much affordable drug as we can
possibly can get. And were not going to
work with a company thats going to go for
a killing.
Despite the new financial arrangements,
many charities say they do not expect to
abandon basic research. We will continue
to fund basic science through more tradi-
tional mechanismsthis new approach only
applies to some of our work, Ford
commented. Pasinelli said Fondazione Tele-
thon is not backing away from fundamental
research either, which is the basis upon
which future therapy will be developed.
Furthermore, development of new thera-
pies through industrial partnerships on the
long term generates financial returns that
Telethon can reinvest in research, she said.
This could, as Campbell suggested, create
resources that flow back into academic
institutions.
2017 The Author