For years, Brad Margus has juggled two goals as chief executive: Make money, and find cures for his children.
He just co-founded a startup, Exigence Neurosciences Inc., in part to seek treatments for his two sons who have ataxia-telangiectasia, or A-T, a rare progressive and eventually fatal neurological disease.
There is no effective drug for it, and the 54-year-old Mr. Margus, of Boca Raton, Fla., says his goal is to find one. His new company will also need to stay in business, which means plowing money and time into projects that promise profits.
His dilemma: The most promising revenues are in brain diseases more common than A-T, such as Alzheimer’s. So he plans to focus there first, as he did in a previous company he also hoped might identify A-T treatments. His work may lead to answers for his boys’ disease, he says, but “I may not make it in time for my own kids.”
Not long ago, this dilemma was unusual. Enterprising parents wanting to speed drug development for a child typically formed foundations to raise money for someone else’s research.
There are roughly 5,300 human diseases known by molecular basis and about 500 have treatments, says the National Institutes of Health. Rare ailments often don’t have medicines, in part because many drug companies don’t want to make risky bets on the small markets they represent.
Now, there is a small cadre of parents like Mr. Margus starting for-profit ventures to make those bets. Nonprofits have limitations, they say, because drug-development costs are high and foundations must vie for donations. Drug-discovery efforts, they say, can be more effective if they offer chances of making money.
“Greed works better than fear or altruism,” says Andrew Lo, director of the Massachusetts Institute of Technology Laboratory for Financial Engineering, which is working with rare-disease organizations to develop business models. “The amount of money needed to develop a single drug is so much more than what pure altruism can fund.”
The theory: By raising investments like any startup, parents can take control of a for-profit’s mission, focus on research that others might avoid and eventually create treatments that can turn profits.
Tracy and Benjamin Seckler in 2011 helped found a startup, now known as Akashi Therapeutics Inc., in Cambridge, Mass., after growing frustrated that some compounds their foundation supported for Duchenne muscular dystrophy weren’t moving forward in development. Their son, Charley, 14, has the fatal condition.
Jill Wood of Brooklyn, N.Y., co-founded Phoenix Nest Inc. to seek treatments for Sanfilippo syndrome, a fatal genetic condition affecting her son Jonah, 6. She and her husband also have a nonprofit, but she says she realized “I can’t nickel and dime my friends and family forever.”
The for-profit approach is a harder slog than many anticipate, says Harvey Lodish, a Massachusetts Institute of Technology molecular biologist who advises parents wanting to start companies to develop drugs for their children. He was an original scientific adviser to Genzyme, now a Sanofi SA unit, which has developed drugs for Gaucher disease, a rare disorder that can swell internal organs and weaken bones. He later discovered it affects his grandson Andrew, 12.
Dr. Lodish advises some parents that “a company may not be the best idea.” It costs more and takes longer to develop drugs than most parents anticipate, he says, and it is complex to balance business-and-science pressures with being a parent on a mission.
That’s a tension Ilan Ganot of Newton, Mass., knows. His son Eytani was diagnosed in 2012 with Duchenne, which afflicts an estimated 10,000 to 15,000 people in the U.S. To seek treatments, he left his job as a banker at J.P. Morgan Chase & Co. and this year co-founded a company, Solid Ventures LLC.
His investment proposal included a projection of five to 20 times returns on investment—to demonstrate potential incentives to investors, he says, who might be reluctant to invest in one rare disease. It also assured investors the company would spend broadly on multiple approaches. Solid is working on three drugs and an exoskeleton suit based on military technology that may help protect muscles and improve function.
Mr. Ganot, 40, raised $17 million, mainly from investors who supported his mission. To help avoid potential conflicts of interest as CEO, he agreed to leave the room if he ever felt his parental emotions might hinder a decision.
“In business, you need to be able to be coldblooded,” he says. Last month, when Solid’s negotiations with a potential partner dragged on, Mr. Ganot says he grew angry thinking, “I have a child at home to save.”
“I felt like punching someone,’’ he says, so he left the room. Another executive took over.
“He is doing a great job of choosing the few spots where it is just getting too personal to let someone else who is part of the enterprise come at it in a different way,’’ says board member Robbie Huffines, vice chairman of investment banking at J.P. Morgan, which invested $5 million in Solid.
The company is testing drugs for Duchenne, and Mr. Ganot says he expects clinical trials next year. Eytani, 4, can’t run like a typical boy his age and shows other signs of the progressing disease.
While many parents who form such for-profits have some business experience, they often don’t have previous expertise in drugs or science. Many establish scientific advisory boards to gain expert advice and hire—or form partnerships with—scientists and business experts.
At Akashi Therapeutics, the Secklers and their co-founders sought outside expertise. They raised money from other families facing Duchenne, bought rights to a promising compound and hired a chief executive with drug-development experience, says Ms. Seckler, who is on the board.
Akashi has a drug in trial and bought rights to two other drugs. To attract investment from beyond the Duchenne community, Ms. Seckler says, it needs to be a company that “looks, smells, feels like a traditional for-profit people are used to.”
Parent-run companies face the same regulations any drug company does, requiring disclosure of certain financial interests in their clinical investigations, says a Food and Drug Administration spokeswoman. The FDA, she says, is “aware that there might be potential ethical issues when parents get involved in developing drugs for their children.”
John Lantos, director of Children’s Mercy Bioethics Center in Kansas City, Mo., says he advises that parents set up independent scientific advisory boards and be transparent about their financial involvement.
Some parents find they need to step back from a for-profits’ day-to-day operations. When a neurologist in 2010 told Daniel Fischer that one of his girls, Natasha, has a form of epilepsy called Dravet syndrome, he says, it was “the worst day of my life.”
There is no effective drug for it, and a seizure could kill Natasha, now 5, at any moment. Estimates put Dravet sufferers at fewer than 1 in 20,000.
With an M.B.A., Mr. Fischer had started a company before. In 2011, he met Jeffrey Skolnick, a Georgia Institute of Technology computational-biology professor who developed algorithms to predict what drugs might work on specific genes. Those algorithms, Mr. Fischer thought, might find drugs to treat Dravet and be the basis for a business.