Could B-Corporations Be a New Investment Model for Non-Profits?

Maureen Mcarthur Hart Reports:

The Cystic Fibrosis Foundation (CFF) announced last week that the organization has sold for $3.3 billion its future royalties from Kalydeco, one of the first approved drugs that targets a specific mutation found in about 4 to 5 percent cystic fibrosis (CF) patients, addressing the underlying cause of the disease.

The CFF supported the research and development that led to the drug through a collaborative research venture through its non-profit drug development affiliate, Cystic Fibrosis Foundation Therapeutics, Inc. (CFFT), and for-profit companies — first Aurora Biosciences which was then bought by Vertex Pharmaceuticals.

This joint venture greatly reduced the risk of the drug development process for the companies, through financial funding of about $150 million but also through supporting the clinical trials with the CFF’s Care Center Network and the CFF’s Patient Registry. The funding received from the sale of the royalties will be reinvested into the CFF’s research and development efforts.

The history of Kalydeco’s development is remarkable because of the close joint research efforts between the CFF and the companies, a pioneering example of venture philanthropy, where non-profit organizations have adapted models from venture financing to increasingly target and steer therapeutic research and development.

It also has stood out because of this large royalty payment — said to be the largest return on philanthropic investment so far. However, concerns have been raised that the large return on royalties is tied to the high cost of the drug, which is roughly $300,000 per year, making Kalydeco one of the most expensive drugs available today.

Some have argued, as in this op-ed piece in the Journal of the American Medicine Association, that the pricing of new drugs such as Kalydeco may be too high, and that this problem will only get worse as more drugs are developed targeting a narrow range of patients as Kalydeco does.

Critics worry that the development of this drug will set a precedent for non-profit organizations to focus on return on their philanthropic investments rather than access to the drug. Others maintain that these returns will only help support additional drug development.

But there may be an emerging solution that could address both these points: public benefit corporations or a B-corporation. A B-corporation aims to maximize profits but balanced with returns or benefits to society. A B-corporation developing and marketing a drug could assess not just profit but also access and reinvestment in research in pricing decisions. Philanthropic organizations could form partnerships with for-profit organizations with the agreement that once a certain milestone is met, a company could be spun out to focus on the remaining development and marketing of a therapeutic as a B-corporation. The for-profit company and the non-profit organization would then receive royalties, but, again, the pricing decisions could be tempered with societal benefit considerations. There are difficulties with this plan, chief among them that not all states have passed legislation establishing benefit corporations. However, where possible, this could prove to be a strong innovation model and should be explored further as an option in the venture philanthropy model.

Similar Articles 

• Cystic Fibrosis Foundation CEO Says Royalty Rights Sale Will Be “Transformational” for People with CF
• Deal by Cystic Fibrosis Foundation Raises Cash and Some Concern
• Benefit corporations: Socially Responsible Capitalism
• Pricing for Orphan Drugs:  Will the Market Bear What Society Cannot?

About Maureen Mcarthur Hart

Maureen McArthur Hart joins the RARE Daily Global Genes team covering public policy issues and advances in scientific research. She has a Ph.D. from George Washington University in science and technology public policy, an M.S. from Virginia Tech in science and technology studies, and a B.S. in biology from UCLA. Her career has included public affairs/public relations and clinical trials regulatory analysis at the University of Kentucky Medical Center and policy and research analysis at the Science and Technology Policy Institute in Washington, D.C.

She is dedicated to improving the scientific research and innovation process to make therapeutic development faster, more efficient, and more effective. She is also a cat-, dog-, and kid-person who enjoys the outdoors.

She can be reached at [email protected] or @mmhart.