Venture Philanthropy

The Washington Post reports:

By the late 1990s, the Bethesda-based Cystic Fibrosis Foundation had spent decades searching for ways to alter the course of the deadly lung disease. Researchers had identified the genetic cause of the condition a decade earlier, and incremental improvements in care meant that many patients were living into their 30s.

But frustrated that no game-changing treatments were in sight, the group’s leaders in 1999 placed what many considered a risky bet, deciding to invest millions of dollars in a small California biotech firm. Robert J. Beall, the foundation’s president, believed that putting money into drug companies directly, rather than merely making grants to academic investigators, might persuade the industry to focus on the disease and turn existing research into real-world treatments.

So what happened?

That initial risk, which over time grew into a $150 million investment, has paid off in a big way. It led to the approval in 2012 of a breakthrough drug — the first that treats the underlying cause of cystic fibrosis rather than the symptoms, in a small subset of patients. On Thursday came another big win: The Food and Drug Administration approved a second drug the group also helped fund, which eventually could aid roughly half of the 30,000 patients in the United States.

So by investing in a drug company, and targeting that investment into the area they were interested in, they achieved a major benefit for their cause.

And last fall, the CF Foundation sold its rights to future royalties of the drugs for a jaw-dropping $3.3 billion, the largest windfall of its kind for a charitable organization.

And they got a 2000% return on their investment, meaning they can spend 20 times as much now on helping cystic fibrosis sufferers, or funding more research. A win-win.

The pioneering success of Beall and the CF Foundation in the practice of “venture philanthropy” is prompting a growing number of nonprofit groups to explore whether they, too, might be able to benefit their patients, and bottom lines, by investing in similar ways.

Dozens of organizations, from the Michael J. Fox Foundation to the Multiple Myeloma Research Foundation to the National Multiple Sclerosis Society, have embraced the approach over the past decade.

A great mixture of capitalism and philanthropy.

“There’s a reason why corporate America exists, and there’s a reason why philanthropic organizations exist,” said David Cornfield, a professor of pediatric pulmonary medicine at Stanford University. “When that distinction becomes invisible, it becomes very difficult to know where philanthropy ends and venture capital begins.”

Proponents counter that venture philanthropy has helped to fill a persistent gap that exists between basic academic research funded largely by the government and later-stage clinical trials typically funded by large pharmaceutical companies — a gap known as the “valley of death.”

 “It’s where great ideas, unfortunately, go to die,” said Francis Collins, director of the National Institutes of Health, who as a researcher at the University of Michigan helped identify the gene for cystic fibrosis in 1989. “If foundations can pitch in there, that’s great. … We need as many models to get there as possible.”

One size doesn’t fit all. But for some charities, it looks like a really good thing to do.