CF Venture Philanthropy and its Mysteries, Revealed (Somewhat)
Updated: Nov 11, 2020
Kudos to the top officials of the Cystic Fibrosis Foundation -- CEO Mike Boyle and COO Marc Ginsky -- for briefing key CFF volunteers this evening about the latest mega-payoff to the Foundation related to its original stake in the so-called "modulator" drugs (Trikafta, Kalydeco, Orkambi, Symdeco) developed by Vertex Pharmaceuticals.
Six years ago, the CFF sold its right to these royalties in exchange for the blockbuster sum of $3.3 billion. Last week, the CFF announced it's raking in another $575 million in connection with these royalties and might even receive another $75 million in the future. This whole thing, of course, is the crowning achievement (so far) in the "venture philanthropy" model pioneered by the Foundation -- in which the CFF basically induces pharmaceutical companies to develop new CF treatments by investing in those projects alongside the drug manufacturers. That $3.8b payout is the upside; presumably, many of these ventures don't pan out and the Foundation loses its investment.
I asked: Can the CFF say with certainty that without its venture philanthropy investment in the Vertex modulators, they would not exist? Mike Boyle and Marc Ginsky nearly answered in chorus: "Yes."
"There is simply no way in the absence of the philanthropy model," said Ginsky. "None of this happens without the CFF and you guys." By "you guys" he was referring to the CFF volunteers who had gathered, via zoom, to receive the briefing.
The modulators are a big deal. They are the very first drugs that treat the underlying cellular cause of cystic fibrosis -- the failure of a particular protein to embed itself in the membrane of every cell in the body of a person with CF and thereby open the "chloride channel" that allows salt, and thus salt water, to pass into and out of those cells. That defect causes a big mess in parts of the body that rely on mucus (especially, the lungs and the pancreas).
Well beyond the microbiology, this is a complicated situation with a pile of moral ambiguities associated with it. Vertex is charging $312,000 a year, per patient, for Trikafta -- the drug, approved a year ago by the FDA, which is the crowning glory of the modulators Vertex has brought to market. Apart from Vertex, almost everyone else seems to find this sum to be outrageously high -- i.e., not justified by the benefits of the drug, according to the Institute for Clinical and Economic Review (ICER).
The CFF has basically been silent on this question -- and rightly so, having raked in so much money in exchange for what would have been its rights to some of this revenue stream. And, frankly, I'm up to my neck in those moral ambiguities as well. My 19-year-old daughter, who has CF, is thriving and healthy but has relatively rare mutations of the sort that make her ineligible for the Vertex modulators. So, she's one of the beneficiaries when the Foundation takes that $3.8 billion and redeploys it on projects that are calculated to lead to her miracle drug.
I was very disappointed, at first, to read about this latest payout because it looked like the CFF had secretly retained some royalty rights while disclaiming any direct role in setting the price of the modulators. Marc Ginsky set me straight. The 2014 payout came from a firm called Royalty Pharma, a publicly traded company in the pharmaceutical royalty monetization business. Ginsky explained that this latest payout is part of the original 2014 deal with Royalty Pharma. Under that deal, according to Ginsky, the Foundation retained the rights to additional payments if revenues from the modulators exceeded certain benchmarks -- and, indeed they have. It is those residual rights that the CFF has just monetized.
"Nothing in this transaction affects Vertex in any way," Ginsky stressed. "They’re paying the same amount of royalties they were paying before this agreement was reached." The checks go to Royalty Pharma.
Regrettably, but understandably, the CFF's top brass said they could not disclose the Vertex sales figures that drive the royalty payments. Ginsky also said he could not disclose what contingencies would trigger that additional $75 million payment in the future. Interestingly, the CFF "case study" on the Royalty Pharma web site offers more tantalizing details than the CFF itself has disclosed. According to Royalty Pharma web site,
In 2000, the Cystic Fibrosis Foundation (CFF) and Aurora Bioscience (now part of Vertex Pharmaceuticals) entered into a research collaboration. CFF provided over $100 million in funding, expertise in cystic fibrosis, and a network of treatment centers to participate in clinical studies, while Aurora Bioscience brought drug discovery expertise. In exchange, CFF was entitled to a royalty on any products resulting from the shared research work.
Three point eight billion dollars in exchange for an initial investment of something on the order of $100 million? I'd call that success.
A pair of California-based intellectual property lawyers from the national firm of Pillsbury Winthrop Shaw Pittman LLP helped the CFF conduct its due diligence prior to signing both the original deal with Royalty Pharma and last week's addition to it. Ordinarly I would not mention Pillsbury's role but as it happens my sister is an employee of the firm in Washington and, as a CF aunt, she's mighty proud of her (distant) connection to the deal.
Given the lofty price of Trikafta, someone attending this evening's session with messrs. Boyle and Ginsky naturally asked if the CFF would ever consider using some of that $3.8 billion to provide financial assistance to patients who cannot afford the modulators or other life-extending therapies.
Mike Boyle said there was "a pretty clear and pretty easy answer."
"We know that our primary mission is to cure CF," he explained. So, in a word, No.
The CFF estimates that supplying a year of enzyme replacement therapy for the CF community would cost more than the Foundation's entire medical budget in 2019. Supplying a year of modulators to eligible individuals in the U.S. would cost billions – more than the Foundation's total current resources. Ergo, according to Mike Boyle, "the answer is that while we have some support programs . . . the idea of providing direct financial assistance is something that will strike at the heart of our mission and doesn’t make sense from a financial standpoint when you look at the numbers."
Sounds reasonable. But $312,000 a year for Trikafta doesn't make sense from a financial standpoint either. Just sayin.' Still, this underlying reality endures: Venture philanthropy is just one reason why the CFF is the most remarkably successful disease-related charity in the realm. I'm proud to be the individual giving chair of the CFF's Northern New England Chapter -- and, yes, if you want to know you've joined my family in our quest to overcome CF, the year-end giving season is an excellent opportunity.
[Any habitual and astute readers of this blog will note that I made a slight factual correction on November 11. I thank the CFF for bringing the error to my attention; they care about getting the facts right and so do I.]