Nonprofits dedicated to fighting diseases are now providing seed money to pharmaceutical manufacturers in an attempt to get new treatments on the market for patients to use. But these new partnerships, known as “venture philanthropy,” have raised concerns over what the financial investments might do to the impartiality of disease charities when they have a stake in how well the new drugs perform and sell.

Despite their nonprofit status, organizations like the Cystic Fibrosis Foundation stand to make millions of dollars from helping a drug company add a new remedy to its stable of therapies.

In the case of the Cystic Fibrosis Foundation, it gave Vertex Pharmaceuticals $75 million to develop Kalydeco, considered a “breakthrough” drug that could reap big profits.

The foundation has already enjoyed a big return on its investment, collecting royalties on sales of the drug before selling its rights to future royalties to an investment firm for twice the amount it gave Vertex. Vertex, meanwhile, charges $307,000 a year for Kalydeco, with much of the money coming from Medicaid and other government-funded programs.

A group of 24 doctors who treat cystic fibrosis wrote a letter to Dr. Jeff Leiden, the president and CEO of Vertex, stating that the overpricing of Kalydeco “could appear to  be leveraging pain and suffering into huge financial gain for speculators,  some of whom were your top executives who reportedly made millions of dollars in a single day.”

In May 2012, Vertex and the Cystic Fibrosis Foundation released test results that showed positive results for patients who used Kalydeco in combination with another drug. Vertex’s share price shot up by 70%. According to an excellent investigation written by John Fauber of the Milwaukee Journal Sentinel, “Five [Vertex] executives and two directors sold off more than $35 million in shares, mainly at prices from about $55 to $64 a share….Three weeks later, the company said it overstated the effectiveness of the drug in that trial and the stock dropped about $7 a share, ultimately falling back under $40 by December.”

Meanwhile, doctors who care for cystic fibrosis patients are now being instructed in new treatment guidelines—that were funded by the Cystic Fibrosis Foundation—to recommend Kalydeco, which only helps the 4% of cystic fibrosis patients who carry a rare genetic mutation.

As for the Cystic Fibrosis Foundation, according to Fauber’s report, it will be investing another $75 million in Vertex, $58 million in Pfizer and $10 million in Genzyme, which is owned by Sanofi-Aventis.

-David Wallechinsky, Noel Brinkerhoff

To Learn More:

When Disease Charities Partner with Drug Companies, Where Does that Leave Patients (and Reporters)? (by Brenda Goodman, Association of Health Care Journalists)

Charity's Investment a Prescription for Profits for Drug Maker (by John Fauber, Milwaukee Journal Sentinel)