Análisis Financiero

Most disease-specific nonprofits are public charities that focus on supporting and treating those affected by a specific disease, with the ultimate goal of curing that disease. Disease-specific charities can focus on diseases that affect many people but remain incurable or on “orphan” diseases that affect a small number of people and thus do not appeal to pharmaceutical companies as

potentially profitable (Feldman & Graddy-Reed, 2014). These organizations are mission-oriented

8 _{Public charities are a class of 501(c)(3) nonprofit organizations that typically receive contributions}

from many sources or receive income from fee-for-service activities. For more information on the distinction, see http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Public-

and often operate in an entrepreneurial vein (Shaywitz, 2012). They serve as links, connecting patients and families to information and support structures, increasing knowledge, and providing advocacy (Leopold, 2012). For rare diseases, these nonprofits serve as a direct and aggressive means of saving family members. Often created by parents (e.g., Hannah’s Hope Fund) or patients (e.g., Chordoma Foundation) desperate for cures, they are the prime collectors and allocators of resources toward fighting the disease (Chronicle of Philanthropy, 2012; Poulos, 2014).

Today, the US has more than 1,400,000 nonprofit organizations, including approximately 950,000 public charities and 97,000 private foundations (National Center for Charitable Statistics, 2013a). Health-related organizations account for roughly 12% of reporting public charities (Pettijohn, 2013). Approximately 26% of these health-oriented charities are disease-specific and/or research- centered organizations. These charities, classified with a G (specific diseases) or H (medical research) major code by the National Taxonomy of Exempt Entities (NTEE), 9 _{account for 3% of all active}

public charities (Table 4.1).

While health has been a major focus of nonprofits throughout US history, disease-specific nonprofits have had a shorter existence. The American Cancer Society was formed in 1913 to raise awareness and educate the public about cancer but did not begin its research program until 1946 (American Cancer Society, 2014). The American Heart Association developed in reverse, forming in 1924 when a group of physicians and social workers sought to conduct studies on heart disease and later expanding its services to the public (American Heart Association, 2014). The March of Dimes Foundation began in 1938 to cure polio. After reaching that goal, the foundation transitioned to a new mission, improving infant survival (Chang, 2010).

Health charities have changed their techniques significantly over time, most notably in the 1960s and 1980s. Prior to the 1960s, the few major health charities divided the year for individual fundraising campaigns. However in the 1960s, the women volunteers who had previously run these efforts shifted their focus to spend less time fundraising (Leopold, 2012). This change in strategy had two major consequences: year-round fundraising by organizations, and the creation of multiple organizations dedicated to fighting the same disease (Leopold, 2012). The 1980s brought about a shift in lobbying strategies. Disease nonprofits previously acted together to lobby for overall funding increases in biomedical research (Best, 2012). However, when AIDS and breast cancer groups had great success with separate lobbying efforts, other disease charities began to opt out of the aggregate and instead increase targeted disease-specific lobbying efforts. This approach resulted in a drastic increase in the overall amount of money spent on lobbying (Best, 2012). These organizations are now changing their approach to funding research.

4.2.1 Leveraging Venture Philanthropy in the Drug-Development Pipeline

Nonprofits have emerged as an important partner in the drug-development pipeline. Pharma has joined with them to form public-private partnerships and utilize their funding streams to help support the creation of drugs to treat rare diseases (Bottazzi, Miles, Diemert, & Hotez, 2006; Hale, Woo, & Lipton, 2005; Kaitin, 2010).10 _{Figure 4.1 shows the drug-development pipeline process.}

Previously, federal funding supported basic research, and venture capital then supported clinical trials and marketization of drugs. However, federal funding has decreased, and both federal and

10 _{Pharma has typically avoided rare diseases viewed as offering low profits because of their small or}

poor potential markets (Hale, Woo, & Lipton, 2005). Yet the need for these drugs is high. As a result, the US government has attempted to provide incentives to develop drugs to treat rare

diseases. In 1983, Congress passed the Orphan Drug Act, and by 1999, more than 200 drugs to treat rare diseases were introduced, a sharp increase from the 10 such drugs introduced in the preceding decade (Grabowski, 2002). Then in 2007, the US FDA launched a program that gives priority review vouchers to companies for these types of drugs (Waltz, 2008), resulting in a six-month decrease in

industry funders have become more risk-averse, creating the research funding valley of death (Feldman & Graddy-Reed, 2014). Further, chances of success are low, with only 1% of preclinical drugs reaching the clinical trial stage and 22% of those compounds gaining FDA approval

(Grabowski, 2002). The time and cost of these attempts continue to rise and now average almost $2 billion and ten years from discovery to launch (Feldman & Graddy-Reed, 2014; Kola, 2008; Powell, Koput, & Smith-Doerr, 1996).

Disease-specific nonprofits are now providing much-needed capital support in this funding valley, leveraging smaller amounts in the early stages to show viability of projects to industry funders for later-stage development (Feldman & Graddy-Reed, 2014). These much-needed early stage funds not only fill a gap but also offer branded support to help researchers obtain follow-on funding from investors (Shamp, 2014; Wallace, 2010). Some nonprofits are also creating their own research labs to decrease the cost of studying a drug (Shaywitz, 2012). Further, since the size of patient populations often poses problems for rare-disease clinical trials (another factor that deters pharmaceutical companies from entering the market), nonprofits are using their networks to create patient pools for clinical trials (Feldman & Graddy-Reed, 2014; Wallace, 2010).

The desire for greater effectiveness leads the rise in nonprofit funding. Organizations are turning to strategic approaches to giving (venture philanthropy) to meet their mission and find cures. This strategic or venture approach reflects the view that funding research constitutes an investment rather than a gift. These nonprofits have more involvement with the project than would previously have been expected. They play a role in forming teams of researchers across institutions, instituting benchmarks and milestone agreements, and incorporating clawbacks, royalties, and licensing terms into clauses regarding outcomes (Feldman & Graddy-Reed, 2014).

patients receive the benefit of the funded research through new drugs and treatments. The Cystic Fibrosis Foundation, ALS Association, Muscular Dystrophy Association, and Wellcome Trust all require royalties from pharmaceutical companies when drugs go to market (Chronicle of

Philanthropy, 2011). These terms provide sustainability to the organization to further benefit their goal. While this trend is widespread, many disease-specific nonprofits consciously choose not to add outcome terms in an effort to speed up the drug-development process. For example, the Chordoma Foundation partners with firms to quickly test preclinical drugs against the foundation’s panel of cells without signing licensing agreements. The goal of accelerating the time to product has

motivated the foundation to make models available to firms to ease the process (Poulos, 2014). This approach highlights an important implication: many of these nonprofits are directly funding research by for-profit companies. This relationship prompts concerns regarding transparency to donors, conflict of interest in the independence of the research, dissemination of research results that may be negative, and the flow of funds between sides (Feldman & Graddy-Reed, 2014; Paluzzi, 2012). These issues need to be considered when evaluating the benefits of this approach.

4.2.2 Partnering and Lobbying

Nonprofit organizations operating under these strategic principles often work to form research teams and partnerships that cross academic and industry boundaries. They also stipulate terms for data sharing among researchers and the research community as well as mandate attendance at conferences (Bercovitz et al., Working Paper). The Michael J. Fox Foundation, for example, hosts an annual conference that brings together academics and industry players to share their research on Parkinson’s disease (Nocera, 2013).

Disease-specific nonprofits are also continuing traditional nonprofit work of lobbying and advocating for additional attention and funding on behalf of their patients. For example, the JDRF

(formerly the Juvenile Diabetes Research Foundation) is working to educate doctors and obtain support for payment from insurance companies because regulatory approval is not enough to get new therapies to patients (Wallace, 2010). Best (2012) has shown that this advocacy produces political outcomes at the institutional level, with the most organized patient groups generating more research funding for the disease overall.

While many examples of success through strategic efforts exist (Als-Nielsen, Chen, Gluud, & Kjaergard, 2003; Best, 2012; Feldman & Graddy-Reed, 2014; Paluzzi, 2012), questions remain about their contributions and results. The amount of research funding from disease-specific nonprofits has been growing rapidly since 2000 and now amounts to roughly $1.2 billion per year for researchers (Chronicle of Philanthropy, 2011; Haugh, 2010). Genetic Engineering & Biotechnology News (GEN) ranked the top twenty grantmaking disease nonprofits (which contributed a combined $700 million to research) by percentage of total revenue spent on grants (table 4.2). While this is a large sum, it is a fraction of the average $2 billion required to bring one drug to market (Kola, 2008). In addition, as

GEN notes, the list includes four Parkinson’s disease–related organizations, raising questions about the best use of funds and role of competition in the nonprofit sector (Genetic Engineering & Biotechnology News, 2013).