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A different sort of venture

Researcher in a lab

TEXT OF STORY

KAI RYSSDAL: I'm going to take a little risk here and try to pronounce the name of IBM's latest product. It's called the Spatiotemporal Epidemiological Modeler. STEM, for short. It's software that IBM says can predict the spread of infectious diseases. STEM might help drug companies figure out what medicines to sell where, which would be a welcome break for biotechnology companies. They've been having a hard time attracting start-up investors.

Venture capitalists have been keeping their hands on their wallets and shying away from early-stage drug funding. So some decidedly un-mogul types are filling the gap, in a practice known as venture philanthropy. Janet Babin reports now from the Marketplace Innovations Desk at North Carolina Public Radio.


JANET BABIN: Venture capitalists used to pour money into risky early stage biotech ideas.

According to Burrill and Company, biotech financing hit a high of $32 billion in 2000. A year later, the investment dropped to less than half that.

Since then, the financing has rebounded, but experts say the investments are in different places on the drug discovery timeline.

Roger Nolan is with Calvert Research.

At a conference recently, he told me big pharma and venture capitalists now consider early-stage drug funding too risky.

Roger Nolan: They've got so much money, they're willing to wait for the one big home run and pay a lot for that, rather than invest in multiple early stage ones where it's very risky and 1 out of 40 may make it.

The gap in drug funding has been coined "the valley of death." Chip Hawkins takes that saying literally. He's a 40-year-old, living with CF — Cystic Fibrosis.

Chip Hawkins: I've actually passed the median age now. Most people don't live to be 37.

Hawkins says it's new drugs that have kept him alive. And those new drugs wouldn't exist if it weren't for the Cystic Fibrosis Foundation.

When it couldn't find researchers or companies interested in funding CF drug development, foundation board members funded the research themselves. Robert Beall heads up the foundation:

Robert Beall: We've invested over $230 million with biotechnology companies to reduce their risk to get involved.

Thanks to the foundation, the concept of a nonprofit investing in a biotech firm now has a name: venture philanthropy. And it's taking off. Five years ago, Beall spoke at a conference and six people showed up. Last year, the room was packed with 250 biotech execs.

One of the companies the Foundation invests in is Vertex Pharmaceuticals.

[Sound of lab]

That's the company's fancy liquid handling system at work in the lab. After years of testing and sampling, Vertex saw one promising CF drug through to successful clinical trials, and a second is on the way. CEO Joshua Boger says Vertex wouldn't be working on these drugs without the foundation's investment:

Joshua Boger: They're paying a majority of the actual direct cost of bringing the drug candidate forward.

Vertex keeps the rights and patents on the drugs, and the foundation gets royalties if the medicine makes it to the market.

Even though it's not a traditional venture capital deal, Beall says biotech firms have got to perform, just like they would in the for-profit arena:

Beall: We're constantly evaluating performance and if they don't achieve their milestones we will walk away from a company.

Other groups saw the model working and wanted in.

This year, according to publisher Thomson CenterWatch, disease foundations spent more than $100 million funding drug discovery.

But that's just a pittance compared to the billions it takes to develop a drug start to finish. Joel Eisner with Cato Bioventures says some foundations have unrealistic expectations:

Joel Eisner: You know, one of my former colleagues always said that biotechnology is the largest form of legalized gambling.

But the CF Foundation's ultimate objective is to keep people like Chip Hawkins alive. And if that's the goal, the biggest gamble might be not investing in drug development.

In Durham, N.C., I'm Janet Babin for Marketplace.

TEXT OF STORY

KAI RYSSDAL: I'm going to take a little risk here and try to pronounce the name of IBM's latest product. It's called the Spatiotemporal Epidemiological Modeler. STEM, for short. It's software that IBM says can predict the spread of infectious diseases. STEM might help drug companies figure out what medicines to sell where, which would be a welcome break for biotechnology companies. They've been having a hard time attracting start-up investors.

Venture capitalists have been keeping their hands on their wallets and shying away from early-stage drug funding. So some decidedly un-mogul types are filling the gap, in a practice known as venture philanthropy. Janet Babin reports now from the Marketplace Innovations Desk at North Carolina Public Radio.


JANET BABIN: Venture capitalists used to pour money into risky early stage biotech ideas.

According to Burrill and Company, biotech financing hit a high of $32 billion in 2000. A year later, the investment dropped to less than half that.

Since then, the financing has rebounded, but experts say the investments are in different places on the drug discovery timeline.

Roger Nolan is with Calvert Research.

At a conference recently, he told me big pharma and venture capitalists now consider early-stage drug funding too risky.

Roger Nolan: They've got so much money, they're willing to wait for the one big home run and pay a lot for that, rather than invest in multiple early stage ones where it's very risky and 1 out of 40 may make it.

The gap in drug funding has been coined "the valley of death." Chip Hawkins takes that saying literally. He's a 40-year-old, living with CF — Cystic Fibrosis.

Chip Hawkins: I've actually passed the median age now. Most people don't live to be 37.

Hawkins says it's new drugs that have kept him alive. And those new drugs wouldn't exist if it weren't for the Cystic Fibrosis Foundation.

When it couldn't find researchers or companies interested in funding CF drug development, foundation board members funded the research themselves. Robert Beall heads up the foundation:

Robert Beall: We've invested over $230 million with biotechnology companies to reduce their risk to get involved.

Thanks to the foundation, the concept of a nonprofit investing in a biotech firm now has a name: venture philanthropy. And it's taking off. Five years ago, Beall spoke at a conference and six people showed up. Last year, the room was packed with 250 biotech execs.

One of the companies the Foundation invests in is Vertex Pharmaceuticals.

[Sound of lab]

That's the company's fancy liquid handling system at work in the lab. After years of testing and sampling, Vertex saw one promising CF drug through to successful clinical trials, and a second is on the way. CEO Joshua Boger says Vertex wouldn't be working on these drugs without the foundation's investment:

Joshua Boger: They're paying a majority of the actual direct cost of bringing the drug candidate forward.

Vertex keeps the rights and patents on the drugs, and the foundation gets royalties if the medicine makes it to the market.

Even though it's not a traditional venture capital deal, Beall says biotech firms have got to perform, just like they would in the for-profit arena:

Beall: We're constantly evaluating performance and if they don't achieve their milestones we will walk away from a company.

Other groups saw the model working and wanted in.

This year, according to publisher Thomson CenterWatch, disease foundations spent more than $100 million funding drug discovery.

But that's just a pittance compared to the billions it takes to develop a drug start to finish. Joel Eisner with Cato Bioventures says some foundations have unrealistic expectations:

Joel Eisner: You know, one of my former colleagues always said that biotechnology is the largest form of legalized gambling.

But the CF Foundation's ultimate objective is to keep people like Chip Hawkins alive. And if that's the goal, the biggest gamble might be not investing in drug development.

In Durham, N.C., I'm Janet Babin for Marketplace.

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