Thursday, 13 December 2012

Kalydecogate (Part II): A Global CF Foundation?

This follows on from my post on 1 December 2012 in response to the difficulties CF patients in the UK and other non-US markets have had in accessing the new drug Kalydeco which was developed by Vertex Pharmaceuticals with financial backing from the CF Foundation: Click here to read "Kalydecogate (Part I)"

The Cystic Fibrosis Foundation (“CFF”) has total annual revenue of over $300m. It has total assets of $250m, including an investment portfolio of $160m and cash equivalents of $40m. By comparison, the UK’s CF Trust is far smaller with c. £9m in annual revenue and total assets of c. £10m. 

In the UK, the CF Trust has 9,000 patients to serve so that's $1,600 per pw/CF.

In the US, the CFF has 30,000 patients to serve so that's $10,000 per pw/CF.

Clearly this is not comparing apples with apples as the two countries have very different healthcare systems but it does point to the relative clout of the CFF and its absolute size is important in a world where new treatments are so expensive to develop. The CFF has a great deal of firepower in an ecosystem with 70,000 patients globally (less than the capacity of Old Trafford). It is essentially the global voice of people with CF when it comes to speaking to the pharmaceutical industry. It has certainly made some amazing things happen and helped CF life-expectancies rise steadily over the last 50 years or so.

The CFF has an innovative model that is now being used by other foundations as a template to facilitate the development of treatments for other diseases. But is the CFF model the most efficient one with respect to the collective interest of CF patients in the US? How about CF patients globally? 

Pharmacy Services

In the most recent CFF financial statements, CF Services Inc. (“CFS”) the specialist CF pharmacy arm of the CFF is the Foundation's largest source of income (approx. $170m last year). In addition to filling prescriptions, CFS also provides advice and assistance on re-imbursement issues for patients. The CFF says this means it can make sure people with CF get what they need at reasonable prices but it may also mean their interests are not always aligned with those of patients. It has an interest in high sales, albeit one which it must balance against other interests. Does the CFS give retail preference to drugs and treatments in which the CFF has a royalty interest over purely third party products? 

On 7 December 2012, CFS joined forces with Walgreens, the largest drug retailer in the US. Since the insurance company payers often dictate which pharmacy a patient must use for their prescriptions, patients may feel they are subject to a form of monopoly.  The CFF must have some fascinating and very complicated discussions with payers in relation to new drugs like Kalydeco where it has a royalty entitlement. They must negotiate the price alongside the pharmaceutical partner and then also try to persuade the payers to use their pharmacy services in preference to other independent pharmacy service providers. They have a lot of different interests here but it is difficult to see how this arrangement gives the CFF any negotiating power or, indeed, any incentive to keep prices down. Clearly Walgreens have no philanthropic duty towards CF patients. This complex web of relationships may or may not be in the interests of patients in the US. It is important because these pricing discussions have significant consequences for people with CF all over the world. 

Given its other roles, it looks like the CFF's role as a provider of specialst CF pharmacy services might create a conflict of interest. 

Collaborative Drug Discovery & Development

Cystic Fibrosis Foundation Therapeutics, Inc. (“CFFT”) is the CFF’s non-profit discovery and development affiliate. It provides capital to pharma/biotech companies and also access to the national patient data/genotype database and assistance in organising clinical trials and recruiting volunteers through the network of specialist CF centres. It would very difficult and perhaps impossible for a drug company to try to develop a new CF drug without the support of the CFF acting through CFFT.

Clearly some form of collaboration makes a great deal of sense. The CFF has a body of knowledge and infrastructure in place and it is far more efficient for the drug company to “rent” these things than try to build them from scratch. The economics of orphan drug development are bad enough without taking on unnecessary costs.

If the collective goal is to bring effective new disease-modifying and symptomatic treatments to market as quickly as possible, there must also be a role for the CFF to make sure different drug companies are not deploying resources on the same work, to encourage the timely and efficient sharing of information and to facilitate the development of “general purpose” tools and platforms that can be accessed centrally. There must be a role in overseeing a highly-targeted global research programme - linking with centres of excellence around the world – coupled with pro-active global engagement with scientists, drug companies, politicians, government officials, clinical trial participants, patients, donors and other stakeholders. 

With each new drug costing approximately £1 billion to bring to market, the major challenge is for the pharmaceutical industry to find ways to design experiments so things that don’t work are identified and eliminated far more quickly and far more cheaply. This problem is particularly acute for rare or orphan diseases like CF and the new collaborative models are helping to address that.  

Science is a series of failures, need to fail fast and get them out the way.”
Michael J. Fox, speaking at the 2012 Forbes Healthcare Summit

Autism Speaks has followed the CFF’s model and recently set up a non-profit affiliate called DELSIA to collaborate with pharmaceutical companies and other for-profit players to move new scientific discoveries from the lab into the hands of patients in need. The Crohn’s and Colitis Foundation of Canada is doing something similar as is Scott Johnson with his incredible Myelin Repair Foundation. The Michael J. Fox Foundation for Parkinson’s Research has developed a remarkable model to develop new treatments for PD. This is a brilliant role model for others. It has leveraged global scientific resources and re-configured the PD community to achieve significant impacts and change the paradigm with a laser focus on translating scientific breakthroughs into treatments available to patients. Michael J. Fox has shown that sometimes it is not the science that limits the treatment options for a given disease but the development model. The so-called “action-tank” FasterCures, backed by the Milken Institute, is acting as an effective and open knowledge-sharing platform and a catalyst to help spread these new collaborative models to other under-treated diseases. 

So, in principle, collaboration makes sense in the context of many diseases. However, the practical details of these emerging collaborations are less intuitive.

Collaborative Models: Practical Question No.1

What kind of work should the foundations fund? There are two aspects to this. First, they should only fund work that is important. That is, they should have an overall scientific strategy (and ideally some notion of a critical path) and they should only enable work that is progressive in the context of that strategy. Second, it is axiomatic that they should not simply fund work that the market was going to fund in any event. They should only fund projects that are too experimental or early-stage for the pharmaceutical industry to do by themselves. They can create the maximum impact by bridging this gap (making sure they always know how big the gap is and don’t end up building half a bridge) and then making it a priority to move projects forward to the stage where pharmaceutical companies can take them on and release the foundation to focus financial resources on other early stage projects.

In this way, the foundations can expand the pool of available capital to fund a greater universe of projects rather than simply change the nature of the capital going into a given universe of projects. Foundation capital should complement not substitute for private capital. These points have been well made and developed very effectively by John LaMattina on his blog at

There may also be a “moral hazard” point here though. If a pharmaceutical company feels it can get a foundation to fund their research at a cost of capital which is lower than the market would charge or its own internal rate, then it may reconsider its commitments more generally. For example, if a pharma receives money from a foundation for a project it was planning to fund itself, then the pharma may well look at planned spending on other projects and seek to tap the same or a different foundation for those projects too. So if they are not careful the foundations as a whole may see a negative compounding effect i.e. they may find a lot more gaps appearing in places they do not expect. Big Pharma will treat them like suckers if they act like suckers!      

Collaborative Models: Practical Question No.2

How should the deals be structured? Specifically, what should the foundations receive in return for providing these resources to the drug companies? Obviously one kind of “return” would simply be effective outcomes for patients i.e. the foundation might try to establish precisely-defined milestones and controls to ensure each dollar spent is tied to an effective step forward on the path to an effective overall outcome. In addition, foundations may seek to build in pricing guarantees or other relevant commitments from the partner.

While much of the CFFT transaction detail is not disclosed, one can comment on those aspects which are disclosed. The CFFT’s adopted model includes negotiating royalties from its pharma/biotech partners on drug sales in return for its commitment of capital and other resources. The principle is CFFT receives these royalties and recycles them into more R&D for CF especially targeting the most common mutation delta F508 (c.80% of CF cases). This looks like a great model for people with CF. The two most notable examples to date of deals based on this model are the $75m to Vertex and the $58m to Pfizer both of which are aimed at developing new genotype-specific small molecule treatments such as Kalydeco (formerly known as VX-770) and principally targeting delta F508.

It stands to reason that the CFF's royalty position may influence its attitude to pricing. Since it stands to make more money the higher the price, the CFF may push for prices higher than it otherwise would. Clearly the prices of new orphan drugs have to be relatively high as the cost of development is largely the same irrespective of the number of patients with the disease. This cold equation may well mean the difference between a completely new kind of drug being put in the hands of patients in need, or not.

With the CFF and the relevant pharma/biotech partner having an interest in high prices and the US insurance companies tending not to push back too hard, the result is of course high list prices. The point about the CFF royalty is that it may lead to prices that are higher than they would be if the CFF did not have a royalty since, with no royalty rights, it might naturally seek to negotiate prices down (in order to maximise the number of people who can benefit) or procure commitments for future R&D work in return for its financial support and access to its unique IP and infrastructure.   

On the one hand, the adopted model means relatively large royalties to CFF (through CFFT) which should help to speed the development of other treatments. At least most patients in the US who would benefit will get the drug as the health system is relatively well-funded. On the other, it means people with CF in other countries with less well-funded health services may not be able to get the new drug. Around 60% of people currently diagnosed with CF live outside the US so it is an important consideration.

As has been well documented elsewhere, Kalydeco is a transformative treatment that is still not generally available to eligible patients with the G551D mutation in the United Kingdom, the Republic of Ireland, Canada and Australia. In the UK, the NHS is resisting paying the $294,000 per patient per annum list price on the basis of cost-effectiveness. This is an on-going travesty causing unnecessary suffering to many young people and one can only hope it is resolved without further delay and that procedures are changed to ensure nothing like it happens again.

One can argue that health services in these countries ought simply to pay the price asked and that the problem is not limited resources but misallocation of resources in systems that fully-fund certain elective treatments or treatments with only marginal, or even unproven effects, while not prioritising highly effective treatments that only impact on a small number of people. It is a political issue but also an issue of the effective management of resources. It seems painfully obvious that health services should spend less on things that don’t work and more on things that do. Others such as David Grainger on his DrugBaron blog and @sciencescanner Twitter feed have argued the case for limiting the scope of services offered by the NHS and I referred to this in my Kalydeco post. Ben Goldacre continues to eviscerate the powers that be in his relentless evidence-based campaign based on in his excellent book (“Bad Pharma”) and his accompanying multi-media assault. The corollary, of course, is more Good Pharma such as Kalydeco. These kinds of changes will have to happen but they will take a long time. It is not academic. It is time many people with CF and other rare diseases simply do not have.   

Be that as it may, it does firmly underline the need for people with rare diseases to organise themselves more effectively and get their message across to the right people at the right time with more effective lobbying.

It also remains valid to ask whether the CFF/Pharma/Payer “complex” is efficient in terms of the collective interest of the global CF community or whether it may lead to prices higher than they need be and a lower portion of eligible patients treated.

Need for a Global Foundation

Perhaps this points to the need for a new global foundation to act in the interests of everyone with CF regardless of where they happen to live. In addition to the points about new drug pricing and deal structures, a global foundation would have greater political clout and may help to address the lobbying issue when it comes to re-imbursement. 

On a more technical note, it is unhelpful that North American standards of diagnosis for CF are slightly different from those in Europe.

This kind of misalignment is not conducive to the efficient sharing of research in the common pursuit of a cure. A global foundation could address some of these technical issues and otherwise facilitate the efficient discovery and development of new drugs and treatments.

The limiting condition for rare diseases should be the pace of science and not organisational friction or the geographic location of capital. 

Cure the model. Cure the disease.

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