Charity in a cold climate

There’s a curiosity at the BioFinance and BioInnovate Europe Conference in London next week. Amidst a programme that features the cream of biotech financiers, investment bankers and venture capitalists is a session on charity funding.

This is indeed a sign of the times – with the capital markets frozen and the traditional funding model broken down, biotechs are increasingly turning to charitable funding to help eke out scarce resources.

One case in point is Phytopharm, a UK company that specialises in developing traditional herbal remedies as pharmaceuticals. Following a restructuring to conserve cash in February this year (in which staff numbers were cut from 40 to 25), the company said it was making a targeted effort to raise money from research charities for the further development of Cogane, a Parkinson’s disease treatment, and Myogane for motor neurone disease.

Phytopharm has experience of raising this type of funding, having previously attracted funding for Cogane of $1.6 million from Parkinson’s Disease charity, the Michael J Fox Foundation. This product entered a Phase Ib clinical trial this week, but with sufficient funding for only the next 12 months, much now hangs on Phytopharm’s ability to attract further charitable funding, something to which it says senior management are “devoting considerable effort.”

Similarly, in March, Astex Therapeutics Ltd of Cambridge announced it was to collaborate with the Multiple Myeloma Research Foundation (MMRF) in an agreement which will see the charity award up to $1 million and provide access to clinicians and patients, to carry out Phase II development of one of the company’s cancer treatments, AT7519, a cyclin dependent kinase inhibitor.

This was Astex’s third such deal with a medical research charity, bringing to £10 million the total charitable funding it has attracted for clinical trials of its drugs.

“As with many other biotechs we are trying to survive the nuclear winter caused by the financial crisis,” Harren Jhoti, CEO, said when the deal was announced. “We have been talking to foundations and charities with an interest in specific tumour types. They can help bridge the funding gap, but they also provide world class expertise in their area.”

Jhoti feels that the benefits of getting support from charities go beyond the funding itself. Charities representing patients with particular diseases work with the leading clinicians in the field, and can also provide access to patients to speed up the process of organising clinical trials.

Furthermore, the objective of research charities is to get better treatments for the diseases they represent. In general they are not looking for a stake in the company, and their funding is non-dilutive.

Jhoti believes that the expertise of charities is such that attracting their money can impress potential pharma partners. “In cancer there are so many compounds out there that pharma has a huge amount of choice. Having the backing of a patient-focused charity is a significant validation.”

Jhoti’s experience indicates that medical charities are very serious about scouting for research that could be applied to treatments in their disease of interest. They follow the progress of products in development with a keener eye than pharma, and furthermore they are agnostic over whether compounds are small molecules or biopharmaceuticals. “They can look across a broader range because they are not restricted by what’s in the portfolio already, or by existing fields of expertise,” said Jhoti.

As proof of this, while Astex was intending to get in touch with MMRF, it was pre-empted when the charity got in touch to request a meeting, having seen a presentation about AT7519.

The organisation that is credited as being the prime mover in re-writing the rules for charitable funding of medical research is the US Cystic Fibrosis Foundation (CFF). It has been funding research since the 1950s, but in the past 12 years, under the stewardship of Robert Beall, it has put far more focus on funding products under development in biotech companies. Its first such agreement was with Vertex Pharmaceuticals. In 1997 CFF gave the company $20 million to set up a high-throughput screening programme with the objective of finding orally-administered treatments for the inherited respiratory disease.

And, of course, charities can experience the same setbacks as other funders when drugs fail to live up to expectations. In January this year US biotech Altus Pharmaceuticals said it was dropping Trizytek, a drug whose development has been co-funded by CFF, after a Phase III trial failed to provide produce good enough data to apply for a marketing authorisation.

But this is not to imply that disease-focused medical charities do not apply conventional criteria to the investments. In common with investors with purely financial motives, charities are applying conventional due diligence.

“They do a good level of due diligence on the asset, though maybe are less concerned about issues like scale-up and manufacturing that concern pharma,” said Jhoti, adding “But at the end of the day their remit is to provide new therapies, so they do take an interest.”

There is no sign of an end to the funding drought. But even when, or if, it arrives the importance of charitable funding is unlikely to diminish. In any environment it is a challenge to get funding for every product in the portfolio, and most start-ups have to make choices over which to prioritise.

Attracting charitable funding looks like remaining an important means of de-risking clinical programmes and adding more value to assets.