Michael J. Fox Foundation and its Bold Impact on Drug Discovery

medical research, Michael J. Fox FoundationAs an estate planner it is fascinating to watch the power the Michael J. Fox Foundation is unleashing through its nonprofit and its partnership with for-profit companies.

As Katie Hood, the former CEO of The Michael J. Fox Foundation (MJFF – a 501(c)(3) foundation) explained at the July 2011 Harvard Symposium, “The Advancing Role of Non-Profit Organizations in Drug Development”, “Because nonprofit organizations have the primary incentive to work towards a cure for patients, they are willing to fund the novel research that may ultimately lead to a disease modifying treatment. Nonprofit organizations are working with industry to ensure that what emerges from a given grant is compelling to future partners, thus de-risking research.

The MJFF sees itself as tasked with de-risking Parkinson’s disease research through funding early stage research, providing clinical expertise and being a knowledge center for the Parkinson’s research community.”

Furthermore, in a Stanford University Graduate School of Business case study, “The Kinetics and Michael J. Fox Foundations: Partnering with a Purpose”, Debi Brooks, the first hire of the MJFF Foundation is quoted as follows: “It was clear to us that the science was ahead of the money or that there were more ideas than money available to fund them. Good ideas were not being funded because they were too high risk for the NIH, which is the largest funder of medical research in the world”

The case study goes on to say:  “For Brooks that meant creating a foundation that acted in ways NIH could not, or would not act. NIH is a big, basic science discovery machine. It is an enormous and important source of funding for academic research in the country. But the lion’s share of the money is put toward investing in questions initiated by established researchers who sit on each other’s review boards. This approach favors established basic research paths at the expense of projects that are more innovative and complex, yet with high practical and translational potential.”

As an alternative means to develop more innovative approaches, MJFF views funding of novel projects to be done by for-profit companies as a major source of new approaches. A review of the MJFF Form 990 for 2011 shows that in 2011 alone MJFF made more than $10 million in grants to for-profit companies.

As another example of nonprofit foundations making grants to for-profit companies to advance new approaches to curing disease.

In that same July 2011 Symposium, “The Advancing Role of Non-Profit Organizations in Drug Development, Dr. Vicki Sato, professor of management practices at Harvard Business School, and formerly of Vertex Pharmaceuticals, shared Vertex’s experience building collaboration with the Cystic Fibrosis Foundation.

Each organization had financial expectations inherent in the partnership. Vertex needed CFF’s resources to fund the transition from assays to clinical development and CFF ultimately needs the Vertex compounds to come to market to capitalize on its investment. Each group made investments in downstream activities important to the success of the partnership and worked together in ways that benefitted both groups. This collaboration resulted in the development of a drug, KALYDECO which is successful in clinical trials.

In a Harvard Business School article, “Vertex Pharmaceuticals and the Cystic Fibrosis Foundation: Venture Philanthropy Funding for Biotech” Higgins, Lamontange and Kazan 9-808-005, revised July 3, 2013, the authors discuss that as early as 1998 the Cystic Fibrosis Foundation’s CEO, “in an effort to expedite the drug development process and find a cure decided to try a fundamentally new approach: fund for-profit biotech companies that were willing to invest their resources on a rare disease, CF…It was a tough decision. I knew that some people would criticize my new approach. This was a new paradigm for funding biotech research. I also knew that a lot of people- especially the academic researchers that we had been associated with for many years –would not be happy hearing this as they may think their grants would be cut to fund early stage ventures….”

In that same article it is noted that in the years to follow there were other notable non profit foundations (Goldhirsh Foundation, Michael J. Fox Foundation, Project A.L.S. and The Christopher Reeve Foundation) that were willing to try anything to find a cure for their diseases- even if it meant funding for profit bio-tech companies. Exhibit 13 of that article lists some of the non-profits that make grants to for-profit biotech companies.

Brock C. Reeve of the Harvard Stem Cell Institute noted, “We need to think of grants and deals as being more than just about money.”

As we know a private foundation must assume a higher duty of care –known as expenditure responsibility – if it wants to make qualifying distributions to organizations other than traditional 501(c) (3) public charities.

Even though the Treasury Regulations under Code Section 4942 do not explicitly state this, a grant to a nonexempt organization can constitute a qualifying distribution. (Sections 4942(g)(1) and (3). Treas. Reg. Section 53.4942(a)-3(a)(2). For a grant to a nonexempt organization to be a qualifying distribution, the recipient must be an organization that is not controlled by the donor foundation. To treat a grant to a non charitable organization as a qualifying distribution, the donor foundation must be certain the recipient uses the grant solely for its qualifying purposes. The donor organization must maintain adequate records or other evidence that the grant is in fact used for the qualifying purposes to reduce this risk. Since the private foundation will be required to exercise Section 4945 expenditure responsibility with respect to the grant, a grant agreement setting forth the requirements of the Section 4945 regulations should also serve to restrict the grant’s use for the appropriate purpose and to enable the foundation to obtain adequate proof of qualifying for the Section 4942 purposes.

It is fascinating to see how these powerful non-profit organizations who want a change now are partnering with for profit businesses and I certainly look forward to the results of their accelerated research.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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