CF Foundation Cashes Out on Kalydeco in $3.3B Sale to Royalty Pharma

CF Foundation Cashes Out on Kalydeco in $3.3B Sale to Royalty Pharma

Vertex Pharmaceuticals has developed a drug that has changed the way cystic fibrosis is treated for some patients with a specific genetic mutation. And now the non-profit organization that helped fund its development is reaping the rewards in a $3.3 billion deal—the largest, ever, of its kind.

The Cystic Fibrosis Foundation has sold the royalty rights it holds for ivacaftor (Kalydeco)—the first drug to treat the underlying genetic abnormality in cystic fibrosis—and some other experimental CF drugs to Royalty Pharma for a one-time cash payment of $3.3 billion. It’s the largest ever purchase of a pharmaceutical royalty stream, and a windfall for the CF Foundation. The New York Times reported this morning that the foundation had invested $150 million in the development of the drug, which is sold by Cambridge, MA-based Vertex (NASDAQ: VRTX) for a group of patients with a specific genetic mutation, and others the company is advancing through its pipeline.

Vertex pays the foundation “single-digit to sub-teen tiered royalties” on ivacaftor, and would do so for two experimental CF drugs in its pipeline—VX-809 (lumacaftor) and VX-661—if they eventually win FDA approval, according to a note from RBC Capital Markets analyst Michael Yee. Those rights will now transfer over to Royalty Pharma.

The CF Foundation now has billions of dollars to funnel into further research. As the Times reports, it’ll also only further embolden patient advocacy organizations to step up their venture philanthropy efforts—as in, cutting deals with industry to pay for research, aiming for financial rewards down the road that they can reinvest in more drug development.

“This is a transformational moment for the foundation and the entire CF community,” said CF Foundation president and CEO Robert J. Beall, in a statement. “These new resources will allow us to supercharge our efforts to help all people with CF live long, healthy, and fulfilling lives today and work to find a cure.”

Of course, as the Times points out, shooting for financial gains could present a conflict of interest for such organizations, whose primary mission is to get new drugs to patients as fast as possible. You can read more from that report here.

Vertex made history when it won FDA approval of ivacaftor in 2012. The disease is caused by mutations in the CFTR gene that ultimately lead to sticky mucus building up in the lungs. Patients lose lung capacity, start suffering from a variety of infections, and many die in their 30s and 40s. Ivacaftor is the first drug to target the CFTR protein directly, helping improve the breathing ability for a subset of patients with CF. It’s also very expensive—some $300,000 per patient, per year. Vertex’s grand plan is to combine ivacaftor with a few other developmental drugs to treat more and more of the CF population. Next year, for instance, it’ll seek FDA approval of a combination of ivacaftor and another experimental drug, lumacaftor, which would treat the additional 30,000 CF patients worldwide with two copies of the Fdel850 mutation.

The drug generated about $371 million in sales in 2013; Vertex expects that figure to climb to $470 million to $500 million next year, though obviously Royalty Pharma is betting the profits of ivacaftor and the rest of Vertex’s CF franchise are going to climb much higher than that.

As its name suggests, meanwhile, New York-based Royalty Pharma invests in the royalty streams of approved drugs. The firm has more than $10 billion in assets, and stakes in 41 products on the market or in late-stage development—among them Genentech/Roche’s lymphoma drug rituximab (Rituxan).

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