The Profits of Nonprofit

Friday, January 7, 2011

In the beginning, they called her a fool. When pharmaceutical chemist Victoria Hale told friends and colleagues that she wanted to start a nonprofit pharma company, they laughed at her, said it was career suicide, that it couldn’t be done. “About 90 percent said that in strong or gentle words,” recalls Hale, who had previously worked at the US Food and Drug Administration and Genentech. “But I knew I wanted to try.”

And so she did. In 1998, Hale wrote a business plan, gathered seed money, and submitted an application for nonprofit status to the IRS. It was denied. Pharmaceuticals are a profitable industry, the IRS replied, so what’s the need for a nonprofit? Frustrated, Hale defended her philosophy for what felt like the hundredth time: Big Pharma makes drugs for Westerners. She, on the other hand, wanted to make drugs for all of humanity-drugs that don’t necessarily pull a profit.

In 2001, the argument finally worked, and the Institute for OneWorld Health became the first nonprofit pharmaceutical company in the United States. Since its inception, iOWH has received more than $200 million from the Bill & Melinda Gates Foundation as well as funds from other philanthropic donors. The socially conscious company has even tugged at the heartstrings of several for-profit pharmaceutical companies, who have agreed to make and distribute drugs developed by iOWH on a no profit, no loss basis. With that backing, the company has already brought to market a drug to treat visceral leishmaniasis-the world’s second-largest parasitic killer after malaria-and developed a pipeline of others designed for scourges of the developing world: malaria, diarrheal diseases, and parasitic worm infections.

iOWH is unusual, but it is not alone. With philanthropists funneling billions of dollars into biomedical research and traditional drug discovery efforts producing fewer and fewer therapies, the line between for-profit and nonprofit life science companies is beginning to blur as both sides of the divide look for new options. More and more for-profit enterprises are experimenting with nonprofit models, while nonprofit organizations look to incorporate for-profit business practices to stay afloat.

Source: The Scientist (link opens in a new window)