The recent partnership between the Juvenile Diabetes Research Foundation (JDRF), a non-profit that funds type 1, or juvenile, diabetes research, and MacroGenics, a biotechnology company, may seem very unusual—even controversial—at first glance. A charity giving millions to a for-profit company? The simple answer is that both want to find a cure for Type 1 diabetes, but the trend is worth a look.

Under the arrangement the non-profit will provide up to $2 million to fund a pivotal, multinational phase II/III clinical trial designed to assess the effectiveness, tolerance and safety of a compound called teplizumab. This compound is an anti-CD3 humanized monoclonal antibody capable of suspending the auto-immune attack that destroys insulin-producing beta cells in people with recent-onset, Type 1 diabetes in children and adults newly diagnosed with the disease, according to MacroGenics.

Should a non-profit disease foundation gamble on an experimental compound that may not receive FDA approval? The answer depends largely on the type of disease studied...

Partnerships between disease foundations and private companies have emerged in part because of advances in genetic research. Many foundations were established in the 1940s, ‘50s and ‘60s with a mission to discover the root cause of a disease, and Genetic research in the 1980s provided the key to some of those diseases.

The venture philanthropists believe that the private sector does a more efficient job than the academia when it comes to product development. For the biotechs and small pharma it means mitigation of financial risk and incentive to research those diseases that big pharma take no interest in because they affect too small a percentage of the population.

A few years ago, the Cystic Fibrosis Foundation Therapeutics (CFFT), a non-profit affiliate of the Cystic Fibrosis Foundation, invested more than one-third of its $62 million research grant money in clinical trials. It can be difficult to quantify the success of corporate grants, given the lengthy process of clinical trials, and 15 years ago corporate partnerships were practically unheard of.

However, the development of the cystic fibrosis drug, TOBI, illustrates the potential. The CF Foundation funded a small pharmaceutical company called Pathogenesis in the early 1990s to conduct clinical research of this aerosolized drug that would replace an intravenous one. TOBI was approved in 1998. Today, the drug brings in about $170 million per year. The CF Foundation reaped $17 million by selling its royalties and put that money right back into its research budget. The CF Foundation now has more than 25 drug therapy candidates in its drug development pipeline.

But not all such investments results in handsome payoffs. Betting on a drug’s approval is always a big gamble, one that foundations may not want to take or need to. Some foundations represent diseases that affect larger percentages of the U.S. population, such as heart disease and type 2 diabetes, areas where the big pharma is already spending considerable amounts of money on new therapies. The American Diabetes Association and the American Heart Association have explicit policies against granting research awards to for-profit ventures.

For some foundations, the complex mechanism of the disease they fund to cure is a stumbling block. For example, compared with a single-gene disease like cystic fibrosis, the path to success is less clear for arthritis, making the risks of investing in a therapy greater.

In the coming years, it may become more common for foundations to establish their own clinics to expedite the clinical trials process and entice companies to work with them. The CF Foundation already has its Therapeutic Development Network and just this week announced that it will invest more than $3 million to expand its clinical research network.

CFFT is making awards to 45 sites in the U.S. and one in Canada for clinical research training, resources and infrastructure support. The Muscular Dystrophy Association has relationships with more than 200 clinics and is discussing plans for a site network.

The trend of non-for-profit disease foundations participating in venture philanthropy will most likely continue to grow. While these investments are a risk for them, letting promising research languish for lack of funds is an even greater one for the patients they serve.