Religious Order Runs Drug Lab For Cures, Ethics [WSJ]
By STACY MEICHTRY
December 7, 2006; Page B1
ROME -- The Rev. Franco Decaminada isn't a typical pharmaceutical-industry executive: He works in a palazzo owned by the Vatican, speaks in Gospel metaphors and has taken a religious vow of poverty.
But two years ago, Father Decaminada, a priest and chief financial officer of the Roman Catholic religious order Congregation of the Children of the Immaculate Conception, engineered the acquisition from Pfizer Inc. of a leading Italian biotechnology lab outside Milan specializing in cancer-drug research. The Congregation has rechristened the lab Nerviano Medical Science, or NMS, and has signed drug-development deals totaling more than $400 million with Pfizer and Bristol-Myers Squibb Co.
Earlier this month, NMS took an important step toward developing a commercially viable drug when it began Phase II trials on around 300 people for its top drug candidate -- an Aurora inhibitor, a molecule that targets the reproductive mechanisms of cancer cells. The Aurora inhibitor recently became the first of its kind to complete Phase I clinical testing.
Behind the religious order's acquisition is an unorthodox plan: If it becomes a successful, albeit niche, player in the pharmaceutical industry, the order hopes to have bigger clout in pushing for more ethical business practices from the inside out. "The acquisition is saying what a homily in a church cannot," explains Father Decaminada.
The Congregation's immediate goal is to turn big profits on NMS's platform of cancer-fighting drugs. It would then pour the proceeds into finding cures for some of the diseases prevalent in the developing world, such as tuberculosis and malaria, which attract scant interest from big drug companies. In addition, if big drug companies are interested in its cancer products, the Congregation hopes it can persuade them to adopt more ethical practices in how those drugs are tested, marketed and priced.
"Without a doubt we are serious about entering the market and playing by its rules. At the same time we have the will and the obligation to discuss ethics with even the industry's biggest players," Father Decaminada says.
For more than a century, the Congregation has maintained a network of health clinics for the poor, and operates in countries such as Albania, Brazil and Nigeria. During this time, it was uncomfortable being a client of an industry it thought broke ethical bounds, catering to rich nations by marketing drugs at high prices while neglecting to develop newer vaccines for preventable diseases in the developing world. It was also worried that clinical trials of experimental drugs were becoming less safe and less accurate as drug firms do more human testing in developing nations where regulation is lax.
NMS isn't the Congregation's first foray into the drug business. In the 1920s the Congregation began producing topical creams to treat skin conditions like psoriasis that it distributed through its clinics. In 1967 the order modernized and expanded the skin-care business, opening a factory outside of Rome to develop and manufacture steroid-based dermatological drugs and cosmetics. Those products are distributed throughout its international hospital network and sold commercially in a business that generates around €15 million ($20 million) in annual revenue.
The Congregation's concerns about the pharmaceutical industry are shared by a growing number of Catholic health-care organizations. In recent years, the Vatican has lobbied the World Trade Organization to pressure drug firms to lower the price of life-saving drugs in developing countries.
But as a small not-for-profit customer that relied on the big pharmaceutical makers to supply its hospitals, the Congregation wielded little clout. By entering into the market as a developer, the Congregation hoped it could tip the balance of power slightly in its favor.
So, in 2004, when Pfizer decided to get rid of a 700-person research lab outside Milan as of its global restructuring, the Congregation made an offer. The bid didn't include any money, but the religious order pledged to maintain the center's staff levels and to grant Pfizer the right of first refusal to NMS drugs that were in the lab's pipeline at the time of the sale. Pfizer paid the Congregation €200 million for the right.
The terms strongly appealed to Pfizer, because the firm did not want to lose years of research that it had invested in the lab. At the same time, Pfizer knew it would face heavy costs if it tried to dismantle the center and pay severance fees to a large staff in Italy's highly-regulated labor market.
"Our aim was to find a new owner committed to safeguarding the human and scientific resources of the center," says Pfizer spokesman Stephen Lederer. The Congregation's "plan for the site was in line with our aims -- a commitment to maintain the site's scientific value and employment there," he adds.
The Congregation's bid also won the support of the center-right government of then-Prime Minister Silvio Berlusconi. The government did not want to see one of Italy's leading research centers shut down or fall into foreign hands, yet it wasn't prepared to bear the sole financial burden of maintaining the lab. After the deal was signed, the government pledged €50 million in financing to NMS.
In February, Bristol-Myers Squibb pledged up to $150 million in clinical and regulatory milestone payments -- that is, each time NMS can demonstrate through testing that the drug is producing certain results -- to NMS to develop a new cancer-fighting therapies. For the moment NMS has not reached any of the milestones, the company says.
Father Decaminada says the deal with Pfizer is sufficient to cover NMS's operating costs for at least the next two years. He adds that the Congregation, which has annual revenue of €500 million from its hospital network, has the financial resources to fund the lab if it doesn't produce any marketable drugs. The Vatican doesn't directly finance the Congregation, nor does it have any plans to support NMS. The Holy See did, however, give its approval to the deal, Father Decaminada says.
Giampiero Duglio, a longtime adviser to the Congregation who is now the chief executive of NMS, concedes the order's courtship of Pfizer produced some awkward moments. When Pfizer looked at the Congregation's books before the takeover, it couldn't get a clear picture of its finances. That's because religious orders, unlike corporations, don't keep comprehensive financial records. "I can't tell you how many times I had to explain it to Pfizer," Mr. Duglio recalls.
Mr. Duglio now finds himself splitting his time between two very different worlds. In September, NMS hosted industry executives and researchers at a conference at an upscale hotel in Milan to discuss the latest advancements in cancer therapy. Days later, Mr. Duglio was at the Congregation's austere headquarters in Rome listening to Father Decaminada expound on NMS's goals: to become a small but potent purifying agent in the pharmaceutical industry. Like a "grain of salt," Father Decaminada says, borrowing from a Gospel metaphor from the book of Matthew favored by Pope Benedict XVI. "Sprinkle it on bread and you get flavor."
Pfizer and Bristol-Myers Squibb declined to comment on the terms of their agreements with NMS and the Congregation. A Bristol-Myers spokesman said the company was "pleased" with partnership, which it views as "a means of potentially accelerating the development of life-saving medicines for cancer patients."
A successful cancer-fighting drug could force a clash between NMS's two competing goals of profitability and ethical behavior. Cancer inhibitors currently on the U.S. market rank among the drug industry's most expensive products. As the patent owners of a potential cancer drug, NMS is aware that one of its options could be to license the discovery to a major pharmaceutical firm for developed markets while retaining distribution rights for the developing world. "Whoever owns the patent has all the power," says Mr. Schondelmeyer.
However, Father Decaminada concedes that even if the drugs NMS is developing turn out to be successful, the Congregation knows that it has to play by market rules as it tries to push the pharmaceutical industry. "We are not going to sit down at the table and deliver the Ten Commandments," he says. "It's a matter of finding common ground."
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