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Forbes Monday, December 13, 2004 The 2005 Investment Guide Eye On The Prize William P. Barrett, 12.13.04 Deftly exploiting celebs like Larry King and Mary Tyler Moore, the Juvenile Diabetes Research Foundation is able to throw money at one goal--finding a cure. Too bad there aren't more charities with that kind of focus. Listen to Peter Van Etten, the wiry chief executive of the Juvenile Diabetes Research Foundation International. "This is a retail operation," he says of the way its national chapter network is run. Overhead? "Keep it low." Van Etten on funding research projects: "We make investments." Started in 1970 by distraught parents of young children diagnosed with diabetes, the JDRF, headquartered on Wall Street in New York, is now one of the younger entries on the FORBES list of 200 large nonprofits, as measured by donations. With the adroit use of celebrities and business leaders, the JDRF raised $148 million of contributions in the fiscal year ended June 30, up 10% from last year. Its fundraising efficiency is 91%. Send money to these people and you can be sure that only a small portion will be frittered away soliciting you for more, and the bulk of what's left will be invested in a single-minded drive to find a definitive cure for juvenile diabetes. Such efficiency and such focus are far from common in the charity world. Plenty of charities net less than 70 cents of the contributed dollar, thanks to high fundraising expenses. Among large ones, Children's National Medical Center in Washington, D.C., San Francisco public TV station KQED and Paralyzed Veterans of America all have efficiencies this low. Moreover, lots of others include in charitable goals vaguely defined "educational" efforts that, at least in part, educate the public about their worthiness and thus help perpetuate their own existence. At JDRF the genuine objective is to go out of business by investing in science and ending the disease. The JDRF put $30 million into public education efforts last year, but $93 million into hard research, helping to coax perhaps triple that sum from government agencies and drug companies. Only two single-illness nonprofits--the American Heart Association and the American Cancer Society, both far older--paid for more research. Despite greater revenues, the rival American Diabetes Association, founded 30 years before the JDRF, put only half that into research. All three are considerably less efficient than the JDRF in fundraising and overhead. Upwards of 1 million persons in the U.S. have type 1 diabetes, also known as insulin-dependent or juvenile-onset diabetes. Their diabetes is caused by a failure of the pancreas to produce sufficient insulin, a hormone needed to process sugar. Diabetics ameliorate their disease with daily insulin injections, but complications abound. From the beginning the JDRF has been driven by passionate volunteers who lobby federal lawmakers and agencies--diabetic offspring often in tow--to seek research funding and raise awareness. "We were called the crazies," recalls JDRF founding member Carol Lurie, jolted into action after the diagnosis of her 10-year-old son. (He's now a parent of a diabetic daughter.) The nonprofit stages a Children's Congress every other year, bringing 150 afflicted kids from around the country to Washington to generate not-so-subtle pressure. The JDRF also plays the celebrity card well, recruiting people with diabetes in their families. Among them: actresses Dina Merrill and Mary Tyler Moore; Leo Mullin, the retired chief of Delta Air Lines; and New York Jets owner Robert Wood (Woody) Johnson IV. "If someone prominent has juvenile diabetes in the family, we'll find out somehow," says Roy Smith, a New York University business professor and JDRF board member. Through its network of heavies, he says, "we can get to anybody." JDRF's 39-member board includes TV interviewer Larry King and ex-House Speaker Newt Gingrich. By 1999 the organization had grown perhaps too successful. It was sitting on $82 million in net assets, buoyed by stock market gains, and the administration was starting to develop fat. Board members decided to go for broke in finding a cure by unleashing those assets in a heroic research push. And it acted to soup up fundraising and efficiency by hiring, in early 2000, Van Etten, a longtime nonprofit health-care-system executive with a Harvard M.B.A. and a reputation as a cost-cutter. He lived up to his rep. Van Etten fired executives, imposed tight controls and cut the number of chapters from 110 to 79 by, for example, merging six units in his native New England into one. On the fundraising side, he set goals for each chapter based on a community's wealth. And rather than experiment with expensive fundraising tactics, such as direct mail, he stuck to JDRF's tried- and-true methods of seeking big gifts and staging walkathons and galas. These events have an average profit margin of 83% and account for nearly three-quarters of contributions. Some seemingly less flush chapters post some pretty big numbers: $1 million out of Columbia, S.C., $2.5 million from San Antonio. On Van Etten's watch contributions have risen 62%. By dipping into assets as well, Van Etten was able to pump up research funding by 59%. Net assets now stand at $23 million, down 72%, which suits Van Etten just fine. Here's the topper: An effective cure may be in sight. In a breakthrough development in 2000, scientists in Edmonton, Alberta devised a way to transfer cell clusters called islets from the pancreas of a dead person to that of a diabetic such that the islets still produce insulin. Some 300 people have undergone the experimental procedure; more than half need no insulin injections after one year. Says Van Etten, "It works." This advance has pushed the foundation smack into the political issue of stem-cell research. If the science can be perfected, there would be a need for a huge supply of pancreatic cells. The JDRF was among the first prominent health advocates to call for greatly increased research on stem cells harvested from discarded human embryos, which could grow into insulin-producing cells. President Bush, citing ethical issues, has allowed only limited federal funding for stem-cell research. The JDRF is now spending $8 million a year on this. It threw $1 million into the successful campaign to pass California Proposition 71, which authorizes $3 billion of state funding for stem-cell research. Hedging its bets, the JDRF is planning, if necessary, to move more research abroad. The JDRF awarded 500 research grants last year, although it thinks it can achieve more by moving toward fewer but bigger fixed-term collaborations with brand-name research institutions like Columbia and Harvard. In a nod to its concerned-parents origins, the JDRF is said to be the only large single-illness nonprofit to use a 100% lay board to help review grant proposals. Van Etten, 58, received $544,853 in yearly compensation. He says he would welcome losing his job if a cure is perfected. Our survey starts on page 250 with an expanded version at www.forbes.com/charities. The list shows key efficiency ratios and, if available, the trend from the previous year. Higher is better. Charitable commitment shows how much of total expenses went for the charitable purpose, excluding management, overhead and fundraising. Average:84%, down 1%. Fundraising efficiency indicates the share of gifts less fundraising expenses. Average: 89%, unchanged. Donor dependency calculates how much of gifts was needed to make ends meet. A number above 100% means the nonprofit needed it all; a negative number, often due to sale of goods and investment gains, not a dime. This ratio dropped to 89% from 107%. This year we also note nonprofits that failed one or more standards set by the Better Business Bureau Wise Giving Alliance or didn't supply requested information.
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