Friday, April 24, 2009

DotW: Slip Sliding Away

Perhaps we are too taken with the slide metaphor, but given the results of two major reports released this week by IMS Health and Ernst & Young, it's hard not to feel as the health of the industry is slipping away. (Maybe we are just at the nadir and it's all sunshine and roses from here on out...either that or some companies will be pushing up daisies a year from now.)

On April 22, IMS Health released a revised outlook for the 2009 global pharma market. Proving once again that there is no such thing as a recession-proof industry, IMS predicts anemic sales growth of just 2.5% -3.5% for pharmaceuticals this year. That's two percentage points less than IMS forecasted last October. In dollar terms, our sister pub "The Pink Sheet" DAILY reports the industry will haul in about $70 billion less than expected, though IMS attributes most of the evaporating revenue - $55 billion - to currency fluctuations. That's likely to be cold comfort for many biopharma execs since the remaining losses--$15 billion--are attributed to so-called behavioral changes by patients, who are delaying doctor visits and filling fewer prescriptions.

But it isn't just patients who are keeping a tighter hold on their wallets. On April 23, E&Y issued its own report on the top ten risks facing life sciences companies. Given the tough economic climate (aren't you tired of that phrase?), access to capital emerged near the top of the industry risk list, earning the number two spot. What was the numero uno risk? Demonstrating value amid pricing pressures.

The UK's National Institute of Clinical Excellence has nicely made it part of its mandate to guide centrally-made coverage decisions for the Brits. With healthcare reform one of the major themes of the Obama administration and a groundswell of support for coverage decisions tied to comparative effectiveness, E&Y warns that drug makers better think about such constraints in the US as well.

And the pay-to-play deal Merck anounced with Cigna this week for the Type 2 diabetes meds Januvia and Janumet shows that at least one big pharma is thinking about it seriously. As Andy Pollack notes over at the NYT, Sanofi-Aventis/Proctor & Gamble are taking a similar approach with their osteoporosis drug Actonel, reimbursing insurer Health Alliance for the cost of treating fractures suffered by patients taking that particular medicine.

Who--or what--else slid in the wrong direction this week? Lackluster earnings reports showed Amgen's dependence on new drugs like denosumab and Merck's need for Schering. The possible approval date for the awkwardly named Onglyza, the DPP-IV inhibitor from BMS and AstraZeneca, has shifted from April 30 to July 30. The reason? The drug makers and FDA need to agree on a proposed cardiovascular outcomes trial that will likely be a post-marketing study requirement upon approval.

Meantime, Roche's stock slid 10% on news that data from the infamous C-08 trial didn't support Avastin's use as an adjuvant therapy for colorectal cancer. Almost immediately after the news broke, investors and analysts--and journalists--were asking: "DID ROCHE PAY TOO MUCH FOR GENENTECH?"

It would take a whole blog post--and then some--to answer that question.

In the meantime, we leave you with a little Simon and Garfunkle to get the weekend started off on the right note

We're workin' our jobs, collect our pay. Believe we're gliding down the highway, when in fact we're slip sliding away."

Hopefully into...

GSK/Stiefel Laboratories: This week, GSK stepped into the M&A ring, taking out privately held Stiefel Labs for $2.9 billion in cash. The deal also calls for GSK to pay another $300 million contingent on future performance, and assume about $400 million of Stiefel debt. GSK will combine its existing prescription dermatology business with Stiefel's to create a new, specialist global business operating within GSK but under the Stiefel name. The combined operations would have about $1.5 billion in sales ($900 million of which come from Stiefel) and 8 percent of the global market for prescription dermatology products. Size-wise, the GSK/Stiefel tie-up isn't the mega-deal to which we've--for better or worse--grown accustomed, but GSK's Andrew Witty has said all along that he's not a big fan of the concept. But it does bear the hallmarks of Pfizer/Wyeth and Sanofi's stream of generics buys, including Mexico's Laboratorios Kendrick and the Brazilian firm Medley, in its effort to diversify and derisk GSK. As we wrote yesterday, it represents GSK's slide away from innovation. The buy-out adds hundreds of marketed drugs to GSK's small existing dermatology portfolio--recall that GSK essentially got out of the prescription derm biz in 2005, when it sold its holdings to Altana, now a division of NycoMed. Important Stiefel products include Duac for acne, the dermatitis treatment Olux E, and Soriatane for severe psoriasis. Perhaps more importantly, Stiefel brings GSK about $300 million of consumer sales thanks to products such as Impruv, a line of dry skin care treatments sold at Walgreens. The company also provides GSK with a foothold in the aesthetic skin health market. Thanks to its 2008 acquisition of the French groups ABR Invent and ABR Development for Atlean, Stiefel also has rights to a dermal filler product used for facial sculpting and remodeling. Even as the economy sours, many drug companies are eagerly seeking self-pay products that further hedge their exposure to government and payer-driven reimbursement policies. Indeed, this deal "is yet another example of CEO Witty pursuing his strategy of de-risking and reducing the cyclicality of the business through focusing on growth through consumer and emerging markets rather than the traditional pharma R&D model," Citigroup analyst Kevin Wilson wrote in an April 20 note. Stiefel's sale comes as no surprise, since the company - which is partly owned by the Blackstone private equity group - put itself on the block earlier this year. According to reports at the time Stiefel attracted several suitors looking to buy back into a market they had previously abandoned. This deal, which is about 3.5 times Stiefel's 2008 revenues, is likely to represent healthy returns for Blackstone Group, which acquired a minority stake in the group for $500 million in August 2007.

Merck/Galapagos: In the same week that Merck announced its quarterly global sales had declined 8% year over year, the New Jersey-based pharma struck a pair of deals. In one, Merck increased its involvement with Belgium’s Galapagos, paying $2.9 million upfront in a multi-year option deal to co-develop anti-inflammatory therapies. Milestones under the deal could total $248 million, with Galapagos also eligible to receive royalties on any product from the collaboration that reaches market. Using its SilenceSelect drug-discovery platform to screen potential targets, Galapagos will manage discovery, preclinical development and possibly some Phase I studies, with Merck holding an exclusive option to step in and license candidates, taking them through the remaining development and commercialization process. Earlier this year, the two companies partnered to develop type 2 diabetes and obesity drugs. Galapagos also has tie-ups with Lilly, Janssen and GlaxoSmithKline. The Belgian firms says its multiple, option-based deal strategy will help it fund R&D while enabling it to remain independent. CEO Onno van de Stolpe said Galapagos’ numerous collaborations make it “extremely unlikely” that any suitor would want to buy a company with so many already partnered assets. That strategy could pose challenges in the future, however. If the biotech’s wealth of Big Pharma partners translates into a dearth of M&A options, the company will be more dependent on future downstream milestone payments to fund itself—and that means actually delivering on the promised clinical milestones. In today's economic climate, Galapagos certainly can’t look to public investors, given the lack of tolerance for risk and innovation currently--Joseph Haas.

Merck/Medarex/Massachusetts Biologic Laboratories: In its other deal this week, Merck paid $60 million upfront for the worldwide license to Medarex’s anti-toxin cocktail for Clostridium difficile, a normally innocuous gut-dwelling bacterium that can turn pernicious after patients have been subjected to powerful antibiotic therapy (usually either in a hospital or long-term care facility setting). As part of the agreement, Merck acquires two monoclonal antibodies (MDX-066/CDA-1 and MDX-1388/CDB-1) that attack the two disease-causing toxins secreted by C. diff. If the anti-toxin cocktail helps stave off recurrence of the infection, the deal could yield the Princeton, N.J. biotech and its development partner, Massachusetts Biologic Laboratories, additional development and regulatory milestones totaling $165 million. In Phase II trial data unveiled last November, Medarex showed a 70 percent reduction in the C. diff infection recurrence when the two antibodies were combined with standard of care--either metronidazole or vancomycin—compared with SOC alone. Medarex’s chief financial officer Chris Schade said his firm looked forward to Merck’s ability to fully exploit the combination’s market potential given the pharma’s expertise and global reach. The deal brings fruition to Medarex’s longstanding collaboration with MBL, a nonprofit affiliated with the University of Massachusetts. It also shows Medarex’s determination to remain true to its core focus—oncology--Joseph Haas.

Pfizer/University College London: On Friday, Pfizer's regenerative medicine group announced a collaboration and licensing agreement with UCL scientists aimed at developing stem cell therapies for wet and dry forms of age-related macular degeneration (AMD). Under the terms of the agreement, Pfizer will provide research funding into the development of stem cell-based therapies for AMD and other retinal diseases. In return, after the completion of preclinical studies, Pfizer has the option to conduct clinical trials and commercialize any ophthalmology related therapeutics that result from the work. (Pfizer also gains worldwide rights to said products.) The tie-up show yet again how pharma companies are turning to academia in search of access to lower cost innovation. Any doubts, recall these recent industry-academia tie-ups: J&J's Janssen and Centocor units recently inked collaborations with Vanderbilty University and University of Michigan, while AstraZeneca signed a deal with the Mayo Clinic and the Virginia Polytechnic Institute. And then there was GSK's recent deal with UCL spin-out Pentraxin to develop a novel treatment for amyloidosis. Interestingly, Pfizer's agreement with UCL recalls many of the themes we wrote about when we dove into the GSK/Pentraxin deal. Again, it comes back to the smaller is better R&D structure that GSK has made a cornerstone of its Centres for Excellence in Drug Discovery/Discovery Performance Units, an architecture Pfizer is trying to replicate with its empowered CSOs post Wyeth-merger. It also shows the continued and unwavering interest in specialist-focused diseases. (Okay, we know AMD is a huge problem but any stem cell products aren't likely to be a primary sales call.) If imitation is the sincerest form of flattery, then Pfizer's CEO Kindler must find a lot to like at GSK these days. Last week, the two companies formally acknowledged their love for one another in an HIV joint venture that marries GSK's marketing muscle and established products with Pfizer's newer offerings. WSJ notes that Intercytex Group could be another big winner as a result of the Pfizer/UCL deal. That's because one experimental stem cell-based treatments UCL is working with is SHEF-1, which was develolped by Axordia, a company Intercytex acquired back in December.

(Image courtesy of flickrer Leo Reynolds, used with permission through a creative commons license.)

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