Saturday, January 31, 2009

DotW: Titanic Meets Iceberg

Titanic, Meet Iceberg. Iceberg, Meet Titanic.

Just what did these two men say to each other on Monday at the press conference announcing their $68 billion cash-and-stock tie up? Readers weighed in with some creative suggestions, including the correct pronunciation of the new merged company's name. "Let me help's pronounced FI-ZER," wrote one of our loyal readers. It was tough to choose the winning-est caption for this photo--anything IS better than the corp speak that accompanied it--but at day's end this Blogger was quite taken with the reference to the storied sinking ship. (Congratulations, "Anonymous"--if that's your real name--you win!)

Will historians look back on Jan. 26 as the date titanic Pfizer started its slow slide into the debths of non-existence? We aren't sure. Debate continues to rage over the wisdom of the deal and the ability of the mega-merger to bridge the chasm of patent expiries. (You can see ongoing coverage of the deal from "The Pink Sheet" here and here and here, as well as here at IVB.)

Another frequent topic of conversation--and of no less import--what to call this new premier biopharma? Wy-Pfi remains a popular and humorous choice. Certainly Pfieth doesn't exactly trip off the tongue, and it's first syllable connotes distaste or disapproval--or at least a big ugly Giant. (Wait, MAYBE it is a fitting name after all.) Wyeth employees are rumored to prefer "Wyzer". That might be the wiser course of action, especially as Pfizer woos some top-notch execs such as vaccine guru Emilio Emini to stay on at the new firm.

But Kindler and Poussot were be no means the only newsmakers this week. Clearly disgruntled that Pfizer pushed its name off the front page of the WSJ--okay, there were other reasons like pending Avastin trial data--Roche made headlines with its openly hostile, lower bid for Genentech. Not surprisingly, Genentech responded to Roche's salvo with a resounding "No" and followed up with a "Nein" and a "Non" just to be sure the Swiss pharma got the message. (See below.)

On the clinical front, Takeda finally experienced some good regulatory news. Despite a missed PDUFA date, the company's Kapidex, a follow-on to the GERD-treatment blockbuster Prevacid, won regulatory approval on Friday. The news came in the nick of time: Prevacid loses patent protection later this year.

This week also brought good news for Lilly and Daiichi Sankyo. As "The Pink Sheet" Daily reports, the two pharmas scored big with the FDA heading into their Feb. 3 advisory committee meeting on prasugrel. In briefing documents to the Cardiovascular and Renal Drugs Advisory Committee, FDA said that prasugrel's strong cardiovascular efficacy profile outweighs its risk of bleeding--largely putting to rest concerns that multiple delays during the NDA review would prevent approval. The news defininitely off-set the pharma's somewhat lackluster earnings.

Speaking of earnings calls, Amgen's was interesting for it's all-denosumab-all-the time undertones, which will likely swell into overtones given the dearth of products in the Big Biotech's pipeline. (Putting even more pressure on denosumab, company execs signaled that disappointing data associated with the phosphate binder and Renagel competitor AMG 223 warranted a "range of options for the development of this molecule rather than pursuing it by ourselves.") AMG 223 was acquired in the $420 million purchase of Ilypsa in 2007--not money well spent, we guess.

As you take a breath and try and catch up on the week's news, we are here to help. Time for...

Roche/Genentech: Remind us never to play poker with Severin Schwann. The man cut his teeth on hostile deal-making when he launched a months long pursuit of the molecular diagnostics maker Ventana Medical Systems in 2007. That courtship had a happy ending--the deal turned friendly after Roche finally upped its price 19%. But Schwann is playing a much trickier game with this latest hostile bid for Genentech, which requires Roche to persuade at least 80% of the biotech's minority shareholders of the deal's value if the Swiss Pharma is to prevail.

Not only could shareholders reject this latest offer, forcing two marquee investment banks to assess a fair value for Genentech that Roche can either accept or walk away from, there's a serious risk that this heavy-handed move will alienate the top-flight Genentech talent Schwann and his team have worked so hard to keep.

While risky, the $86.50 offer, which is 3% lower than the price Genentech rejected last summer, was intended to send a clear message to Genentech execs to return to the negotiating table or face the potential of an even smaller future bid. “We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement,” Roche chairman Franz Humer said in a statement. “We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer.”

The pharma is in a race against time: it would prefer to bring negotiations to a conclusion ahead of the release of widely anticipated data associated with the adjuvant use of Avastin in colorectal cancer. (Indeed, Genentech may have provoked Roche's gambit when it issued news last week that it anticipated trial data as soon as mid-April.) If the data are positive, many analysts expect Genentech's share price could skyrocket into the triple digits, which would add considerable cost to the deal.

Especially given the current cost of debt. Roche hasn't said for sure that it's lined up the money to do the deal. But others have reported that the pharma intends to use $14 billion of its own cash, financing the remaining $28 billion with a combination of commercial paper, bonds, and traditional bank financing. In July, sources say the original cost of debt would have been around 4%. But it’s now “at least 6 percent and could be even higher given the terms Pfizer got for Wyeth,” says a knowledgeable financier who spoke with IVB on Friday afternoon.

Moreover, Pfizer’s recent agreement to buy Wyeth for $68 billion may add to Roche’s pressure as banks may have a limited appetite for backing additional large pharmaceutical deals.

Many expect Roche to sweeten this latest offer in the ensuing weeks. But for every dollar per share Roche increases its current offer, it needs to come up with roughly an additional $500 million. The key question is how much higher is the Swiss Pharma willing to go?

Wyeth/Pfizer: Okay, so we covered this deal in last week's edition but we would be remiss if we didn't at least mention it again. (Let all our top-notch analysis go to waste?) As we write in the issue of "The Pink Sheet" due out Monday, with Wyeth, Pfizer gains a levee to buffer the encroaching storm. The deal could set the stage for more industry consolidation to follow as other big pharmas seek to weather their own patent challenges. Certainly it provides one strategy for covering up bad news associated with off-label drug use.

But whether a mega-merger will solve Pfizer’s problems remains to be seen. Although the move helps position Pfizer as a future biologics and vaccines Prevnar powerhouse, the addition of Wyeth doesn’t position Pfizer for near-term growth, but rather will allow the company to maintain its 2008 revenues and earnings-per-share levels through 2012. The company is forecasting $70 billion in combined revenues in 2012, although Wall Street’s consensus estimates have been about $4 billion lower. With that in mind, investors will have to keep an eye on the horizon toward the long-term.

“We’re obviously very focused on here and now and 2012, but this is a very long-term business, and we believe this deal positions us extremely well for long-term shareholder value creation,” CEO Jeff Kindler said during a same-day conference call. (But Jeff, what about the dividend?)

Wyeth partners could feel the pain of the merger sooner rather than later. Kindler indicated Monday that the company would move quickly to integrate the two companies. After months spent righting its own house, that likely means Pfizer aims to slot pipeline programs into its six invest-to-win areas. For Wyeth partners pursuing programs that fall outside this world-view, especially in de-prioritized areas such as CV and obesity--it's likely to be sayonara. Already one would-be partner has felt the axe. On Monday, Crucell announced that Wyeth had broken off acquisition talks in light of the Pfizer's offer.

Astellas/CV Therapeutics: Already partnered on the myocardial perfusion imaging agent Lexiscan, the two companies had been talking behind the scenes for more than a year about partnering in some manner on CVT’s growing angina drug, Ranexa. Then, on Jan. 27, the Japanese pharma went against its country’s traditional business practice of seeking consensus and publicly revealed its $1 billion bid to buy CVT for $16 a share. Astellas’ public letter to the CVT board noted Astellas first offered to buy the Palo Alto, Calif., biotech last November, but was rejected. The letter asserts that Astellas has the U.S. presence and sales infrastructure to help Ranexa, which posted $30.3 million in U.S. sales during third-quarter 2008, reach its market potential and asked that the two firms “work together … to reach a mutually beneficial transaction.” CVT issued a statement Jan. 28 acknowledging that it had declined Astellas’ previous offer, but adding that its board would “again review developments in the context of the company’s strategic plans and the long-term interests of its stockholders.” To be sure, that “context” will mean seeking a higher price for CVT. While Astellas’ offer represented a 41% premium over CVT’s share price at close of trading on Jan. 26, and a 69% premium over the previous 60-day average, the biotech’s shares jumped to a high of $16.68 on Jan. 27 and remained in the $15 range as the week progressed. Cowen & Company analyst Eric Schmidt predicted that Astellas would land CVT eventually, but at a share price ranging between the high teens and low 20s--Joseph Haas and Melanie Senior.

GSK/NeuroSearch: GlaxoSmithKline and NeuroSearch, which have been drug-development partners since well before the merger that created the current GSK entity, extend their five-year drug-discovery collaboration led by Phase IIb depression and ADHD candidate GSK372475. Denmark-based NeuroSearch gets an undisclosed upfront payment to continue the alliance, which now includes an expanded portfolio of novel compounds. NeuroSearch says it could realize more than $1.2 billion in milestones under the deal, along with double-digit royalties on any products that reach market. While Glaxo Wellcome collaborated with NeuroSearch in the 1990s on potassium-channel central nervous system compounds and anti-depressants, the companies’ more recent work has centered on triple monoamine reuptake inhibitors that GSK in-licensed in 2002. The NeuroSearch work was moved into GSK’s Center of Excellence for External Drug Discovery after it was launched in 2005. CEEDD programs like this one enable GSK to expand its pipeline while shifting more responsibility and risk onto its partners – NeuroSearch performs discovery and research of the GSK-partnered programs through proof-of-concept, at which point GSK takes over development and commercialization of the compound. With ‘372475, GSK expects data from two Phase IIb studies on the compound and to make a Phase III go/no go decision during the first half of this year. During 2009-2010, NeuroSearch says it will earn about $90 million from the partnership between the upfront payment and milestones. While the collaboration mainly will focus on joint development of candidates advanced during the previous five years, NeuroSearch says, the expanded deal also includes five preclinical compounds along with several qualified lead compounds that will move into preclinical development by mid-year. The deal also gives NeuroSearch a share-put option to sell up to $25.6 million of its stock to GSK at market price in four equal tranches through November 2010--Joseph Haas and Melanie Senior.

Deerfield/NitroMed: After raising its offer a second time, Deerfield Management’s “black knight” bid to acquire NitroMed, and forestall what it saw as dilutive transactions with Archemix and JHP Pharmaceuticals, appears to have succeeded. On Jan. 27, NitroMed announced it had entered into a merger agreement with Deerfield – which owns 12 percent of its stock – after the investor increased its offer to $0.80 a share. However, the agreement includes a “go shop” provision enabling NitroMed to seek a better offer through Feb. 26. NitroMed said it will actively solicit offers during that period. If a better offer doesn’t materialize, the merger is expected to close in April. At this latest offer price, the question remains whether this deal amounts to an exit for Deerfield, especially with NitroMed’s poor-selling BiDil, a heart-failure drug for black patients, still in the fold. BiDil sales totaled just $7.8 million for the first half of 2008. Deerfield made its initial bid after NitroMed announced two deals last fall, one to sell BiDil to JHP for roughly $26 million, and the other to reverse-merge with private aptamer-focused biotech Archemix. The agreement with Deerfield required NitroMed to terminate the JHP and Archemix deals, resulting in termination fees totaling $2.4 million. The reverse merger would have brought about $60 million in cash – post sale of BiDil – and a NASDAQ listing to Archemix, which had abandoned plans for an IPO early in 2008. Deerfield clearly was unhappy with the merger terms, which gave NitroMed shareholders only a 30 percent stake in a highly illiquid company. Managing Partner James Flynn said a review of other biotechs with Phase III assets showed many of them were valued lower than the theoretical $100 million value the reverse-merger would create for Archemix. Archemix, meanwhile, is pursuing business as usual as a still private enterprise, focusing on advancing its lead aptamer, ARC1779, through Phase IIb clinical trials. Despite losing out on NitroMed’s cash, the company says it has sufficient money to support operations through the end of 2010, thanks in part to a large R&D deal inked with GSK late in 2008--Joseph Haas.

Ipsen/Novartis: In a deal that may reflect increasing sales and marketing clout for regional players — or just the efforts of one big pharma to reduce its overhead in one strategic market — Novartis increased its anti-hypertension drug co-promotion work with Ipsen on Jan. 28. Paris-based Ipsen has promoted Diovan (valsartan), the world’s top-selling hypertension therapy, in France since 2003. It also helps market the product in Europe, along with Nisisco, a combination drug that includes hydrochlorothiazide. The newly expanded agreement calls for Ipsen to sell Exforge, another anti-hypertensive combining valsartan with Pfizer’s amlodipine, in France. Novartis reported 2008 worldwide sales of $406 million for Exforge, which gained FDA approval in 2007. With Ipsen well entrenched in France’s primary-care market, this deal appears to position Novartis to grow its hypertension franchise further through Exforge--Joseph Haas.

Helsinn/Sapphire: Switzerland’s Helsinn apparently picked up privately-owned cancer supportive care group Sapphire Therapeutics for an (undisclosed) bargain. The deal adds three clinical candidates to Helsinn’s pipeline: Phase II anamorelin, an oral first-in-class cancer cachexia treatment, an intravenous compound for post-operative ileus, also in Phase II, plus a Phase I oral drug for opioid-induced bowel dysfunction. It also provides the group with “a direct presence in the major pharmaceutical market of the world,” CEO Riccardo Braglia said. Reflecting the sorry state of many private biotechs, there were reportedly no other interested buyers. Moreover, Sapphire’s VC investors likely were eager to exit from a group that already had re-invented itself once. Bridgewater, N.J.-based Sapphire was launched in 2000 as Rujevenon, with a focus on anti-aging therapies and $12 million in private financing. By 2004, it had changed its therapeutic focus to small-molecule cancer and metabolic drugs, and raised more than $37 million in a Series B financing led by SV Life Sciences--Joseph Haas and Melanie Senior.

Friday, January 30, 2009

Illinois Governor Was Impeached For... Importing Drugs

Seriously, folks. Forget that business about selling the Obama senate seat or that Rod Blagojevich, in general, appeared to be a crude and greedy political hack (we hope we're not understating the case).

The Final Report of the Special Investigative Committee prepared for the Illinois House of Representatives cited, among other things, the fact that Rod-the-not-so-mod directed the state to import prescription drugs as a reason for impeachment.

Of all things.

The report noted a bunch of problems, starting with the fact that Rod launched the I-SaveRx program in 2004, despite being advised by the FDA that a drug importation program violated federal law.

From there, the report cited audit findings showing state inspections were not conducted by compliance investigators; none of the pharmacies listed in the program were licensed under Illinois law to dispense pharmaceuticals and none of the medicines shipped to state residents were ever tested, despite promises by Rod's office to do so in collaboration with the University of Illinois College of Pharmacy.

In skewering Rod's performance, the report called the program "a double-blind experiment" that failed. "The Committee finds that, while attempting to help individuals save on the costs of prescription drugs is laudable, it is absolutely essential that the safety of those drugs be ensured and that state and federal laws be followed. The Governor's program failed on all of these counts," the report concluded.

"The Governor violated federal law and, in fact, exposed possibly unknowing participants of the program to federal criminal sanctions. In sum, the Governor knew the program was illegal but allowed it to go forward; and then the program, once implemented, violated numerous State laws relating to safety and quality control of prescription drugs. The Committee finds that the Governor abused the power of his office."

You can imagine what some lobbyists in Washington D.C., are asking over lunch or drinks: 'So do you think anyone in the Obama administration will push for importation now?' (Our answer is here.)

Roche Goes Hostile

"$42 billion? Neverrrrrrrrr!"

Has Roche's move to offer $86.50 per share of Genentech in an all-cash tender offer essentially negated all the happy noises the Big Pharma has been making about the Genentech culture, its scientists, the high level of autonomy Genentech would enjoy as part of the Roche, er, empire?

It's hard to see how those assurances are still credible since a deal for the biotech has not emerged from months of negotiations, and yet Roche has decided on this course of action. The Roche release announcing the tender offer is here, and Reuters picked up the story early this morning, here.

Cutting the original offer by nearly $2 billion and taking it public has got to grate on Genentech management and employees. We observed back in the summer that Roche's original offer was largely a consequence of the (increasing) price of Genentech's independence and the sunsetting of the deal that created much of Roche's (ex-US) revenue. Fast forward six months and the economy has worsened, Genentech isn't capitulating in negotiations, and the lure of operational efficiencies and consolidating the biotech's US revenues is too strong.

When the deal was still pseudo-friendly, the big question was whether Roche was risking killing the goose that had laid its golden eggs for so long. Now that it's openly hostile, we see that Roche is more than willing to take that risk. How will it turn out? We don't pretend to know--but Roche does have experience in waiting out its prey, just ask Ventana.

Our full coverage of the Roche/Genentech combination from 2008 is available here. We'll have more to say as the deal develops but we'd love to hear your thoughts in the comments.

Wednesday, January 28, 2009

The Naked Truth About The National Science Foundation

This gives new meaning to the notion of stimulus spending. Some employees at the National Science Foundation have been way too busy viewing pornography on their agency computers instead of promoting science and engineering. And the disclosure, which was contained in the NSF's own semiannual report about abuses of agency resources, prompted Chuck Grassley, the ranking Republican on the US Senate Finance Committee, to launch a probe into the titillating tidbits.

One particularly eye-catching example - an NSF employee spent up to 20 percent of his official work time viewing pornography, which amounted to a potential loss of $58,000 in employee compensation. Over a 24-month period, the employee charged more than $40,300, to cover his on-duty extracurricular activity, according to a letter sent by Grassley to the NSF. And this has, in some cases, been going on for years.

The agency's own investigators uncovered hard-core images and suggestively titled bookmarks on hard drives after sampling an internal server. In response to the embarrassing revelation, the NSF issued a statement maintaining that filtering software was installed; a policy against viewing sexually explicit material on computers was reiterated; and employees and contractors have been reminded they can be terminated and face civil and criminal penalties for peeking at porn.

And what of the NSF employees who got their rocks off? The senior official named in the report has retired after he received a final decision to remove him from federal service, according to the NSF statement. And the "small handful of employees" who also couldn't help themselves were notified that they were either going to be dismissed from the agency or suspended. That should get a rise out of them.

(hat tip: Politico, Fox News)

Bonus Youtube: Thomas Dolby's "She Blinded Me With Science"

image by flickr user jasonr611 used under a creative commons license.

Welcome, Wyeth, to Pfizer's Biotech Federation

This was, more or less, what Corey Goodman, president of Pfizer’s 18-month old Biotherapeutics and Bioinnovation Center (BBC), had to say yesterday about his company’s latest purchase. In fact it was more than a welcome, it was a positive bear-hug: “We expect that some of Wyeth’s biologics and biotech-like units will have the kind of culture and spirit that could easily be added to our federation; it would be a love affair,” he enthused in an interview last night.

Federations? Culture and spirit? Well, yes, don’t forget that this is the new Pfizer. A Pfizer that has, like various other Big Pharma, been trying to behave in a more biotech-y way, with talk of agility, innovation and accountability rather than multiple committees, micro-management and bureaucracy. Thus the BBC, for those that haven’t been keeping up, assembles five largely independent R&D groups, all headed up by ex-biotech folk, run (in a very hands-off manner) from Rinat’s headquarters in South San Francisco.

Acquired by Pfizer in 2006, antibody-focused Rinat is one of the giant's three recent biotech purchases that now form all (or part of) one of the five BBC members. San Diego-based CovX is another, and unlike Rinat--which was briefly swallowed into Pfizer’s global R&D operation (PGRD) before becoming the BBC hub--CovX joined BBC from the outset in January 2008. Meanwhile one of Coley’s units is now in Duesseldorf, Germany, focused on nucleic acids. This group reports into the fourth BBC unit, the Research Technology Center, a Cambridge, MA-based Pfizer operation that was realigned around vaccines and nucleic acids, and is now run by Coley co-founder and CSO Art Krieg. The Regenerative Medicine Unit in Cambridge, UK, is the fifth member of the BBC federation, created in collaboration with PGRD.

What they have in common, according to Goodman, is scientists with “fire in their eyes,” many from biotech. (Most of the scientists from Rinat and CovX remain, he says, although the CEOs left.) They keep their own name, and their culture and, says Goodman, “I hope that none ever grows to more than 150 people.” He’s also working on providing biotech-like compensation for the scientists. The over-arching goal is one we’re hearing more and more often from Big Pharma execs: to combine biotech’s advantages with the reach and resource of Big Pharma.

And it’s this combination—or contradiction, depending on your viewpoint—which allows the new, Wyeth-embracing Pfizer to become the hugest pharma in the world while at the same time staying small. “The organization as a whole is growing larger, but it’s breaking itself up into more decision-making, smaller groups,” explains Goodman. So Wyeth, which Goodman describes as “one of the first to start to embrace large molecules and a biotech-like culture”, will slot right in to new-look Pfizer, he argues. Some of their various biologics units (many stemming from Wyeth's (then AHP's) acquisition of the Genetics Institute, for instance) “might add to our federation,” Goodman speculates (it’s still too early to say for sure); others might add in other places.

Resolving the ‘getting-bigger-while-getting-smaller’ quandary (highlighted here yesterday) has pre-occupied Pfizer’s CEO Jeff Kindler and team for a good while, according to Goodman. The reality is that it won’t be a straightforward case of enlarging the federation; sites—and staff--will have to be cut and the structure simplified. But there will, insists Goodman, “be a natural way that they [Wyeth] fit into the business unit model”. Indeed, he concludes: “If we’re going to be successful as a company, it [getting bigger and getting smaller] can’t be a contradiction.”

image from flickr user ucumari used under a creative commons license.

Pfizer's Brilliant Move to Nab Denosumab [With Poll Results]

People, people, people...why so angry? Apparently only 6% of you think the Pfizer-Wyeth deal is good for both companies. Just over 21% think it's a good deal for Pfizer only.

That's right, our snap poll has reached the 48th hour and is now closed. You can view the results here. Nearly 52% of about 300 votes cast say that the deal is a bad deal all around.

But let's put everything in the near-term aside for a second and let's think a little further down the road. The Wyeth acquisition puts Pfizer in the driver seat to grab the "potential blockbuster" (how many times have you heard that phrase?) osteoporosis drug denosumab from Amgen.

Hear us out. Remember, Wyeth and Amgen are partners on the anti-inflammatory biologic Enbrel (only a $3.8 billion dollar product). Amgen has said that there is absolutely no change to the relationship other than Pfizer will step into Wyeth's shoes.

So how do we go from there to Pfizer getting denosumab? Well, it's a leap, we'll admit. However, Amgen has said it may partner with another company to market and sell denosumab (assuming it gets approved; the application has been submitted to FDA). Our bet is, if they do partner, it will be with Pfizer. Who will have more sales experience and geographic reach than their Enbrel-partner Pfizer-Wyeth/Pfwyeth/Wyzer/Wy-Pfi?

That theoretical partnership would likely lock in Pfizer as the only viable buyer for Amgen when you take in ability to finance the deal, partnership exclusivity, scale, and cash.

What's that you say? Pfizer couldn't buy a company the size of Amgen after taking on Wyeth? We're not buying it. All arguments about whether or not that's smart strategy or whether it creates or destroys shareholder value aside, if anything, Pfizer has proven that it can continually buy and integrate large cap health companies.

What do you think? Are we crazy? We'd love to hear your comments but be gentle.

image from flickr user subkomandante used under a creative commons license

Health Care Isolationism

In his farewell address, former President George W. Bush warned against a retreat into isolationism in response to the global economic crisis—ironically, exactly the opposite theme of the first ever farewell address by George Washington, but then the Bush White House never really did irony, did it?

Still, the US claims to be a leader in globalization, preaching the benefits of economic integration among nations as a force for peace, prosperity and human rights.

Except when it comes to health care. With the US Congress poised to embark on an all-out push to expand and reform coverage in this country, all ideas are on the table—except for ideas directly tied to the experiences of other nations in providing health care to their citizens.

Consider the Congressional Budget Office’s pre-emptive analysis of different health care reform options. The 196 page narrative, accompanied by a series of “scores” of the costs and savings of different proposals, was an initiative of Peter Orszag, who now heads the White House Office of Management & Budget and so will remain a key figure in the health care debate.

The paper offers a number of creative analogies to help understand ways to predict the impact of different policies on the markets, consumer behavior and overall costs. Our favorite: an analysis of the potential impact of insurance mandates looks at prior experience with mandates for vaccines, seat belt use, auto insurance purchase, and income tax payment. (We certainly didn’t know that only 86.3% of tax liabilities were actually paid. Maybe the current rate of insurance coverage isn’t so bad…)

Anyway, amidst all those creative and thoughtful analogies, there is one thing missing: data derived from experiences with universal coverage in other countries around the world. In the 196 pages, we could find just one reference to an international health care system as a model: a study of changes in the availability of medical services in Quebec after universal coverage was adopted in 1970. (We always felt that Quebec should not merely separate from Canada, but join the United States. Perhaps CBO supports that view as well?)

Americans, of course, pride themselves on doing everything in a uniquely American way. And, as Atul Guwande discusses in a recent article in the New Yorker, there really isn’t anything unique about America pursuing a unique version of health care reform. Guwande—a regular contributer to the New Yorker but also a member of the Clinton health care reform team back in 1993-94—points out that every other country to adopt universal coverage did so in its own fashion, evolving out of existing and decidedly local systems already in place.

But we submit that there is more to it than that. Despite what seems to us to be a growing consensus that the US health care system is failing on almost all fronts, it remains politically foolhardy to suggest reforms based on other countries’ models.

After all, if one presidential candidate can accuse the other of being a socialist based on a tax plan that would raise taxes on those making more than $250,000, who would be brave enough to advocate a health system modeled on that of France or the UK or even Japan—much less our neighbors to the north in Canada. (One exception: one of the leading candidates to run the US Medicare and Medicaid agency, Institute for Health Care Improvement CEO Donald Berwick, describes “American exceptionalism” as one of the problems in the way of health care reform.)

So, frustrating though it may be for biopharma companies that operate internationally—many of whom see valuable models and cautionary tales across the globe when it comes to health systems—it seems clear that, when it comes to the politics of health care reform, no one wants to import anything from outside the US.

Except cheap Canadian drugs, of course.

image by flickr user thephotoholic used under a creative commons license.

Tuesday, January 27, 2009

How to Spend $68 Billion: Suggestions for Pfizer

of course, you'd need 34,000 of these piles, but you get the idea

Blog readers are the smartest blog readers in the world (it's true, we read it on Wikipedia) and therefore when more than 50% of you are currently suggesting in our poll that Pfizer's planned $68 billion acquisition of Wyeth is a bad deal for both companies, we assume you've got ideas of your own on how to spend $68 billion.

Ask Monty Brewster: spending that kind of dough is definitely not easy. So how would we do it? Your IN VIVO Blog team came up with a few suggestions, just as we did for Roche back in the summer of '08.

Any ideas of your own? Lets see them in the comments. For the record, buying 68 billion hot dogs on dollar-dog-night at your local ballpark is already taken. Pig.
  1. Bail out California. According to the Governator: "The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off." HELP CALIFORNIA BREATHE!
  2. Smaller, targeted acquisitions is a popular idea among your IV Blog staff. Want to bulk up in Alzheimer's? Buy Elan for half of bapinuzumab. Or, there are a handful of start-ups ripe for the taking. Vaccines? Why not buy Crucell, as Wyeth was planning to do. Oncology? Celgene. Platform? Alnylam! The list goes on and on.
  3. Sign Manny Ramirez to a four-year deal to play LF for company softball team. (That's just "Pfizer being Pfizer".)
  4. Continue the risk/profit sharing most notably defined by the Pfizer/BMS deal on apixiban with a large group of other companies--say, a dozen. That leaves about $50 billion to chip in elsewhere. You know, pocket change.
  5. Buy 38 billion 8 oz. boxes of Kraft macaroni & cheese (dino-shapes optional) as comfort food for the newly unemployed.
image by flickr user noahwesley used under a creative commons license.

CMS Administrator: The Pick Is Made, But Who Is It?

We've heard from a few people that the next CMS Administrator has been chosen by the Obama transition team. We're sure the one name we left off the list will get the job, but here are a few names to consider anyway:

Mayo Clinic CEO Denis Cortese: Cortese would be an intriguing pick to lead the agency and seemingly has every qualification to lead the growing Medicare programs: He's an outsider, he holds a medical degree, he manages a large health institution and he's helped to implement a number of the most talked about health reforms at Mayo and made them work. Cortese also chairs the Institute of Medicine Roundtable on Evidence-based Medicine.

The Mayo Clinic Health Policy Center for the last two and a half years, according to Cortese, has developed four principles for reform: 1) getting value out of the provider network, 2) getting integrated and coordinated care, 3) payment reform to pay for value, and 4) insurance for all.

At a November 17 event on health care put together by the Engelberg Center for Health Care Reform, Cortese discussed his views on how to pay for high-value medicine. Here's a window into how Cortese thinks about health reform from comments at the Engelberg event:

"Medicare will have to change the way it does business….One, they need to pay for value. Of all the organizations that can identify where value is, they know where it is. They just need to begin to find—maybe with pilots—some ways to do it."

"They have to get rid of price controls and reduce price controls. Price controls have done nothing to control the rate of spending—absolutely nothing to control the rate of spending throughout the last 30 years or so. And in place of that, put transparency of pricing and value, and the transparency that reports where everybody’s performing."

"There ought to be a mechanism to let people pay more if they choose to do so. Maybe that’s the only way you will get pay for value. Let individuals decide what is of value to them, and let them choose some."

"Allow comparative effectiveness studies to be done. Comparative effectiveness studies are absolutely crucial in helping to decide what to design for coverage and what to actually cover. That currently today is explicitly not allowed for reasons that are vague to me. It’s totally…mindless. It’s another example of a mindless attempt to try to regulate something through Congress, and the unintended consequences are we don’t use evidence to decide anything basically. So you get what you pay for."

Cortese is also on the Mayo Board of Directors along with Tom Daschle.

Institute for Health Care Improvement CEO Donald Berwick:

Berwick is considered a leading authority on health quality and improvement and co-chaired the National Priorities Partnership which put together a report focused on core principles aimed at transforming the health care system.

Berwick has served as vice chair of the U.S. Preventive Services Task Force, the first "Independent Member" of the Board of Trustees of the American Hospital Association, and as chair on the National Advisory Council of the Agency for Healthcare Research and Quality.

He’s also on IoM’s governing council and previously served on President Clinton's Advisory Commission on Consumer Protection and Quality in the Healthcare Industry. Co-chaired by the secretaries of health and human services and labor, the Commission was charged with developing a broader understanding of issues facing the rapidly evolving health care delivery system and building consensus on ways to assure and improve the quality of health care.

He is also clinical professor of pediatrics and health care policy at the Harvard Medical School. Berwick was also at the Engelberg briefing and here's what he had to say about reforming the system and his view of the three major issues standing in the way:

"I think the problem is cost: it's total cost. It is manifestly possible for a Western democracy to give all the care its population needs for about 10 percent of GDP. It is possible. You can't say it's not possible because it's being done. We're at 16 percent or 17 percent. We're wasting probably 40 percent or 30 percent of the dollars we're putting into health care."

"We simply have a toxic dynamic in health care, that if you make something it will be used. No other market works that way. We have to target supply driven care as a matter of public policy. It’s very, very, difficult."

"The second is integrated care for chronic illness and the gaps there in. Seventy percent of costs go into chronic illness care. Probably half of it is pure waste. And a lot of it happens because we don’t have the integrated flows that we need for a restructured care system."

"The third really might be American exceptionalism. It’s our inability to learn from successful models outside of this country. Countries that function with better care than we have; we are 19th out of 19. We’ve got to learn from these other models and not throw them away because we assume that stuff like that doesn’t work here. It will."

The Urban Institute's Robert Berenson: Berenson is a Medicare veteran and is considered a favorite to end up running the agency; he served on the Obama Transition’s agency review group. From 1998-2000, he oversaw payment policy and managed care contracting at the agency. His current research focuses on modernization of the Medicare program to improve efficiency and the quality of care provided to beneficiaries. We think his medical degree is a plus in the coming era of comparative effectiveness research.

Former Avalere exec Jon Blum: The former VP at the health care consultancy Avalere Health where he directed its Medicaid & Long-Term Care practice, Blum is understood to have already left Avalere and is already working at CMS. We’re just not sure in what capacity.

Blum was on the Obama health policy working group working on the transition. Prior to joining Avalere, Blum served on the professional staff of the Senate Finance

Committee and was a lead advisor on the Medicare prescription drug program and played a key role in drafting the Medicare Modernization Act of 2003. He also was an analyst at the Office of Management & Budget.

Harvard's Jeffrey Liebman: We think Liebman is a dark horse candidate to run CMS. He has two key characteristics one would look for in a Medicare Administrator: he was one of three key health advisors to Obama during the campaign and he's an economist.

Along with Harvard's David Cutler and David Blumenthal, Liebman is credited with developing Obama’s health care strategy and projecting cost savings associated with the overall proposal.

His areas of expertise include social insurance, tax and budget policy, poverty, and income inequality. Liebman coordinated the Social Security reform working group and was special assistant to the President under the Clinton Administration.

Harvard's David Cutler: We assumed Cutler would get a top job right out of the gate. After all, Cutler was considered the top health advisor to Obama and serves/ed on the transition's health policy working group. But we heard Cutler was going to coordinate the outside advisors to the campaign as part of the transition and may serve the campaign from his office at Harvard.

If Cutler joins the administration, a spot in the White House is most likely. Still, we don't want to remove someone who is so obviously qualified for the job at CMS from consideration, even if Medicare isn't especially the most attractive job in the administration. It still has a huge impact on the overall health system. Cutler has co-authored health economics papers with Mark McClellan and shares some of McClellan’s views on finding significant cost savings by correcting and reforming the inefficiencies in the system.

Harvard's David Blumenthal: Another David. Another Harvard professor. Another top Obama advisor. Blumenthal is director of Massachusetts General Hospital’s Institute for Health Policy and was a major contributor to the Obama health plan during the campaign. Blumenthal got his start in politics as a professional staff member on Senator Ted Kennedy’s Subcommittee on Health and Scientific Research during the 1970s, which is always a good thing if you're a Democrat. Like Cutler, we expected Blumenthal to be given a post almost immediately after Nov. 5. So far, no word. We've heard that Blumenthal may also serve the administration in a consulting capacity from the outside but until we hear that for sure from a primary source, we're keeping Blumenthal on the list.

Margaret Hamburg: This is a name you may not have heard of until now, but she's an intriguing choice. Hamburg is on the HHS agency review team as part of the Obama transition. She could end up at any number of agencies or remain outside the administration altogether. But here are the three things we think make her an interesting candidate for CMS: she's an MD, she ran a large health care system and she has served in a past administration.

Hamburg was named assistant secretary for policy and evaluation at HHS in 1997 under President Clinton. She was health commissioner from 1991-1997 for New York City...not a small town.

Former Clinton health advisor Judy Feder: The Virginia 10th District Democratic Candidate in 2008 is likely to land somewhere in the administration given her background. The question is, where? The answer may be CMS.

Feder previously served as HHS chief health policy adviser in the role of HHS principal assistant secretary for planning and evaluation under the Clinton Administration. She was the point person with Ira Magaziner during the administration's attempt at universal coverage.

Feder was also staff director on the bipartisan Congressional Pepper Commission on comprehensive coverage. She served as Dean of Georgetown University’s Public Policy Institute between 1999-2007.

Big Pharma Is Confused: Should we get Bigger, or Should we get Smaller?

Pfizer, it appears, says ‘Bigger’ (even though it didn’t exactly work last time). GSK meanwhile continues to say ‘Smaller’, at least when it comes to R&D (and that, let’s face it, is where the roots of Big Pharma’s problems lie).

For GSK, the answer (or part of it) to the productivity challenge is to get smaller and more biotech-like: hence the announcement last year of even smaller research units (the 50-strong drug performance units (DPUs)) complete with investment boards and three year funding cycles—effectively mimicking real-world biotech as far as is logically possible within a big corporate. (You’ve read a bit about it here, can see here the closest a GSK exec came to advocating complete disaggregation, and will read much more in next month’s IN VIVO.)

Pfizer, meanwhile, appears to be taking the get-bigger bet—again. This time it’s forking out $68 billion for the privilege, in its purchase of Wyeth. You’d think that given the poor track record on value-creation associated with mega-mergers, that the Big Pharma would try something different. (Ok, so we get some of the reasons for the tie-up, not least the huge revenue crater left by Lipitor and its not-to-be successor, torcetrapib, but the words Band-Aid, short-term and quick fix spring to mind.)

In a sense Pfizer is—or was—trying to think outside the bigger-is-better box. Like GSK, and a handful of other Big Pharma including Roche and Novartis, it was moving to establish more focused divisions within R&D. Thus we heard about its oncology business unit, described in more detail by a colleague in this feature, its externally-focused Biotherapeutics and Bioinnovation Center, headed up by Exelixis co-founder Corey Goodman, and, further downstream, increasingly autonomous development and commercial units. This was more than just talk; this was really happening.

And the funny thing is, Pfizer continues to preach the small-is-good philosophy, even while creating the world’s largest pharma company ever, with 2008 prescription drug sales in excess of $70 billion, over 130,000 employees (pre-cuts) and dozens of research sites. “Unique and Flexible Business Model Features Focus and Agility of Smaller Enterprises Backed by Resources and Scale of Global Company” piped the press release on the brand-new company's website.

So the teams behind this deal know a lot more than we do. But it’s hard, very hard, to imagine what it is about a combined Wyeth-Pfizer (Pfwyeth is a favorite, although rather Welsh-sounding; though Wy-Pfi features strongly in today’s blog chatter) that provides focus and agility. Cost-cutting and layoffs, maybe.

All the while, GSK continues to plug this best-of-both (biotech and pharma) worlds mantra, with somewhat more credibility than Pfizer at this point. (Indeed, GSK is one of the few Big Pharma names that hasn’t regularly appeared in the speculation over who-will-merge next.)

And, if information we've learned is correct, its next move might be almost the exact opposite of a mega-merger: the birth of a tiny new drug performance unit. The Immuno-Inflammation CEDD (or biotech-like-unit, for those without the lingo) is expected to this week announce the creation with a bunch of Boston academics of a company that will focus on regulatory T-cells.

The GSK CEDD seeds it, but the aim is to bring in the VCs in a B round sometime in 2010. And they, goes the thinking, will delight in the prospect of a pre-determined exit once GSK buys the unit back—"at a certain return," according to our GSK source. (That's granted the science works out, of course.)

Who’s got the right idea, then? Neither approach is a dead cert solution, to say the least. But we’ll know a lot more by 2012. By then Lipitor will have gone generic and GSK’s fresh-faced DPUs will be at the end of their first three-year funding cycle. They'll either be raking in the next round of money, or, if GSK holds its nerve, they'll be going to the wall like any other biotech whose coffers were empty.

As for Pfwyeth: it might just be disaggregating.

image from flickr user Joan Thewlis used under a creative commons license.

The Zyprexa Settlement and The Perils of Primary Care

We have been writing for some time about Big Pharma's primary care problem: the industry is built on an incredibly lucrative business model--selling oral medications for use by millions of patients with chronic conditions--that is going away before our eyes.

The primary care market is shrinking. The regulatory system is tilting towards smaller, niche market opportunities. The infrastructure built to support the blockbusters of yore is choking the industry. And the imperative to develop the next Lipitor is surely one reason behind the staggering lack of productivity in Big Pharma R&D.

Well, here's something you might not have realized. Apparently Big Pharma's incredible success in building massive primary care markets can now be painted as criminal conduct. That, at least, seems to be one implication from Lilly's record-setting $1.4 billion settlement agreement to resolve an investigation into its marketing of the antipsychotic Zyprexa. [UPDATE: of course records are meant to be broken, right? Pfizer's $2.3 billion Bextra settlement, astutely camoflaged by the Wyeth takeover, now takes that dubious honor.]

According to the government's memorandum supporting the entry of guilty plea by Lilly, a key element of the off-label promotion at issue was a decision by Lilly to "market Zyprexa to primary care physicians, even though there was almost no on-label use for Zyprexa in this market."

Here are some excerpts from the memo. (NB: These are described in the memo as facts that Lilly agrees would have been proven at trial.)

“Eli Lilly commissioned a report entitled ‘The Primary Care Opportunity’ from a nationally-known consulting firm. This report found that ‘larger competitors [eg. Merck, Pfizer, Bristol Myers] are migrating toward the primary care channel with drugs driven by profile improvements’ as compared to Eli Lilly, which was headed in the direction of providing drugs in specialty markets. The consulting firm advised Eli Lilly that ‘Primary care is a large opportunity that is likely to remain important. Lilly does not outperform its competitors in primary care and is leaving money on the able with current and pipeline products.’ The report identified Eli Lilly products, including Zyprexa, that if sold in the ‘primary care channel’ could significantly increase Eli Lilly's woridwide sales....

"The evidence would show that in October 2000, Eli Lilly began to detail Zyprexa to PCPs even though at least one internal Eli Lilly document acknowledged that there was virtually no on-label use for Zyprexa in the primary care market. The document, ‘ZYPREXA – Primary Care Strategy and Implementation Overview,’ provided that detailing PCPs was a major challenge because ‘Zyprexa's primary indications - schizophrenia and bipolar - are not viewed as PCP [primary care physician]-treated conditions, so there's not a specific indication for Lilly reps to promote in the PCP segment.'

"To get around the impediment that Zyprexa's indications - schizophrenia and bipolar mania - were not viewed as PCP-treated conditions, sales representatives were instructed to tout Zyprexa as a safe option for the treatment of a wide array of mood disorders commonly treated by PCPs....

"According to an internal newsletter, Eli Lilly USA Online, published on July 25, 2001, the launch of Zyprexa into primary care was a huge success."

Monday, January 26, 2009

Slashing What: R&D Costs or the Rationale for an Industry?

A line from the Wall Street Journal’s January 23 front-page story on the Pfizer-Wyeth merger discussions begs a little deconstruction.

“Combining major drug companies doesn’t solve the industry’s short-term need for new drugs, but it would allow the industry to slash research-and-development spending, which accounts for nearly 20% of sales at many companies.”

It is clear where the Journal writers are coming from: they accept outright the hard logic that holds that Big Pharma is fat and and is characterized by excessive, wasteful R&D costs. Whether the Journal writers are right or not is not what is important: it is that they feel comfortable stating the opportunity for cutting R&D as a line of accepted wisdom -- that doesn't even need much explanation.

After another year of mediocre production of innovative new products, it is easy to see where the perception arises that pharma is spending too much, getting too few products and there needs to be another round of large mergers and subsequent blood-letting.

That might actually be good cover for Pfizer: making the company look less like a desperate raider, trying to cover its own lack of R&D success and more like an agent of positive change taking inefficiency out of a broken system.

But the general acceptance that pharma spends too much on R&D runs directly counter to the image that the industry is trying to sell in policy circles: that it is a national resource – a pillar of the knowledge economy.

PhRMA President Billy Tauzin put it this way in a recent press briefing on the association’s plans for the first year of the Obama Administration. The drug industry spends “more per employee on research than any other industry in America (about $75,000 per worker),” Tauzin declared in full political voice, showing that he and PhRMA are well-prepared for attacks on the industry.

“No other industry comes close to that” R&D spending level “not even the high technology industry.” The drug industry’s support of R&D is “an amazing contribution to the American economy and one that we ought to be very proud of.”

PhRMA is preparing a report on the value of the drug industry’s R&D intensity to use against any attempts to punish the industry for high prices or profits. Taking a page from the fragility arguments of the biotech sector, Tauzin says that he is afraid that other countries will move in to assume the high rates of support for drug development and the U.S. could lose leadership to other countries.

“You know what concerns me the most," Tauzin asks, that “other people around the world are going to figure out” how to support the research system and funding for new types of specialized medicines “and then we would suffer the loss of this amazing research engine that we have in America.” He noted that there are “a lot of people who would love to have it in their country.”

He suggested that U.S. oil dollars could be turned back to taking the research industry away form the U.S. “A lot of countries pick up a lot of oil money from us and they could spend a lot of money to incentivize great research projects in their country.”

Those kinds of arguments to save a national treasure can be useful in Washington, but not while the message of the financial community is that pharma is a clear story of over-capacity and inefficiency.

One of the stories – inefficient duplicative sector or national treasure -- is going to have to go. We hope the industry doesn’t go also.

IN VIVO Blog Poll: Immediate Reaction to Pfizer/Wyeth

Pfizer is buying Wyeth for $68 billion. Are there any winners in this monster deal, the largest in the industry since the 2000 formation of GSK?

There will be time for reflection and analysis in the coming days, weeks and months. But what's your immediate reaction? Is Pfizer smart to bulk up and diversify on top of its recent re-alignment? Does the deal position the combination for success as it approaches the Lipitor patent expiration? Are Wyeth and its shareholders getting a good deal?

We'll leave this poll open for 48 hours. We realize the answers below aren't very nuanced, but pick one that you most agree with. (Email subscribers--click here to take the poll.)

IN VIVO Blog Caption Contest! Pfizer/Wyeth Edition

How do you like the new wallpaper?

OK readers: the official caption for this Business Wire photo is "Jeffrey B. Kindler, chief executive of Pfizer, left, and Bernard Poussot, chief executive of Wyeth, discuss the planned combination of their companies, announced in New York Monday, January 26, 2009. Pfizer agreed to acquire Wyeth, a research-based global pharmaceutical company, for $68 billion, creating the world's premier biopharmaceutical company."

We think you can do better than that.

While You Were Contemplating Pfizer/Wyeth [UPDATED]

Sorry about the lazy imagery; thanks to the speed at which things evolved this weekend we didn't have time to mock up a version of "Christina's World" with Pfizer HQ in the background as planned. We still can't quite wrap our heads around this deal's logic--as we pointed out on Friday, there are plenty of arguments against the mega-merger--but we'll be all over it with coverage in IN VIVO, The Pink Sheet (and its DAILY), all the way down to your lowly IN VIVO Blog. Our first longer-form take is in today's Pink Sheet.

Any Pfizer or Wyeth employees out there? Good deal? Bad deal? Smart deal? Dumb deal? Weigh in with your thoughts in the comments.

  • The Wall Street Journal, whose reporters broke the Pfizer/Wyeth story on Friday, fills in a few more details and suggests the price tag will come in between $65 and $70 billion, or about $50/share at a roughly 30% premium to the pre-rumor shareprice. Says the WSJ: "Pfizer plans to pay for about two-thirds of the total cost in cash and use its stock for the remainder, the people say. It has raised about $25 billion in bank financing and will tap its cash reserves for the rest." [[UPDATE: WSJ now saying the magic number is $68bb--$50.19/share. That story is here. The NYT's coverage is here.]] [[UPDATE II: at 6:30am it's official. Here's the Pfizer release.]]
  • While we're talking Wy-Pfi (a genius name pointed out by a commenter at WSJ's Health Blog) we should also link over to Derek Lowe's post at The Atlantic's new business page.
  • The knock-on has begun. Crucell said today that Wyeth has pulled out of talks to acquire the vaccines company.
  • GSK's Alli hits the shelves in Europe. Will it take off or, er, hit the skids? The Times takes a long look at orlistat.
  • Another reason to drink lotsa coffee (besides the caffeine, wonderful aroma, and the glorious, glorious taste): results of a 21-year observational study by Scandinavian researchers suggest it might be good for your mental health, according to the New York Times. The scientists "found that the subjects who had reported drinking three to five cups of coffee daily were 65 percent less likely to have developed dementia, compared with those who drank two cups or less."

Friday, January 23, 2009

DotW: The Inaugural Edition

It may have been a short week stateside, but it certainly wasn't devoid of news. Americans reveled in the opportunity to feel smug as they watched the peaceful transfer of power from Bush II to Obama, our nation's first African-American president.

They also got a civics tutorial thanks to Supreme Court Justice John Roberts's mangling of the historic oath--an event that confirmed our inalienable right to boldly split infinitives, according to Harvard psychology professor and chairman of the American Heritage Dictionary Usage Panel Steven Pinker.

To stamp out conspiracy theories, Chief Justice Roberts and President Obama took a mulligan on the solemn vow. In a private ceremony held Wednesday night, the two Harvard braniacs faithfully--and slowly--repeated their duet in the White House Map room.

Here in biopharma-land, meanwhile, a number of companies boldly muddled along...if not where no man has gone before. In a show-down of the diversified giants, Abbott took the bragging rights from J&J--at least in terms of quarterly earnings reports. One day after J&J announced less than stellar news, Abbott announced that its fourth-quarter net income jumped 28% to $1.54 billion, helped out by increased sales of the company’s Xience heart stent and Humira arthritis drug.

Meantime the lackluster economy has forced smaller players to take a hard look at their assets and either off-load them to interested parties for a song (Panacos, see below), fold-up shop (Akesis), or find ways to spin them off (e.g. Abraxis's announcement of its intention to create Abraxis Health).

Oh, and did we mention Pfizer's desperate attempt to avoid falling off the patent cliff?

According to Article Two, Section One, Clause Eight of The IN VIVO Blog Constitution, this blogger does solemnly swear to faithfully execute--and even execute faithfully--the office of under-paid analyst, bringing context and snark to the week's most important deals...

Pfizer/Wyeth: Okay, maybe we ought to peg Pfizer's rumored interest in Wyeth as a future deal of the week. Rumors have been circulating for months that Pfizer was interested in buying Wyeth or Bristol-Myers Squibb or ImClone Systems or... pick your favorite company and insert name here. Speculation of an impending deal intensified on Friday when the WSJ reported that unnamed sources close to Pfizer and Wyeth had confirmed the two companies were in negotiations. The proposed take-out price for Wyeth? Somewhere north of $60 billion.

There are lots of arguments against this mega-merger. For starters, it seems entirely antithetical to the new business model structure Pfizer created just last fall, which puts a premium on flexibility and quick decision making. At a time when Pfizer is already over-infrastructured, the addition of whatever-remains-post-synergizing of Wyeth's more than 50,000 employees and additional facilities seems counter-intuitive -- or at least a move back to the future (remember Pharmacia and Warner Lambert?)

Nonetheless, such a deal may be the only possible way Pfizer can recoup sales as its flagship brands Lipitor, Aricept, Geodon, and Caduet go generic in the 2011 - 2012 time frame. According to Credit Suisse analyst Catherine Arnold, Pfizer is on track to lose 70% of its 2007 revenues by 2015. And it's possible to make the case that as tortured as the Pharmacia acquisition was for Pfizer -- largely thanks to the post-Vioxx collapse of the Celebrex business, for which Pfizer had bought the company in the first place --that deal and the mammoth take-out of Warner-Lambert for full rights to Lipitor ensured Pfizer's continued existence as a corporate entity. In a Jan. 23 research note Sanford Bernstein analyst Tim Anderson summed up Pfizer's spot between Scylla and Charybdis: "Is buying Wyeth an ideal solution for Pfizer? No, but we're not sure Pfizer has any other realistic choice."

So what would Pfizer get for its $60 billion? Biologics and vaccines, including the controversial Phase III bapineuzumab and the pneumococcal conjugate vaccine Prevnar. Perhaps as importantly, the move would allow Pfizer to surreptitiously re-enter the consumer health biz after selling its stake in that arena to J&J in 2006. Pfizer's premature exit from the consumer business is one that has apparently caused much hand-wringing, especially given J&J's success launching an OTC version of Zyrtec.

And it's probably a mistake to assume that Pfizer intends to handle this merger the way it has previous big take-outs. In addition to the normal cost-cutting efforts that accompany such moves, Pfizer may try and bundle unwanted assets together and spin them off (that Pfizer hasn't yet managed to spin off the assets it's already said it was going to spin off does, however, make us wonder about the likelihood of even bigger deals). Still the move comes at a curious point in time. Even though Pfizer has plenty of cash on hand, it seems likely that it will have to finance the deal with at least some debt. As executives at Roche and Teva well know, accessing that amount of capital ain't easy these days. And granted Pfizer does pull the financing together -- what effect will that have on its already threatened dividend...the generous size of which is the only reason a lot of investors are holding the stock.

Teva/Lonza:Big Pharmas interested in follow-on biologics better watch out. Even as companies such as Merck, AstraZeneca, and GlaxoSmithKline attempt to develop their FOB strategies, Teva took a step this week to solidifying its position as a leader in the biosimilar movement. On Jan. 20, the world's largest generic company announced a tie-up with the privately held Swiss contract manufacturing group Lonza. Financial details of the partnership were lacking, but the companies, who will develop, manufacture, and market "generic equivalents" of selected biological products, expect to begin their collaboration some time this quarter. Teva indicated its intent to compete in the US biosimilars market in early 2008 when it purchased privately-held CoGenesys for it's next-generation protein fusion technology. If that deal added novel biologics capabilities, Teva's subsequent acquisition of Barr seven months later gave the company considerable muscle in the space, providing a means to extend the Israeli firms's valuable Copaxone franchise. The Lonza tie-up, meanwhile, ensures Teva will have the requisite capacity it needs to make a big splash in FOBs as soon as a US pathway for their approval is achieved. That could happen in 2009 given the health care goals of the incoming Obama Administration and Henry Waxman's leadership position at the House Energy & Commerce Committee.

GSK/UCB: GlaxoSmithKline's continued interest in emerging markets is illustrated in its Jan. 23 €505 million deal with UCB for that mid-sized European's commercial operations and product distribution rights in selected Far Eastern, Middle Eastern, Latin American and African markets. The UCB deal follows on GSK's earlier "transformational deal" with Aspen Pharmacare Holdings as well as its $210 million and $36.5 million acquisitions of BMS’s Egypt and Pakistan businesses. The moves are part of a broader diversification strategy that also includes bulking up on consumer medicines. The overarching goal: to be less reliant on risky traditional pharma R&D output and collect some more stable and reliable--if less exciting--revenue streams. But this is more than a geographic strategy to breathe new life into so-called mature (a nice way of saying generic) products. There is clearly a recognition by many Big Pharma that their continued future growth depends on developing successful sales outlets in rapidly developing countries where rising incomes and the lifestyle changes that come with them have resulted in a steep increase in chronic diseases such as hypertension and obesity, as well as the economic wherewithal to treat said conditions. If they can develop those sales channels now, while simultaneously extending the runway for their older products, why wouldn't they? The choice to play in emerging markets is tougher for a smaller specialty-focused plays like UCB, however, which run the risk of spreading themselves too thin if they try to play in all world markets. Better to be targeted—focusing on the countries most likely to give steady revenue growth nearer term. Indeed, that’s likely why the tie-up with GSK explicitly excludes hot emerging markets such as Brazil, Russia, India, and China, as well as Mexico and South Korea. Moreover, UCB has made sure to retain worldwide rights to "core products" such as Vimpat, Neupro, and Cimzia.

Myriad Pharmaceuticals/Panacos: As Myriad Pharmaceuticals prepares to spin out from parent Myriad Genetics, it strengthened its clinical pipeline with a deal that illustrated the value-for-money available thanks to the troubled economic climate. For just $7 million--and no downstream sales milestones or royalties--the company in-licensed all rights to Panacos Pharmaceuticals' Phase II HIV maturation inhibitor, bevrimat. It's been no secret that Panacos has suffered its own economic woes: as of late November that company had just $4.7 million in cash after paying Hercules Technology Growth Capital $17.9 million to resolve a dispute over whether the biotech had defaulted on a 2007 loan. But even as the news broke that Panacos was off-loading its promising product at a fire-sale price, the Watertown, MA-based biotech attempted to dispel rumors that additional, darker announcements were forthcoming. "We now turn our full attention to our other promising HIV programs and seeking additional financing and partnerships to continue the development of our spectrum of HIV programs," Panacos CEO Alan Dunton said in a release. Although financially healthier than Panacos, Myriad has had its own troubles, including the spectacular failure of its Phase III Alzheimer's Disease drug Flurizan. The growing divide between the Salt Lake City biotech's profitable testing franchise, which includes BRACAnalysis, Colaris, and Melaris, and the money-losing pharmaceutical division pushed the company to announce its intention in October to spin out Myriad Pharmaceuticals. As it takes baby-steps toward an independent future, the subsidiary has pared its clinical focus to focus on infectious disease and oncology. Importantly, Panacos's bevrimat nicely complements the company's preclinical and Phase I HIV maturation inhibitors MP-461359 and Vivecon.

Tragara/S*BIO: Singapore-based S*BIO announced a licensing deal with San Diego-based Tragara for its multi-kinase inhibitor for leukemia, SB1317, on Jan. 21. The back-end loaded deal could total as much as $112.5 million for S*BIO: it includes an undisclosed upfront fee, plus sales milestones and double-digit royalties should SB1317, which appears to work via a unique mechanism involving both the cyclin dependent kinase pathway as well as the FLT3 pathway, make it to market. While the up-front money is presumably not outstanding, the deal is a major milestone for S*BIO, which was founded in 2000 as a joint venture between Chiron (now part of Novartis) and the Economic Board of Singapore, for it represents the Singapore biotech's first outright licensing deal. Just two weeks ago S*BIO signed another agreement--an option-type arrangement with Onyx Pharmaceuticals related to two JAK2 inhibitors. As our sister publication PharmAsia News notes, the most recent deal has S*BIO handing over all IND-enabling development and commercialization to Tragara. Pharmas and biotechs have been looking to the Far East as a means to outsource their manufacturing and IND-enabling chemistry for some time. But drug firms haven't necessarily gone East in search of innovation (one notable exception: Eli Lilly which has teamed up with Hutchison MediPharma on some early stage development work).

Photos courtesy of flickr users scarlatti2004 and Mike Licht through a creative commons license.

Well-Traveled GSK Bulks Up Again in Emerging Markets

Today’s announcement that GlaxoSmithKline would pay €505 million for UCB’s commercial operations and product distribution rights in selected Far Eastern, Middle Eastern, Latin American and African markets shows in some ways just how irrelevant many emerging markets will be to some specialty pharmaceutical companies.

UCB is in the midst of implementing its so-called SHAPE program, a restructuring that will focus the company on "its core areas in CNS and immunology and to strengthen its presence in strategic markets," which to be sure include the hot emerging markets of Brazil, Russia, India and China, as well as Mexico and South Korea, which are all excluded from the GSK deal. The deal also excludes UCB's "new core products," Vimpat, Neupro, and Cimzia.

GSK, on the other hand, has shown itself to be an aggressive acquirer of emerging market businesses in the past year, and we're not just talking the so-called BRIC countries. Besides today's UCB deal, over the past few months GSK signed what it called a "transformational agreement" with the South African generics company Aspen Pharmacare Holdings and followed up with the $210 million and $36.5 million acquisitions of BMS’s Egypt and Pakistan businesses.

It's tempting to chalk all this up to the Brits' love of travel, but truth be told, the moves are part of a broader diversification strategy that also includes bulking up on consumer medicines. The overarching goal: to be less reliant on risky traditional pharma R&D output (where GSK's ongoing CEDD-based experiment continues--read more in next month's IN VIVO) and collect some more stable and reliable--if less exciting--revenue streams.

Bulking up in emerging markets--which are growing at a much faster clip (albeit from a tiny base compared to established markets) than the US and Europe--is a long-term strategy that relies primarily on marketing mature, often generic, products. Focusing on high-margin specialist products for niche indications--an increasingly popular strategy among pharmaceutical and biotech companies alike--puts many emerging markets and their enormous growth potential in a kind of commercial blind spot.

For smaller companies this is of course pretty much irrelevant. For mid-sized firms like UCB, hanging onto a presence in the larger BRIC countries is likely enough--provided patients there can afford your drugs. But for those behemoths with large primary care portfolios and the quickly approaching patent cliff to navigate, emerging markets are both the silver lining and an increasingly important source of revenue. GSK is wise to keep collecting those customs stamps.

image from flickr user mondayne used under a creative commons license.