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Lots of news this week either directly or indirectly highlighted concerns about the quality of everything related to infrastructure, products, and services. Starting front and center with Hurricane Sandy, right down to our own neck of the woods, biopharma deal making, quality has become a high-profile and challenging priority for the industry.
It is hard to avoid discussion of Sandy when reflecting on the week’s events, especially as this columnist resides in Manhattan, where after the storm, a stark contrast emerged between electricity haves and have nots. The haves, while inconvenienced, were largely able to access the normal comforts of the modern world and every day stresses that go with it, while the most fortunate have-nots struggled through the mess, and the less fortunate continue to suffer greatly.
Hurricane Sandy tested the emergency response planning in the Northeastern U.S., where, like, elsewhere, dense populations inhabit a complex world combining state-of-the-art technology and decades, even centuries-old infrastructure. New Jersey, which has been a manufacturing, R&D, and management headquarters for the biopharma industry over many decades, was hit particularly hard by the storm. While the industry has diversified geographically over the years, the state remains an important center of biopharma activity. No one is even broaching the cost of overall business damages, and the storm may not have significantly disrupted the biopharma industry’s supply chain.
But the quality of that supply chain is under strain regardless, as witnessed in a high-profile article which appeared in The New York Times detailing the agency’s decision that a 300-milligram dose of bupropion manufactured by Impax Laboratories was not bioequivalent to the anti-depressant Wellbutrin XL. As a result, the agency said it would be more careful about monitoring the way generic drug makers make extended release drugs. “The Pink Sheet” has been tracking the issue for industry, but The Times article brought it to the mainstream public's attention. According to the Times, which obtained its information from IMS Health, 120 extended-release drugs were sold in the U.S. in 2011.
And that article came on top of rising concern about compounding pharmacies in the wake of a nationwide outbreak of meningitis due to fungal contamination of preservative-free methylprednisolone acetate produced and distributed by The New England Compounding Center. Compounding pharmacies play an important role in distribution of many medicines.
Of course, for investors, problems and shifts in trends are business opportunities. And Patheon Inc.’s announcement on Oct. 29 that it planned to acquire the N.C.-based contract manufacturer Banner Pharmacaps for $255 million is one indication that pursuit of high quality manufacturing is a business opportunity. Patheon provides contract manufacturing and development expertise to the biopharma and generics industries.
A private equity firm, JLL Partners, owns 55% of the company, which is listed on the Toronto Stock Exchange. Patheon’s stock is trading near its 52-week high of $3.90 a share, but clearly, its owners have it on an ambitious track. More than a year ago, its board brought in James Mullen, who led Biogen-Idec Inc. for seven years, to undertake a strategic revamp, and he, in turn, has hired a group of high-level senior pharma executives to become part of his management team. As Patheon sees it, there’s an opportunity to do roll ups in what is currently a highly fragmented industry with about $12 billion in sales and a vulnerability to manufacturing gafus as the global supply chain gets more complex and buckles under to cost pressures.
In addition to manufacturing capacity for solid oral dosage formulations, Banner brings to Patheon a pipeline of technologies for developing higher-margin, value-added proprietary products and a strong presence in Latin America, particularly Mexico, where it sells OTC and prescription drugs under its own brand. This will enable Patheon to pursue more and larger customers, fitting with an industry trend towards forming strategy partnerships with CMOs to outsource capital-intensive manufacturing.
Patheon may not be focused on the industry’s bread and butter, innovative R&D, but it has ambitions to bring more modest technological innovation to the industry, namely in formulations and manufacturing. In January, it partnered with a Columbian maker of soft-gel capsules, ProCaps SA, giving it rights to ProCaps’ proprietary soft-gel technology and manufacturing capabilities in Europe, the U.S. and Asia.
Although the industry has far too much manufacturing capacity in general, for both small molecules and biologics, it also faces a shortage of certain kinds of facilities, for things like state-of-the art sterile fill finish, points out Michael Lytton, Patheon’s EVP, corporate development and strategy, who previously was EVP, corporate and business development at Biogen. Patheon, by dint of its focus, has greater operational efficiencies, and can better manage complexity than larger companies focusing on new drug development, particularly for problem areas like sterile injectables, said Lytton. Because its processes are state of the art and highly automated, Patheon can provide high quality without great additional cost, Geoffrey Glass, EVP, global sales and marketing said.
Whether it’s easier for investors to win on the services side of the pharma industry than on the bread-and-butter of betting on R&D innovation remains to be seen. Meanwhile the search for innovation goes on.
GlaxoSmithKline/Vertex and Janssen Pharmaceuticals/Vertex: Vertex announced on Nov. 1 separate agreements pairing its nucleoside VX-135 with GKS's NS5A inhibitor and Medivir AB/ Janssen Pharmaceuticals’s protease inhibitor for Phase II trials. The deals end speculation about when the Cambridge, Mass., biotech would enter the intra-industry mix-and-match in search of an interferon-free combination regimen to treat hepatitis C. Both collaborations are non-exclusive, with an even split of expenses to support Phase II proof-of-concept trials to begin early in 2013. The deals did not provide for up-fronts or milestones, and the agreements cover only the trials.
Glaxo has not had a high-profile in the hepatitis C space, and Bristol Myers Squibb was thought the more likely candidate along with Janssen parent Johnson & Johnson for a Vertex clinical partnership. In fact, the clinical deal may be the first significant step into hepatitis C for Glaxo, an otherwise established player in the antiviral space.
The announcement solves the mystery of when and with which big pharma candidate(s) Vertex would test one of the few clinically viable nucleoside polymerase inhibitor candidates remaining in the industry. Attrition has been high for that antiviral class, exemplified by Bristol’s announcement in August that it would cease development its nuc BMS-986-094 following a Phase II cardiac toxicity incident.
The latest casualty is BioCryst Pharmaceuticals Inc.’s BCX5191, developed in house by the Research Triangle Park, N.C., biotech.
AstraZeneca/U.K. Academia: AstraZeneca said Oct. 31 that it is expanding its dealings with academia in its latest experiment with new R&D models involving increased interaction with external partners. In late 2011, Britain’s second-largest drug maker made 22 compounds available to U.K-based scientists at no charge to see if they can develop new medicines from them. Academics submitted more than 100 proposals, from which the Medical Research Council on behalf of AstraZeneca selected 15 to further investigate for a range of potential new drugs covering Alzheimer's, cancer, and lung disease. Winners include a University of Bristol project investigating whether a compound originally evaluated for the treatment of prostate cancer could delay, or even reverse, the progression of Alzheimer’s disease; a team at the University of Manchester conducting a small clinical trial of a new treatment for chronic cough using a compound developed to treat heartburn; and scientists at the Royal Veterinary College, University of London hoping to re-purpose a lung disease drug to treat muscular dystrophies.
The 15 projects will be financed using £7 million ($11 million) provided by the MRC. Under the arrangement, AstraZeneca will retain its existing rights relating to the compounds and any new research findings by the academic institution will be owned by the academic institution.
The open innovation project is unique to Britain. It has already created a number of partnerships between researchers from academia and industry and should lead to future collaborations across the sector.--Sten Stovall
Astex/Cancer Research Technology/Newcastle University: Open innovation and knowledge sharing were major themes in Britain this week, during which U.S.-based Astex Pharmaceuticals TK inked a strategic cancer drug discovery alliance with Cancer Research Technology Ltd. and Newcastle University in northern England. Astex said that over the course of the partners’ five-year alliance it will provide £1 million ($1.6 million) annually to Newcastle University for research across biology, chemistry, pharmacology and imaging to identify new cancer drugs and associated biomarkers for diagnostic tests. The three-way pact builds on a previous collaboration between Astex, Newcastle and the CRT on fibroblast growth factor receptor, a key cancer target, which led to the development of a clinical candidate that Astex partner Janssen Pharmaceuticals recently took into Phase I clinical trialing.
Astex will retain options to exclusive worldwide licenses to develop and commercialize pharmaceutical products from each alliance project. CRT is a non-profit organization that links discoverers of new cancer compounds to potential partners which can develop and potentially commercialize the compounds. The three-way partnership makes CRT and Newcastle University eligible to receive development and regulatory milestone payments on exercise of the options, and on products that Astex takes into development, and royalties on sales. Financial terms of the milestone payments and royalties were not disclosed.--SS
Menarini Group/Oxord BioTherapeutics: Oxford BioTherapeutics Ltd. has entered a pact with Italy’s biggest drug maker, the family-owned Menarini Group, to jointly develop a portfolio of antibody-based oncology drugs, the firms announced Oct. 29. The deal covers five of OBT’s antibody and antibody drug conjugate (ADC) programs, each of which is in pre-clinical stages and focused on a different cancer indication using a different novel oncology target. Menarini, which has around €4 billion in annual revenues, says it is pumping €800 million into the collaboration, though would not divulge details on how that cash breaks down into R&D funding, access payments, and milestones. Its British president Andrew Slade says the deal resulted after Menarini’s main ADC hope turned out to be a dud, which sent him scurrying to find alternative assets and interviewing more than 100 companies. OBT won the contest on the strength of its discovery expertise using a platform for the development of antibody-dependent cellular cytotoxicity (ADCC) enhanced antibodies. Slade says the long view investment approach that family-owned drug makers can offer biotechs is very attractive in the current financing environment. Family-owned drug makers – most usually found in continental Europe – can offer stable management, access to long-term funding for long-term projects, and traditionally have low turnover of staff.--SS
Boehringer Ingelheim/Ensemble Therapeutics: The German pharma Boehringer Ingelheim became the latest drugmaker to strike a deal with privately held, Cambridge, Mass.-based Ensemble Therapeutics, which uses a proprietary chemistry platform to discover orally available macrocyle drugs that affect protein-protein interactions. The parties said the deal includes an up-front payment and research funding, as well as milestone payments that could bring its total value to $186 million plus royalties, if multiple drugs are developed, approved and commercialized. Specific details, including the number of drug targets covered, therapeutic areas involved, and size of the initial payments, weren’t released. BI will choose the targets, making the deal similar to Ensemble’s existing arrangements with Genentech, Bristol-Myers Squibb, and Pfizer. Ensemble chief executive Michael Taylor said that although the company’s 2009 Bristol deal covered eight targets, Ensemble has since pursued smaller partnerships. Eight-year-old Ensemble is also developing a pipeline of its own, including an interleukin-17 antagonist it expects to partner sometime in 2013. The company now subsists largely on non-dilutive capital, and is unlikely to raise more beyond the $38.5 million it took in two rounds from Flagship Ventures, CMEA, ARCH Venture Partners, Harris & Harris, Kisco Ltd., and Boston University.--Paul Bonanos
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