The Promised Land For Generic Drugs

Generic drugs are supposed to be ascendant these days. A cost-conscious country is using them more frequently, and Congress seems to be moving down the path towards creating a whole new kind of generic – the follow-on biologic. Prospects for that legislation have considerably improved with bigger Democratic majorities in Congress and the new quantum majority in the White House. But at the same time, the forces that created these positive trend lines also contain elements that could lead to a reversal for generic firms.

For example, the widespread use of generics has allowed many firms to bloom, but manufacturing problems at some of these fast-growing operations threaten to discredit the industry as a whole. And an approval pathway for follow-on biologic could open up new business territory for firms, but to hear some tell, they may not benefit at all since the capital requirements will be too intense. The brand industry, having learned its lesson from the toothless labeling exclusivity in Hatch-Waxman, is hoping to include language in the FOB bill that will give biologic line extensions long lasting protections.

These pressures – along with a broader patent reform debate in Congress and state bills that would limit mandatory substitution – mean that the lobby and policy arms of the generic industry still have to work on overdrive even as the sector seems to have the wind at its back. Because while the generic industry’s presence in Washington has expended along with its sales, a by-product of that very growth, consolidation, now threatens to weaken the sector’s influence.

Barr’s acquisition by Teva means that what were arguably the industry’s two most robust D.C. operations are now squeezing under one roof, and the Generic Pharmaceutical Association will be missing one of its dues paying members. We’re not suggesting that this means that the generics industry is headed for hard times on the Hill, just that it’s going to have to continue to apply the same creativity and gumption that has brought it so much success in its previous battles with the brand industry.

Indeed, the poised, well positioned nature of the generics industry offers a Moses and the Promised Land analogy. Generics stand ready to enjoy some FOB meat and honey, but Barr, the firm that helped lead them there, isn’t going to join them. Barr’s D.C.-based CEO, Bruce Downey, was one of the first in the industry recognize the importance of having an lobbying operation, and, as noted in a recent interview with "The Pink Sheet," Downey was one of the driving forces behind the merger of the three fledgling associations into the current GPhA powerhouse. We’ll leave it up to you, dear readers, to decide whether this means that Henry Grabowski is Jericho.

image by flickr user runako used under a creative commons license

DotW: Going For Gold

Congratulations, Michael Phelps, on your sixth gold medal. We can only imagine the adrenaline rush as we tune in periodically from our own cube. (Kind of like the high we get writing these posts. NOT.)

But Phelps wasn't the only one turning in medal-worthy performances this week. Genentech certainly deserves at least a bronze for its neatly worded--some might even say restrained--reply to Roche's nearly $44 billion July 21 offer, which noted that the Swiss pharma "substantially undervalues the company." Go figure.

But lest you think there are hard feelings between the two companies, fear not. Charles Sanders, chair of the independent committee evaluating the offer, extended this olive branch to Severin Schwan and company: "In addition, we look forward to the company maintaining its successful relationship with Roche, regardless of ownership structure." (Certain politicos in Russia and Georgia might want to take note.)

As our sister publication The Pink Sheet Daily reports (subscription required), Genentech's response means Roche can now begin bargaining in earnest. Most analysts and industy experts expect Genentech will ultimately score gold (as in a lot more coinage). To seal the deal, Roche may have to offer upwards of $100-a-share to gain its biotech goose. The question is: can the Swiss giant still afford to feed the animal given the high cost? Or will the high price tag necessitate cost-cutting efforts that damage the high-flying culture Roche claims it's intent on preserving?


Speaking of getting air, in the high jump competition, keep your eyes on Oxford Biomedica, up more than 20% today after the beleaguered gene therapy company rejected a second takeover offer from GeneThera, and German generics play Stada, which rose 12% today on rumors of a buyout by always-acquisitive Teva Pharmaceuticals. Protherics could be the favorite to medal here, as the UK biotech was up a whopping 44% earlier in the week after it announced it was in talks with unidentified potential acquirers.

Olympic athletes know that speed isn't everything. Stamina is important too. (Imagine having the staying power to eat Michael Phelp's 12,000-calorie-a-day diet.) In our industry, the medal for stamina has to go to our favorite activist shareholder, Carl "oh yes, I can" Icahn, who bought up more shares of Biogen Idec after that biotech's stock price slipped on negative news associated with its MS drug Tysabri. Icahn's move suggests he may not be finished with the Massachusetts biotech, despite not being able to force a sale of the company roughly one year ago. (Meantime another Icahn holding, ImClone, also looks to be going for (more) gold. The company hasn't officially rejected BMS's $4.5 billion bid, but a NY Times story published August 5 suggests execs at the biotech are likely to oppose the sale at the current price.)

Your IN VIVO Blog team has stamina too. And someday we might even get a medal for the analysis we bring you week in and week out. (It won't be for the humor.) Until then, it's time for another edition of ...

AstraZeneca/Abbott: Carpe diem, says AstraZeneca’s Crestor group. It’s got a great opportunity to step-up its commercial attack on Lipitor (down about 10% in new prescription growth from a year ago) and, perhaps more importantly, Vytorin – down about 40% from a year ago, thanks to negative-sounding, albeit equivocal, data out of the ENHANCE trial and, more recently, similarly disturbing results from SEAS. Problem: AZ’s US business is sputtering, so now is not the time to add infrastructure. Meanwhile, Abbott’s big new launch, Simcor (Niaspan plus simvastatin), hasn’t tracked with expectations. So it's a perfect time for the partners who, since 2006, have been developing combinations of Crestor with Abbott’s new-generation fenofibrate (called TriLipix), to use a Crestor co-promotion to iron out, before the big test, some of the likely kinks in the joint commercialization of TriLipix/Crestor.

CSL/Talecris: Private equity took gold in this week's top bio-bucks deal. Cerberus Partners and Ampersand Ventures announced Tuesday that they were selling Talecris Biotherapeutics to the world's top maker of blood plasma products, Australia's CSL Ltd., for a hefty $3.1 billion. In addition, CSL will assume over $1 billion in debt amassed by the North Carolina player, which was started in 2005 when Ampersand and Cerberus snapped up Bayer AG's plasma products from Bayer's Biologics Products Division for $590 million. Talecris, which currently operates 56 plasma collection centres and two manufacturing facilities in the US, posted $1.2 billion in sales last year. The move by Talecris's backers has apparently been in the offing for months. Indeed Talecris may have been sniffing out M&A exits as early as last July, when it filed to go public. We've noted previously that many companies are now adopting a twin-tracking approach, entering preliminary talks with potential buyers while simultaneously filing for an IPO. Certainly given the stock-market turmoil and the lack of investors' appetite for risky IPOs, M&A was the quicker and more lucrative exit for Ampersand and Cerberus. By buying Talecris, CSL is betting the combined company will be able to capture a bigger share of the expanding market for plasma-based medicines, now a $7 billion-a-year market.

Schering-Plough/Shanghai Schering-Plough Pharmaceutical Co.: Schering-Plough caught Olympic fever, announcing this week that it has expanded its presence in China by acquiring shares of its former joint venture partners and folding them into a wholly-owned operation based in Shanghai. (Beijing is definitely too smoggy.) Financial details were not disclosed. (Clearly the Chinese already get S-P's corporate mantra: "earn trust, every day.) China has long been a focus of major pharmaceutical companies, of course. As drug pricing comes under tighter control in western countries and looming patent expiries will lower sales, the companies are looking for ways to expand into valuable developing markets such as China where an economic boom has created a thriving middle class eager to access Western medicines. AstraZeneca is among the leaders, with its Innovation Centre China, an R&D center based in Shanghai, and its strategic partnership with Peking University 3rd Hospital to open establish a Clinical Pharmacology Unit (CPU). In 2007, it took top selling honors from Pfizer in the country, increasing sales of its drugs from $85 million in 2001 to $423 million last year according to the WSJ.

Barr/BI: Barr Labs is busy showing us why Teva decided to plunk down nearly $9 billion (in cash, stock and assumed debt) to buy out its generics rival back in July. On Tuesday Barr announced agreements to settle its Mirapex (for Parkinson’s) and Aggrenox (an anticoagulant) patent challenges with Boehringer Ingelheim. Those drugs pulled in more than $700 million combined in the twelve months through May 2008, according to Barr. Not only has Barr nailed down early dates on which it can start to market its first-to-file generic versions of BI’s two drugs (2010 and 2015—10 months and 18 months earlier than the drugs’ challenged patents officially expire, respectively), it also inked a co-promotion deal with BI on Aggrenox. Barr’s Duramed division will co-promote the anticoagulant with its specialist women’s health sales force starting in March 2009 (BI will train them up in the interim), in exchange for undisclosed royalties. The two deals come not too long after Barr’s June victory in US District Court in the Mirapex litigation. That ruling found that BI had double-patented the Parkinson’s therapy, and likely forced the German company to enter into serious negotiations with Barr while it considered its appeal. Of course authorized generics deals have always seemed a bit sketchy in the eyes of Congress and the FTC, among others, so expect a thorough review.

Pfizer/Cytos: Swiss vaccines (jab-elin?) play Cytos Biotechnology this morning said it added Pfizer to its list of R&D partners. The Big Pharma is paying CHF10 million upfront and up to CHF140 million in milestones to access Cytos’ Immunodrug technology to develop vaccines against a set of predefined disease targets. Cytos will also receive research funding and potential royalties; Pfizer takes over development of any products at the preclinical stage. For Pfizer the move is the latest in a string of vaccines deals stretching back to the acquisition of PowderMed in late 2006; more recently the Big Pharma has bought Coley and inked a licensing deal with Avant for a brain cancer program in its efforts to beef up its vaccines efforts.

Thanks to Chris Morrison and Roger Longman, who pitched in with some additional reporting.

Deals of the Week: All Star Break

In a week when the AL (again) defeated the NL 4-3 in a marathon 15-inning All-Star game at Yankee Stadium (thanks, Billy Wagner, for blowing the save and losing home field advantage for the World Series-bound Phightin' Phils), there were a few all-stars in the pharmaceutical world as well.

The buzz word this week was diversification, with health-care behemoths Johnson & Johnson and Abbott Labs posting better-than-expected quarterly results. J&J was buoyed by its consumer products business and Abbott had both stents and Humira to thank for its performance. On the other hand Novartis--an increasingly diversified company--grew in spite of its non-branded Rx divisions: its consumer medicines and Sandoz generics business enjoyed only moderate success thanks to tough times in the key US market, but that didn't stop the Swiss company from posting solid second quarter numbers. (We'll have more to say on Big Pharma business models and the yin and yang of focus and diversification in an upcoming IN VIVO piece.)

Keeping with the baseball theme: we're not a blog to steal signs but we couldn't help but pick up on something earlier this week. On Tuesday we gave you all free access to the denosumab record from Elsevier's Inteleos database and noted that Amgen has suggested it would be open to licensing the project, at least for the primary care indication of post-menopausal osteoporosis (PMO).

The challenge? For all of you expert dealmakers out there to add your two cents regarding the value of the project and potential deal strategies for Amgen. We can only assume that the dearth of comments suggests that all of you are in preliminary or even final-stage negotiations with Amgen and therefore recuse yourselves from the prize-less competition. Wink wink, we get it. Slackers.

You know who hasn't been slacking off? Those intrepid dealmakers responsible for ...



GSK/Actelion: The week started off with a bang when on Monday Glaxo fronted CHF 150 million ($148 million) in a worldwide (ex-Japan) co-development and co-promotion pact with Actelion for the Phase III orexin receptor antagonist almorexant. The Big Pharma pledged an additional CHF 415 million in pre-commercial milestones for the drug’s first indication of primary insomnia and an absolutely filthy figure for total milestones in two additional indications. Reactions to this deal were varied, to say the least. One analyst called it "the largest-ever partnering deal in the history of the industry," while others pronounced themselves decidedly "underwhelmed." Certainly you can't please everyone. But allow us to be the voice of reason, the voice of moderation, the voice of baby bear, when we say that GSK's figure was probably "just right." Why's that? Well forgetting the non-insomnia terms and taking into consideration the fact that GSK will help Actelion get its primary care field force off the ground by paying it to promote an undisclosed GSK drug prior to almorexant, the upfront payment may have been low for a Phase III primary care drug circa 2000-2003, but not anymore. The few primary care drugs available for licensing in Phase III, with novel mechanisms of action designed to treat non-life-threatening diseases, come saddled with higher than ever clinical development hurdles and increased regulatory scrutiny. GSK’s ante for almorexant—though large enough to put the deal in the upper echelon when it comes to guaranteed money—might seem small were it not for those circumstances. The fact that the Big Pharma is only chipping in for a minority of almorexant’s pivotal development program (which aside from the ongoing RESTORA 1 study will include at least two more Phase III trials) is further evidence that GSK is hedging its bets here.

Genzyme/PTC: We'll spare you the "London buses" reference but suffice to say it's unusual to see one $100 million+ upfront licensing deal and to see two in a week--well, that's plain crazy. But score another one for the orphan drug seekers. On Thursday, Genzyme paid $100 million to PTC Therapeutics to enter into a global collaboration to develop and commercialize PTC124, PTC's novel oral therapy in late-stage development for the treatment of genetic disorders due to nonsense mutations. The drug is in Phase IIb trials for Duchenne muscular dystrophy and is scheduled to enter a Phase IIb in cystic fibrosis later this year. PTC will cover the cost of 124's remaining Phase II program--which is slated to include four trials--and from there the parties will split development costs 50/50. PTC is eligible for $165 million in development and approval milestones and $172 in sales milestones. PTC will commercialize in the US and Canada (where it is responsible for all commercialization costs) and Genzyme takes responsibility for marketing and associated costs for the RoW. In addition to Genzyme's up-front contribution PTC pulled in up to $25 million from the non-profit Cystic Fibrosis Foundation the day before the deal was announced to support development of '124 in CF.

ViroPharma/Lev: Specialty pharma outfit ViroPharma announced it was entering the hereditary angioedema (HAE) space with its $443 million acquisition of Lev Pharmaceuticals. The linchpin of the deal is Lev's C-1 esterase inhibitor Cinryze, a biologic that has been available in Europe for 35 years to treat this rare and life-threatening condition, which causes inflammation of the larynx, abdomen, face, and extremities. Lev filed a BLA for Cinryze in July 2007, seeking approval for both prophylaxis and acute treatment of HAE. The product faces competition from CSL Behring's C1 inhibitor Berinert and Jerini's Firazyr. Our sister publication Pink Sheet Daily has more on the HAE market and Cinryze's chances of success. For ViroPharma, the deal marks a shift away from the antiviral space, which has long been its focus, into the hospital/ transplant arena. And with the addition of a soon-to-be marketed product, it continues the company's trend of playing to an investor base attracted to fully-baked and largely derisked assets. Recall this is the company that made a tidy profit on Vancocin, a decades old product it inlicensed from Eli Lilly, to treat Clostridium difficile outbreaks. ViroPharma's timing on Vancocin was exquisite. It brought in the product just when very nasty strains of the bacterium were causing large scale hospital outbreaks of the disease; given the market forces, ViroPharma was able to raise prices of the drug considerably. It is currently working on a follow-on to Vancocin, NTCD. Meantime, there's little information available about ViroPharma's hepatitis C program: ViroPharma discontinued its HCV-796 program, partnered with Wyeth, earlier in the year. According to ViroPharma's website, the two companies continue to exlore follow-on molecules to treat the disease.--Ellen Foster Licking

MacroGenics/Raven: Raven Biotechnologies finally found a buyer in MacroGenics. Last November, Raven announced a tie-up with VaxGen worth about $39 million. But VaxGen's shareholders revolted and scuppered the deal this past spring. MacroGenics, in turn, has been working to build a fully integrated biopharmaceutical company (how quaint) around its Fc antibody engineering and dual affinity re-targeting (DART) programs. It has a large deal with Lilly to develop and commercialize its anti-CD3 mAB for use in the treatment of autoimmune diseases, icluding recent onset-type 1 diabetes. On July 17, MacroGenics and Raven announced their tie-up. Financial terms weren't disclosed but it seems unlikely that Raven got more than what VaxGen originally offered. For MacroGenics, the acquisition provides additional preclinical assets, including more than 1300 monoclonal antibodies that Scott Koenig, CEO of MacroGenics, claims can rapidly be developed using their optimization platforms. In addition, the deal gives MacroGenics access to a portfolio of proprietary cancer stem cells from many types of primary tumors that could be an important addition to MacroGenics R&D capabilities. --EFL

Teva/Barr: What's $7.6 billion buy these days? Maybe a top-five starting pitcher, but those are hard to come by. No, this week it was Barr Laboratories. This late-breaking deal of the week is the latest chapter in the ongoing consolidation of the generics sector, but the bigger story here is the combination of Teva and Barr's biologics programs. Teva also noted Barr's legal prowess and at-risk launch capabilities. Under the terms of the deal, each share of Barr common stock will be converted into $39.90 in cash and 0.6272 Teva ADRs and Teva will assume Barr's $1.5 billion in debt, to boot. In other generics news, Czech generics play Zentiva is now telling investors to reject Sanofi-Aventis' attempt to up its stake in the company, saying the $2 billion play is a lowball offer.

photo by flickr user mori claudia used under a creative commons license.

The Wacky World of Generics: Fosamax Edition

Today, Merck bids a fond farewell to its Fosamax franchise, as the first generic versions enter the market.

Three generic firms are entering the market: Barr and Teva with approved ANDAs, and Watson with an "authorized" generic supplied by Merck. Next up will be generic versions of the Fosamax D formulation (expected in April) and then numerous additional generics in August when the 180-day generic exclusivity period awarded to Barr and Teva expires.

Authorized generic launches are hardly surprising anymore, as brand firms are committed to maximizing the value of their brands through the patent expiry period. What is surprising is the unusual lengths Merck went to to give Fosamax a send-off in style.

The company ran a promotional campaign in the final months before patent expiration highlighting the upcoming Fosamax generic launches, and even created a website called GoingGeneric.com to promote Fosamax. Merck drove traffic to the site via links on its main Fosamax website as well as through a "multi-channel physician campaign" that included direct mail and journal ads.

We would love to show you the site, which featured a neat animated video of a Fosamax patient on the beach, but Merck has taken it down. The site "served its purpose," a spokesman says. Here is Google's cached version of the page, which has no graphics but at least shows the basic messages Merck was pushing.

The overall theme: Fosamax allows patients to "Save Now and Save Later." In other words, starting new patients on Fosamax rather than a competitor like Boniva or Actonel meant lower copays right away (since most managed care plans had Fosamax on tier 2) and then even lower copays now that generics are available.

In other words, Merck did everything in its power to build a bigger market for the generics that launched today.

What's going on here? Does anyone else remember the good old days when Big Pharma companies would simply shift resources away from brands in their final quarters of exclusivity, jack up the price, and concentrate on new products?

Well, those days are obviously over. "Maximizing the value of the brand" (or, perhaps, milking every drop from a cash cow) is critical business for big pharma at a time when new product launches have slowed to a trickle and cost cutting is the order of the day. At a time when hitting profit targets is a quarter to quarter war of attrition, every penny counts.

That is why Merck not only ran the campaign, but also highlighted it to investors during its December 4 analysts day. "We are prepared for a number of different potential scenarios to insure that we maximize the value of the Fosamax franchise," CFO Peter Kellogg said, and then discussed GoingGeneric.com as an example.

Merck says it expects Fosamax revenues in the range of $1.1 billion to $1.4 billion worldwide in 2008 (down from $3 billion in 2007). That's a big drop no matter what, but the difference between the high and low ends of the range is $300 million. You can bet Merck would love to have that in revenues rather than make it up in job cuts or other efficiency initiatives.

So, if the going generic campaign helped drive higher brand sales in the first six weeks of the year (and then higher sales of the authorized generic during the spring and summer) it would be a big deal for Merck.

Did it work? Its hard to say. Fosamax revenues increased 1% in the fourth quarter to $522 million. That is not exactly spectacular growth, but it reversed a downward trend in sales throughout the year, and helped Merck hit its goal of $3 billion in global revenue for the brand in 2007.

During Merck's fourth quarter call in January, Kellogg credited Fosamax's strong showing to its favorable formulary position in anticipation of generic entry, but did not specifically comment on whether the Going Generic campaign made a difference. And a Merck spokesman declined to provide any additional details about the performance of the campaign, saying the company didn't want to share any lessons learned with the competition.

Whether or not the campaign itself worked, the idea is here to stay. In today's world, Big Pharma has not choice but to drive sales growth of all its brands through every means possible--even if it means building up the market for its generic competitors.

That may be a sign of desperation for Merck, but it is a nice treat for Barr and Teva who unequivocally benefit from anything Merck did to increase the size of the Fosamax market over the past few months.

Our only question: when will Teva and Barr be launching GoneGeneric.com?