Financings of the Fortnight Worries About The Window

"It was wide open a minute ago."

Who’s lining up next? It’s become quite the parlor game, now that the biotech IPO window has been wide open for months. But all the fun might be on hold as Washington works to sort itself out (or get further entangled) and Wall Street starts to worry over the potential economic instability. What if the days of the shutdown turn into weeks? What once seemed laughable has already come to pass, as the Ted Cruz Republicans are proving their disdain for Obamacare with ever uglier self-inflicted wounds. Hey, don’t take our word for it. Ask Grover.

Already we’re seeing a small but ominous sign: There are no IPOs on the list of current road shows, despite the queue of those – including MacroGenics and Relypsa – that are on file. Perhaps the seven biotech IPOs in the last two weeks -- Acceleron, Five Prime Therapeutics, BIND Therapeutics, Foundation Medicine (see description in our roundup below), Ophthotech, Evoke Pharma, and Fate Therapeutics -- were the SEC equivalent of a rush job to avoid the potential politically-induced volatility.

Once biotech IPOs started to show signs of life last fall and then took off this spring, everyone has wondered what would burst biotech’s bubble. Most assumed it would be bankers pushing out too much crappy paper, but perhaps it will be the idiocy in Washington, particularly if it extends past the debt default deadline of Oct. 17. If Wall Street starts steep selling and recessionary fears turn into reality, biotech IPOs will be a swift casualty of the broader market.

For a few more days, at least, the IPO machinery will grind away. The SEC has enough cash under the mattress to keep the lights on for a few weeks, unlike so many other government agencies. But it will clang to a halt if the shutdown drags on; the folks who deal with registrations and whatnot are not deemed essential staff.

Seems all the headlines (and tweets) are focused on the effect on Twitter’s pending IPO, but arguably no sector has benefited more than health care from the IPO changes this year, as all manner of companies at various stages of development have become public. IPO data house Renaissance Capital says health care companies have launched 42 IPOs and raised $7.6 billion this year, the most of any sector. They’ve also scored the highest aggregate returns year-to-date, 64%. (By comparison, our technology compatriots in their hoodies have had 30 IPOs, raising $3.3 billion and gained 44% on average.)

It’s only fair to mention that the health-care numbers include the likes of giant CRO Quintiles Transnational ($947 million raised) and Pfizer’s animal health group Zoetis ($2.2 billion raised), but the argument still holds: A prolonged and wholly unnecessary drought would hurt biotech disproportionately. It’s like the party you’ve been planning with your neighbors has finally started swinging, but the creepy guy with the fake tan across the street who smokes too much calls the cops. Not because the party was too loud, but because he thinks your house’s architecture is ugly. Ruining his property values, or something.

Let’s ignore for a moment the bucket of cold tea, er, water tossed in biotech’s direction, and get on with our parlor game, made all the more intriguing by the JOBS Act rules that allow companies to file in stealth and remain so for weeks on end.

We already mentioned MacroGenics and Relypsa, which filed publicly this week to raise up to $126.5 million. Among companies that haven’t declared – at least publicly -- Moderna Therapeutics would make a fine candidate, says our friend Luke Timmerman of Xconomy. (Moderna CEO Stephane Bancel wouldn’t take the bait and said he prefers to proceed with caution. For more on Moderna’s new Department of Defense grant, see our roundup below.)

OK, who else? Our colleagues at START-UP wrote this summer about Forma Therapeutics’ decision to re-structure itself to make spinouts of single assets easier; CEO Steve Tregay was quick to say that, if need be, the company could convert back to a more traditional corporation and go the IPO route.

“At the time in 2009 when we started talking about [becoming a holding company], it wasn’t obvious you’d see a robust IPO market,” said Tregay. “We knew we wanted to provide liquidity to our shareholders, and we wanted to commoditize assets. Can we convince Wall Street to believe in sustainable R&D companies? We think so. But our first objective was and is to create a sustainable research engine, and to do that we needed to do things differently than the old ‘R-then-D’ model.”

You can’t talk about IPOs without mentioning Third Rock Ventures, which has pushed three portfolio companies public this year. Might we see more before the New Year? If FOTF had to bet (all proceeds going to charity, of course), we’d put a few chits down on Blueprint Medicines, Constellation Pharmaceuticals, and Sage Therapeutics, which just saw interim CEO and Third Rock partner Kevin Starr hand the reins to the former head of Shire’s regenerative medicine group, Jeff Jonas.

We could also take a closer look at biotechs that have raised a few rounds, are deep into the clinic, and whose investor roster includes crossover firms or VCs at the end of their fund cycle. Or firms whose executives have notable track records. (The upcoming START-UP takes a look at one such company, Kolltan Pharmaceuticals, whose cofounder Yossi Schlessinger had a hand in kinase inhibitor developers Sugen and Plexxikon, each of which exited quite handsomely.)

The answer to whether these guesses are correct could already be lying on someone’s desk deep in the bowels of the SEC in a pile of confidential filings, just waiting for the POTUS and both houses of Congress to come together, join hands, and realize that it’s a small world after all. Which is just about as likely as the next Pulitzer Prize being awarded to this edition of…

Foundation Medicine: It isn’t quite four years old, but the cancer diagnostics specialist is already public, and in a big way, its share price nearly doubling the first day it traded and holding those gains for a week. The Cambridge, Mass. company priced its offering Sept. 25 above expectations at $18 per share, ultimately grossing $121.9 million. Foundation sold nearly 6.8 million shares, including a greenshoe option for underwriters, raising substantially more than the five million it planned to sell for $14 to $16 apiece. The young company last year began selling its first product, a diagnostics platform that matches individual cancer genomes with a broad database of genomic alterations in order to optimize care. Stakeholders receiving liquidity via the offering included venture firms Third Rock Ventures, Kleiner Perkins Caufield & Byers, and Google Ventures; crossover investors Deerfield Partners, Casdin Capital and Redmile Group; and individuals including Microsoft founder Bill Gates, Russian billionaire Yuri Milner, and Digene CEO Evan Jones. The IPO is the third this year for Third Rock, which is on quite a roll. It’s also a notable exit for Google Ventures, which quietly has built a small but influential health care portfolio, led by partner Krishna Yeshwant (and profiled here). With the company’s market capitalization hovering around $1 billion, the investors who pumped in $89 million in two rounds of funding have earned a hefty return. It’s yet another sign that the public markets are welcoming for life sciences companies with a strong story to tell – even young ones. – Paul Bonanos

Arvinas: Many drugs work by blocking or inhibiting proteins and the reactions they cause in the human body, but only about 25% of the roughly 20,000 proteins in the body can be inhibited with molecular therapy. New company Arvinas is pursuing the opportunities presented by a different approach to disease-causing proteins – degradation – and will get its work underway with a $15 million Series A announced Sept. 26. Canaan Partners and 5AM Ventures led the A round, with participation from Elm Street Ventures and Connecticut Innovations, a state-funded venture firm with a goal to keep innovation by Connecticut researchers within the state. Along with the Connecticut Department of Community and Economic Development, Connecticut Innovations is supplying to the New Haven biotech  an additional $3.5 million in non-equity funding, some of which is tied to hiring milestones. The state also took a $1 million equity stake in Arvinas through Connecticut Innovations’ investment in the A round. The company’s work stems from research at Yale University by Craig Crews, a professor of chemistry and pharmacology, focused on inducing a cell’s own protein-degradation capability to bind to specific protein and mark it for degradation, which would remove it from the system entirely. He previously founded the biotech Proteolix, which also focused on protein degradation and was bought out in 2009 by Onyx Pharmaceuticals, bringing that company the multiple myeloma candidate Kyprolis (carfilzomib). – Joseph Haas

Moderna Therapeutics: The Flagship Ventures company said October 2 it had received a grant worth up to $25 million from the US government’s legendary Defense Advanced Research Projects Agency (or DARPA) – birthplace of the Internet -- to develop treatments for infectious disease and bioengineered attacks. The Cambridge, Mass. biotech is working on a new drug modality, in which modified messenger RNA (mRNA) are injected into a patient to spur endogenous production of therapeutic proteins. Shortly after emerging from stealth, Moderna’s platform received validation – and a boatload of cash – from AstraZeneca. But the firm has yet to prove in clinic that its mRNA analogs can evade the immune system, which is primed to recognize RNA as a viral invader, and trigger a patient’s ability to make proteins in the right quantities to fight pathogens. Moderna has raised $40 million from its Series A from Flagship Ventures and individuals, including its own CEO Stephane Bancel, after a long evolution from a Harvard University researcher’s idea to more efficiently create induced pluripotent stem cells. The AZ deal brought $240 million in upfront fees, plus potential milestones and royalties, for the rights to as many as 40 compounds across several therapeutic areas. The DARPA grant runs for five years and focuses on the production of therapeutic antibodies. Moderna’s appeal to public health officials in a pandemic or emergency situation is to simplify the distribution of treatments. Its mRNA-based injectable agent would need to be produced, shipped and stored, but potentially with less complication and cost of other types of stockpiled or rapid-response agents. – Alex Lash

Frazier Healthcare: The veteran venture firm said September 30 it has closed its seventh fund with $377 million committed, topping its $300 million target. Its previous fund was a $600 million vehicle that closed in 2007, and in the intervening years the firm has indicated it will shift some focus toward growth stage companies, although the area is not new to Frazier. There are currently nine companies in its growth portfolio, ranging from makers of health care product packaging and orthotics to dialysis services to outpatient facilities for bariatric surgery patients. To that end, for FH VII it has promoted two members who have worked on the firm’s growth buyout investments. Brian Morfitt is now a general partner, and Ben Magnano is now a partner. That said, Frazier continues to make early stage bets, too. It most recently co-led a $16 million Series A financing for Atterocor, which is developing a small molecule treatment for the adrenal cancer adrenocortical carcinoma and expects to enter the clinic this year. (Look for more on Atterocor in the upcoming issue of START-UP.) Frazier recently participated in the IPOs for Portola Pharmaceuticals, in which it had a 5.6% pre-IPO stake, and Chimerix, with a stake under 5%. It also saw acquisitions for its portfolio companies Trident Health and Incline Therapeutics. -- A.L.

All The Rest: JJDC joined as a new investor in a €31M Series B extension for Merus...Array BioPharma partner Loxo Oncology snagged a $33M Series A...To advance trabodenoson through Phase II for glaucoma, Inotek Pharmaceuticals raised $21M in equity and $7M in debt…Protagonist Therapeutics added $4M onto the $14M in Series B funds grossed this past June…NovaDigm completed a $14M Series B round to support its Phase II vaccine for chronic yeast infections...Lilly Asia Ventures provided a $10M Series C to Tianjin CanSino Biotech…Zindol raised $10M to advance its CINV candidate…Relmada Therapeutics closed on an oversubscribed $8M Series A round that began in July 2012…Opsona Therapeutics added €3M from Omnes Capital onto its €33M Series C announced in April 2013…InterWest Partners led a $1.5M seed investment in Integrated Molecular….Aequus Pharmaceuticals completed a $Cdn1.2M Series A to support work on a transdermal reformulation of the anti-psychotic aripiprazole…advancing research on PDE4 inhibitors for neurological diseases, Tetra Discovery Partners closed on a $1M seed round…BVM Capital seeded K94 Discoveries with $300k…ImmunAid is in the process of raising a Series B financing…the following biotechs completed FOPOs: Synageva BioPharma (rare diseases) $155.7M…Novavax (vaccines and vaccine adjuvants for infectious diseases) $100M…Fibrocell (autologous cell therapy) $45.1M…TherapeuticsMD (generic and OTC women's health products) $33M… KaloBios (antibodies) $30M…Idera Pharmaceuticals (TLR antagonists in autoimmune and inflammatory diseases) $27.7M…StemCells (cell-based therapeutics and tools) $16.2M…and Kythera is proposing an $85M secondary offering…the following completed PIPEs: MorphoSys (antibody libraries) $84.4M…Navidea Biopharmaceuticals (Crede CG III invested) $30M…Ampio Pharmaceuticals (inflammation) $25.3M…Celsus Therapeutics (multi-functional anti-inflammatory candidates) $12.5M…and La Jolla Pharmaceutical (to achieve development milestones for GCS100 and LJPC-501) $10M…Ophthotech, Bind Therapeutics, Evoke Pharma, Enzymotec, and Fate Therapeutics each priced their IPOs…MacroGenics set IPO terms…Relypsa filed to go public…Cleveland BioLabs received a $10M senior secured term loan from Hercules Technology Growth Capital…Pivotal Therapeutics raised $Cdn7M in a combination equity/debt financing…Business Development Bank of Canada's BDC Venture Capital arm raised a $135M fund for health care investments…Gates Foundation and JPMorgan Chase teamed up for a new fund to finance late-stage health technologies…and orphan drug accelerator Cydan added $10M to the $16M raised in April 2013. -- Amanda Micklus

Put a Cap on It

Toyota. Massey Energy. British Petroleum. Johnson & Johnson?

That is not a list J&J wants to see. But, as the company testifies today about a series of recalls affecting its consumer product line, J&J's corporate brand is very much at stake.

Sometimes, it isn't so much what you do but when you do it that matters. For pharmaceutical manufacturers, quality control problems are an unfortunate fact of life. Even the best run companies run into problems. Manufacturing is complex, QC standards evolve, and global multinational management structures invariably mean pockets of underperformance. No one is perfect.

Unfortunately for J&J, there may not be a worse time for a company to have problems like it is having. A massive recall of well known consumer product brands like Tylenol would be a black eye any time. A recall at a time when FDA is moving back towards a tougher enforcement posture is even worse. When the newly installed FDA deputy commissioner (Josh Sharfstein) has made his public health bona fides by focusing on the risks of OTC medicines, including Tylenol, it is a double whammy.

But to face all that at a time when Congress is investigating industrial disasters in multiple sectors means moving from a major FDA issue to a potential life-and-death moment for the corporation. We're talking Enron here.

What can J&J do?

Well, like BP, they need to stop the gusher. The analogy to the oil pouring into the Gulf of Mexico is a stretch, but for J&J there is a distinct sense that the bad news keeps coming. Just this year, there was an FDA warning letter for failing to follow-up with alacrity on complaints about a "musty smell" associated with some bottles of Tylenol. That was followed by the shut down of its Fort Washington, PA facility and the recall of much of the company's OTC product line.

Heading into a Congressional hearing, J&J faced two more untimely developments: the final resolution of an investigation into off-label promotion of Topamax (including a guilty plea by the division responsible), and another FDA warning letter focused on its medical device manufacturing. (Read more here.)

Today's hearing (and a likely follow-up in the Senate) will bring more negative headlines and unflattering attention. The key for J&J is to make it stop.

There is hope: as Genzyme seems to have proven, a company can indeed put a cap on a seemingly out of control compliance issue. Cynics would say it took awhile, but once Genzyme brought in outside managers to take over its manufacturing QC, the company seems to have regained control of the situation. The company moved into a consent decree negotiation, achieved a resolution along the lines it predicted, and received approval for an important new product as a result. Genzyme has a lot of work ahead of it, but the gusher of bad news has been capped, for now at least.

We don't think J&J will have the same period of time to get its house in order that Genzyme had: progress from here better be fast and sure. But it can be done.

Then there is the uncontrollable element of luck. The hearing today coincides with what might be BP's last chance to seal the Gulf Oil leak. Whether that effort succeeds or fails, that will be the lead story tonight--and J&J's issues will get a bit less attention than they might have otherwise.

Of course, if BP succeeds in capping that gusher, it means even more pressure on J&J to stop the flow of bad news about its brand.

Psyched Out: Brown's Marty Keller to Step Down

Yet another prominent academic is being replaced as a psychiatry department chair and the move coincides with an investigation by the U.S. Senate Finance Committee into conflicts of interest. The latest resignation involves Brown University's Martin Keller, who will step aside at the end of June, according to a memo issued on Monday by Edward J. Wing, the dean of medicine and biological sciences at the Brown's Warren Alpert Medical School (here's the back story). He'll be replaced by Steven A. Rasmussen.

In recent months, Emory University's Charles Nemeroff stepped down as chair of his psychiatry department and Stanford University's Alan Schatzberg resigned as lead investigator of an NIH grant. (UPDATE: We neglected to note that Stanford is also searching for a new chair, although a Stanford spokesman say the two events are unrelated). What Nemeroff and Schatzberg have in common with Keller is a probe spearheaded by U.S. Senator Chuck Grassley, who is upset that some academics are simultaneously accepting pharma industry consulting fees and grants while also conducting NIH research into various meds sold by various drugmakers (see here).

Since 1995, an NIH regulation has required scientists to report to their universities any “significant financial interests” they hold in research projects financed by the agency. Those are defined as income or equity interest of $10,000 from a company or 5-percent ownership of its stock. The universities, in turn, are required to tell the NIH whether they were able to manage or eliminate the conflicts in order to avoid bias in the research findings. The probe has also pressured the NIH into making personnel changes (see here).

As for Keller, the Brown psychiatrist is a controversial figure for his role in studying Glaxo’s Paxil antidepressant. Why? He was the lead author of an infamous study published in 2001 in the Journal of the American Academy of Child and Adolescent Psychiatry that Paxil was “generally well tolerated and effective for major depression in adolescents.” The study was used to widely promote the pill, which became a huge seller, but was plagued by ghostwriting charges, and results were worse than imagined.

For the record, Brown made no mention of the Senate probe. And a Brown University spokesman maintains Keller submitted a letter in August 2007 in which he indicated plans to resign this year. In any event, Wing did write the following: "During Dr. Keller's tenure the department has been widely acknowledged as one of the top ten psychiatry departments in the country. It is currently one of the largest departments in the Division of Biology and Medicine in terms of full time faculty members as well as external funding. Please join me in thanking Dr. Keller for his many accomplishments and fine leadership as chair."

Smoke Signals Look Good for Biopharma

The smokeless backrooms of politics in Washington 2009 are looking like a good environment for the biopharma industry -- better even than the deals that emerged from the smoke-filled rooms of lore.

This could very easily have been a year of multiple political threats to the industry with the drug business portrayed as a scapegoat for out-of-control health costs, but it is emerging instead as a year offering reasonable compromises and proposals to protect pharma pricing and give the industry access to significant new markets.

The first signs that the biopharma sector may have crawled out of the bulls-eye as a target for health reform are (1) the Obama Administration's decision to turn back to the tobacco industry as the number one health villain and (2) relatively small financial contributions expected from the biopharma sector to pay for health care reform.

As we have written recently, tobacco regulation is next on Capitol Hill agenda for the Democrats. Getting rid of cigarette smoke has become a core issue for the new administration despite the fires incinerating the other parts of the economy. The campaign against smoking is more accurately a "Corr" issue for the administration, supported by the HHS Deputy Secretary-designate, William Corr, a long-time ally of House Energy & Commerce Chairman Henry Waxman (D-CA) and long-time critic of the tobacco industry.

No matter how the anti-smoking campaign found its way into the packed Obama agenda, the fact that it is there means that pharma immediately becomes a lesser evil on the list of industries affecting US health care.

Pharma is well aware of the smoke-screen and regulatory/political cover that the tobacco industry presents. Even before the 2009 legislative season was underway, Pharmaceutical Research & Manufacturers of America President Billy Tauzin was expressing full support for the government to go aggressively after tobacco regulation.

"Any work" the government could do "to prevent people from smoking is good work," Tauzin declared, saying "tobacco is not our friend." It is a point not lost on a political pro like former House Energy & Commerce Chairman Tauzin that pharma experienced its best years of growth and new product introductions while the Food & Drug Administration was absorbed in its fight against the tobacco companies in the late 1990's.

The anti-smoking position allows Tauzin to talk positively about health reform. He took his prevention rhetoric to the White House Summit where he talked about the importance of healthier lifestyles. He claimed that 67 percent of cancers could be avoided if people did not smoke, ate properly and exercised.

Tobacco regulation can be a distraction for FDA's senior management and take up a lot of the agency's resources, but it creates a less pressured atmosphere for drug regulation.

The second sign of a developing positive atmosphere for biopharma is the relatively small $29 billion that the industry will be expected to contribute to the $634 billion down payment fund for Obama's health care reform initiative. That is the amount the federal government will collect from increased Medicaid rebates. Pharma will actually face additional payments to the states of about $12 billion more (for a total of $41 billion). The full negative impact on the industry including cost reductions in the private market is estimated at $70 billion over ten years.

Compare that to $117 billion that the health insurers are being asked to give up from reductions to Medicare Advantage payment rates and you can see why the health insurers are crying "foul" and complaining that the pain of health reform is falling disproportionately on them. It also becomes clearer why biopharma leaders are accepting the proposed payments more stoically: they are being asked for less and have a lot to gain if insurance coverage can be more widely extended to the currently uninsured and under-insured -- a potentially large new market for pharmaceuticals.

The fact that cuts to pharma revenues are within the tolerable range combines with the industry's position against smoking to create a good climate for working with the White House, HHS and Congress on two key industry objectives: (1) a well-crafted follow-on biologics bill and (2) control over patient co-pay levels for drugs and biologics.

By supporting Corr's anti-smoking effort, pharma improves it relationship with a key figure for the FOBs bill. Corr was the staff architect for Waxman behind the original Waxman-Hatch generics bill 25 years ago. He is likely to be the driving force behind getting a follow-on deal done this year. He is no friend of pharma; but having the smoking issue as background is very convenient for the industry.

Legislative control over co-pays is getting less public attention but could be the big money issue for pharma in the current legislative season -- especially as specialty drugs and biologics become more important to the industry.

Both BIO and PhRMA have identified efforts to restrict the amount of out-of-pocket expenditures that patients will have to make for drugs as important to their policy agendas. This is an access issue for patients that offers an indirect price protection to the industry. If pharma can avoid high co-pays, that will permit them more flexibility for high prices.

The objective is to make sure that health insurers and Part D Medicare plans cannot set co-pay levels so high as to act as a de facto barrier against patient use of the products. The drug industry senses that controls on co-pays are politically viable in a Democratically-controlled Washington because they can be presented as a patient/beneficiary access issue.

The Democratic victories did not seem like good news for pharma in November and it still could turn out badly, but things have started out pretty well.

Von Eschenbach Maps Out Role In Health Reform

“I’m not going to go fishing and play golf.”

That is how former FDA commissioner Andrew von Eschenbach describes his post-government plans after leaving the Food & Drug Administration: a consulting gig at Greenleaf Health LLC, a return to MD Anderson and any “other opportunities,” should they present themselves. Von Eschenbach left FDA in January when President Barack Obama took office and has kept mum about his future plans.

Until now. On the policy side, von Eschenbach is teaming up with an old FDA colleague—his former chief of staff Patrick Ronan. Von Eschenbach will be a senior adviser at Greenleaf Health, a regulatory consulting firm that Ronan founded upon leaving FDA in 2006. Ronan was von Eschenbach’s chief of staff for his first year on the job, and the two have kept in touch after Ronan left the agency, von Eschenbach said.

Greenleaf’s clients include medical device companies, pharmaceutical manufacturers and public relations firms, but Ronan says Greenleaf’s sweet spot is with smaller biotechs without a Washington presence that need regulatory guidance. Ronan and von Eschenbach are the two principle advisors; Greenleaf also has a chief marketing officer.

Of course, as a former government official, von Eschenbach is restricted in the work he can do as an industry consultant. For the next year, for example, he cannot advocate directly to FDA on behalf of a third party. And he has a lifetime ban on lobbying the agency on the rules and regulations upon which he worked on or influenced while he was commissioner.

But in speaking to von Eschenbach, that doesn’t sound like the type of work he’s interested in anyway. In a phone interview, von Eschenbach talked broadly about “contributing to a more strategic discussion of the future of health care” and helping to find “integrated solutions” for diseases like cancer and Alzheimer’s—all in the context of the greater health reform debate.

As he was at FDA, von Eschenbach is interested in issues like personalized medicine, genomics and informatics, and ways in which the system can prepare for a more patient-centric health care environment. Greenleaf, he says, is a great “launching pad” by which to contribute to those kinds of macro health care issues, and participate in a “greater conversation on a global perspective.”

Von Eschenbach is also “deeply interested” in directly contributing to health reform efforts—one of President Obama's priority issues for his first term. Von Eschenbach says he is open to talking to policymakers (without directly lobbying anyone) about changes that are needed to support the types of products—like personalized medicine and drug-diagnostic combinations—that he believes will be the future of health care. (Von Eshenbach offered thoughts on that topic during a recent health policy conference sponsored by The Atlantic. You can read more in an upcoming issue of The RPM Report.)

If that weren't enough, he's also returning to academia. As we predicted in an earlier blog post, Von Eschenbach is returning to University of Texas MD Anderson Cancer Center in Houston, where he spent 25 years of his career in various leadership positions before being named director of the National Cancer Institute in 2000.

Upon his return to MD Anderson—which is still in the works—he will be an adjunct professor and will serve on the advisory board of the David Koch Center for Applied Research in Genitourinary Cancers. His first board meeting is April 3.

Let the Fights Begin: Card Looks Nasty for House Oversight Committee Ring in 2009

By the end of the presidential race, it was commonplace to hear the media bemoaning the nasty, brutish tone of the campaign. Headlines right up to election day highlighted the continued attacks and counterattacks by the campaigns.

The Obama-McCain discourse is going to look like civil banter in comparison to what may happen in the House Government Reform & Oversight Committee starting in January.

The committee is the fiefdom of California Democrat Henry Waxman. He has used it during the past two years to keep up a steady barrage of three or four hearings a week on the Bush Administration, investigating aggressively into issues from the conduct of the Iraq War to the financial bailout and looking closely at the efficiency of Part D in the health care area.

Some Washington watchers, itching for a big internecine fight to get the Democratic Congress started, hope that Waxman will take on his nemesis on the Energy & Commerce Committee and challenge long-time sitting chairman John Dingell (MI) for the leadership of that committee. That fight would come near the end of November. Waxman won’t challenge Dingell unless he is sure he has the votes.

If he stays at Oversight, however, things should get interesting and nasty. Waxman will lose the wide range of easy GOP bureaucratic targets with the change to the Obama Administration. But that turns him lose to hold tougher hearings on private sector witnesses from companies that he believes are getting overpaid by the government or taking advantage of government programs. He won’t beat up on the leadership of the Centers for Medicare & Medicare Services, for example. The new targets will be the execs of the companies running Part D plans or selling drugs to the plans.

But that is not where the biggest fireworks are likely to break out – between the chairman and a stream of beleagured corporate execs. The hostilities are likely to be most pronounced between Waxman and the ranking minority member.

The current ranking minority member of the committee Tom Davis (R-VA.) did not run for re-election. One of the next likely Republicans for the position by seniority, Christopher Shays of Connecticut, was defeated on Nov. 4 in the Democratic sweep of New England. Both of them have been civil adversaries to Waxman.

The first announced candidate on the Republican side to succeed Davis is Darrell Issa of California (San Diego and Riverside). The Issa-Waxman relationship is much more strained. Waxman and Issa are oil and water at best. A better analogy is probably chemicals that combust when they get near each other. The National Journal reports that Waxman threatened to have Issa forcibly removed from a hearing.

Issa announced his interest in the ranking member position in a November 5 statement. “This committee will need a strong voice,” Issa declared, “when hearings and investigations are one-sided, inappropriately partisan, or oblivious to government failures like Fannie Mae and Freddie Mac that embarrass the majority.”

Issa was one of the driving forces behind the recall vote against California Democratic Governor Gray Davis in 2003. Issa put $2 million behind the effort. He is a tough, sarcastic and acerbic partisan.

He displays a relish and willingness to take on Waxman. For example, during the June 2007 hearing on Avandia safety he attacked the proceeding as a review of the drug by unqualified people. Throwing Waxman’s words back at the chairman, Issa said: “As the Chairman said, rightfully, and I appreciate his saying it, none of us here is qualified to evaluate this drug.” He accused the hearing of treading “closely toward the hypocrisy that I believe this hearing begins to look like.”

As ranking member, Issa would take on Waxman at every turn. It could quickly develop into one of the roughest shows during the next Congress, with all the subtlety and productivity of professional wrestling.

Comparative Effectiveness Compare and Contrast

Since Sen. Max Baucus introduced his latest legislative attempt to create a national center on comparative clinical effectiveness research, we’ve had some time (OK, OK, a week—it is summer, after all) to dig into the details.

With the help of our colleagues over at “The Pink Sheet,” we’ve put together a list of some of the key differences between the Baucus bill (S 3408) and previous comparative effectiveness legislation—including language in the senator’s own Medicare Part D price negotiation bill from 2007.


So here’s a little compare and contrast, as reported in this week’s issue of The Pink Sheet.”

Organizational structure: Baucus would create the “Health Care Comparative Effectiveness Research Institute” as an independent, public-private entity. Past efforts had the Agency for Healthcare Research & Quality as a central player: The CHAMP Act would have established a center inside AHRQ, and Rep. Tom Allen (D-Maine)'s bill would have established a trust fund through the quasi-government agency.

Who sets the agenda?: Research priorities would be determined by the center itself. That’s a change from the comparative effectiveness language in Baucus’ Medicare Part D price negotiation bill, under which HHS would set the research agenda. But the government would have some influence over what would be studied: the HHS secretary and NIH director would sit on the governing board.

Money, money, money: Baucus calls for appropriations of $5 million in 2009, $25 million in 2010 and $75 million in 2011. Starting in the fourth year, annual contributions would be made from the Medicare Trust Fund ($1 per beneficiary per year), revenues generated by a fee on private health insurance policies ($1 per insured person per year); and general revenues ($75 million a year). Funding would increase to $300 million a year by the year 2013, and all funding would sunset after 10 years.

By comparison, the CHAMP Act set government appropriation levels at $90 million, $100 million and $110 million during the first three years, but was not as direct in setting levels for private participation. The bill said that the private sector contribute beginning in the fourth year to bring the total trust fund amount of $375 million.

And then there’s the billion-dollar question for industry….

How will the research be used?: Baucus does not offer any specific guidance on how the information can or cannot be used by private or public payors. That’s a big change from the price negotiation bill, which clearly stated that “authorizing consideration of comparative clinical effectiveness studies in developing and reviewing formularies under the Medicare prescription drug program.”

Waxman With A Zinger!

There's clearly no love lost between House Oversight and Government Reforms Committee Chairman Henry Waxman (D-Calif) and North Carolina Republican Patrick McHenry.

But Waxman outclevered the more junior Republican this afternoon at the Medicare Part D hearing. During friendly questioning of Acting CMS Administrator Kerry Weems, McHenry was making the point that no way could you trust the government to negotiate better prices for drugs under Part D compared to the private sector.

"There are some shortcomings to the program, it's a government program, that's what government does very well, right? Inefficiency is what government does very well," McHenry said of the Part D program.

Weems answered the eventual question on negotiating savings.

Waxman waited until the end of Weems' testimony and then hit the audience with this one-liner:

"Thank you, Mr. McHenry. Mr. Weems, thank you very much for your participation, I know you're anxious to get back to the work that government bureaucracies do so poorly, according to our friends on the other side of the aisle, but I salute you for the work that you do," Waxman said with a smile.

Zinger Zam!

Chairman Waxman will be here all week, folks.

Playing with $6 Billion: CBO Unveils Follow-On Biologics Savings Estimates

The analysts at the Congressional Budget Office have been busy little beavers. As we cautioned earlier, CBO has been actively scoring the possible cost savings of the introduction of follow-on biologics in the US through an abbreviated pathway.

The agency released the estimates June 25 and the numbers certainly will re-ignite the follow-on biologics debate. Using the Senate Biologics Price Competition and Innovation Act to evaluate savings, CBO found FOBs would save $6.6 billion in direct government spending over a 10-year period, beginning in 2009. That's real money. To read the full analysis, click here.

The $6.6 billion comes in higher than some of the lower-end estimates and at about half the amount of the higher-end estimates. Two points to consider:

Timing: Releasing the savings analysis on June 25 begs a few questions to be asked. Were the findings unveiled ahead of the July Congressional recess so they could not be acted upon swiftly by lawmakers looking for a rest? Or does the scoring have a relationship to the Medicare package, which includes the physician payment cut offset, that just passed through the House? After all, the $6.6 billion would serve as a nice bargaining chip for the physician payment fix? Or is it all a coincidence?

Although we don't believe in coincidences, we have not heard from any sources with a stake in the game that FOBs will be attached to the Medicare package, which already has its share of somewhat controversial provisions like e-prescribing and codifying the six "protected" drug classes under Medicare Part D. To read more, click here.

Still, you never know what's going on behind closed-door negotiations, especially considering the exclusive number of Congressional leaders who are crafting the legislation. But the odds are quite small that FOBs gets attached to a must-pass Democratic or Republican offering because it would require serious and immediate action from the Senate HELP and Judiciary Committees, specifically Ted Kennedy (D-Mass.), Orrin Hatch (R-Utah), Hillary Clinton (2nd Place, Democratic nominee for President) and Mike Enzi (R-Wyo.).

How Will House Leadership React: Because the Senate HELP Committee requested the CBO analysis, it is based on the BPCIA, which gives innovators a period of 12 years of data exclusivity. At this point, that's a biotech-friendly period of exclusivity. House Committee for Oversight and Government Reform Chairman Henry Waxman (D-Calif.) and House Energy and Commerce Chairman John Dingell are understood to be looking at eight years of exclusivity and less. So they would, no doubt, hold up any legislation that includes FOBs and 12 years of exclusivity. That's not to say 12 years ends up getting the axe; we're just saying there's no way it stays 12 years without a fight from Waxman and others.

Here's an interesting take from one knowledgeable source:

"It is worth considering that the starkly competing and now “switched” views coming out of the two “sides” of the industry – GPhA essentially saying the score means the current legislation is bad and needs to be fixed (presumably by the next Congress), and BIO essentially saying the score means the current legislation is good and needs to be passed by this Congress – could result in the perception of a “draw” in the clash of the titans, which begs the question as to whether there would be sufficient momentum to get this onto the Medicare package or any other vehicle during the 110^th based upon this score....Of course, stranger things have happened in this and past Congresses."

While we don't think, as of this moment, FOBs will get attached to a Medicare bill, the $6.6 billion in savings and the timing of the release is turning out to be a real bee in our bonnet. Why now? We'll continue to investigate. In the meantime, take a look at the CBO analysis. There's a lot to digest.

The Long Awaited Baucus Medicare Package

The RPM Report recently got hold of the likely Medicare package legislation that could be introduced shortly. Of course, we had to share it with our IN VIVO Blog readers. Senate Finance Committee Chairman Max Baucus (D-Mont.) sent a summary of the package offer to physicians today.

Here are some of the highlights:

1) Physician payment update: The compromise blocks cuts to the physician payment update formula, otherwise known as the sustainable growth rate (SGR), until December 31, 2009—an 18-month fix. The offer would provide a 0.5% positive update for 2009.

2) Quality: The legislation would extend the physician quality reporting initiative (PQRI), an incentive payment for doctors who submit quality measures information, for two more years. The offer would increase the PQRI bonus to 2% for 2009 and 2010.

3) E-prescribing: The legislation would provide incentives for physicians who use e-prescribing beginning in 2009. The positive incentives would be as follows: 2% for 2009-2010, 1% for 2011-2012, and 0.5% for 2013. There are also punitive measures within the bill for physicians who have e-prescribing systems but do not use them. To read The RPM Report’s story on e-prescribing, click here.

4) Kidney disease: The offer would establish Medicare payment and coverage for kidney disease patient education services furnished by qualified practitioners. The Baucus legislation says the provision is part of broader end stage renal disease (ESRD) reforms that requires the establishment of a fully bundled payment system for ESRD services by 2011.

To read a full summary of the Baucus Medicare bill, which has been under discussion for months, click here.

The Heat is On...The Hill

It may be springtime in Washington, but things just keep heating up for FDA and the pharmaceutical industry on Capitol Hill.

Heparin safety, the overseas inspections process, DTC advertising, FDA's budget and the integrity of the agency's scientific mission have all been the subject of one or more hearings so far this year.

Indeed, one influential member of Congress alone—Energy & Commerce Oversight & Investigations subcommittee chairman Bart Stupak—has already held four hearings related to pharmaceutical regulation. That doesn’t count his hearing today on DTC advertising and a crowded schedule in 2007, which included a two-part series on drug safety and a four-part series on food safety.

Center for New Drug Evaluation & Research director Janet Woodcock has shouldered more than her fair share of that hearing burden, testifying several times already this year, most recently on the heparin crisis and drug safety in general. She acknowledges the stress of the schedule she’s been keeping on Capitol Hill, but hopes that her testimony has helped put some issues to rest.

“We’ve had a good show for ourselves, at least at CDER,” she says. “We can get criticized, but I think we have answered the criticism, and that’s what we need to keep pressing on.”

One positive outcome may be more money for FDA: Sen. Ted Kennedy (D-Mass.) supports increasing FDA's fiscal 2009 appropriations by $375 million over FY 2008, with larger increases for the next five years. Commissioner Andrew von Eschenbach may have dampened enthusiasm for that big of an increase, however, by telling the Senate Appropriations Committee April 15 that FDA could absorb an additional $100 million in funding in FY 2009.

But the attention isn't all upside: We’ve said it before, but when FDA officials are hauled up to Capitol Hill and bashed over the head for doing a poor job, that doesn’t reflect too kindly on the industries it regulates. Woodcock expressed hope that the attention will start to shift to other issues. “They will continue to have oversight hearings,” she said, but “Congress will become more interested in the electoral process very soon.”

Well, not quite yet. FDA isn’t appearing at Rep. Stupak’s hearing on DTC advertising—executives from Pfizer, Merck/Schering Plough and Ortho Biotech are testifying today. But that doesn't mean they won't be next. We hate to say it, but this is exactly the kind of attention that we (ahem) predicted would happen following the Vytorin/Zetia kerfluffle. Given Rep. Stupak’s preference to hold multiple hearings on a single topic, you can bet it won’t be the last word.

Currency Threats: Bioterrorism Defense

The U.S. biopharmaceutical industry may be trying to seal the borders again: this time the prime threat is not re-imports from low-price or price-controlled markets but corporate acquirers armed with high value currencies.

The battle over reimportation has gone on for the better part of a decade, and the industry hasn’t gotten a sympathetic response. But biopharmaceutical companies may get a more favorable hearing from a broader scope of politicians to a new form of protectionism.

Takeda’s $8.8 billion cash purchase of Millennium (see here) dramatizes the power of the currency-enhanced foreign acquirers. If Takeda had made the same bid (in dollars) a year ago, it would have spent about 15% more in yen.

At least Millennium’s market cap in dollars rose over that time. A lot of other US based companies haven’t been so fortunate, meaning that they are now doubly vulnerable to an unwanted takeover bid from overseas: not only is their stock price down, but the declining value of the dollar in Yen or Euros compounds that impact.

The combined effect of the depressed dollar and a weak stock position is most evident in a company like Schering-Plough, where the total market capitalization is about 50% of what it was a year ago (currently at roughly $28 billion). With the yen up in value by 15% over a year ago and the Euro in similar position, if there ever were a bargain time for a company looking at Schering-Plough (Vytorin problems and all) it would be now.

Schering Plough CEO Fred Hassan declared last Friday that his management team would “power out” of the Vytorin decline, but the advantage offered to potential foreign purchasers suggests more of a power outage than a power-out.

Some parts of the US biopharma sector may be able to seek political protection from unwanted foreign purchase offers. When biotech was new, some start-up companies and research centers were able to elude offers by overseas entities by making politically potent arguments about the value to the nation of protecting the lead in a new science and new technology. The Scripps Clinic, for example, had to rework a 1993 agreement with Sandoz (Novartis) after members of Congress questioned what they saw as a transfer of taxpayer-supported research at Scripps to an overseas company.

Biotech is, obviously, no longer the exclusive province of US science, and protectionist sentiments haven’t stopped major infusions of foreign capital from coming to the rescue of the domestic banking system.

But that doesn’t mean there aren’t arguments to protect US biomedical research companies from foreign ownership. In recent years, there has been a renewed interest in protecting sectors that relate to responses to bioterrorism or reducing the vulnerability to attacks.

Concern about foreign purchases moved to the forefront of Congressional attention about two years ago when a Dubai company wanted to take over the operation of six major US ports. The resulting debate centered on creating procedural hurdles to discourage future purchase offers that affect companies deemed important to national security. (See here).

Managements who want to fend off ex-US offers may find a sympathetic Congressional ear if they have medical technologies in their research labs that serve as countermeasures or protections against bioterrorism events (such as vaccines or antidotes). It may behoove some US-based pharma firms to rekindle their efforts in biodefense.

UPDATE: Thanks to an alert reader for pointing out that we had garbled our facts a bit in describing the Sandoz/Scripps brouhaha 15 years ago. The point was correct--some in Congress objected to what they saw as a national interest threat from an agreement between a leading US research institution and a "foreign" firm.

Regulatory Sausage Making

The old adage comparing the unattractiveness of political decision-making with sausage making may apply to Food & Drug Administration drug approval decisions in the future.

If Iowa Senator Chuck Grassley has his way, every FDA drug advisory committee may soon replicate the Avandia debate from last summer -- when the head of the new drug review office in charge of the original Avandia approval debated the head of FDA's drug safety office in an open airing of differing opinions from within the agency. My colleague Ramsey Baghdadi wrote compelling about the drama at the Avandia meeting last summer. (Click here to read the story.)

In the most recent version of what has become an annual year-end epistle to FDA on the agency's handling of the approval of Sanofi-Aventis' antibiotic Ketek (telithromycin), Grassley demands that FDA start bringing the wide range of different staff opinions on new drug applications out in the open for the advisory committee and the public to hear.

Until recently, FDA has tried to present its advisory committees with consensus positions on drug applications and scientific issues in the applications. But after investigating Ketek, Grassley finds that approach too glossy and a way to avoid public oversight of tough scientific decisions.

The Avandia meeting should be the new model. Grassley prodded FDA to adopt the same format where “FDA reviewers were allowed to express their professional opinions and recommendations regarding those drugs.” In case FDA missed the gist of his message, the senator repeated: “It is important not only that advisory committees be provided with complete and accurate data but also any differing scientific opinions and/or assessments regarding the data from FDA reviewers.”

And NDA sponsors should watch how FDA responds to Grassley's pressure. If he succeeds in opening up the FDA advisory committees to more disputes between FDA staff, he could well bring the all the blood and guts of an Iowa sausage factory to the drug review process. (See TheRPMReport.com for more coverage of the prospects, implications and background on more open debates at FDA advisory committees.)

ENHANCE Interrogation Technique

So what was our colleague Ramsey Baghdadi's "little birdie" talking about when s/he said to expect "something big" to get released this week?

Maybe it was yesterday's encore public throttling of Avandia in the Journal of the American Medical Association. That study concluded that older (age 66+) patients on Avandia had "an increased risk of congestive heart failure, acute myocardial infarction, and mortality when compared with other combination oral hypoglycemic agent treatments."

But we're not so sure--the sequel is rarely as good as the original, and why would anyone be whispering to a journalist about a study that was probably available on an embargoed basis anyway.

Perhaps instead our avian friend was referring to the latest chapter in the ENHANCE saga? Yesterday Schering-Plough's Fred Hassan and Merck's Dick Clark got some mail from the House Committee on Energy and Commerce, and it wasn't a Christmas card.

The letter, from committee chairman John Dingell (right) and subcommittee on oversight and investigations chair Bart Stupak, both Michigan Democrats, questions the companies' delay in releasing data from the ENHANCE study, which concluded in April 2006. ENHANCE was designed to compare the efficacy of Vytorin (ezetimibe [Zetia] plus simvastatin) and simvastatin alone.

Merck and Schering-Plough have five billion reasons to hope Vytorin does a better job of preventing plaque buildup in the arteries than now-generic simvastatin, and a combination of the significant and multiple delays in releasing data from the 720-patient trial, a delay in registering the trial with clinicaltrials.gov, and the apparent manipulation of the trial's primary endpoint drew the Congressional attention.

As the WSJ's Health Blog reports, both companies are still reviewing the letter and have yet to repond. For now, they say the data will be released at next March's American College of Cardiology meeting. Meanwhile, Dingell and Stupak contend the pharmas have some explaining to do.

But who knows, maybe that little birdie has something else up its sleeve.

The Right Kind of FDA Defense

The FDA drug safety law finally made it through Congress yesterday, despite a last minute hold-up over the perennially thorny issue of pre-emption.

The broad outlines of the bill have been clear, and the final passage doesn’t change the big picture impact we’ve been telling you about. (You can read our take on the drug development impact here, and on the new rules for DTC here.)

Still, it is somehow appropriate that pre-emption was the final stumbling block to enactment of the new legislation, because at its heart the FDA Revitalization Act is about rebuilding the credibility of the agency as a drug safety regulatory.

The agency’s credibility is critical in product liability cases, and brand name companies are frustrated that it isn’t more formally recognized as a defense against lawsuits. Industry has long wanted more protection in liability cases, arguing that they should not face lawsuits that in effect second-guess FDA’s decisions about whether labeling appropriately warns of a product’s risks. They want an explicit “FDA defense,” and they hoped that Congress would spell that out as part of the sweeping drug safety changes included in the FDA Revitalization Act.

That didn’t happen. Instead, at the last minute the House inserted a clause stipulating that nothing about the new law can be interpreted as relieving the sponsor of the obligation to “maintain its label in accordance with existing requirements.” Former FDA Deputy Commissioner Scott Gottlieb outlined the issue in yesterday’s Wall Street Journal and makes the case for why industry should be upset.

There is no doubt that the technical-sounding change is a setback for manufacturers facing liability suits. But the glass is still more than half full. Even without new product liability protections, the law should help manufacturers immensely by letting FDA rebuild its credibility as a regulator.

The tradeoff is clear: a tougher and more formally regulatory system that will restrict the market size for many new products. The payoff should come in the form of fewer rejections of pending applications, fewer nasty setbacks like the Avandia debacle or the Zelnorm withdrawal—and ultimately in fewer punitive actions by policymakers or juries who have lost faith in the ability of FDA to assure the safety of medicines.

It is not just product liability cases where the loss of faith in FDA’s credibility is costing the industry dearly. It is in product decisions made or not made, and in policy actions by state governments designed to step into the void. (The RPM Report took an in depth look at the cost of FDA’s credibility problems in this story. If you are not a subscriber, click here to register for a free 10-day trial.)

During the Food & Drug Law Institute advertising and promotion conference September 17, one session focused on a whole host of state legislative initiatives designed to clamp down on professional promotion by manufacturers. Pharmaceutical Research & Manufacturers of America VP Jan Faiks suggested that all of the legislative initiatives can be traced back to the premise that “FDA is in the pocket of the drug manufacturers and therefore the states must become mini-FDAs and do their own compliance and regulation.”

The new legislation holds that promise of reversing the impression that FDA just does industry’s bidding. In that end, that kind of FDA Defense may be even more valuable that a pre-emption clause.

Drug Safety...or Food Safety...or Tobacco Safety...or Pet Food Safety...or Dietary Supplement Safety?

So which is most important to you? Well, if you're in charge of FDA, they all are. That came through loud and clear during a health care reporters breakfast with commissioner Andrew von Eschenbach organized by the folks at Health Affairs.

But fortunately for us here at the IN VIVO Blog, we only have to worry about drugs and biologics. With Congress taking off for their August recess, it looks like the Prescription Drug User Fee Act reauthorization as part of the much grander FDARA drug bill will have to wait until September to get passed.

So wait, doesn't that mean droves of FDA employees will be out of a job come September 1st because there will be no money to pay them (FDA gets half of its drug review budget from user fees)? Not so much. Von Eschenbach said the agency has already dipped into "carry-over" funds to ensure the agency will run smoothly while they wait for lawmakers to act. He expects/hopes the bill will pass in the first few days when the House and Senate come back from recess. Von Eschenbach emphasized he was working very closely with specific players in Congress to make sure that happens. The "carry-over" money, which seems to have magically appeared, is enough to last a couple of months before FDA would have to send out lay-off notices.

The RPM Report will be hosting a webinar on August 14 in partnership with the law firm Ropes & Gray to explain the commercial impact of the new drug safety rules for pharma and biotech companies. This will be the first in a series of audioconferences on the pending drug safety reforms.

Dissin' Steve Nissen?

The New York Times ran an interesting profile of the Cleveland Clinic's Steve Nissen on Sunday in light of his "controversial" meta-analysis finding over a 40% increased risk of heart attack for diabetes patients on GlaxoSmithKline's drug Avandia.

I interviewed Dr. Nissen a few months ago. Check out our July issue of The RPM Report called "Inside the Mind of a Serial Drug Killer" to find out what makes him go, what would make him stop and what he thinks is driving some members of Congress to criticize his efforts. Note, the Times may have higher circulation than The RPM Report , but we had the better headline.

But don't take our word for it. Here are a couple of excerpts:

The RPM Report: What would make you stop doing this type of work in the area of drug safety?

Nissen: It is all of our jobs, not just the FDA’s job to do this. Those of us in the physician community owe it to our patients to give equal balance and weight to positive and negative findings about drugs, and so should the FDA. Even if the FDA were doing an outstanding job, it’s still the responsibility of independent scientists to do these sorts of things, so it really isn’t about the FDA.

The RPM Report: So creating two drug centers—one for premarket review and one for postmarket surveillance—would not stop you from doing this kind of research. You feel this is a moral obligation.

Nissen: It is a moral and ethical obligation; it’s just about good science, it’s a scientific obligation. Science is about pursuing the truth and wherever that leads you. If we had very, very good regulatory agencies looking after this, there may be fewer opportunities to turn these things up.

How did we find out about fen-phen? There was an independent group of physicians that began seeing fen-phen patients with valve abnormalities. They said, “Oh my God, this is a potentially serious problem, let’s publish it,” and they did a great thing, they probably saved a lot of lives; they’re heroes.

The RPM Report: Why is there such a visceral reaction to you and the research you are doing? FDA’s meta-analysis of Avandia studies showed similar findings as your meta-analysis.

Nissen: Right. Part of the problem is this is not about me. One of the issues is sometimes when you don’t like the message; it’s easier to attack the messenger. It’s to be expected, but we’ve got to keep everyone focused on the science. I was very restrained in that [Avandia] hearing, I didn’t attack back. I simply said: this is what we did, this why we did it, this is why it’s important, and I’m going to stay on that message because it’s the right thing to do.

The RPM Report: Rep. Darrell Issa (R-Calif.) seemed particularly unnerved by your analysis and the process you took to get it published?

Nissen: He was wrong about the statistics, you cannot calculate an effect size if there are no events [studies with no heart attack events were excluded from Nissen’s meta-analysis]. He had been briefed by people giving him campaign contributions and that happens to be GSK. I looked it up. The three people on the attack at the hearing were very heavy recipients of GSK campaign money.

For the rest of the interview, subscribe to The RPM Report. Also, Nissen will be speaking at our annual FDA/CMS Summit in December in Washington, D.C. in case you want to hear him in person.

Speaking of Avandia, there is a July 30 fact-gathering meeting between FDA and Glaxo (Takeda, which markets Actos, is an invited guest) regarding the cardiovascular profile of the diabetes drug. While something conclusive could come out of that meeting, it's highly doubtful. So we'll just have to wait and see whether Nissen and his meta-analysis are vindicated for finding risks that hadn't been previously uncovered or his findings were rushed, sloppy and wrong. Stay tuned. It could be a while.

Higher Tax, Fewer Deals?

The IN VIVO Blog has been somewhat mum on the carried interest debate. Frankly, this topic is being covered to death elsewhere (The link goes to PE Hub but there's no shortage of discussion.)

This topic is important, no doubt, crucial even, but Mom always told us if you don’t have something fresh and interesting to blog about than it’s better not to blog at all. (Well, she would have said that.)

So we’ve been asking around a bit, trying to get a sense from our VC community on the potential impact of these changes. To be honest, the change put forth by the Democrats didn’t really sound the alarm bells in our virtual hallways. But the same apparently isn’t true in the actual hallways of VC firms investing in life sciences. IN VIVO Blog expected VCs to answer queries with a “Congress will be Congress” attitude similar to the one put out when discussing changes at the FDA or CMS.

But there’s some genuine concern here. No question, much of that concern most likely has to do with a diminished paycheck. But there’s some fear surrounding the impact these changes could have on the availability of capital.

An email from one West Coast VC:

I really believe that these proposed new taxes will make it so that some new companies will not get funded. These taxes essentially raise the cost of capital and if the returns are not there to the GPs then they will not get funded eliminating many high risk or sometimes questionable deals. One has to remember that often deals look promising and then don’t make it while the opposite is true as well but maybe not to a greater extent. If the cost of capital is high then those marginal/high risk deals won’t get done.

It is the same concept as lower interest rates and lower borrowing hurdles allowed the housing market to boom. If the cost of capital rises then it eliminates those who are at the margin. The same is true in our business. Those on the margin lose—fewer jobs and lower growth.

The suggestion that this could eliminate “many high risk or sometimes questionable deals” rings true and does sound an alarm. After all, doesn’t that describe most biopharma deals and a good deal of device companies as well.

Could this change in taxation have a particularly detrimental impact on the life sciences industry, pushing VCs even further away from funding true start-ups? Even worse, would this aggravate the diversion of dollars away from smaller, venture capital firms looking to do these deals. Or perhaps, as A VC Blog suggests, the best VCs will just invest their own money, forget the institutional dollars.

A VC Blog also had what I thought to be a very thoughtful position later on.
Mom did teach us not to covet other people's stuff, so the "Tax the Rich" crowd won't get a sympathetic ear here. Still, the suggestion that the GP's carry on "other people's money" goes beyond that simplistic idea. The idea that this income should be taxed as salary isn't that far out (or far left) as some would like it to appear.

We’ll update with interesting points of view as we continue to talk to folks. But don't feel like you need to wait for a phone call. Consider this an open invitation to opine on what impact the suggested changes will have on the life sciences industry.