While You Were at the Beer Festival II

For those of you expecting an Olympic theme to the weekend roundup, well, there's always next week. Because this weekend we enjoyed our annual pilgrimage to the Great British Beer Festival in London. A quick review was in the works until a quick look at last year's beer festival post revealed we were about to say pretty much the same exact thing.

Suffice to say that Sharps, Caledonian, and Hook Norton were bringing their A-game as usual (wish we could say the same about our photographer). Another stalwart putting in a good showing was Cairngorm; its Trade Winds was particularly nice though we're still leaning toward old favorite Sharps' Atlantic IPA as our beer of the fest. A nice surprise for us was a lemongrass beer from Hop Back, Spring Zing.

There was little industry news with zing over the weekend, so we've put on the beer goggles so you don't have to:

• Pfizer has reached another settlement over a generic Lipitor, Reuters reports, though there are no details available regarding the Big Pharma's deal with Apotex.
  
• IMC11F8 is the catchy name given to Imclone's next-generation, fully human antibody viewed by many as a son-of-Erbitux. The candidate, not yet in pivotal trials, is at the core of the ongoing BMS/Imclone negotiation, points out today's Wall Street Journal. Bristol claims rights to the follow-up under the companies original 2001 alliance. Imclone disputes that entitlement, though hasn't always done so, says the Journal.


• Via the SF Chronicle, one doctor's crusade to, uh, get a cool epocrates application on his iPhone so he didn't have to carry around an extra gadget.

Did Pfizer Get A Wedding Favor From Ranbaxy And Daiichi?

By now, you’ve probably heard that Ranbaxy and Daiichi have fallen in love—or at least entered a mutually binding financial agreement to that effect.

So where does this leave others who had a relationship with Ranbaxy—like Pfizer, for example? The brand and generic giants were never romantically linked (although there were rumors) but they did have an involvement that touched each to the core: Ranbaxy was the first-to-file challenger for Pfizer’s mega-blockbuster Lipitor, and they’ve been in court ever since.

But now the fight seems to be over: A week after Ranbaxy and Daiichi announced they were tying the knot, Ranbaxy and Pfizer said they were cutting a deal to end their legal entanglement.

It gives Pfizer closure on its love affair with the blockbuster statin, but what does it do for Ranbaxy? Well, it provides a fair bit of certainty in terms of revenue projection—and that may be what a company looking to settle down wants—but we wondered whether Ranbaxy could have gotten a better deal if it didn’t have to worry about what another corporation would think about it.

Did Daiichi’s heft make Pfizer take the risk of an “at risk” launch more seriously, or did Daiichi tell Ranbaxy that once they moved in together it couldn’t stay out carousing all night in strange legal jurisdictions?

In the discussions we’ve had on the matter, people tend to be divided. Those who look at the world through a merger lens think that Daiichi acted as a sensible ball and chain, helping to wrap up a potentially damaging distraction before it got out of hand. Those who spend their time thinking about selling products and suing people, though, think that Daiichi may have offered a nice dowry that Pfizer was afraid could become a war chest.

Tell us what you think!



--M. Nielsen Hobbs

(Photo courtesy of Flickr user Pardesi via a creative commons license.)

Wacky World of Generics: Lipitor Edition--Or The End of The World as We Knew It

Circle the date: November 30, 2011.

That is the date when the first generic version of Pfizer's ultra-super-megablockbuster atorvastatin (Lipitor) will enter the market. At least, it sure looks that way after Pfizer and Ranbaxy settled patent litigation in the US and several other important markets. (You can read all about the settlement in The Pink Sheet DAILY.)

It will be the largest generic launch in history. And it will be as good a date as any to declare the end of the blockbuster era.

That's because Lipitor is not only too big for Pfizer to replace, it is--figuratively at least--too big for the industry to replace. There is simply too much infrastructure and too few blockbusters to replace Lipitor--or Plavix, or Zyprexa, etc. etc.

By now, the patent "cliff" facing Big Pharma at the start of the next decade is well understood. Less clear is what the industry will look like when it emerges on the other side.

The Pfizer/Ranbaxy settlement agreement certainly doesn't answer that question. But it does do two things. First of all, it assures Pfizer of an extra year of protection on Lipitor beyond the earliest potential "at-risk" launch date of a generic, and about five months more protection than investors seemed to expect. For a brand generating about $7.5 billion a year in the US, that is big news. (So big, in fact, that the settlement caused UBS to cut its ratings on some of the largest pharmacy benefit management companies in the US, because they will miss out on the potential profits from a generic launch in 2010.)

More importantly, it sets a deadline for Pfizer to settle on its post-Lipitor future. We have already offered one modest proposal for the company to think about, but there are plenty of other creative ideas around for how Pfizer could reinvent itself. (Not to mention old standbys like buying Wyeth or Amgen or Merck or all three.)

The point is that Pfizer now knows when the day after Lipitor will come. There is nothing like a deadline to focus the mind.

Nothing to Lose but Your Chains: Out-Partnering Part I

Lots of interest in out-partnering these days from Big Pharma – out-licensing, spin-offs, project financing (see in particular this IN VIVO analysis of Pfizer’s out-partnering strategy).

But let’s eliminate a myth now. Out-partnering won’t raise lots of money for Big Pharma, even by selling tail-end products. Lilly’s entire out-licensing program –the industry’s most lucrative because it is the only one to exploit tail-end drugs- raised about $1 billion over 7-8 years. Now, that’s hardly chump change. But it doesn’t really move the needle when a moderate annual Big Pharma R&D budget is pushing $3 billion.

So if companies are going to get into serious out-partnering, the other reasons ought to be pretty compelling.

They are. Out-partnering frees up scarce resources to put behind other projects by off-loading some expenses. It can force companies to do some salutary comparisons between internal and external projects (would your same-mechanism Phase II program fetch the price your competitor just paid for Way-Cool Biotech’s?)

But we’re going to talk, here and in a post for tomorrow, about other reasons to out-partner. Starting with a relatively dramatic rationale: using out-partnering to remake the business model.

As some smart types from Boston Consulting Group write in the current IN VIVO: “The decline of pharma’s traditional model isn’t imminent; in fact it already happened.”

The consultants go on to tick-off depressing metrics like total shareholder returns. Pharma's return is down 0.3% annually since 2000. Compare that to, say, the exciting auto components sector – up 6.5% over the same period. They argue that drug companies, to get back on any kind of growth track, need to respond with more than the current set of stock tactical answers (portfolio rationalizations, sales-force restructurings, productivity enhancements, pipeline accelerations, more aggressive dealmaking, and especially big M&A).

So how to do this? The consultants propose a fairly intensive internal process, which seems OK to us. But, closet revolutionaries that we are, we’d suggest an alternative route: out-partnering force majeure.

Take the out-licensing of tail-end products. Comparatively small potatoes, as we noted. But let’s say Pfizer were to re-define tail products, taking all primary-care products whose patents were expiring in four years or less (among them, Lipitor, Detrol and Viagra) and spin them out into a public company – call it Pflipitor.

Start financially. Our bet is that investors would be very interested in such a company – something that looks a bit like Forest Labs – minimal R&D expense, intense commercial focus, primary care without the Big R risk, aggressive late-stage in-licensing. And while Pfizer would lose the cash flow, it would have, in its Pflipitor shareholdings, a nice bank account to dip into when needed. And just maybe those Pflipitor shares would actually gain in value over time.

And to be clear: Pfizer shareholders already know the company can’t possibly fill the revenue hole the company has dug for itself (that dead elephant in Pfizer’s boardroom – as well as the boardrooms of plenty of its competitors – is the reason Pfizer’s PE sits below sea level). Spinning out the tail products makes filling that hole somebody else’s problem, and that somebody else will be far more capable, structurally and our guess is strategically, of solving it.

Meanwhile, Pfizer can focus on actually growing a much smaller company. If you remove those four "tail" products, it’s possible to grow at double-digit rates.

And not just because Pfizer's base is smaller. Pflipitor would take with it a whole lot of Pfizer’s overinfrastructured commercial organization, allowing Pfizer to more rapidly switch over to the flexible, partly outsourced, specialty-intensive sales model it theoretically wants to embrace.

There would be other big changes. Pfizer would no longer have the cash flow to support the enormous R&D organization it now carries around like the chains on Marley’s ghost, making it far more pressing to strip out programs that can’t prove substantial advantages over outside, in-licensable competitors. Instead, like a biotech, Pfizer would have to sell equity – pieces of its share of Pflipitor, perhaps – to finance R&D…further incentivizing its R&D execs to cast a cold eye on internal research programs.

Yes, we know: this sounds a bit like throwing the kid into the deep end to teach him to swim. But the drug industry already knows how to swim, we believe. The problem is it's trying to swim while loaded down with chains. Either we’ve got to cut them or get out of the pool altogether.

Image from flickr user foxypar4 used under a creative commons license.

DTC User Fees Shot Down; Advertisers Face More Perilous Future

Let’s hear it for the United States Congress. They aren’t too proud to change their minds—at least, not when it comes to tackling the question of how best to respond to those pesky TV commercials for prescription drugs.

In September, Congress enacted a new user fee program to fund pre-reviews of direct-to-consumer television ads, on the premise that both industry and society would benefit by ensuring that the Food & Drug Administration could offer constructive feedback on ads before they air.

The program, part of the FDA Amendments Act, set some tight timelines for FDA and industry to get the system up and running. Together, they got their acts together, crossed all the Ts and dotted the Is, and got the program up and running. FDA even began doing pre-reviews pursuant to the guidelines.

All for naught. In December, Congress changed its mind. In the omnibus appropriations bill signed the day after Christmas, Congress did not fund the new user fee program, and instead gave the agency $4 million in additional money from the Treasury to cover the cost of pre-reviews.

Since FDAAA sets a hard stop to the user fee program—FDA must collect the first round of fees before the end of January—there is now essentially no chance that the Pay TV program (as we liked to call it) will happen.

You have to feel bad for the industry and FDA negotiators who had to herd all the cats to hammer out the new user fee agreement.

Still, on paper at least, this turn of events is great news for advertisers. Rather than paying a fee of over $80,000 per commercial to get FDA’s feedback, they can get it for free. And, in theory at least, FDA can hire just as many new reviewers, but at the taxpayer’s cost—not industry’s. So the agency should be able to provide timeline and predictable responses as planned under Pay TV.

What’s not to like?

Quite a lot in fact. First, there is the thorny question of what happens next year and beyond. Unlike the user fee program, which was intended to run for five years and would have built a reserve fund to ensure stable funding for the ad review group, there is no guarantee that Congress will continue to provide additional funding to support the pre-review program.

That in turn may make it hard for FDA to follow through on its hiring plans. The agency doesn’t want to hire new reviewers this year only to have to lay them off in September when the current fiscal year ends. And even if FDA decides to take that chance, will they agency be able to recruit enough people willing to take a job that could turn out to be short term?

The agency has not decided yet how it will proceed, but promises it will explain its plans soon. (Our guess: FDA will wait until the FDAAA deadline to collect the fees—January 28—and then make the announcement as part of a formal withdrawal of the notices creating the new fees.)

Bear in mind that while pre-reviews are technically voluntary, we think advertisers would be very wise to use that process rather than risk facing the new enforcement actions Congress gave FDA under FDAAA.

Consider the dilemma advertisers will be in if FDA cannot or simply does not provide timely responses. Run an ad and risk a hefty fine? Or wait for an answer—and in effect surrender the right to advertiser that industry fought so hard to protect during the FDAAA debate.

The collapse of the user fee program doesn’t change two important facts for advertisers. First, FDA now has a much stronger hand in shaping TV ads—both in determining if products are advertised as well as what ads look like. (Subscribers to The RPM Report can read more here. Not a subscriber? Sign up for a free trial.)

More importantly, no matter what FDA does in 2008, you can bet that this issue is coming back in 2009. President Obama (didn’t I read yesterday that he had won?) or whomever takes over the White House will select a new FDA commissioner and you can bet DTC will remain a hot button issue.

The Energy & Commerce Committee offered a timely reminder of that fact by opening an investigation into Pfizer’s Lipitor commercials. Those commercials have been held up as examples of the new, more responsible approach industry is taking to DTC. (You have to ask yourself: has the committee seen Pfizer’s new “Viva Viagra” ad?)