At PSA: Thinking Primarily About Primary Care Rx

Has the life gone out of primary care drug market?

Referring to the category as “dead” is hardly a jaw dropping comment in today's marketplace given regulatory and reimbursement hurdles. Indeed, when it comes to launching successful drugs into traditional mass-market categories, as an industry, biopharma's track record is painfully diminished.

But surely better ways exist to describe the state of primary care, a business that is of vital importance to pharma. A panel of experts will discuss the topic on the afternoon of Sept. 22 at Elsevier’s annual Pharmaceutical Strategic Alliances conference. Yes, the landscape is challenging, with the advent of generics, diminishing physician autonomy, increasing interest in accountability for costs, and greater complexity in sales strategy. But pharmas are adapting. McKinsey director David Quigley and colleagues forcefully outline this evolution and the corporatization of American health care in this month’s issue of IN VIVO. Quigley will also be on the PSA panel, where he will lead off the discussion by pointing out key commercial trends.

True, the widely-cited Express Scripts 2010 Drug Trend Report calculates that specialty spend (inflammatory conditions, MS, cancer, anti-coagulation, growth deficiencies, and pulmonary hypertension) is rising far faster than money spent on traditional medicines (high cholesterol, diabetes, high blood pressure, depression, asthma, and ulcers). The former accounted for 25% of all payer drug spend in 2010 – and grew nearly 20% from 2009 to 2010, albeit off a smaller base, compared to less than 2% growth for the latter.

Worrisome statistics, but primary care is still the bulk of Big Pharma's bread and butter. And execs like Pfizer's Adele Gulfo, who will likely have responsibility for at least one ultra-high profile launch in the next year, believe the key to a successful commercial strategy in mass market drugs rests -- as it has historically -- largely on doctors’ interaction with manufacturers. Other top commercial executives set to give their thoughts on successful drug launches in 2012 and beyond include Wael Fayad, VP, business development at Forest Laboratories, and Riad el-Dada, SVP, diabetes and obesity, at Merck.

The tools driving that doctor-sales rep interaction, however, may be changing – although in proportions one might not expect, based on media hype. Traditional ‘reach and frequency’ and “mirrored territories’ may be strategies of the past. The panelists are likely to have lots to say on this issue. The best route to success, of course, is addressing unmet medical need with a truly innovative offering. But it's the road that may be steepest: not every drug can be a Januvia(Merck)or the anti-coagulation medication apixiban (Pfizer/Bristol).

So, they talk about the best ways to think about me-too drugs (or not). Forest Laboratories, for instance, is an expert in maximizing the value of drugs that are latecomers to competitive categories--witness the slow build of its anti-hypertension drug Bystolic. Can Forest pull off another slow-build surprise with its new anti-depressant Viibryd?

On the whole, these panelists – as PSA attendees will hear -- have a surprisingly vibrant attitude towards primary care – one likely to hold up over time, given that biosimilars should start making a dent in demand for older, until now, protected specialty brands. Industry doesn’t expect biosimilars to have a significant competitive impact until 2015. Then, the seasoned primary care experts will be able to show specialty executives a thing or two about what's what and help them weather the onslaught of low-priced competition and tightening payer control over utilization.

FDA Drug Approvals: Back to the Future

The first two new therapies cleared by FDA in 2011 feel like hail from a bygone era: a serotonin inhibitor antidepressant and an angiotensin II blocking anti-hypertensive. This is certainly not how we expected the new drug approval process to work after the FDA Amendments Act was signed into law in 2007.

Our view of the new drug safety law was that it would favor drugs to treat relatively small, high need populations—and especially ones where robust risk management plans could deliver high value to very sick patients. Primary care blockbuster indications? Not so much.

As we like to put it, it will never be 1997 again.

Or will it?

Take the antidepressant Viibryd (vilazodone) and the angiotensin II receptor blocker Edarbi (azilsartan). Both enter crowded primary care classes that seemed vibrant and innovative 15 years ago, but feel saturated and, well, generic today. And both applications breezed through FDA early in 2011, gaining approval on the first cycle, with no deadline extension and no advisory committee review. Just like they probably would have in 1997.

Heck, when Forest acquired Clinical Data, the manufacturer of Viibryd, it felt even more like turning back the clock, with the company that brought Celexa and then Lexapro to market in the 1990s buying back into the class.

And it isn’t just these two drugs. For all the talk that “me too” drugs are out of favor, there have been other recent examples of "me too" success at FDA. Like, for instance, pitavastatin—a statin!—which cruised through FDA in 2009. Or Watson’s Rapaflo, which breezed through in 2008 to provide yet another alpha blocker option for men with BPH.

Those recent approvals are surprising not just for their nostalgic value. They are remarkable as examples of products making it through the agency at a time of chronically dismal new drug approval statistics. Viibryd and Edarbi cleared FDA amid some fairly prominent disappointments for orphan products (Protalix’ Uplyso gets a complete response; Pharming’s Rhucin gets a refuse to file letter), seemingly tougher standards in oncology (think Avastin and TDM-1), and some setbacks for attempts to repurpose old blockbusters for new indications (Contrave for obesity, for example).

What’s going on here?

Okay, first of all, it isn’t 1997 again.

For one thing, even with the two latest approvals, FDA will be lucky to reach half the total in NME/novel biologics for 2011 that it cleared in 1997. FDA approved 44 new molecules that year, compared to just 21 in 2010, and there is no reason to expect a higher total in 2011. (For a comprehensive look at the pending new products in 2011, check out this week's issue of "The Pink Sheet," here.)

And, while the new drugs are coming into huge classes, they don’t exactly have 1997-level blockbuster expectations. Kowa/Lilly’s launch of pitavastin (Livalo) generated just $5.7 million in sales in 2010. That’s just a few hours worth of Lipitor sales. Forest paid $1.2 billion to acquire Clinical Data and Viibryd. That’s a lot of money—but doesn’t exactly suggest anyone things Viibryd will be a billion dollars a year any time soon.

On the other hand, it’s not like other recent launches are doing so great either. Lilly isn’t getting rich on Livalo, but it isn’t getting very far with Effient either--at much higher cost.
And Effient—despite (or perhaps because of?) a massive dataset including a head-to-head comparative trial—struggled through FDA, requiring a protracted review and a public airing of safety questions at an advisory committee, followed by still more internal wrangling over whether and how to address those questions.

Compare that to Edarbi, which went through FDA in 10 months without any public hiccups--and with head-to-head superiority data versus the market leader. It didn’t need an advisory committee, because—as FDA explains in the approval letter—

“This drug is not the first in its class, the safety profile is similar to that of other drugs approved for this indication, the clinical study design is acceptable and similar to previously approved products in the class, evaluation of the safety data [when used in the treatment of hypertension] did not raise significant safety or efficacy issues that were unexpected for a drug of this class, the application did not raise significant public health questions on the role of the drug in the diagnosis, cure, mitigation, treatment, or prevention of a disease, and outside expertise was not necessary; there were no controversial issues that would benefit from advisory committee discussion.”

That may not sound like a ringing endorsement of the products therapeutic potential, but at today’s FDA lack of controversy might be as good as it gets. Commercial models aside, it is just possible that the secret to a first cycle, on time approval is as simple as “me too.”

The IN VIVO Blog Podcast: Is Primary Care Dead?

Now you may have been wondering--is the IVB Podcast dead? We're sorry to have missed a couple weeks but we hope to have a double-shot of podcast for you this week to make up for it.

First up, our very own Wendy Diller talks to Bain & Co.'s Chuck Farkas about the future of primary care businesses. Just click the button below to get started. And don't forget, you can access the podcast via iTunes also.

The Zyprexa Settlement and The Perils of Primary Care

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

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

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

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

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

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

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

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

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

Well-Traveled GSK Bulks Up Again in Emerging Markets

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

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

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

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

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

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

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

Arguing by Analogy: What Pharma Can Learn from the Car Business

We’re well aware that arguments by analogy are often fallacious but it’s been difficult for this blogger to watch the CEOs of the American automakers plead for a government loan and not see important analogies between what led them to the witness table in front of the Senate Banking committee and current issues in the pharmaceutical business.

Three basic points:

1) Thanks to their own inefficiency, shortsightedness and inability to deal with a labor and infrastructure problem largely of their own making, Detroit carmakers built themselves to supply a market, gas guzzling cars, that is disappearing. It’s difficult to believe that the same management and union groups which got them into this mess are going to be able to do the radical restructuring that will get them out of it.

2) A nimbler set of competitors ran straight through the hole in the Detroit defenses to create markets for small fuel-efficient cars, particularly hybrids, that should have been Detroit’s by right but which they by and large ignored or relegated to fig-leafing SUVs into merely moderate gas hogs.

3) Granted GM, Ford and Chrysler can make it through the next year (GM’s got roughly $60 billion more in debts than in assets; it’s burned through $9.7 billion in cash in the first three quarters of 2008 and, with about $16 billion cash remaining, will be flat bust before 2009 is over) the big hope is technology – in particular, the electric car (GM’s Volt).

Big Pharma has likewise shackled itself to a market – primary care -- that most of us know in our gut, and IMS can demonstrate with data, is shrinking. Primary-care medicines still make lots of money; SUVs don’t. But given the number of new primary-care drugs that have fallen out of the clinic on their own, fallen afoul of regulators, or been yanked off the market or sharply restricted in their use (e.g., Galvus, Zelnorm, Avandia, Pristiq), and the number of drugs that are losing patent protection by 2012, it’s not got long to thrive. If you call this thriving.

Big Pharma’s versions of Detroit’s nimbler competitors: companies who set themselves up to go after specialist markets – Gilead, Genzyme, Celgene, Amgen, Genentech and Biogen Idec (indeed, Gilead and Celgene started out with molecules Big Pharma could’ve had). First mistake: Big Pharma’s blindness to the value of niche markets (blind because they weren’t structured to take profitable advantage of them, self-mandated to find drugs that could support primary-care commercial and development organizations rather than new medical needs). Second mistake: unwillingness to adopt a new technology – protein therapeutics, a nice parallel to Detroit’s blindness to hybrid engines.

As for electric engine technology: think biomarkers. As with batteries, the technological hurdles to an effective companion diagnostic are gigantic; so are the regulatory and business challenges. So far, we haven’t known enough to really make effective therapy-directing diagnostics. But just as electric cars could transform the worldwide car market (and with it, the worldwide political landscape…without a war), markers could allow drugmakers (or whoever controls the biomarker) an almost incontrovertible argument against recalcitrant payors who, by and large, now determine the success of a drug’s launch.

You still hear arguments that Pharmas shouldn’t pursue biomarkers because they’ll limit markets. You hear even more arguments about the need to continue to focus on primary care. What if we come up with another Januvia, they say? We say: if you come up with another Januvia, great. It ain’t all that tough to hire a sales force, if and when you need it.

It all sounds a little bit like that other notion we’re hearing about, even as the car makers beg Congress for a bailout: now that gas prices have tumbled back nearly to where they’d been before things went crazy, maybe the car companies can get by on the old strategy – still appealing to some apparently unquenchable American desire to drive cars too big for their own good?

Not the right lesson. For the car companies or Big Pharma.

Pfizer to Tin Man: Drop Dead

You're axing what?

Pfizer is, according to today's Wall Street Journal (not to mention at least one astute blogger last week), giving up on R&D in heart disease, obesity and bone health.

The big news here is the abandoning of cardiovascular medicine--Pfizer's profit center driven by $17+ billion annual revenues from Lipitor and Norvasc--but of course there are exceptions to consider. Pfizer isn't dropping its late-stage programs, like the much-written about apixaban, for example.

But the strategic shift, not wholly unexpected and certainly not conflicting with statements made by Pfizer leadership lately (including comments by R&D chief Martin Mackay and head of strategy Bill Ringo at FDC/Windhover's Pharmaceutical Strategic Alliances meeting last week) says a lot about where Pfizer--and Big Pharma generally--is moving.

Where's that? Toward a greater emphasis on specialty therapeutic spaces like oncology (look for a feature on Pfizer's oncology ambitions in the next IN VIVO) and into large molecules like next-generation biologics, of course. By now this is not a surprise, but just how Big Pharma manages to transform itself while at the same time dealing with massive patent expirations and the demands of dividend- and buyback-hungry shareholders remains to be seen. Nevertheless, pulling out of the increasingly genericized cardiovascular space and some other primary care areas should speed this transition.

Some of the smaller top-tier companies, like Bristol-Myers Squibb, can make do with focused business development strategies--the acquisition of Adnexus, for example, or the please-let-it-be-over-soon-we're-so-sick-of-it Imclone takeover. For Pfizer such add-ons won't do the trick. But Bill Ringo noted at PSA that although Pfizer on the whole would have trouble moving the growth needle with a string-of-pearls strategy akin to BMS's, it could do so within the context of specific disease areas. Cardiovascular R&D is clearly not one of those areas.

Layoffs are likely (as of now still no official word from Pfizer on the cuts). But look also for more Pfizer spin-outs like the Japanese business RaQualia and the second incarnation of Esperion, as well as out-licensing deals, to help smooth the transition. Pfizer has, by its own estimates, too substantial a Phase II pipeline to take through to pivotal trials. "We need to be more creative with development," noted Mackay at PSA, and he said RaQualia was a good example of that creativity at work, as was the apixaban deal, which could be replicated in the other direction with Pfizer partnering on one of its own Phase III candidates. What should be worrying to Pfizer and other pharmas is that despite a Phase II glut these companies have a difficult time determining which post-proof-of-concept projects will succeed in Phase III and at the regulators.

Pfizer isn't the first pharma to abandon what most would consider its core therapeutic space. GSK and AstraZeneca, for example, sustained for years by the profits from GI franchises, each exited the bulk of their R&D in that area (witness AZ's spin-out of Albireo, though that pharma has noted it remains active in GERD research whereas Pfizer seems unlikely to continue in hypercholesterolemia R&D).

So where does the Tin Man turn when his new ticker gets rusty? And where do those small pharma and biotech companies in need of a partner for their next-big-thing HDL raiser or anti-hypertensive turn? In this up-is-down, black-is-white pharma shift to specialist drugs, perhaps primary care becomes the domain of a few specialists while the rest of the industry piles into oncology and orphan drugs.

One further irony: even as its exits cardiovascular research, Pfizer wants to remain one of those few remaining primary-care specialists. Bill Ringo noted exactly that at the PSA and in this article in IN VIVO -- as other Big Pharmas cut back primary-care commercial programs to boost their presence in specialist marketing, Pfizer, while certainly doing the specialist thing, is going to keep its primary-care capabilities, theoretically giving itself a comparative advantage as an in-licenser when it comes to those increasingly rare, and expensive, late-stage primary care candidates.

The Blockbuster Model is Dead, Sort Of

The numbers are in, and it’s not a pretty picture.

No, we’re not talking about today’s Potomac presidential primary. We’re referring to the latest IMS Health figures on the state of the pharmaceutical industry, and as Diana Conmy, corporate director of market insights put it, they are “sobering and possibly a little alarming.” Conmy was kind enough to preview the 2007 numbers for the Health Industry Group Purchasing Organization’s National Pharmacy Forum; the official data won’t be released for a couple more weeks.

Unfortunately for industry, Conmy’s numbers don’t leave much to cheer about. The US market growth for pharmaceuticals and biotech products slowed to 3.8% in 2007—the worst growth rate since 1961.

Part of that is a result of tough comparisons against the big pay-off pharma received from Medicare Part D in 2006. But a lot is simply due to a general market slowdown for the drug industry. While some of the latter months of 2006 saw market growth approaching 12%, by December 2007, month-over-month growth was in the negative range, Conmy reported.

And if you’re thinking the next big launch will turn around that trajectory, think again. New chemical entities aren’t contributing as much to market growth as they have in the past. In fact, if you look at the average launch curves for the top 10 new chemical entities over the past several years, 2007 had the weakest results since 2003. “Fewer of these NCEs are top-performing, contributing much less to growth,” Conmy said.

So what does this mean for the blockbuster model? Well, as Conmy put it—and Windhover publisher Roger Longman keeps driving into our heads—“the blockbuster model isn’t dead, but perhaps the primary care-driven market is.”

And it sure seems that way: 2007 marked the first time that industry saw a decline in the number of primary care blockbusters (29 in 2007 versus 33 in 2006), IMS data show. At the same time, there was an increase in specialty care blockbusters (30 in 2007 versus 25 in 2006).

That’s evidenced by the fact that the primary care market declined over the last seven months of 2007, contributing a negative 18% to overall market growth for the year, while specialty care contributed a positive 118%. The growth rates per therapeutic area tell the same story: specialty care grew 10.5%, while “branded products” grew 2.9%--a rate almost a full percentage point below the total market.

In fact, of the four launches for 2008 that Conmy believes have blockbuster potential, three are specialty products: UCB’s certolizumab (Cimzia) for Crohn’s disease, Bristol-Myers Squibb’s ipilimumab for melanoma and Wyeth’s desvenlafaxine (Pristiq) for depression. (The fourth potential blockbuster on Conmy’s list is MedImmune’s respiratory syncytial virus antibody Numax.)

So is there any good news in all these doom and gloom? Luckily for pharma, there are lessons to be learned. Here’s the bottom line: specialty care is increasingly where pharma needs to be. And given the generally slower uptake of specialty care products, executives may have to adjust their expectations when it comes to launch curves.

That kind of “slow and low” attitude has another benefit in today’s increasingly risk-averse environment. “You might hear manufacturers say that ‘our strategy is more lower octane, so we can have a more controlled environment, we can make sure it’s safe, and we don’t have any major incidents,’” Conmy says.

That’s quite a departure from the “fast and furious” model of the DTC-infused primary care market. My, how far we’ve come.

Has Forest Found a Successful NDA Path?

Is there a way out of the woods for pharma companies hoping to win approval from the Food & Drug Administration for products for broad primary care populations?

FDA’s imminent decision on Forest Lab’s pending new drug application for the beta blocker nebivolol for hypertension may show one way.

Because of a two-and-half year delay, the product is coming up for a final decision at one of the worst times for applications aimed to provide treatment for an indication which is already served by a broad array of existing products.

FDA’s senior staff has been telling astonished sponsors that the new de facto approval criteria being imposed by FDA reviewers require convincing arguments of comparative safety or efficacy advantages for primary care drugs. (You can read more about that in “Straight Talk from FDA” published by The RPM Report in November.)

By serendipity, Forest may have the type of relatively familiar and market-proven product (from outside the US) that can satisfy the new climate.

The delay in the NDA may actually have helped the cause for the product by taking some of the pressure off the NDA review schedule for FDA. The product has a well-defined tolerability profile and an extensive marketing record outside the US.

Forest is facing an approval decision at the end of 2007 because Forest’s partner on the product (Mylan Labs) received an approvable letter in May 2004 when it was developing the product by itself. Mylan quickly put nebivolol up for out-license after the setback. Forest bought rights to the product in January 2006.

Mylan submitted an update to the original application with answers to FDA’s questions on preclinical data in early May of this year. Nebivolol falls into a familiar class. It is a third-generation beta blocker where two other third-generation products have been on the market for many years. The broader class of all beta blockers has been around for forty years. Nebivolol itself has been marketed in Europe for over ten years.

Throughout its development phase in the US, Forest and Mylan have stressed the product’s improved side effect profile. In a summary of the first published data from a US clinical trial in September of this year, Forest reports that the incidence of adverse events “commonly associated with traditional beta blocker use, including fatigue (3.6% vs. 2.5% with placebo), erectile dysfunction (0.2%), and depression (0.2%) was low. Moreover, nebivolol was not associated with adverse changes in blood glucose values.”

Mylan and Forest suggest a potential added benefit as a vasodilator based on an effect on nitric oxide. One of the researchers who has been writing about the product frequently during clinical development, George Bakris, MD, Rush University Medical Center, wrote in a managed care journal recently “the risk for diabetes is lower, the metabolic effects are lower, and people with diabetes who have clear NO dysfunction may have particular benefits from this agent.”

Forest is obviously eagerly awaiting this launch and says it has committed $80 million in 2008 to fund the marketing support. Is FDA ready to take the risk of approval on even an old product? If not, 2007 already a memorably bad year for drug approvals will go down as even a worse nightmare for the industry.

Biovitrum Sheds PC Assets

Remember Biovitrum? That Swedish biotech spun out of Pharmacia in 2001, hailed as a key driver of Europe's burgeoning biotech sector? With revenues of nearly $200 million and a market cap of about $500 million, Biovitrum is a meaty player, at least by Europe's standards.

But it hasn't exactly blown us away with news and dynamism. Since its much-anticipated (but delayed) IPO on the Stockholm exchange in September 2006, it raised only a cautious secondary offering, apparently because of market volatility. Since then, shares have gone in one direction only--downwards. Almost 35% downwards.

Perhaps Biovitrum got a bit comfortable, basking in the $120 million or so annual revenues it receives from Wyeth around hemophilia treatment ReFacto--a legacy of the Pharmacia deal.

Either way, re-invigoration is at hand. CEO Martin Nicklasson, PhD, who joined in May 2007 from his position as EVP and Head of Global Marketing at AstraZeneca, announced his "way forward" for the company this week in London, following a similar session in Sweden.

In a sentence: Biovitrum will scrap its primary care metabolic disease pipeline, re-focus its R&D on specialist programs, build out its commercial presence beyond the Nordic area to Europe through acquiring tail-end assets, and make more of its biotech capabilities.

No surprises there: the world and his dog are going specialist. Most would agree that it makes more sense for Biovitrum to build out a hemophilia franchise around ReFacto--as it's doing--rather than pour millions into small molecule obesity or diabetes. Primary care is expensive (as well as being fraught with failure and highly unfashionable), and Biovitrum, as that rare beast a profitable biotech, wants to stick to the "earn before you burn" mantra.

All sound a bit specialty-pharma-like to you? Consider this: all four of the specialist programs in Biovitrum's clinical pipeline are in-licensed. Exinalda and Kiobrina, both human recombinant bile salt-stimulated lipases, came via the 2005 acquisition of compatriot Arexis. Anti-Rh (D), allegedly the first ever recombinant polyclonal antibody to enter clinical trials (it's in Phase I for prevention of hemolytic disease and for the treatment of red-blood-cell disorder thrombocytopenic purpura) is the fruit of a February 2006 deal with Symphogen. Factor IXFc (longer-acting recombinant Factor IX) came through an earlier 2006 deal with Syntonix (part of Biogen Idec since January....and yes, Biovitrum's deal is secure in the event of another change of control.... )

So does this mean that Biovitrum, born out of Big Pharma and with an above average 350 R&D headcount, faces similar productivity issues to Big Pharma? "It's a debate you can have," acknowledged Nicklasson. But at least the company knows how to in-license.

Can it get any value from out-licensing, though? Consider the clinical assets on the block: a 5HT2a agonist in glaucoma (Phase II recruitment delayed), an A2A agonist in neuropathic pain (Phase II), and a 5-HT6 receptor inhibitor in Phase I obesity trials. Behind those in pre-clinical: a delayed DPP-IV inhibitor in diabetes, and a fat-fighting leptin mimetic.

Roll-up, roll up, supporters of vintage primary-care small molecules.

Can a Sleep Drug Awaken Demand from European Consumers?

Superficially, it’s paradoxical.

Sepracor wouldn’t sell US marketing rights to its sleep drug Lunesta, even though it could probably have gotten a great deal. And then last week it goes and sells European rights to GSK for just $20 million upfront and another $135 million in milestones?

OK, that’s by no means a true yawner. But it’s hardly a wake-up call in this age of colossal licensing fees and milestones. VX950, the barely post-proof-of-concept hepatitis C candidate from Vertex, fetched $165 million upfront, and $380 million in pre-commercial milestones for merely European rights. Why didn’t Lunesta, with US sales approaching $600 million, do at least the equivalent?

Because the comparison isn’t at all fair. Hep C is a life-threatening disease currently treated with a couple of inadequate, problematic therapies. Insomnia is probably just as big a market -- but is less important to doctors than it is to patients (for some background on the insomnia markets and related dealmaking, see our coverage here and here).

And that’s precisely the challenge. In the US, Sepracor sets its own price and then can spend hundreds of millions of dollars getting its message out to consumers. In Europe and Japan it can do neither.

Which means that Lunesta will have a lot more commercial risk outside the US than something like VX950. GSK’s $20 million bet on the product isn’t exactly trivial, but it isn’t a huge vote of confidence that European insomniacs and their doctors will clamor for Lunivia (European for Lunesta) in the face of a host of generics like racemic zopiclone, Ambien, and a number of benzodiazepines.

And it’s why so much of the deal’s $135 million in milestones apparently depends not merely on getting a centralized approval, but on getting reasonable levels of pricing from various European countries. Sepracor could still make plenty of money: we estimate that it’s getting what might, on a blended basis, work out to a 15% royalty (the rate increases with sales) plus another 10-15% profit on selling the material to GSK. But Sepracor will only make money if the drug is successful.

Thus the $20 million upfront fee represents a cautious gamble that Lunesta’s data package will not only pass muster with the EMEA, but will convince the national reimbursement groups that they should pay a premium for a drug that can be used chronically and which comes with a host of data showing its beneficial effects on insomnia-associated co-morbidities, like depression.

Same thing in Japan, where a pricing milestone on Lunesta is also a key part of the value in the deal Sepracor signed in July with Eisai. The upfront in that deal was probably considerably smaller than what GSK paid: not only is the market about half the size of Europe, the product has to jump through more clinical hoops before it can be approved. In any event, the Eisai terms were undisclosed, which means they weren’t material.

Financially material that is. Sepracor is certainly hoping they’ll be seen as strategically material. The company has recently been a punching bag for investors, taking particularly heavy punishment when new CEO Adrian Adams lowered revenue expectations for 2007 during the company’s July earnings call.

Thus the biggest value to the deals may yet be validation for Sepracor’s ability to take a product developed in the US and convince leading CNS companies they can rely on the company’s US clinical and marketplace work to win approval for, and successfully commercialize, a consumer-driven product in markets where consumers don’t rule.

AZ: Radical Re-think?

David Brennan's certainly made his mark just over a year into his tenure as CEO of AstraZeneca. The company has embraced externalization with fervour, completing a dozen or so significant alliances or acquisitions in the last 12 months, bolting on biologics capabilities by snapping up compatriot CAT, and joined in the cost-cutting, efficiency drives and re-focusing that are fast becoming Big Pharma's hallmark.

But is that enough? Brennan doesn't seem to think so. When asked in an IN VIVO interview last month whether he's contemplating more revolutionary change to set AZ apart, the answer's an assertive "Yes". But he's not going to talk about how. So what might be afoot within the Mayfair HQ?

It's not going to be a merger--that's an old trick, after all, and one that hasn't been shown to work very well. Nor did he sound that excited by the notion of acquiring a new, ready-built franchise by buying a specialty pharma firm such as Shire (not that he'd want to now, anyway, after that firm's large lunch of Vyvanse promotion partner New River Pharmaceuticals.

Doing a Novartis doesn't seem to be on the agenda either--"we think about [buying] generics, vaccines or diagnostics, etc. during each annual review," admits Brennan. "But the whole point of the Astra-Zeneca merger was to focus us solely on innovative pharmaceuticals. Anything else would detract from that."

So what's left? Splitting up? As Brennan points out, AZ is already organized into small-ish units, research units, since recently including CAT and Arrow--and plans to remain that way, GSK-style--"better than putting everyone in one unit and saying, now we're all going to do things this way."

Perhaps that means more, smallish, bolt-on acquisitions--what most of the punters are predicting. But as these entrepreneurial cells are increasingly left to their own devices (unless you're Pfizer), it raises the prospect of Big Pharma as portfolio managers, assessing and managing a series of external partners rather than, not as well as, their in-house R&D.

"The hurdles for in-licensing are lower," Brennan says. "The way we look at it now is, we’ve got risk in our portfolio, there will be risk in what we’re licensing in, so let’s make sure we’re looking at the best technology, project, or product that we think we can get at the time, and we’ll deal with it accordingly." Sound a bit like a portfolio manager to you?

Big Pharma used to bask in relatively easy-won double digit growth--the safe havens of the stock market. That has changed. Today, "being successful is not a certainty—you have to make it happen," notes Brennan.

Watch this space.

AZ-BMS Diabetes Deal: Two Paths for Big Pharma

If there is a schism among Big Pharma it is between those companies clinging on to the notion that pharma's future role is--as it is today--as a massive marketer of mass-market drugs, and those that see specialism as a means to avoid imploding under the weight of their own infrastructures.
The diabetes deal announced yesterday by AstraZeneca and Bristol-Myers illustrates the pursuit of each strategy: AstraZeneca, eager to play in what one pharma CEO described this week as "the disease of our epoch," has paid BMS $100 million upfront for worldwide (except Japan) co-development and co-commercialization rights to two late-clinical stage diabetes projects. For BMS the move is another big step back from primary care marketing and confirmation that the company's future lies along a specialist path.

AZ will fund the majority (75%) of development costs through 2009, the companies said, after which costs will be split 50-50. Should each of the two drugs--saxagliptin, a DPP-4 inhibitor currently in Phase III and dapagliflozin, a SGLT2 inhibitor in Phase IIb--reach global markets BMS will earn $650 million in pre-commercial milestones and could land an additional $300 million per drug in sales milestones. Post launch expenses and profits will be split evenly on a global basis and BMS will manufacture both products and book sales.

Acquisition of diabetes projects to shore up its primary care portfolio has been high on AZ's agenda since the PPAR agonist tesaglitazar (Galida) crashed out of clinical trials in May 2006; ironically the decision to yank Galida was based on thought-leader and regulatory reaction to BMS's own PPAR, muraglitazar (Pargluva) and intimations that Galida was in for similar treatment. Pargluva was killed after analysis published in JAMA by Cleveland Clinic CV chair Steve Nissen, MD, questioned the safety of PPARs and FDA said further long-term clinical studies would be needed to approve the product. (See "Anything but Academic: Lessons from the PPAR Failures," The RPM Report, June 2006.)

By the time saxagliptin hits the market the best AZ and BMS can hope for is only two entrenched competitors: Merck's Januvia and Novartis' Galvus will likely await. Dapagliflozen is a sodium glucose co-transporter-2 inhibitor, which blocks the re-absorption of glucose from urine in the kidney; a more novel, yet riskier prospect.