DotW: High(er) Hurdles

It's no secret the hurdles to drug development are getting higher. But the commercial bar has been raised, too. Those with doubts need only look at Novo Nordisk's efforts to pressure-test its Type 2 diabetes medicine Victoza, not just in head-to-head trials against its major competitor, Byetta, but also against orals like Merck DPP-IV inhibitor Januvia.

Much of Novo's future success rests on Victoza's acceptance in the marketplace. Despite regulatory delays, prescription trends show the drug is one of the few successful launches in the past year, especially when compared to the dismal adoption of either Johnson & Johnson's Simponi or Lilly/Daiichi's Effient.

But Novo is taking no chances. Its head-to-head trial with Januvia published Thursday in The Lancet proves that. In an interview with Reuters, Mads Krogsgaard Thomsen, Novo's chief scientific officer, made no bones about competing in a world where comparative effectiveness is the modus operandi: "The fact that Novo Nordisk has now done most, if not all, of the major comparator studies against different classes of oral and injectable anti-diabetic drugs really shows our commitment to showing comparative efficacy in a serious way," he said.

Comparative effectiveness is also holding sway over deal-making. We haven't yet seen deals with milestones tied to reimbursement, but we've seen plenty of deals terminated because the product's potential for commercial success was limited. The latest example is Forest Laboratories pulling the plug on its partnership with Phenomix to develop dutogliptin, the biotech's Type 2 diabetes medicine. Forest announced the move on its earnings call this week.

Analysts have never been that hot on dutogliptin, yet another DPP-IV inhibitor in a crowded space. And while Merck's Januvia has done well, with sales topping $3 billion, the same cannot be said for Onglyza, which AstraZeneca and Bristol Myers Squibb have brought late to the DPP-IV party.

Forest is new to the diabetes space and might have gotten cold feet in the wake of Onglyza's disappointing sales. Of course, the changes to FDA's diabetes guidelines, which are sending the cost of clinical development sky high, also might have chilled Forest's ardor. Forest isn't saying much beyond "business reasons" to explain the deal's demise.

Phenomix is trying to put the best spin possible on the news. The same day Forest axed the program, the biotech reported positive data from a Phase III six-month study comparing dutogliptin to placebo. Phenomix' drug appears to have similar efficacy but better safety and tolerability than other DPP-IVs, noted CEO Laura Shawver in an interview with "The Pink Sheet" DAILY. The company has four Phase III programs underway and plans to run a fifth cardiovascular study to meet FDA's new diabetes guidelines. The pressure is on for Phenomix to find a new partner and more cash.

It's yet another way biotech is like a singles bar: you're one of many in a crowded field, you need a new partner, and the drinks are more expensive than you realized. Sometimes it's better to go home, put on your flannel PJs, and curl up with another edition of...

Novartis/Oriel: With the acquisition this week of privately-held Oriel Therapeutics for an undisclosed sum, Novartis' Sandoz unit gains a portfolio of drug candidates and related technologies for asthma and chronic obstructive pulmonary disease, a key therapeutic area for the generic drug maker. With GlaxoSmithKline's Advair, AstraZeneca's Symbicort, and Pfizer/Boehringer Ingelheim's Spiriva losing patent protection by 2016, Novartis's Sandoz hopes to capture a big chunk of the inhalable respiratory generic market. It can be quite lucrative because the complex delivery systems are a barrier to entry that potentially limits competition. Sandoz has already put $60 million toward the development of a new facility in Rudolstadt, Germany with manufacturing capacity for dry-powder inhalers and metered-dose inhalers. The acquisition of Oriel, meanwhile, provides Sandoz with three development projects targeting leading medicines and a novel delivery technology, FreePath. Sandoz's work in generic respiratory meds complements Novartis's innovator products; the pharma has a long-acting beta 2 antagonist, indacaterol, in development for COPD in the US and marketed in Europe as the Onbrez Breezhaler. -- Jessica Merrill

Clovis/Ventana: Less than a year after securing $145 million in start-up financing from a cadre of blue-chip investors in the largest A round ever for a biotech, in-licenser Clovis Oncology has mapped out a development and approval track for its first drug, which under a deal announced this week, will include a companion diagnostic to be developed and sold by Ventana Medical Systems. In November, Clovis acquired rights to Clavis Pharma’s lipid-conjugated formulation of gemcitabine based on information showing the drug, renamed CO-101, could outperform gemcitabine in pancreatic cancer patients with low levels of a specific transporter protein, hENT1. (This population is estimated to be 50% of the total number with the disease.) Clovis also believes CO-101 will work as well as gemcitabine, the current standard of care for pancreatic cancer, in patients with high levels of hENT1. Its 250-patient trial will capture data on the performance of CO-101 head-to-head against gemcitabine in both the hENT1-low and -high populations, and could be sufficient for registration filings in the US and Europe, said CEO Pat Mahaffy. When ready, the Ventana diagnostic will sort patients into low- or high-level populations using tissue biopsies collected at the start of the study. The program reflects Clovis’s intention to develop drugs with a clear path to approval, incorporating a companion diagnostic. “We are strong believers that technology and the regulatory environment are driving toward exactly this approach,” said Mahaffy. -- Mark Ratner

Novartis/Array: Boulder, CO-based Array BioPharma has an array of options now that it has partnered its small molecule MEK inhibitor program to Novartis in a deal worth $45 million in upfront and near-term milestone payments, and downstream milestones totalling another $422 million. It's anecdotal evidence of a factoid we discussed at Pharmaceutical Strategic Outlook: early-stage deal values, especially for Phase I products, are on the rise. Analysts and investors found a lot to like in the deal, Array's second high-value collaboration in four months, and sent the firm's stock price soaring more than 30% in after-hours trading following the announcement. Novartis gains exclusive rights to ARRY-162, currently in Phase I trials for biliary tract cancer, plus a back-up compound ARRY-300 and earlier compounds. Array has the option to co-develop '162 in one or more indications and co-promote it in the US. (That seems to be another de facto condition of oncology deal making these days.) One reason the product might have attracted such a healthy sum is that its safety profile is largely derisked from its Phase II trials in rheumatoid arthritis. There were no safety problems, but the trials were a big disappointment, with the drug doing no better than placebo at thwarting the disease. -- EFL


Boehringer Ingelheim/Biota: BI terminated its 2006 agreement with the Australian pharma Biota Holdings for nucleoside analogs to treat hepatitis C, largely because it could not identify a suitable pre-clinical candidate to advance forward, the companies announced April 20. Rights now revert to Biota, which develops anti-infectives and originated the flu drug Relenza (zanamivir). Biota could have earned up to $102 million from Boehringer if a compound reached the market. At least it has a steady flow of Relenza cash. It reported $AU32.6 million in royalties from GlaxoSmithKline for Relenza for the quarter ended Dec. 31, 2009, with expected royalties of AU$56.7 million for the first half of 2010. Under the 2006 deal, Biota licensed to Boehringer global rights to develop and sell its tricyclic group of nucleoside analog drug candidates for HCV infection and possibly additional indications. In turn, Boehringer agreed to an up-front technology payment, preclinical, clinical, regulatory, and sales milestones, plus R&D funding totaling $102 million. The companies worked jointly on the HCV research program from the time they signed the agreement until last November, when Boehringer-Ingelheim took over R&D activities. -- Carlene Olsen

Image courtesy of flickrer Robert Voors via a creative commons license.

Ventana Accepts $3.4 Billion

Roche finally nabs its man. Or in this case, its diagnostics company. All it took was an extra $14.50 per share. From the companies' press release:

This offer represents a premium of 4.9% to Ventana's closing price on January 18, 2008, a 19.3% premium to Roche's initial offer on June 27, 2007, and a 72.3% premium to Ventana's closing price on June 22, 2007 (the last trading day prior to the announcement of Roche's initial offer). The acquisition of Ventana, a leader in the fast-growing histopathology (tissue-based diagnostics) segment, will allow Roche to broaden its diagnostic offerings and complement its world leadership in both in-vitro diagnostic systems and oncology therapies.

Here's a recap: Roche spent most of 2007 getting turned down by Ventana, which played down the pharma's $3 billion offer multiple times. First they said please, then highlighted its belief in the importance of its diagnostics business by promoting its dx head Severin Schwann to CEO of the whole Roche Group. We suggested soon thereafter that Ventana should do the deal (this is why we are not CEOs, we suppose), and in late November they agreed to let Roche behind the curtain with an eye toward a more equitable arrangement (ka-ching!). Roche again extended its offer for the company earlier this month, and that brings us to this morning's $89.50 per-share-deal announcement.

We've outlined the rationale for this deal before (follow several of the links above). Roche clearly believes that personalized medicine is the future, and is sure that Ventana will help them get there. $3.4 billion sure.

While You Were Watching the Upsets

This weekend we were in Cardiff for the Rugby World Cup quarterfinal between France and New Zealand, which saw France upsetting the favorites. Earlier in the day defending champs England upset heavily-favored Australia, setting up a very surprising all-Europe semifinal next weekend. Suckers for a lost cause, we managed to keep tabs on the Phils into the wee hours, and showed our support on the streets of Cardiff amongst the hordes of Kiwi and French fans (see below--it's a jungle out there).

So what'd we miss?

• The repercussions of the failure of Merck's HIV vaccine are being felt across the entire field, points out the Philadelphia Inquirer.
  
• Roche isn't raising its offer for Ventana, the company said this weekend, but it remains convinced Ventana shareholders will see the light.
  
• And the winner is ... Andrew Witty. GSK's head of Europe appointed CEO-designate, will replace JP Garnier in May 2008.

gotta support the team

Take The Money and Run

On Tuesday August 21, this IN VIVO reporter had the opportunity to interview Christopher Gleeson, CEO of Ventana Medical Systems. It was an interview arranged by an outside public relations firm, ostensibly to talk about the growing importance of companion diagnostics. But there was a Swiss elephant in the room: Roche, whose $3 billion hostile offer for the diagnostic company was set to expire in a couple of days.

Gleeson confirmed his company has had no conversations with Roche since the end of June. "We would prefer not to comment on this matter," says Gleeson. But he maintains, "We continue to look at every way possible to maximize value to our shareholders." Forgive my confusion, but it seems like an odd time to seek out a meeting with a reporter and then dodge the most pressing issue facing the company.

Instead, Gleeson presented the broad case for molecular diagnostic content, invoking Genomic Health's success with Oncotype Dx, and his belief that valuable tests of this ilk can command premium price tags. Frankly, we at IN VIVO have been hearing this argument for a while now--with little formal movement.

Gleeson himself acknowledged that, to date, the relationships Ventana has developed with pharmas are primarily fee-for-service contracts for assay development using the drug company's own proprietary biomarkers. In other words, those pharmas haven't been willing to part with any kind of royalty in exchange for having a diagnostic co-listed on the drug label.

So why even bother speaking to IN VIVO at all? To convince me that a company with 2006 revenues of $260 million is worth more than Roche's $75-a-share offer?

Now, I know that the market for in vitro diagnostics is hot. A quick search through Windhover's Strategic Transactions Database shows 22 IVD acquisitions this year alone, and none of these take-outs have been cheap.

Remember Biosite? Beckman Coulter tried to buy the company for $1.44 billion, only to be out-bid by Inverness Medical. (See here for Windhover's coverage.) Especially in the over-heated molecular diagnostics arena, acquisition targets are commanding stunning multiples. Qiagen bought Digene, for instance, for $1.42 billion, a 9.3x multiple on the HPV-test maker's annual revenues.

But Roche's $3 billion offer for Ventana exceeds even that--assuming the Swiss drug maker doesn't sweeten its deal, it's nearly a 12x multiple on Ventana's 2006 sales. Said one industry insider who's been following the saga, "The price is scary."

I give Gleeson a lot of credit. He's playing a tricky game of brinkmanship. It's clear Roche wants this company badly--Ventana's cell-based assays fit with the company's professed long-term strategy to entwine drug development and personalized medicine. And the company spent 6 months pursuing Ventana privately before launching its hostile bid. When Roche finally went "hostile," it opted for a rich price, seemingly designed to frighten off competitors. As the summer wanes and the hostile bid gets extended yet again, it seems less and less likely that a white knight will appear to rescue Ventana.

Roche may decide to sweeten its offer in order to get the deal done, but that seems less likely after yesterday, when an Arizona court ruling granted a motion preventing Ventana from using a state anti-takeover position. (A ruling to prevent Ventana from issuing new shares to block the proposed deal--a so-called "poison-pill"--is still pending.) That's okay. Gleeson has done his job for shareholders: $3 billion is a rich price for a diagnostic company, especially one that isn't likely to be launching significant numbers of new companion diagnostic tests until 2011.

Seems like now is the time to take the money and run.

Roche to Ventana: We want you so bad

It was apparent from today's Roche investor call that five months of trying to open acquisition discussions with Ventana Medical Systems has left the Swiss firm frustrated and desperate. It may well win the fair hand of Ventana with some combination of a carrot (we'd be so good together) and/or a stick (we're gonna get ya one way or the other), but by putting its cards on the table the way it has, Roche seems to have given Ventana all the leverage.

Several times, CFO Erich Hunziker acknowledged the strength of his firm's desire. "You may ask why Roche sees a certain urgency for this deal," he said early in the call. "Leaving Ventana's successful team unchanged and giving them the support of a global company could be very crucial at a time when key competitors in this market are still aligning their efforts after having just been taken over," he declared. "We are prepared for long discussions but a quick negotiated solution would have clear benefits for everybody involved." Roche has proposed in writing a Genentech-style buyout of a majority of Ventana's shares, as well as yesterday's announced hostile tender plan, which values Ventana at $3 billion, or 44% above Ventana's June 22 closing stock price. Under either scenario, it has promised to keep Ventana independent and in place ("We love you just the way you are..."). Thus far, however, Ventana is still screening Roche's calls.

With Ventana, a specialist in tissue-based oncology assays using both IHC and ISH (in situ hybridization) techniques, in the fold, Roche believes it would have a complete set of diagnostic technologies for the development of oncology drugs and companion diagnostics, including for therapy selection. And importantly, it would have the ability to begin the development process--for itself as well as for other companies that work with it on a service basis--early. "The earlier you start the exchange of ideas between pharma research and diagnostics, the better chance you have to come in parallel with the development of a companion diagnostic," Hunziker explained, adding that at this early stage of the research discussion, "not all of the IP is protected. I think you would shy away from opening up totally with a third party with whom you just have a partnership."

That's fine from Roche's point of view, but our guess is that Ventana does not necessarily share that perspective, and may prefer the potential clout such an interdependency could give it. It is, after all, already collaborating with Genentech (successfully, says Roche), Novartis, and ImClone.

Ventana also surely knows that, like Biosite and others with the rare commodity of molecular diagnostic content, it will command a sizable dowry tomorrow as well as today. Other potential acquirers, like GE, may indeed be wrapped up in merger integration at the moment. Or they may be on the phone with Ventana right now.

Roche makes Ventana an offer it may or may not be able to refuse: $3 billion

As the market in the US closed today, Roche offered to buy the histopathology company Ventana Medical Systems for $75 per share, or about $3 billion to complement its in vitro diagnostics business. The bid is a 44% premium to Ventana's share price last Friday.

Lovely. The only problem? Ventana isn't playing ball. Which forced Roche to go public with the offer, and even disclose Roche chairman and CEO Franz Humer's "Dear Jack" letter to Ventana CEO Jack Schuler (see the link the the PR, above). Apparently Jack won't even take Franz's telephone calls; Ventana has been unwilling to engage in dialogue, etc. (No word on whether Ventana still sends Roche flowers or sings it love songs. We'll keep you posted.)

Meanwhile, there's a call for investors tomorrow--more to come.