Guest Post: Advancing Next-Generation Combo Therapy in Oncology

By Aidan Finley, Consultant, Health Advances

We are all well aware that oncology is rapidly undergoing significant changes. Encouraged by recent FDA guidance, we've begun a transition from empirical combinations developed post-approval to rational combinations co-developed in the clinic. In this month's IN VIVO, Health Advances addresses the past and future of combination therapy for oncology.

As demonstrated by the recent launches of Xalkori and Zelboraf, the right ingredients are finally in place: more comprehensive genetic and biologic understanding of tumors, better tumor pathway definitions, availability of companion diagnostics, and a burgeoning armamentarium of clean targeted single and multi-kinase inhibitors. To transform these ingredients into successful drugs is no mean task: both clinical trial design and dealmaking need to change.

Fortunately, clinical trials are changing. We see an increase in combination trials, not just of established assets, but of novel agents early in development. For example Novartis recently combined its novel mTOR inhibitor Afinitor with Pfizer’s aromatase inhibitor Aromasin to great effect in breast cancer, showing PFS and OS survival benefits. And Syndax Pharmaceuticals released findings at AACR showing beneficial combination of its HDAC inhibitor entinostat with exemestane in breast cancer, and published a trial of entinostat in combination with Vidaza in NSCLC.

We also see more development of precisely dual targeted kinases, like Roche’s dual PI3k/MTOR inhibitor (GDC-0980) or Novartis’s competing dual P13k/MTOR inhibitor (BEZ235), or VEGF/FGF inhibitor dovitinib. Clinicians are also embracing the potential of new agents and combinations to affect resistance, a durable unmet need: At this moment at the MGH there are 4 trials opening for patients resistant to BRAF inhibitor in melanoma and 10 trials for patients with resistance to targeted agents in lung cancer. Collectively, these trials and abstracts represent the growing consensus around next generation combination therapy and the route by which sponsors, clinicians, regulatory authorities, and patients can advance care.

But biopharma partnership strategies need to evolve to allow for testing of more and better drug combinations (and we see more room for improvement here). Ultimately, developers need to balance the control of intramural development with the flexibility and risk-sharing of partnerships and joint ventures. AstraZeneca and Merck famously began their ALK and MEK collaboration in 2009 in part because their research directors bumped into one another at a security queue while traveling to a conference. Despite growth in cancer-specific partnerships since (e.g. Merck-Serono and Sanofi in 2010, Roche and BMS in 2011), has a better mechanism for identification and execution of partnership been identified?

One necessary change is a tighter coordination between R&D and BD. R&D efforts can no longer be siloed, or pursued in isolation without consistent reference to corporate strategic goals. BD efforts need to be partially focused on identifying both potential strategic partnerships and as well as agent-extending in-licensing efforts. Staying on top of the literature, BD can work to bring in complementary agents to better achieve dual inhibition of a target (e.g. to achieve something like the demonstrated benefits of trastuzumab and pertuzumab in Her2+ breast cancer) or actively seek agents targeting newly validated targets like EML4-ALK rearrangements after high-profile publications.

Given these factors, it makes perfect sense that oncology deal-making is aggressively moving earlier (pointed out by Campbell Alliance, here). But in-licensing alone cannot satisfy Pharma and Biotech’s need to mitigate risk. Companies need to get better at working together, using the Merck/AstraZeneca joint venture as a template. Sharing risk by sharing assets, development costs, trial designs, and ultimately regulatory risk will be necessary to capture full value for these complex oncology assets.

The situation gets even more complicated when biomarkers are considered. Using an established biomarker developer like Roche or Abbott will make negotiations between the existing two members of the partnership more complex, but these players may be the only ones capable of arbitraging the clinical and economic risk of companion diagnostic development. Pfizer and Abbott had their own difficulties developing their partnership over crizotinib, though the companies surmounted these difficulties with a successful joint application. Unfortunately for Abbott, they will receive only $1,500 per patient, compared with Pfizer’s $9,600 per month.

The market is already focusing on modular, diagnostic-aware, targeted therapies that can be slotted into multiple therapeutic lines and extended by combination or mechanism into adjacent indications. We want to see both intelligent in-licensing driven by R&D/BD alignment and data-driven opportunism as well as more structured joint ventures and collaborations focused on mitigating risk and better delivering complex, multi-company, multi-agent trials of out-of-the-box combination therapies. These are exciting times in oncology, and it is important to create the types of agents and combinations capable of dramatically advancing standard of care.

Guest Post: In Oncology, Is Early Partnering The Name Of The Game?

By Jonathon Fendelman, Senior Practice Executive, Campbell Alliance

The Celgene/Quanticel tie-up announced November 4, typifies a trend we’ll be discussing in greater detail at the coming Therapeutic Area Partnerships meeting: the trend of partnering early in oncology. Under the terms of the agreement, Celgene will commit $45 million to Quanticel during the initial three-and-a-half-year alliance term, with the ability to extend the collaboration in exchange for additional funding. Celgene will also take an equity stake in Quanticel and retains an exclusive option to acquire the company.

As IN VIVO Blog outlined in this post, Quanticel will utilize its platform to conduct single-cell genomic analysis of patient tumor samples and to identify predictive biomarkers for Celgene’s investigational drugs. Quanticel will also perform its own drug discovery, and via the acquisition option, Celgene retains the ability to access those pipeline candidates.

The upshot? As competition for good assets strengthens, pharmas are beginning to lock up rights to assets long before proof-of-concept data are in hand. To put some numbers on the trend, Campbell Alliance used Elsevier’s magic eight ball – also know as Strategic Transactions-- to identify the total number of alliances year-to-year with upfront payments of more than $10 million. We were only interested in deals centered on assets (as opposed to those centered around the resolution of patent disputes or R&D support, for example).

Using this metric, we found that the total number of licensing deals completed over the last several years has remained relatively consistent. In 2008, there were 62 deals completed based on our criteria. This was followed by 61 deals in 2009 and 62 in 2010. This year should see a similar number of deals, given 42 deals were completed as of the end of September.

What does this have to do with oncology deal making? In 2008 and 2009, 24% of the alliances were for oncology products. 2010 saw a slight downward blip, with only eight of the 62 deals, or 13%, in this therapeutic area. But oncology deals appear to have bounced back in 2011, with 28% of the 42 deals year-to-date involving cancer medicines.

Further analysis showed that in 2008 and 2009, there was a bias in the oncology deals toward products in Phase I and Phase II development. But in 2010, that bias swung even earlier, with five of the 8 oncology deals revolving around assets that were in preclinical or Phase I development.

As we'll discuss at TAP, that trend has continued in 2011. Of the 42 deals completed thus far this year, 12 involve oncology products, with half of those in Phase I development or earlier. These six alliances all involved first-in-class compounds that work via new mechanisms of action.

We see a clear enthusiasm for early-stage oncology deals. In the context of this enthusiasm, we anticipate any new oncology deals will also center on early-stage products, particularly compounds that work by a novel mechanism of action. Such assets offer the differentiation payers are more likely to reimburse for upon approval.

Not wanting to be caught with me-toos, drug makers are forced to tie-up rights earlier, before proof-of-concept, hedging their risk with option style alliance structures. As competition continues –and let’s face it, nearly every big pharma wants to be a top player in oncology – that energy will create a positive feedback loop, creating further incentives for earlier oncology partnering.

Image courtesy of flickrer Carol Myra used with permission through a creative commons license.

Guest Post: Moving From The CER Wilderness To The Promised Land

By Richard Gliklich, MD, President and CEO, Outcome

We all know, broadly speaking, the mission of comparative effectiveness research (CER), now sometimes called patient-centered outcomes research. Such studies should inform clinical and health policy decisions made by physicians, payers, and regulators to help determine treatment guidelines, coverage policies, and the therapeutic value of new therapies relative to standard-of-care in real-world settings.

But dive deeper, and it’s clear there remains an uncomfortable level of confusion as to what CER will actually be used to do. So complicated is CER that even US federal agencies can’t agree on a unifying definition. Indeed, look across the various Health and Human Services websites and related entities such as the Patient-Centered Outcomes Research Institute (PCORI) and you’ll discover slight differences in emphasis that have big potential impact on CER’s implementation.

For example, the U.S. Federal Coordinating Council defines CER as the conduct and synthesis of research comparing the benefits and harms of different interventions and strategies to prevent, diagnose, treat and monitor health conditions in “real world” settings. But the U.S. Agency for Healthcare Research and Quality defines CER as a type of health care research that compares the results of one approach for managing a disease to the results of other approaches – for instance the utility of drug A relative to drug B or procedure X to procedure Y or drug A to procedure X.

And according to the new Patient Centered Outcomes Research Institute Methodology Committee, CER seeks

“to understand and improve the effects of healthcare and prevention services on outcomes important to all persons with disease or at risk for disease considering individual perspectives, needs, preferences, biological, environmental, behavioral, and cultural determinants of health.”

Well, that seems to include just about everything.

Certainly it's a lot of high falutin’ language to digest – and for manufacturers hoping to bring new products to market, it’s critical they get fluent in CER as soon as possible. No matter how its defined, CER IS NOT going away.

Investment by the U.S. government in the concept is soaring.The Patient Protection and Affordable Care Act (PPAC) created the Patient Centered Outcomes Research Institute (PCORI) with hundreds of millions of dollars in funding. It is inevitable that the importance of PCORI will grow and its impact on drug and device discovery as well as post-approval monitoring will become more and more apparent.

So if the different definitions spark confusion, we offer this piece of advice. The best way to think about CER is the audience it serves.While classic research questions arise from intellectual curiosity of scientists, CER informs decisions made by a diverse group of stakeholders across the industry – especially regulators, payers, patients and providers.

Thus, this real-world pragmatism changes the way CER questions are defined and answers are pursued. It also means decision makers will accept complementary forms of evidence to bolster their arguments, not just traditional ‘experimental’ studies. These data span the gamut from prospective observational studies to retrospective analyses of existing clinical or administrative data -- and even include sophisticated models based on such data sets.

Still, it’s one thing to have evidence; it’s another to know which evidence is sufficient to answer key questions. As Sir Michael Rawlins, Chairman of the National Institute of Health and Clinical Excellence (NICE) in the United Kingdom has stated, it is clear the traditional evidence hierarchies are limited when it comes to understanding how effectively drugs and devices work in the real-world. Those limitations have sparked working groups, like the longstanding GRADE (formed in 2000) and the relative newcomer GRACE (started in 2007), which aim to redefine what constitutes “good” research based on the quality of the methods and results and contextual matters.

With no ready answers to what constitutes appropriate CER, drug makers need to spend more time earlier in the drug development cycle considering the kinds of evidence they need to gather. That’s especially important given that going forward non-traditional trials will likely be equally important – if not more important – than the randomized double blind placebo controlled studies preferred by regulators for approval.

What it all boils down to is this: CER involves much more than just the research. As important, it is a process that includes setting priorities, generating evidence, synthesizing said evidence, and disseminating it to the right audiences.We’re starting to move down the path, but it’s still going to be a few years before we really get "there."

In January 2011, PCORI formed a methods committee to help industry chart a map through the CER wilderness. The goal? A translation table to help both decision makers and researchers know what types of studies are appropriate for different types of questions. What is the best way to compare a drug to a procedure in urology in the real-world? Or, given the existing evidence, what more information is needed to make a decision about a health intervention?

Undoubtedly, the guidelines won’t be so succinct they can be etched on two tablets; nor will PCORI have Charlton Heston able to lead us out of this information desert into the promised land.

Let’s just hope it doesn’t take the same 40 years it took for the Israelites to find their way out of the desert. With healthcare costs rising and CER the most frequently cited cure to the impending insolvency of Medicare, we’ll need some more timely answers than that.

Founded in 1998, Outcome, a spin-out of a Harvard affiliated research laboratory, is a leading provider for patient registries, studies and technologies for evaluating real-world outcomes. For more information about Outcome, please contact Renee Hurley: rhurley@outcome.com.

In Search Of A Golden Mean: Balancing Innovation And Execution In Biopharma

Guest post by Dr. David Shaywitz

As the biopharmaceutical industry looks to revitalize itself through innovation, a lot of companies have started to think deeply about what it means to be more innovative. In today’s WSJ, I review an interesting new book by Peter Sims called Little Bets that discusses the importance of deliberate experimentation in innovation and highlights the role of thoughtful improvisation in driving progress.

The difficulty, as I see it, isn’t that most people fail to appreciate the value of trying new things, and more generally, pursuing a portfolio of options. Rather, it’s that almost everyone wants to be the one doing the diversifying, and often wants the entities within their portfolio (companies, programs, people) to execute in a lean and focused fashion.

For example, growth investors generally want their companies to relentlessly pursue a specific thesis, often high risk/high reward; for these investors, each company in their portfolio is a small bet. But most companies prefer to diversify and hedge their risk – statistically safer for them, but not necessarily what their investors had in mind. The pattern extends down through project teams even to the level of an individual employee, who must balance pursuit of promised objectives with the ability to pivot if something changes. In each of these situations, everyone understands the value of small bets – the issue is that each person wants to be the one holding the cards.

From a management perspective, the dilemma is that in the short term, investing in game-changing “disruptive” innovations are a drag on the balance sheet. Organizations are always seeking ways to cut costs; this is especially true these days for pharma companies, as they anticipate patent expiries. Without a serious long-term commitment, and mandate, from senior management, pursuit of such so-called “non-core” activities face serious, even prohibitive, challenges. (See this thoughtful HBR piece by Clay Christensen and colleagues for an excellent discussion of how the financial value of disruptive innovation is systematically underestimated.)

It’s also critical to recognize the very real limitations of constant experimentation – the success of any innovation requires not just a promising idea, but also focused and determined execution. I imagine someone could write a parallel volume to “Little Bets” (and probably several exist already) arguing that it’s all about execution, and that in practice, the actual limitations on innovative success are the fortitude to stay with a difficult idea, grinding through the sweat and tears to ensure it becomes a reality.

Such perseverance is as vitally important in academia as it is in business – I can think of many graduate students who were brimming with potentially interesting ideas, but were never able to muster the focus needed to shepherd any individual idea through the necessary period of unglamorous, gritty exploration, and would instead constantly jump to something new.

By contrast, the most successful academics I know are relentless about following up promising ideas, ensuring they are adequately developed and successfully published. (I suspect there are actually far more academics whose career success results from the dogged pursuit of mediocre ideas than from the tepid pursuit of great thoughts.)

The obvious answer, of course, is that it’s all about balance – both exploration and execution are essential, and you need to know when to do each. But therein lies the rub. Consider this disturbing thought: perhaps it’s not really possible for anyone to know, for any particular situation, just what the right balance is. Arguably, “the right balance” is largely dependent upon randomness, externalities that are impossible to foresee despite one’s best guesses, and potentially out of one's control.

Nevertheless, the success stories will be captured in business books, case studies,and on the “analog” slides so popular among consultants and bankers; the wins will be attributed to brilliant thinking (and implicitly, to great advice), while the failures (though frequently the result of similar advice and a similar strategy) will quickly be forgotten. (See The Halo Effect by Phil Rosenzweig, or Fooled by Randomness by Nassim Taleb for a more complete discussion of these issues. Additional books recs can also be found here.)

I continue to believe -- strongly – that good management matters; while you may not always be able to make good decisions, you can certainly avoid making some very bad ones. In biopharma, specifically, I deeply believe in the value of--and absolute requirement for--effective execution, but I remain passionate about the primacy of good new ideas, the value of R&D, and the importance of innovation. I’ve witnessed the “innovation dissipation” that can occur in large corporate structures that kill new ideas not by fiat but through stultifying bureaucracy, onerous processes, and falsely precise spreadsheets and modeling, as previously discussed here.

It’s not surprising that some of the most innovative leaders carefully protect nascent ideas from institutional antibodies, especially those associated with productivity metrics. Sims writes that at Amazon, “when trying something new, Jeff Bezos and his senior team (known as the S Team) don’t try to develop elaborate financial projections or return on investment calculations.‘You can’t put into a spreadsheet how people are going to behave around a new project,’ Bezos will say.”

Similarly, Mark Fishman, head of R&D at Novartis, has reportedly banished the use of sales forecasts from early research, and (in a stimulating 2008 HBR article by Amabile and Khaire) has derided Six Sigma as “one device that has destroyed more innovation than any other,” adding that efficiency-minded management “has no place in the discovery phase.”

Steve Jobs’s dictum, “People don’t know what they want if they haven’t seen it” seems especially relevant for drug development, as huge resources are spent trying to figure out what patients and physicians want, yet the ability of such market research to anticipate the value of a novel product is notoriously poor, as discussed in this JCI article by former pharma VP Jose Cuatrecasas. (I’ve yet to meet a senior pharma commercial executive who will acknowledge this limitation.)

Overconfidence in forecasting turns out to be a more general problem, as concisely summarized by noted University of Chicago behavioral economist Richard Thaler in this NYT piece.

Innovation continues to matter for Big Pharma. But, as Anthony Nicholls notes, simply restructuring themselves in the image of biotechs may not be the magic answer. It's worth noting there’s little evidence that biotechs are any more productive than big pharma. It’s just that they often evaporate when they fail, and their losses tend to be invisible, rather than accounted for on a balance sheet, as HBS professor Gary Pisano discusses in his book Science Business.

I’ve seen so many people within big pharma who were attracted by the opportunity to make important new medicines, and who still, despite everything (including the formidable internal challenges as well as the relentless attacks of the pharmascolds), maintain this worthy ambition.

The challenge for top pharma leaders -- a challenge that I’m not sure most big pharma execs either fully appreciate or deeply believe -- is to recognize this potential, engage these aspirations, and support and enable these latent innovators, before it is too late.

Dr. Shaywitz is a strategist at a biopharmaceutical company in San Francisco and an Adjunct Scholar at the American Enterprise Institute. He is a regulator contributor to Science Business at Forbes.

(Image courtesy of flickrer Digitalnative used with permission through a creative commons license.)

Seeking Value: How Lower Prices Can Make Sense

Angus Russell is CEO of Shire PLC. Shire is a global specialty biopharmaceutical company with 4300 employees in 28 countries. He will be the keynote speaker at the BIO-Windhover/Pharmaceutical Strategic Outlook Conference taking place March 30 to April 1 in New York.

The current issues faced by health care systems globally can be summed up in an excerpt from Michael Porter’s recent article in Harvard Business Review entitled “Creating Shared Value” --

“From society’s perspective, it does not matter what types of organizations created the value. What matters is that benefits are delivered by those organizations—or combinations of organizations—that are best positioned to achieve the most impact for the least cost.”

Nearly every health care system around the world is facing tight budgetary constraints, which is having an impact on what those economies are willing to pay for medical innovations. In particular, payors are demanding tangible value for the medicines that biopharma companies hope to bring to market. This message became crystal clear as I traveled in the past year to many of the 28 countries where Shire has a presence and met with the various stakeholders engaged in the drug development process.

Today, it is no longer sufficient to hit a clinical endpoint. As evidenced by the recent decision in the UK by the National Institute for Health and Clinical Excellence (NICE) to decline reimbursement of several clinically-proven drugs due to their perceived high cost and low value to the UK health care system, health care regulators are taking a much more critical look at the cost of a medicine and its implied value to society.

Given the changing landscape, what can companies do to increase the likelihood that their product will not only be approved by regulators, but also receive reimbursement that enables them to be appropriately compensated for their R&D investment? While the answer to this one billion dollar question – a figure some estimate as the average cost to bring a product to market – remains under debate, what has become abundantly clear is that life sciences companies must take into consideration the needs of a much broader group of stakeholders, and clearly demonstrate the value to society that can be realized through the development of innovative treatments for unmet health needs.

Historically, physicians were seen as the gatekeepers to the successful commercialization of a product. Nowadays, it's clear to most companies that patients, caregivers, advocacy groups, policymakers and payors – in addition to physicians – are all important influencers in what we at Shire refer to as the Circle of Value. It is essential that we engage with these stakeholders regularly to hear, and address, their unique needs and to gain insight into a host of factors that can have a very real and direct impact on the success of a drug candidate, ranging from clinical trial design, to meeting unmet medical needs in the marketplace and assessing prospects of obtaining product reimbursement.

Thus Shire has expanded the teams that engage with patients, policymakers and payors, which has allowed us to listen more effectively to the needs of these groups and adapt our approach to drug development and commercialization activities. As an example, Shire conducted a number of focus groups with physicians around potential pricing prior to the launch of our Gaucher treatment Vpriv. The feedback indicated that it would be beneficial to all involved if Shire priced Vpriv lower than the other approved product on the market.

Shire's management ultimately secured a price for Vpriv that is at a 15% discount compared with the only other commercially-available product for this rare disease, even though the market conditions suggested Shire could potentially have secured a premium price. In addition, as part of our patient assistance program, Shire instituted a co-pay funding plan specific to Vpriv for eligible patients in the US.

Of course, the resources a company has at its disposal to serve these stakeholders can only be effective when there truly is a need in the marketplace for a specific medicine or device. Thus Shire's approach to drug development first identifies an unmet need in the marketplace and what a new product’s value proposition needs to be in order to be considered a success. Shire conducts comparative effectiveness research, including the standard-of-care for that condition, early in the clinical development process. By doing so, we seek to demonstrate the tangible value associated with a product candidate; if we cannot do so, our process allows us to make a decision to discontinue a program earlier — and with potentially several hundreds of millions dollars still in-hand.

Delivering true value to the health care system through a market-driven, multi-stakeholder approach is critical in today’s times. The better drug companies can demonstrate and deliver value, the more likely they are to receive the reimbursement needed to meet the high costs of developing their medicines, and thus to generate revenues to reinvest in R&D – all of which helps patients and their caregivers, and contributes to the health of society overall.

Guest Post: Advice for the New PhRMA President

Ian Spatz, the former VP-global health policy at Merck, is a contributing editor to The RPM Report. Ian is the founder of the Rock Creek Policy Group and a senior advisor to Mannatt Health Solutions. Interested in guest blogging for In Vivo? Drop us a line here.

The announcement that John Castellani, current head of the Business Roundtable, will succeed Billy Tauzin as the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) on September 1 ends the speculation on who will lead one of D.C.’s most influential and most talked about trade associations.

As a small gift to the new PhRMA chief, here is a modest to do list to get things started:

• Reputation:

There is absolutely no other goal as important for Castellani than addressing industry reputation. Everything flows from success in improving the industry’s low standing among policy makers and the public.

To his credit, Tauzin understood this and took some positive steps on reputation including substantially improving member companies’ joint efforts to provide free medicines to those who can’t afford them. Castellani needs to encourage his Board to consider more and do more.

• Medical and Scientific Relations:

The foundation of member company success is access to the hearts and minds of scientists and physicians.

Companies need scientists to be willing to work for them – directly and indirectly through clinical trial participation. Companies need clinicians to accept them into their offices and to respect their information.

PhRMA has lagged in attention to this area but can’t any longer. Castellani is not from this community so will need to quickly identify leadership within PhRMA and from its member companies to make this a priority.

• Congressional Relations:

It’s a dicey time in PhRMA’s relations with the Hill. Republicans are still smarting over the industry’s correct decision to do business with President Obama and Senate Finance Committee chairman Max Baucus (D-MT) on health reform.

Democrats still don’t like PhRMA and many only held off on doing a job on it because the industry was playing ball on health reform.

However, that train has left the station. Castellani brings a record of Congressional work but needs to invest the time in developing or expanding relationships with key health committee members of Congress by honestly asking for ideas and help and then listening carefully to the answers.

• Transparency:

What people can’t see, they can’t trust.

Obviously, Castellani is not going to open up PhRMA Board meetings to the public. However, he can try to invite more key stakeholders to participate in such meeting and other PhRMA forums. He can also create a PhRMA annual meeting, unlike the current one, that attracts many others from outside the industry. BIO has already pointed the way with its annual meeting that is a meeting place for public officials, the media, and the industry.

• Media Relations:

The media love PhRMA but for the wrong reason.

When they need an easy quote to make the industry look bad or convince an editor that they sought balance, they can count on PhRMA to deliver. Other than that, most reporters find PhRMA difficult to deal with and hardly forthcoming.

Castellani must, as with Congress, get out there and get to know the folks who cover the industry in the main stream media and trade press. A little time and care will go a long way to improving the coverage of the industry and its companies.

• Drug Safety:

Castellani was named on the same day that an FDA advisory committee is meeting to consider the future of Avandia, GSK’s controversial diabetes drug that faces serious safety challenges.

Drug safety is the most important policy issue facing Castellani as he enters the building. With the Prescription Drug User Fee (PDUFA) program up for renewal, Congress will have an opportunity to weigh in on FDA’s safety efforts including how it is organized to address safety issues. Castellani and PhRMA should seize the opportunity to avoid playing defense and come up with some ideas on their own that will give concerned members of Congress something to support.

• Drug Marketing and Promotion:

Under Tauzin’s leadership, PhRMA took major positive steps to improve its internal codes on drug marketing and DTC advertising. Despite these efforts, physicians and medical centers are still not happy and are designing tough new rules that are limiting access to physicians. Castellani can and should continue Tauzin’s efforts to get the industry to better police itself and support the efforts of others.

That’s just a start. My best to Mr. Castellani. The nation’s pharmaceutical companies need some extraordinary leadership right now.--Ian Spatz

Guest Post: The Next Feeding Frenzy? VCs Rush Toward Diagnostics (!?)

Steve Dickman is the CEO of CBT Advisors. He blogs about biotech, VC and personalized medicine at Boston Biotech Watch. Interested in guest blogging for In Vivo? Drop us a line here.

There was a time not long ago when no amount of persuasion could have made most venture capitalists do a diagnostics deal. The reasons abounded: markets were too limited; margins were too low; and the number of potential acquirers too small. So imagine our surprise when the most upbeat session of this year’s c21 investor conference in late May was a panel discussion focused on – you guessed it – molecular diagnostics.

If this is not a feeding frenzy, then at least it seems to be a period of high marketability for private diagnostics companies seeking acquisition exits. Session chair Bill Kreidel of Ferghana Partners described four sell side diagnostics assignments his firm is working on for which multiple bidders had appeared.

What sells? Proprietary content, improvements in speed or sensitivity/specificity, robust datasets, and large markets. Who are the buyers? Clinical labs like Labcorp, naturally, but also instrumentation companies in the imaging business like General Electric that “see diagnostics cannibalizing some of their revenue” and are trying to capture it back, said panelist Dion Madsen of Physic Ventures.

The advent of acquirers such as GE has caused venture firms to change their tune. The three venture capitalists on the panel certainly weren’t diagnostic neophytes. Madsen, Dr. Rowan Chapman of Mohr Davidow Ventures, and Dr. William Gerber of Bay City Capital have all made numerous investments in diagnostics and personalized medicine including Tethys Bioscience and CardioDX, clinical lab companies that recently reached commercial status.

And there have been some impressive diagnostic exits driving venture interest. Switzerland-based HBM Partners, for instance, announced last September that it had earned a 21.6x multiple on its investment in Brahms, a Berlin-based diagnostics company acquired by Thermo Fisher.

But the information asymmetry that led to that deal has begun to recede now that investors have woken up to the opportunity. Still, in today’s market, where the environment is driven by cost constraints rather than spending, the locus of value is shifting earlier, toward diagnosis and away from treatment. In other words, knowing in which patients a therapy will work is as important as knowing whether it will work at all.

One common approach is for a company to walk into a VC firm and say “We are the next Genomic Health”, a Nasdaq-listed company (ticker GHDX) with OncotypeDX, a commercial breast cancer test, as if that were an appropriate role model. But Genomic Health, its stock down 25% in the last quarter, is not only not a role model, it’s a bad example, Madsen said.

“We still get companies saying they will be the next Genomic Health and we say, we don’t WANT you to be that!” emphasized Madsen. Gerber, whose fund did not invest in that biotech, added “Their first study was published in ’04 and it’s six years later and they are just about to break even!”

Circumstances have drastically changed both for IPO exits and for reimbursement in the interim. At the moment, an IPO is an unlikely dream for companies that do not have tens of millions of dollars in revenue. And reimbursement is complicated by both the murky regulatory situation and the unlikely circumstances that allowed the company to get reimbursed at unprecedented levels. “Breakeven [for Genomic Health] is predicated on a $3,000 price point,” Kreidel observed, “not something most diagnostics companies can aspire to”--except, we would argue, in oncology.

Adding to the complexity is a lack of clarity on the regulatory front. At the rate the Food and Drug Administration is moving it will be 2011 before companies offering algorithm-based tests like OncotypeDX have a clear path forward. (When will the regulations arrive? “There are as many answers to that question as there are consultants in Washington,” quipped the fourth panelist, Bruce Cohen, CEO of VitaPath Genetics.)

So VC-backed companies are working on building proprietary content strong enough to stand up to any level of regulatory scrutiny. What does content mean? (See here for a blog post explaining Madsen’s views on the subject and his criteria for what makes a “doable deal” in diagnostics.) Put simply, “content” is the unique ability to make a diagnosis or link a drug to efficacy in a particular patient in a reproducible way.

Three quick examples of the content-driven, data-intensive approach:

• VitaPath Genetics, a Mohr Davidow portfolio company developing a cheek-swab test for spina bifida risk early in prior to pregnancy. It ran a 2,100-subject study to validate its test and hopes to go commercial by 2011 on a modest $15 million.


• On-Q-Ity, a Boston-area company invested in by both Physic and Mohr Davidow is another example. To develop a commercial test to inform physicians when to treat cancer aggressively or even which chemotherapeutic agents to deploy, On-Q-Ity will require an “intensive analysis of tumor samples” and a “huge bioinformatics exercise,” he said.
  


• A third company, mentioned but left unnamed by Kreidel, has apparently achieved a remarkable level of sensitivity and specificity in predicting ovarian cancer, an area of huge unmet need where a better test would help thousands of women avoid surgery – and help insurers avoid paying for it.

So the new VC recipe goes like this: Find a potential market for which reimbursement is uncertain. Define a plan based on capturing reliable data from the vagaries of human biology. Invest VC dollars to collect the data. Crunch the numbers. Then see what you’ve got.

Hmmm. The risk profile sounds almost like …drum roll, please… therapeutics investing.

But it’s actually better – fewer dollars in, earlier clinical signals. And now, more likely exits with no need for an IPO. No wonder there are more investors than ever in this space. Some of them are likely to go home winners.– Steve Dickman

image from flickr user chamer80 used under a creative commons license

When Innovation Isn't Enough

There is always a self-congratulatory flavor to BIO’s annual meeting. Which is as it should be: it’s the lobbying group’s best venue for justifying its membership dues.

And I think they have – with exhibit 1 being their clever R&D tax credit, a $1 billion piece of reform money to provide a few hundred biotechs with non-dilutive cash most can’t get anywhere else.

And yet I still can’t shake the feeling that, by and large, BIO’s leaders – or maybe BIO’s members – are fighting the last war, over innovation, when the new fight is all about value.

Even a political idiot like me can get why Jim Greenwood reads gushing letters from patients about drugs that have saved their lives. And given just how few important biotech medicines have gotten approved lately, I understand why Dendreon’s Provenge gets a prominent mention. And I also get why Greenwood didn’t mention its cost ($93K for a full course of therapy). He would then have had to explain just how Dendreon calculated that Provenge will be cheaper than Taxotere per-month-of-life-saved (on theoretical average, Provenge gives you an extra three). Which would have been kind of boring.

But why wasn’t the Provenge price front and center in the more purely business speeches about cancer products (or frankly any biological therapy)? Given just how often people gave passing nods to the needs of payers (e.g., in Steve Burrill’s theories-of-everything talk), you’d figure that the Provenge price might be a relevant topic. Pricing is at least passingly important to a product’s commercial prospects and so apparently exceptional pricing might indeed be worth a chat, whether you think that price bodes well or ill for the industry (e.g., the Provenge price will be a) the straw that breaks the camel’s back or b) another gold nugget that shows just how strong the camel’s back still is or c) a meaningless topic because Dendreon, supply constrained, is only going to sell a few thousand therapies so total costs for any one payer won’t rise to a meaningful level). But I heard nothing about it.

Or let me put this another way. Greenwood said that "the recent recession and policy hurdles” hadn’t “diminished our passion to innovate.” First, I don’t think most investors or, frankly, executives would agree. For most VCs I know, passion for pharmaceutical innovation has turned into a massive case of indigestion (to continue the gastro-intestinal metaphor: VC portfolios are clotted with innovative companies).

But more importantly have Greenwood’s “recession and policy hurdles” increased our willingness to prove value – which isn’t the same thing as novelty and which Greewood’s r&ph will certainly require?

I don’t get the sense that drug companies have done much to show that they see the difference. (Full disclosure here: I’m now so interested in this subject that I’m part of a group exploring a new company focused on it.)

Innovation, by and large, can be judged pretty objectively. A new mechanism is innovative. A new compound too. But value is subjective – what’s valuable to you may be burdensome to me. Yet the industry’s main arbiter of value, clinical trials, too often proves value to only one audience: regulators.

That audience is certainly crucial. But everything we’ve learned over the last year says that a regulatory audience is hardly predictive of what other equally crucial audiences want: Lilly’s Effient, Bristol/AZ’s Onglyza and J&J’s Simponi and Ultram ER all provide customers with – well, given their commercial performance, very little they’re willing to pay the price for.

This isn’t to say that these drugs’ suppliers couldn’t create the necessary value. It’s to say that they haven’t, at least in part because they’re focused on just one audience.

Instead of simply proving that a pain drug reduces pain without causing other big problems, maybe the trial should prove that the pain drug does something the payer wants from it – maybe a reduction in follow-up visits to the doctor to get another pain drug. Or delays the prescription of an opioid. Or allows a generic to be used in most cases. Or shows that a GP, after a relatively low-cost visit, can prescribe the product without sending the patient along for specialist follow-up. Or can avoid an expensive diagnostic procedure. A me-too cancer drug (and there are plenty of them in development) could justify premium pricing by measuring, along with whatever purely clinical data it needs for approval, reductions in hospital-acquired infections, or length-of-stay.

I spoke with one CEO who told us that the nurses in hospitals testing his oncology drug loved it because they spent less time cleaning up after patients nauseated by the standard of care. I asked: Are you measuring how much less time they’re spending? No, he said.

Biotech wants to be paid like it’s always been paid: for promises of novelty. I’d be curious to hear a biotech claim that it should be paid, as the UK’s NICE pays for Millennium/J&J’s Velcade, when the drug delivers the value the payer and patients want. That value could be a particular medical outcome, or better quality of life, or lower medical costs. Or something that makes the payer’s services more attractive to the employers its competing with other payers to win as clients. But it isn’t necessarily whether it’s clinically better than placebo. Or even standard of care. Effient’s head-to-head trial against Plavix proved – in crude summary – that it’s clinically better. But payers clearly don’t see enough value to justify switching away from a drug soon to be generic.

So my suggestion: if BIO really wants to promote the long-term health of the biotech industry (and the broader pharma business as well), maybe the theme for the next convention should focus on customers.

How about “What’s In It for Me?”

image from flickr user zizzy used under a creative commons license

Guest Post: At ATS, a Storm of Questions for IPF Drug Developers

Michael Gilman is the CEO of Stromedix, a Cambridge, MA biotech developing novel drugs to treat fibrotic organ failure. You can follow him on Twitter @Michael_Gilman. Interested in guest blogging for In Vivo? Drop us a line here.

At around eight on Sunday morning, just as the first sessions of the American Thoracic Society meeting got underway at the labyrinthine convention center in New Orleans, the skies opened up and unleashed ropes of rain. Thunder rumbled through the lecture halls, strobes of lightning lit the corridors. Power was lost, briefly snuffing out lights and laptops and stranding attendees on towering escalators. And it went on like that for two full hours — man, this place has some serious weather.

It was hard to miss the metaphor.

This year’s ATS was to be the moment in the sun for clinicians, scientists and drug developers working on idiopathic pulmonary fibrosis, a staggering, deadly disease for which there is no approved therapy outside of Japan. Perched prominently on the calendar just two weeks prior to opening day was the PDUFA date for InterMune’s experimental IPF drug, pirfenidone.

The relatively tiny IPF crowd is usually swamped at ATS by the hordes of folks working on asthma and COPD, but this year several significant IPF sessions were on the program. A pirfenidone approval, the first for the condition in the US, would have been a jolt of electricity to the IPF community gathered in New Orleans.

Alas, it was not to be. The FDA did not approve the drug and IPF investigators reeled. I don’t have an especially informed opinion on pirfenidone. Above all, I’m disappointed for patients, who are desperate for treatment options. But, given the bafflingly inconsistent clinical data and confused deliberations of the FDA advisory panel, approval was by no means a slam dunk.

The FDA’s action left meeting participants with a long and rather painful list of questions. What targets do we go after next? What are the right endpoints? What patients do we enroll? Do we even understand the real natural history of the disease? What does the FDA want? Will anything ever work? It also sparked remarkably strong emotions among pulmonologists, many of whom are absolutely convinced the drug will help their patients and others equally persuaded it doesn’t work.

But Monday morning in New Orleans dawned bright and sunny. And the first major IPF session of the conference packed the vast auditorium to fire-code-violation levels. The centerpiece of the session was a couple of densely-packed reports from an expert panel that had deliberated for three years on formal guidelines for diagnosing the disease and treating it.

Conclusion on the latter point: No currently available treatments were recommended, including pirfenidone. Clearly, however, the troops were undaunted. You could sense people picking themselves up, dusting themselves off and getting psyched to wade back into battle. They want to beat this disease.

Which leads me to ask the following question.

Why do we do this? We are, generally speaking, intelligent folk. We’re rational and data-driven. Yet, inexplicably, we continue to pile into an enterprise in which the odds are ridiculously stacked against us. Are we nuts? Masochistic? In denial? Or just relentlessly optimistic? Convinced that our next idea is going to be better than our last? What is it that fuels our passion to develop new medicines for patients when it so often feels like a fool’s errand?

I don’t have an answer, but whatever it is, it was on display in New Orleans this week. And it’s inspiring. --Michael Gilman

image from flickr user ray devlin used under a creative commons license

Big Pharma, Polar Bears, and the Need to Specialize

For at least a decade, biotechs have been perceived by many observers as the likely evolutionary winners in the race for survival and prosperity in the drug industry. The credit crunch has drastically altered the environment in which companies operate and the biotech business model now looks much less likely to supply the fat returns on capital, and the price/earnings ratios, that have historically been associated with companies supplying novel medicines.

So, who will the new winners be, and what strategies must they employ to thrive in these challenging times? Scisive Consulting chairman Robert Easton, partner Catharine Staughton and consultant Matt Young weigh in with a naturalist analogy.

Granted historically lousy P/Es, growth, R&D productivity – pick your measure -- Big Pharma has one thing going for it. The current financial crisis has, at least in the short term, reversed the fortunes for still cash-rich pharmaceutical companies and the biotech upstarts that have been—for oh, about 25 years—inexorably learning to beat pharma at its own game.

The financial collapse seems itself to have been a sort of bailout for Big Pharma. Now they are able to buy novel compounds cheaply from smaller companies who are dying to sell them.

The 20 largest pharmaceutical own a combined war chest of over $100 billion. If current projections hold, their cash and cash equivalents will rise to more than $500 billion by 2014. With these funds on hand, Big Pharma could buy up not only enough candidates to replenish their pipelines, but the majority of the biotechnology industry itself.

On the other hand, according to Burrill & Co, one third of publicly traded biotechs have less than six months’ worth of operating cash.

The outcome of the financial collapse will be that Big Pharma will remain pre-eminent, at least while the capital crunch lasts, albeit with more modest P/E valuations. As a consequence, biotech companies, which had attracted investors with the long-term hope of valuations based on the high P/Es of Big Pharma, are struggling to fund their pipelines and must focus on - and perfect - their business development strategies just to stay viable.

So can Big Pharma do something to make its new lease of life more than temporary?

Superficially, the recipe for evolutionary success seems obvious: the Big Pharma companies use their enormous cash reserves to acquire cash-strapped biotechnology companies. But before launching into the fray with an open checkbook companies need to consider the attractions of the approach, in the light of their own specific situation.

Scisive Consulting has defined drug companies according to six types of animal: those that have adapted to a narrow evolutionary niche, and those that are more flexible inhabitants of their environment.

Consider the polar bear. These beasts are powerful and can move quickly – challenge them at your peril. Nevertheless they must adapt to a shrinking environment, thanks to global warming, in order to survive and flourish. Not a bad analogy, we believe, for Big Pharma.

At the other end of the spectrum, biotechs are rabbits. They eat a lot of green. And their population varies widely according to the availability of food. When rabbits are stressed by predators or lack of resources, they eat their own young. (It’s true, you can look it up!)

Like polar bears, Big Pharma are the top predators in their shrinking world. To stay relevant, however, they need to either figure out how to live in their shrinking environment – or find and adapt to new territories.

In industrial terms, such an imperative translates to the need for a wholesale change in the drug industry’s business model. When this industry began, it was built on a rather simple model. Science created a pill which was manufactured cheaply and marketed by sales forces to a large group of patients. This model led to profit margins that are almost unthinkable today.

The model also allowed all of the Big Pharmas to evolve in very similar looking creatures. For example, AstraZeneca, Novartis, and Bristol-Myers, all operate in the fields of neuroscience, oncology, and cardiovascular health. While some pharmas involve themselves in nutritionals, animal health, infectious disease, and other fields, all of these companies also engage with a mixing pot of therapeutic areas.

The relative strategic uniformity isn’t generally the case with the leading companies in other industries. In the high-tech industry, for example, there is a much higher level of specialization. Google is mainly in the advertising business; Microsoft, software; Research in Motion, in wireless solutions. You aren’t likely to see Facebook manufacturing semiconductors any time soon. (Yes we are aware of Microsoft’s Bing search engine and the new Google Chrome OS, but still.)

It is likely that health care businesses will evolve in a similar fashion. The leaders of the future will be those with unique and complex models which sub-speciate into differentiated forms. Companies will focus nearly all of their efforts on a single therapeutic area, becoming “immunology companies” or “cancer companies”. These companies will also become more integrated across sectors. A cardiology company will sell diagnostics, devices, and therapeutics pertaining to cardiovascular health.

Such a transformation will involve radical changes to their structures. Fortunately, pharmas have a great deal of cash now, which gives them the resources to undergo such a transformation. The winners, ultimately, will be those who recognize this need to adapt, specialize, and develop more complex business models, and subsequently capitalize on their first-mover advantage.

A good example of this can be seen in Astellas’ determination to acquire CV Therapeutics. Although CV’s board rejected the offer numerous times, ultimately fleeing into the arms of Gilead, the attempted acquisition has marked a watershed event in how Japanese companies operate with respect to their American counterparts. Typically Japanese companies have refrained from hostile corporate activity and this fundamental change in Astellas’ strategy shows its willingness to adapt and its understanding of the new reality in the pharmaceutical market.

Secondly, Pharma’s polar bears must acquire the best candidates from their prey, the cash-strapped biotech rabbits of the world. However, there is an issue of timing at play here. Although biotech assets are cheaper than ever before, they have probably not yet hit rock bottom. It is clear that these cash-eating biotechs will get more desperate as this crisis wears on and hence the pickings for the polar bears will get better.

The astute will watch and wait, and the true art will be in knowing when to pounce: before competitors do and the opportunity passes.

For the full article, including the likely fate of the duck-billed platypuses and other animals of the pharmaceutical world, see www.scisive.com.

Innovation Is the Pharmaceutical Industry's Only Salvation

We here at The IN VIVO Blog probably get a little bit too caught up in our own blathering. As a tonic, we'll be inviting some outsiders to contribute. As here: to get an investor's point of view on the industry, we asked T. Rowe Price biotech analyst Jay Markowitz, MD to share some of his thoughts.

If the movie Cool Hand Luke were a commentary on the pharmaceutical industry, the most memorable line would be, "what we've got here is failure to innovate." (For an IN VIVO take on Cool Hand Luke and innovation via the JP Morgan Healthcare meeting, click here)

The decline of the drug industry is all the more dramatic in the context of its past accomplishments. Many of the most important advances in health, from HIV to cancer, are attributable to new drugs. And yet in a 2008 survey by USA Today, the Kaiser Foundation, and the Harvard School of Public Health, 44% of Americans had an unfavorable view of the pharmaceutical industry. Only health insurers and oil companies did worse.

The industry's woes boil down to a single cause: inadequate innovation. It is estimated that by 2015, $200 billion worth of branded drug sales may be lost to generic competition. The 24 new drugs approved by the FDA in 2008 was the highest number since 2004; only nine came from multinational drug companies. This meager number can replenish but a fraction of pending lost sales.

The poor record of new drug approvals can’t be blamed on a lack of R&D spending. Last year the major pharmaceutical companies spent over $50 billion on drug discovery and development. If current trends are any guide, the $1 billion estimated cost per new drug now will seem like a bargain in the future.

The industry finds itself in such a predicament because it can no longer go after me-too drugs in such blockbuster categories as ulcer medicines, blood pressure pills, antidepressants, and cholesterol lowering agents. Pharmaceutical companies previously had the luxury of letting someone else take the risk of innovation; if that someone succeeded, the drug company could follow fast with a similar drug that might have some advantages. It paid more to imitate than create. With minimal clinical differentiation of their products, companies needed to spend heavily on marketing to drive sales. But it was more profitable to spend on drug promotion than drug creation.

That equation is changing. Now that cheap generics and multiple branded drugs are available in many therapeutic categories, innovation may end up being all that pays.

To reverse its current plight and not only survive but thrive in the future, industry leaders must accept the gravity of their situation and address its root cause.

First, they must recognize that innovation is more about people than process; it can neither be scaled nor industrialized. Drug companies ought to pare back internal research, foster a more entrepreneurial culture, and be more open-minded about accessing research done by others. Far more productive to divide a $1 billion research investment among ten to twenty small, scrappy, hungry companies than to concentrate in one that is big and complacent.

Second, they need to leverage their strengths in drug development and regulatory affairs. Whereas smaller companies may be more adept at discovering novel drugs, testing them in people and getting them approved put a premium on money, manpower, and experience. Because they are constrained by capital and limited know how, all too often smaller companies make mistakes by under-investing in clinical trials or pursuing needlessly risky approval strategies. Pharmaceutical companies should grasp the opportunity to partner with smaller companies in the middle phases of human testing, thereby providing the necessary money and expertise to minimize the chance that a drug fails because it was developed for the wrong indication or because of poor planning and execution. Good new drugs are too precious to delay or waste.

Third, they should embrace comparative-effectiveness testing and value-based drug pricing to support the argument for first- or best-in-class drugs. Although such a strategy would result in higher clinical attrition, clear product differentiation would reduce the need for sales and marketing. Far better for data, not advertising, to determine which drugs are prescribed.

And fourth, they should not view mega-mergers as a solution. Yes, in the short term, consolidation can increase sales and, by reducing redundant costs, profits. And it can bring new capabilities to the acquirer. But it will ultimately disappoint unless it redresses fundamental problems. For a merger between two big pharmaceutical companies to generate long term value, it must result in more novel drugs than each would have created separately.

From my point of view as an investor, the drug industry -- despite its challenges -- is ideally positioned to translate tremendous gains in chemistry, biology, and genetics into important new medicines that extend lives and reduce suffering. But it must discard its risk-averse and xenophobic culture, embrace the drug discovery work taking place in hundreds of creative, entrepreneurial companies, and recognize that constant innovation is its only hope for sustainable growth. The good news is that there are ample opportunities to succeed. Several pharmaceutical companies are already taking appropriate steps to revive their businesses. But these steps must be bigger and faster.

Jay's views do not necessarily reflect those of his employer, T. Rowe Price, Inc., an investment management company.

And Now, A Word from the DOTY Winners

"You really like who?"

We promise this is the last DOTY post for at least eleven months but no awards ceremony would be complete without a word from the winners. We now turn the mic over to Jason Rhodes, vice president of business development at Alnylam.

Well, we barely know where to begin, but before the music starts and the hook appears from the edge of the stage…

There are many daunting steps along the path of building a successful innovation-based biopharmaceutical company – harnessing revolutionary science, hiring great people, accessing needed IP, raising capital, filing INDs, achieving human PoC in clinical trials and then successful Phase III results, filing NDAs and obtaining FDA approval, achieving successful product launches, growing earnings, and… you guessed it, winning the DOTY award!

We are truly grateful to have received it (actually amazed given the outstanding competition!) and for the recognition (cough, cough) it represents for Alnylam’s partnering strategy. Our business development team would like to take all (repeat, all!) the credit, but we must admit that the real credit goes to our scientists’ efforts, the strength of our IP, and the broad potential of our technology. Of course, we’d also like to thank small molecules and antibodies for giving us undruggable targets and the FDA and payors for making drug incrementalism a thing of the past. So, as you can see, our BD team played the key role.

Of course, none of this would have been possible without Takeda and their commitment to innovation, their deep understanding of RNAi technology and IP, and the confidence that they have in Alnylam. We are at the beginning of a long and fruitful partnership with them and look forward to our continued mutual success. We’ve already enjoyed many visits with our colleagues and friends in Japan and have become big fans of Asahi Super Dry.

We’d also like to non-exclusively thank our parents, spouses, the local Boston internet cafes and Apple stores for access to their computers, the entire 8th grade class at Brown middle school, the local citizens from the Ibaraki Prefecture, the many others who voted for Alnylam among many strong candidates, and the good readership and sage editorial board of the In Vivo blog for their unwavering support.

We have big plans for 2009 (just like Philly these days, we’re insatiable and aiming for a “two-fer” with “DOTY-2009”) and wish everyone a very very successful year!