Leptin Fails Again: The Thin Line Between Hope and Hype

Sanofi Aventis CEO Chris Viehbacher is upset that Wall Street places no value on drug industry pipelines. As he put it during a recent media briefing sponsored by the brand name trade association PhRMA, “If you made chocolates and soda, you are going to be a better investment than in R&D today.”

Viehbacher clearly has a point (though we can’t resist pointing out that Viehbacher’s own questions about the value of Genzyme’s pipeline held up the consummation of that deal).

And it is an exaggeration to say there is no value in R&D. When Merck’s vorapaxar stumbled, for instance, it was clear that there was a great deal of value in that particular asset. Of course, when Pfizer announced R&D cuts, the stock went up—suggesting, if anything, a negative value for those assets.

Still, Big Pharma doesn’t really have to care that much about how investors value R&D. Deliver steady earnings growth and life will be fine. (Easier said than done with the looming patent cliff, but still.)

Not so for biotech companies. There, the pipeline is (generally) the only asset. And if investors place no value on R&D, well, no more biotech.

Things aren’t quite at that point yet: A company like Vertex can post annual losses of three quarters of a billion dollars and still command a $9 billion market capitalization, thanks to enthusiasm for the company’s hepatitis C pipeline (and a soupcon of excitement about a cystic fibrosis opportunity as well).

But it’s not like there are a whole lot of billion dollar market caps out there based on nothing but the promise of an early stage pipeline.

We’ve written before about the “original sin” of biotechnology: the seeming necessity of hype—incredibly unrealistic expectations for early stage ideas—to attract capital for the hard (and invariably disappointing) work of converting those ideas into real products.

We’re writing about it again because of yesterday’s news from Amylin, announcing the suspension of Phase II clinical studies of a leptin-based obesity compound. The announcement was terse, but suggested a pretty significant problem with the compound (metreleptin): some kind of neutralizing antibody to leptin.

The announcement caused a stir and a quick drop in Amylin’s share price, but the stock rebounded and actually closed the day up a smidge, once investors remembered that the only thing they really care about is whether Amylin’s once-weekly line extension for the Byetta diabetes line ever makes it to market. This is clearly a case of a pipeline asset with something close to zero value.

Compare that to the value of leptin when the hormone itself was first described. The publication of a paper describing the genetic basis of a role for leptin in regulating weight in 1995 prompted a one day jump in the market cap of Amgen of nearly $600 million, since Amgen held a license to the “ob” gene described in the paper.

At the time, Amgen wasn’t quite the giant that it is today, but it did have two fast-growing blockbuster franchises (Epogen and Neupogen). But that was an era of excitement and, yes, hype—and at least for one day leptin was an incredibly valuable asset. And it wasn’t even in clinical studies!

Leptin died a quiet death at Amgen, also in Phase II, when the company dropped the hormone itself in favor of some “back up compounds” that were never heard from again.

So maybe this is a case where putting no value on an asset makes a lot of sense. After all, Amgen gave up on leptin more than a decade ago.

But for the future of biotech, it would be nice if people got excited by something like leptin again.

image via wikimedia commons

The JPMorgan Healthcare Conference: Where Optimism Is Its Own Catalyst

The annual January health care confab in San Francisco is ostensibly run by JPMorgan but long ago took on a life of its own and spread well beyond the hallways of the Westin St. Francis. (Yes, they are crowded; we think we can all get over it.) One tweeter dubbed it "spring break for old white dudes in suits" but (thankfully) we think it has moved beyond that in so many ways too.

However, what the broader JPMorgan conference ecosystem can't escape is the sureness with which it knows its importance. It's not necessarily unearned or mistaken, this sense of self-worth. As a barometer for sentiment in the health care world, and biopharma in particular, the meeting and its attendant parties, satellite conferences, and offsite deal-building are impossible to beat. It doesn't really matter whether that's by design or by accident of geography and calendar.

Every year at JPMorgan, the mood's the thing. And this year, the mood was unmistakably optimistic. Perhaps the best part of that mood, that vibe, that intuition, is that nobody we talked to could really put their finger on Why. There were no concrete reasons offered for the buoyancy carrying people from meeting to meeting and from reception to reception. It just was.

And so, this was the year biotech CEOs talked with straight faces about their potential 2011 IPOs. This was the year a tiny biotech boasted about its technology from the sides of Powell-Mason cable cars (yes, Adimab bought every available ad for the week). This was the year one of the industry's oldest precommercial biotechs talked about launching not one but two drugs in the next 12 months (Vertex's straws did the trick). And this was the year that Big Pharma shifted from talking about dealing with patent expiries to talking about bulging pipelines (and of course returning cash to shareholders).

Like last year's meeting (also tinged, if not quite as much, with a sense of optimism) there is of course a reality that doesn't quite live up to the good mood. In 2010 fewer biotechs received Series A cash than in any recent year, and the average haul in those rounds was also lower than any year in recent memory, as we'll report in the next issue of START-UP. Hours after talking about its industry leading pipeline, Merck got a $7 billion wake-up call, losing that much market cap in response to some fuzzy bad news coming out of its voraxapar Phase III program. Industry's experiments with R&D models have yet to prove themselves -- or excite investors -- and it will be a long time before the results of that restructuring can demonstrate any success. Regulators remain safety-focused, payers remain in the drivers' seat.

We left San Francisco with the sense there are of a lot of deals in the industry pipeline. Hey, even those crazy kids Sanofi-Aventis and Genzyme may make a go of it (you might have heard about that one). Pharma is still in its first steps of a long march toward externalization of R&D, so we don't doubt the deals will come.

But unlike the majority of those future deals, we suspect 2011's optimism is front-end loaded. A mood is just a mood, after all.

Turn Out the Lights and Go Home, the Cleveland Clinic Has Cured Cancer, Convinced LeBron to Stay

ASCO approaches, and the season of cancer vaccine hype is upon us.

Exhibit A: Cleveland Clinic Researchers Develop Prototype Vaccine To Prevent Breast Cancer. That's the headline for this press release from the Cleveland Clinic's Lerner Research Institute, announcing a Nature Medicine letter, and featuring the quote below.

"We believe that this vaccine will someday be used to prevent breast cancer in adult women in the same way that vaccines prevent polio and measles in children," said Vincent Tuohy, Ph.D., the study's principal investigator and an immunologist in Cleveland Clinic's Lerner Research Institute Department of Immunology. "If it works in humans the way it works in mice, this will be monumental. We could eliminate breast cancer."

PR folks: you know you're hypey when even the Daily Mail takes a more measured tone in its headline. As blogger/consultant/sane person Sally Church points out, the drug development road and the odds are very long indeed. "Please, show us some solid DATA first before hyping a theory all over the internets, however well intentioned," she concludes.

Of course we wish Tuohy and company well and hope the optimism is well-founded. We hope we're not being too cynical. And for Cleveland's sake, we do hope LeBron stays put.

image from flickr user mrinray used under a creative commons license

Sangamo Surprise: Tail Wags Dog

When we checked news on health care stocks and saw that Sangamo Biosciences was up following a press release announcement of a paper pointing to the potential use of its zinc finger nuclease technology to modify human stem cells, we did a double take. It took us a little while to settle back into work mode after the long Labor Day weekend. But we could have sworn we had discussed this paper with colleagues already, several weeks ago.

Indeed, the paper's official release date was August 13, when Nature Biotechnology announced the study's advance online publication (AOP). And the study was accompanied by a press release from the Whitehead Institute at MIT, where the work was done by Rudy Jaenisch’s group. So why did Wall Street only react to it yesterday?

Because Sangamo only put out its PR on the “news” Tuesday morning, when the print edition of NBT came out. According to Sangamo, whose scientists were among the paper's coauthors (but not correspondents with the actual journal editors), the company was first alerted to the AOP the day before it went live. The company was also caught off guard because the paper had only been accepted two days before that, on August 10 – a remarkable and unexpected turnaround time.

With such short notice and summer schedules – and maybe doldrums too – they saw no reason to scramble. (And frankly, it was our view at the time that the paper, although good science and relevant to Sangamo’s platform partner Sigma-Aldrich, was not of any immediate import to drug developers.) That said, the AOP was picked up in a timely fashion by various blogs and press release cut-and-paste services.

Apparently, however, the publication escaped the attention of movers and shakers on the Street until today. There was no blip in price or volume in Sangamo’s stock in mid-August. But on Tuesday, shares rose on the opening and closed up almost 8% on 3x the average volume.

Given the timing of the original AOP, we're not accusing Sangamo of manufacturing or manipulating news. Nor was this a huge movement for a small-cap stock. Surely some trader types would make sophisticated arguments about the need to understand how momentum impels the movement of stocks more than the strength of the underlying news itself. Maybe it was just a handful of traders moving in and out.

But why did it take a company PR to trigger the attention? Aren’t analysts supposed to work hard and dig deep, and that’s why they are paid the big bucks? Or is it that common for the tail to wag the dog? We’re just sayin’.