Deals of the Week: GSK's Stealth Move To The Coasts

GlaxoSmithKline is following some of its big pharma peers to key innovation hubs in the U.S. by opening satellite R&D centers in San Diego and Cambridge, MA.

When Johnson & Johnson opened its innovation center in Boston earlier this year, the company made a big to-do about the move and announced plans to fund two startups there. Pfizer, meanwhile, announced a significant $100 million investment through a collaboration with local hospitals and academic institutions when it anointed the Boston area the headquarters for its academic deal engine, the Centers for Therapeutic Innovation.

GSK, on the other hand, went in a different direction with its announcement, unveiling the move … via blog post. We couldn’t help but notice the difference in tactics and wonder if GSK’s decision to downplay the announcement reflects its ambitions for the satellite offices.  Whatever the reason, GSK clearly views the expansion as an evolution of its business development strategy, not a seismic shift in the way it approaches R&D.

GSK’s Damien McDevitt, VP Business Development, R&D Therapy Areas, will run the California center. He confirmed details in an interview Dec. 10. "These are both small virtual offices,” he said. “They are not large R&D centers by any stretch of the imagination.” The San Diego office will host about five to 10 scientists and the Boston office will have about 10 to 12, with a heavy emphasis on business development, he said.

"We have always had collaboration activities in these two locations, but what we haven’t had, at least on the West Coast, is a satellite office to be able to work more closely with all the groups we work with, including academia, venture and biotech,” he said. The company’s main U.S. R&D offices are located in Research Triangle Park, NC, and Philadelphia. GSK’s venture group, SR One, has offices in San Francisco and Boston. And its most recent venture effort, Action Potential Venture Capital, is headed by Imran Eba, who recently relocated to Cambridge to open up that shop.

GSK views its California and Boston R&D outposts as bridges to strengthen its existing relationships and forge new ones. A big focus, at least for the West Coast, will be on its partnership with VC firm Avalon Ventures. Earlier this year, the partners announced plans to fund 10 new single-molecule drug companies. Their first biotech, celiac disease drug developer Sitari Pharmaceuticals, was hatched with a $10 million Series A in November.

McDevitt said GSK and Avalon are aiming to establish at least three or four new companies by the end of 2014. But the new R&D centers won’t be solely focused on venture funding opportunities. They will be scouting new partnerships with academia and biotech, while also strengthening ties to existing partners. GSK has collaborations with some 22 West Coast partners, McDevitt pointed out.

GSK will be agnostic about therapy areas when it comes to new projects, and will consider both platform technologies and new products, with an emphasis on preclinical programs. Mostly, he said, the point is “keeping an open mind” and looking for breakthrough science. - Jessica Merrill

Our minds are always open, but we’re here to tell you when the deals are closed. With that in mind, here’s this week’s edition of...

Roche/Prothena: Prothena's new deal with Roche, worth $45 million in upfront payments and near-term clinical milestones and potentially up to $600 million to the biotech in the long run, gives it a major pharma partner that recently cited central nervous system diseases as a core R&D priority. In turn, Roche gets access to a synuclein antibody program that is ready for the clinic and has been guided by scientists who are world-class drug developers. The Dec. 10 deal revolves around PRX002, a Phase I-ready antibody that targets alpha-synuclein, believed to play a role in Parkinson’s and other neurodegenerative diseases. But it also gives the partners opportunities to collaborate on related conditions. Prothena is receiving most of the first tranche of $45 million from Roche up front, but a small portion of that amount will be a milestone payment when Prothena moves the drug into Phase I, an event that it expects will happen in the first half of 2014, said CEO Dale Schenk.  Prothena also has a no-cost option, which it can exercise prior to approval, to co-promote PRX002 in the U.S. Costs, revenues and profits will be divided 70-30 between the partners, with Roche assuming the larger burden and reaping the larger bounty. Prothena has been looking to out-license PRX002 in order to concentrate on some of the compounds it is targeting for diseases in smaller populations. Roche traditionally has been strong in central nervous system diseases, but, as with other parts of its business, it has moved away from large-population conditions treated largely by primary care doctors, such as depression, to more complex CNS disorders, treated by specialists.- Wendy Diller

Biogen Idec/Proteostasis: Already no stranger to Alzheimer’s disease treatments, Biogen Idec has licensed another program showing promise in neurodegenerative diseases including Alzheimer’s and Parkinson’s. In a Dec. 9 deal, the biopharma disclosed a new partnership with Proteostasis Therapeutics to study and develop therapeutics inhibiting the enzyme ubiquitin specific peptidase 14, or Usp14. It’s believed that blocking Usp14 modulates proteasome activity and thereby speeds up degradation of toxic proteins such as alpha-synuclein in Parkinson’s and tau in Alzheimer’s, potentially spelling a disease-modifying approach. The deal includes research funding and potential development and commercial milestones totaling $200 million, as well as tiered royalties. The partners will jointly pay for and conduct preclinical research to identify lead compounds for clinical development. At undisclosed, pre-specified development points, Proteostasis will have the option to receive milestones or exercise an option for global co-development and co-commercialization rights. In addition, Biogen Idec is making an equity investment in Protestasis of undisclosed size. Biogen Idec already has Phase Ib anti-beta amyloid antibody candidate BIIB037, which could be moved directly to Phase III as soon as 2015 if trial data are strong enough, SVP of Neurology Al Sandrock said at Deutsche Bank’s BioFEST Conference in early December.  Cambridge, MA-based, privately held Proteostasis is backed by HealthCare Ventures, Fidelity Biosciences, New Enterprise Associates, Novartis Option Fund and Genzyme Ventures. - Stacy Lawrence

Retrophin/Kyalin/Novartis: Retrophin is making good on its plan to expand beyond its initial focus on ultra-rare diseases. On Dec. 12, it announced an agreement to acquire San Diego-based Kyalin Biosciences for an undisclosed sum. Kyalin’s lead asset carbetocin, a synthetic, nasally administered formulation of the hormone oxytocin, is in Phase I for symptoms of autism. On the same day, Retrophin made good on an August announcement that it would license in a drug to treat autism and schizophrenia from an unnamed major pharmaceutical company. The mystery licensor is Novartis, and the asset is Syntocinon (oxytocin), another synthetic, nasally delivered form of the same drug. Retrophin paid $5 million upfront plus undisclosed milestones and royalties for an exclusive U.S. license. Novartis had marketed the drug in the U.S. to assist with initial postpartum milk ejection, but discontinued it in 1997 for commercial reasons. The proceeds from a $25 million PIPE financing in August helped pay for the transactions. The licensing of Syntocinon also gives Retrophin a market-ready prescription treatment addressing a lactation deficiency for which there are no current therapies. Retrophin plans to re-launch it for that indication in the second quarter of 2014, providing an immediate, if likely small, revenue stream. As for the decision to double down on oxytocin, CEO Martin Shkreli said while Syntocinon is FDA approved, carbetocin is far behind in the clinic. “It might never be approved,” he said, “but it has superior qualities [to Syntocinon]. For instance, it’s longer-acting. So, there is a rationale to replace one with the other over time.” He added that there is a considerable amount of applied research and clinical experience behind the use of oxytocin in autism and schizophrenia. - Michael Goodman

GlaxoSmithKline/Inserm Transfert: Continuing a busy year of collaborations, the French National Institute for Health (INSERM) signed a worldwide licensing agreement Dec. 11 with GlaxoSmithKline to investigate the use of immune-checkpoint molecules in cancer treatment. GSK will pay Inserm Transfert, the tech-transfer subsidiary of INSERM, an undisclosed upfront fee with the possibility of development milestones and sales royalties. The pharma gets rights to develop and commercialize monoclonal antibodies that modulate the inducible T-cell costimulator (ICOS) protein, which offers the potential to enhance anti-tumor immune response. The agreement is part of a larger, long-term strategic alliance between INSERM and GSK. The collaboration “is making progress and illustrates a shared vision by GSK and Inserm Transfert that successful development of new drugs requires proactive action and alignment from both sides,” Inserm Transfert Executive VP, Head of Business Unit Open Innovation Augustin Godard said in a release. - Joseph Haas

Crealta/Savient: Start-up Crealta Pharmaceuticals will buy the gout drug Krystexxa (pegloticase) and other assets of troubled Savient Pharmaceuticals following an auction in bankruptcy court, the firms announced Dec. 11. Crealta will pay $120.4 million for the assets, marking its first significant investment toward becoming a specialty pharmaceutical company. Private-equity firm GTCR formed Crealta in August in partnership with Crealta’s CEO, Ed Fiorentino, and said it would invest up to $200 million to support the company. It’s the second company launched by Fiorentino and the PE firm. The two established Actient Holdings LLC in March 2009 and developed it into a diversified specialty pharmaceutical company through a series of five acquisitions, with GTCR providing a similar initial $200 million investment. Urology specialist Auxilium Pharmaceuticals acquired Actient earlier this year for $585 million upfront plus contingency payments. Now GTCR appears to be following a similar playbook in hopes of another successful exit, though turning around Krystexxa will take some effort. The drug was approved in 2009, but never achieved its perceived potential, challenged by Savient’s poor commercial planning and a market dominated by low-cost generic allopurinol. Savient never regained its footing after failing to sign a marketing partner for Krystexxa, and despite several leadership changes and a cost-reduction program, sales of the drug never led Savient into the black.- J.M.

Thanks to Flickr user ah zut for the lovely shot of one of our favorite coastlines, reproduced under Creative Commons license.

Deals Of The Week Looks At Pricing Conundrums

Some technologies are so unprecedented, so spanking new that they present hitherto unknown and formidable commercial hurdles.

Consider gene therapy and non-invasive vagus nerve stimulation. The pricing challenges remain significant, even as these therapies gather regulatory approvals, high-caliber partners and investors.

uniQure BV is the scrappy Dutch biotech that spun out of Amsterdam Molecular Therapeutics BV to win approval for the first gene therapy to be accepted by regulators in the major world markets. After several false starts and near-death experiences, Glybera (alipogene tiparvovec) got EU approval in November 2012 for the ultra-orphan disease lipoprotein lipase deficiency. LPD is a childhood genetic disorder in which a protein needed to metabolize fat molecules is missing, causing a large amount of fat to build up in the blood.

The company has partnered commercial rights covering Europe and selected major emerging markets for Glybera and a mid-stage hemophilia B gene therapy to Italy’s Chiesi Farmaceutici SPA. It has forged ahead with building U.S.-based manufacturing capacity, particularly in advance of an FDA filing for Glybera pending ongoing discussions with the agency. It has hired a CEO and preliminary staffing for its Boston-based U.S. operations, to build out clinical, regulatory, and commercial infrastructure. It’s busy planning launch strategy, identifying patients, and meeting with payers.

But there’s a problem. We asked uniQure’s CEO, Jörn Aldag, how he planned to price his gene therapies. Our discussion focused on the hemophilia B treatment, next in line for approval. Aldag noted that, unlike the long-acting factors being readied for market by Biogen Inc. and others, where patients may be able to infuse every other week, “we’re offering a one-shot treatment. The patient would not have to come back to the hospital for many, many years.”

Aldag said ten patients in the first hemophilia B Phase I/II trial, still ongoing at St. Jude Hospital in Memphis, TN, have been treated and required no or significantly reduced prophylactic treatment for up to three years.

This is truly wondrous news for patients with hemophilia B. The issue is that each gene therapy carries an unknown duration of effect.  Will those patients enrolled in the St. Jude trial require a booster next week? Or will they continue for another 3 years, 10 years, indefinitely?

Aldag is grappling with the same issue with Glybera, and now Chiesi is weighing in on the discussions. The options they’re considering boil down to whether to ask for a front-loaded “down payment, or do we ask for annuity payments,” says Aldag, describing a system of payments over time. He allows that the pricing paradigm will change when he moves beyond orphan monogenic diseases, for instance, into larger-population neurodegenerative disorders, such as Parkinson’s disease (uniQure has a Parkinson’s gene therapy which is currently in Phase I/II). “Those would not command as high a price.”

New-Jersey based electroCore LLC (which, like uniQure, was absent the day the teacher taught proper capitalization) is at the forefront of companies developing noninvasive vagus nerve stimulation (VNS) devices – DOTW is typically all-pharma, all-the-time, so forgive our excursion into the world of medical devices. These are small, hand-held devices that deliver a mild electrical charge to the cervical branch of the vagus nerve. VNS technology has been around for decades in implanted devices – some are even FDA approved for partial-onset epilepsy and refractory depression. But implanted VNS is expensive and carries the risk and inconvenience of surgery. And that has inhibited adoption of the technology.

But VNS has been validated as a safe and effective alternative to drug therapy in a broad range of indications, says Mir Imran, a device inventor and founder of InCube Ventures. Imran told us that, with regard to epilepsy, the efficacy of VNS is comparable to pharmacotherapy, with similar success rates of 30% to 40%.

So noninvasive VNS, electroCore CEO J.P. Errico believes, “is something that can compete [with drugs] at the front end of the continuum of care.” Merck & Co. Inc.’s Global Health Innovation Fund, which was attracted to electroCore’s technology because it can be used in the home setting, fitting in with the fund’s focus on technologies featuring flexible access to care, apparently agrees. Merck’s fund joined with two other private equity groups to fund electroCore’s $40 million series A round earlier this year.

electroCore is currently in four registration trials for indications including cluster and migraine headache. It expects to launch its first product, gammaCore, in the U.S. in the next two years. Besides headache, electroCore is developing gammaCore for anxiety, epilepsy, depression, as well as for inflammatory conditions like gastroparesis, COPD, and asthma.

But there’s a rub. Because essentially the same device would be used across all indications, patients using it for migraine who hear about a trial testing the device in, say, gastroparesis, might try to self-treat for gastroparesis. Patients using the device for one indication may also experience the unintentional resolution of symptoms in other indications. Patients could possibly even share devices. Any of these scenarios could cut into the commercial opportunity for electroCore.

Errico says electroCore might offer different products based on specific usage. “If the person’s going to use it only to treat acute headaches, there may be a cheaper entry point for them than if they’re going to need the device to last for a very long period of time and use it over a period of years,” he says. But usage could be further complicated by electroCore’s preliminary finding that the amount of required treatment is not so much dependent on the specific disease state or severity; it’s more related to individual patient response.

All of this informs how the company will model usage of its products, and therefore, how to appropriately price them.

Both uniQure and electroCore need to proceed carefully. A miscalculation could be costly. -- Mike Goodman

Here are some of the deals that caught our eye this week . . .

Celgene/OncoMed: Celgene Corp. struck again Dec. 3, inking its ninth deal this year and adding to its impressive roster of oncology partners. This time, the company will put up $155 million upfront in a six-program partnership with OncoMed Pharmaceuticals Inc. centered on a Phase Ib monoclonal antibody being tested in pancreatic and non-small cell lung cancer. Celgene will also make a $22.3 million equity investment in OncoMed. In exchange, Celgene will receive option rights on six novel anti-cancer stem-cell therapeutic candidates, including the lead asset, demcizumab (OMP-21M18), a humanized MAb inhibitor of Delta-Like Ligand 4 (DLL4) in the Notch signaling pathway.

The deal also covers five preclinical or discovery-stage large-molecule programs - Celgene gets full license to one of the preclinical programs, while OncoMed retains U.S. co-development and co-commercialization rights on the other assets. If Celgene options demcizumab, the companies will share global development costs, with Celgene covering two-thirds of the expense. If the drug is approved by FDA, they will co-commercialize it in the U.S., with 50/50 profit sharing. Outside the U.S., Celgene would develop and commercialize the antibody, with OncoMed eligible for milestones and tiered double-digit royalties.

Celgene also gets rights to OncoMed’s preclinical anti-DLL4/vascular endothelial growth factor bispecific antibody, as well as four preclinical or discovery-stage biologics programs that target other cancer stem cell pathways, including RSPO-LGR. Celgene’s exclusive license is to one of those four biologics programs. For the four programs not outright-licensed by Celgene, the Redwood City, Calif., biotech gets terms similar to those negotiated for demcizumab – two-to-one global development cost-sharing with Celgene covering the larger portion, 50/50 U.S. co-commercialization with profit-sharing, and mid-single-digit to mid-double-digit royalties on sales outside the U.S. For the licensed program, OncoMed can earn mid-single-digit to mid-double-digit royalties on worldwide sales. Total earn-outs could exceed $3 billion.-- Joe Haas

Forest/Merck: Forest Laboratories Inc. will acquire U.S. commercial rights to Merck & Co.’s antipsychotic Saphris (asenapine) for $240 million upfront and undisclosed sales milestones, marking CEO Brent Saunders first business development initiative since becoming CEO in October. The companies announced the deal Dec. 2, the same day Forest announced a $500 million cost reduction program intended to right-size the company and $1 billion in new financing to fund share repurchases and additional bolt-on acquisitions.

Saphris, which was approved by FDA in 2009, generated sales of $150 million in the 12 months ended September 2013, according to Forest. Forest expects its expertise in marketing drugs for central nervous system disorders will help to drive growth of the brand. The drug will be marketed by Forest’s existing commercial team, which already sells the antidepressant Viibryd (vilazodone) and expects to soon be selling Fetzima (levomilnacipran), a serotonin and norepinephrine reuptake inhibitor (SNRI) that was approved for depression in July.

Having the three CNS drugs together in one portfolio is a powerful proposition that creates upside without adding cost, Saunders said. It is not only more efficient, but it also improves the quality of Forest’s sales team, he added. “When our rep walks into a psych office, they are not just a one-product detail. They have a whole portfolio of products to talk about depending on what is on the physician’s mind, and it creates a much more relevant rep,” he said. That multi-product commercial strategy is one Saunders would like to carry over to areas like gastrointestinal disease and cardiovascular disease.-- Jess Merrill

The Medicines Company/Rempex: The Medicines Co. has lost no time enlarging its fledgling infectious disease franchise by acquiring Rempex Pharmaceuticals Inc. and its pipeline of assets targeting serious bacterial infections. For $140 million upfront and $434 million in development, regulatory, and commercial milestones, MDCO acquires several anti-infective assets in varying stages.  Chief among them is Carbavance, a Phase II-ready drug for IV treatment of hospitalized patients with multi-drug resistant gram negative infections. It will enter registration studies in 2014. MDCO will market Minocin IV (minocycline for injection) for resistant infections due to Acinetobacter, a pathogen that is especially prevalent in intensive care units. MDCO plans to submit for U.S. approval an improved formulation of Minocin IV in 2014. Finally, MDCO will continue Rempex’s discovery programs focused on beta-lactamase inhibitor-based combination products designed to overcome resistance mechanisms in gram-negative organisms. The Rempex assets complement MDCO’s oritavancin, which targets gram positive complex skin infections and which is slated to file for a late 2013 NDA and a first quarter 2014 MAA in Europe.

The acquisition gives MDCO high-caliber antibiotic discovery and development capabilities to supplement its own development and commercialization strengths. It also gives MDCO a marketed product to better leverage its infectious diseases salesforce, which is typical of the hospital specialist’s deal style, while continuing its interest in early-stage assets that first came to notice with its licensing last February of Alnylam Pharmaceuticals Inc.’s ALN-PCS, a PCSK9-targeting RNAi agent for dyslipidemias. -- Mike Goodman

Roche/Molecular Partners: Roche and the Swiss biotech Molecular Partners AG have signed a research collaboration and licensing pact to discover, develop and commercialize therapeutics using the privately-held biotech’s DARPin platform. DARPins are non-antibody-based small proteins engineered for target binding to hone in on and penetrate deep into solid tumors, making them ideal targeting vehicles to deliver toxic agents to tumors to kill cancer cells. Under the deal, Roche has rights to develop and commercialize several DARPin-based products. Molecular Partners will get a starting payment of $60 million, research funding to support the partnership, and potentially more than a billion dollars in milestone payments, as well as tiered royalties on any successes.

The alliance signals growing interest in the DARPins which, due to their ability to bind to different epitopes than antibodies do – and to bind to multiple epitopes or targets in parallel at the same time – might offer a higher selectivity for tumor cells compared to other biologics, including antibody-drug conjugates.  DARPins are based on a class of proteins found in the body called ankyrin repeat proteins, which contain specific amino acid sequences, including a repeated sequence, which bind to proteins. They are easy to manufacture in E. coli, and are highly soluble and stable, according to Molecular Partners. The strategy is similar to that of using armed antibodies to fight cancer, like Roche's antibody-drug conjugate Kadcyla (ado-trastuzumab emtansine). Molecular Partners has already established alliances with Allergan Inc. and Janssen Biotech Inc., among others. -- Sten Stovall

Theraclone / PharmAthene: Theraclone Sciences Inc. and PharmAthene Inc. have called off a merger, announced in August. Under the plan, privately-held Theraclone would have absorbed publically held PharmAthene in an all-stock, merger of equals. The surviving company, which would have retained the PharmAthene name, would have had a clinical-stage pipeline of four assets and several pre-clinical compounds, centered around infectious diseases. According to news accounts, PharmAthene opted out of the deal. Neither party disclosed reasons, but the decision came a week after the federal government’s Biomedical Advanced Research and Development Authority (BARDA) rejected TheraClone’s application for a grant for its pandemic flu program, TCN-032, which has completed a Phase IIa trial. TheraClone will pay PharmAthene a $1 million termination fee. [CORRECTION: PharmAthene will pay TheraClone the $1 million termination fee. Thanks to IVB reader David for pointing out the mistake.]

Theraclone’s pipeline is built from its antibody platform I-STAR (in-situ Therapeutic Antibody Rescue), which rapidly screens memory B cells for rare human antibodies that may be developed into next-generation antibody-based drugs. TCN-032, a recombinant, fully human monoclonal antibody, is also in development for patients severely ill with seasonal influenza. TCN-032 is partnered in Japan with Zenyaku Kogyo Co. Ltd., and the company is evaluating “opportunities to advance TCN-32 with other potential strategic partners for commercial markets,” CEO Clifford Stocks said in a press release disclosing the bad news about BARDA. In addition, the company has asked to meet with BARDA to gain further insight into the reasons for the decision. Theraclone also has an ongoing partnership with Pfizer Inc.  to identify three targets in infectious disease and / or cancer. 

Theraclone also has a recombinant fully human MAB for treatment and prevention of cytomegalovirus (CMV) infections.    PharmAthene, a biodefense company, is developing a recombinant protective anthrax vaccine, SparVax, which is set to enter Phase II trials, and a medical countermeasure for nerve agent poisoning.  It is also developing Valortim, a fully human monoclonal antibody for prevention of anthrax infection.  CEO Eric Richman said the company will continue to “seek to identify opportunities to maximize value for shareholders.” -- Wendy Diller

Financings of the Fortnight Wonders About The Wolf

Huffing and puffing and blowing the NIH down?

The biggest financial news of the fortnight had to be the U.S. government’s failure to avoid the sequester budget cuts, and the odd collective yawn it produced. Even with the sword of Damocles poised above various agencies, markets kept climbing – including the Nasdaq and AMEX biotech indices (respectively up 3% and 2.5% this week, as of this writing). The stock shrug led some to accuse President Obama and his supporters of crying wolf.

Pre-sequester, one of the federal agency heads making dire predictions was NIH director Francis Collins, who said on a February 25 conference call that “somewhere in the neighborhood of 20,000 jobs will be lost.” Collins also pointed out the sequester will lead to delays and lost time in important drug development projects focused on cancer treatment, a universal influenza vaccine and Alzheimer’s disease.

(For "The Pink Sheet" DAILY's full sequester coverage, click here.) 

Now that the cuts are coming, we asked around to see if, in our little corner of the world, the wolf was still howling. In other words, how might the cuts trickle up into the biotech startup realm, with potentially fewer innovations to hone into new companies? Part of that trickle flows through the technology transfer offices of major non-profit research centers, so we started there. What do they think?

Scott Forrest, the tech transfer chief at the prolific Scripps Research Institute  of Technology in La Jolla, Calif. – which has helped spawn biotechs such as FoldRx Pharmaceuticals, now part of Pfizer, aTyr Pharma, CovX Research (also bought by Pfizer), Receptos and Ambrx -- told The In Vivo Blog he didn’t expect any near-term pain in the next, say, six months. "Beyond that, we’re practicing watchful waiting," said Forrest. "We just don’t know what to expect."

We wondered if there's a correlation between NIH budgets and biotech company formation. Bob Coughlin, the head of the biotech trade group in Massachusetts, the state that receives the most NIH funding, told us "the long-term effect will be seen four, five, ten years from now when we don’t have new therapies and ideas in our pipeline of future companies." 

But the National Venture Capital Association has never done a study on such correlation -- and its life science policy VP Kelly Slone told FOTF she isn't aware of one. So until we crunch those numbers ourselves, there’s no precedent to gauge potential fallout by that measure.

Todd Sherer, the president of the Association of University Technology Managers wouldn’t go as far as to predict the impact on company formation. But Sherer, who also runs tech transfer at Emory University in Atlanta, said funding does correlate to invention disclosures: "So if funding dollars go down, there will be some latency, perhaps two or three years, but expect to see a drop in the number of new invention disclosures that turn into licensable technology."

Sherer also said that the tech transfer bottleneck, already an impediment, will only get worse. "Through the global financial crisis, universities haven’t increased patent budgets or [added staff], despite the federal funding increases and the number of new inventions arriving. So we’ve had more inventions coming our way, but no increase in staff or budget to handle them, and with fewer outlets [among VCs or pharmas to license them]. We’re just now coming out of a perfect storm. I’m afraid we left important innovation along the roadside during the financial crisis, and we’re about to head that way again," said Sherer.

VCs like to say that the best technologies and product candidates will always rise to the top and attract money. But with the life-science venture population shrinking, and those remaining often in pursuit of later-stage investments that won’t take so long to mature, fewer VCs are even looking toward academia. As part of its annual A-List feature in January, START-UP asked dozens of life-science VCs to name the best sources of innovation. Only 15% said academia. Unscientific, true – but Sherer wasn't surprised by the sentiment. With universities dabbling more in translational science, and big drug companies forging ties left and right with academics, he said the odds of getting something licensed might be better when going "directly to Big Pharma and big biotechs and avoiding the start-up route. I haven’t seen data that that’s the case, but conceptually it seems possible." 

This all may be moot when the new federal budget is negotiated. But with wolves at the door and fiscal hawks flapping their wings -- and gums -- we aren't predicting anything. Howl as much as you want, but you'll never filibuster long enough to avoid...

Tesaro: Basking in the afterglow of its successful 2012 IPO, the publicly traded oncology developer sold 5.4 million common shares in a secondary offering at $18 per share that raised net proceeds of $91 million for the Boston-area company. Tesaro says the cash will go toward its development programs, rolapitant, niraparib and TSR-011, which were all in-licensed. The $18 price was $1.09 below the firm’s closing price February 22, the last business day before the offer was announced. Since the announcement Tesaro shares have risen to $24.36 a piece as of mid-day trading March 7. The firm, which debuted in late June at $14 a share, was one of several in the IPO class of 2012 to finish the year above its offer price. It’s a prime example of a recent biotech phenomenon that constrains the number of companies able to go public, but rewards those that manage to squeeze through the window. Tesaro executives and directors stand to benefit, as they owned nearly 70% of the company before the secondary offering. Their holding now stand at nearly 60%. Tesaro was formed by the former executive team of MGI Pharma, which was bought by Eisai in late 2007 for $3.3 billion. New Enterprise Associates, InterWest Partners and Kleiner Perkins Caufield & Byers were Tesaro’s three main venture backers, and all three still have Tesaro board seats. There were 13 biopharma and diagnostic IPOs on U.S. exchanges in 2012, and three venture-backed firms have debuted so far this year. (We’re not counting Pfizer’s animal-health spinoff Zoetis.) Citigroup and Morgan Stanley led Tesaro’s underwriters, who sold their full overallotment of 708,000 shares. -- Alex Lash

Ablynx: Belgium's publicly-traded Ablynx has raised €31.5 million ($41.2 million) in a private placement announced February 28, two weeks after announcing positive Phase II results for ALX-0061, a second rheumatoid arthritis-targeted product from the company’s Nanobody platform. The placement is the second largest financing in Europe’s therapeutic biotech sector this year, trailing only the $60.9 million raised by e-Therapeutics in February. Nanobodies are small-sized, single-domain antibody fragments that penetrate deep into target tissues. They also bind strongly to human serum albumin, which prolongs their circulation time in the body. The funds will support further development of ALX-0061, an IL6R inhibitor, and other Nanobodies. The funds give Ablynx greater flexibility over future development plans, allowing it to consider co-development or co-promotion – it has 25 programs in its pipeline, including five at the clinical development stage, and a roster of Big Pharma partners, including Boehringer Ingelheim, Merck Serono, Novartis and Merck & Co. It is also evaluating the attachment of therapeutic payloads to Nanobodies through recent agreements with Spirogen and Algeta. Euronext Brussels-listed Ablynx sold 4.4 million new shares at €7.20 per share, a 6.7% discount to the February 27 closing price. Pre-IPO shareholders and warrant holders also sold 1.9 million shares at the same price, bringing the total amount placed to €45 million. -- John Davis

Spring Bank Pharmaceuticals: Looking to create a new class of drug that potentially could be included in next-generation, all-oral antiviral regimens for chronic hepatitis C, Spring Bank announced a $10.5 million Series A financing on February 28. The funding, from Brock Securities and Gilford Securities, will help advance lead candidate SB 9200 into a Phase I safety and antiviral efficacy trial this quarter and further the Massachusetts biotech’s preclinical pipeline. SB 9200, derived from Spring Bank’s proprietary Small Molecule Nucleic Acid Hybrid technology platform, produces an antiviral effect by activating the host-immune response in HCV-infected cells, the company says. It targets two host cytosolic proteins, RIG-I and NOD2, to set off selective activation of immune response in the presence of viral infection. In preclinical study, the compound has shown synergistic activity with other HCV antivirals and demonstrated a clean safety profile. Spring Bank thinks ‘9200 will prove to pair well with other new direct-acting antivirals for HCV thanks to the potential for pan-genotypic activity and a high barrier to resistance. Previously, Spring Bank raised $600,000 in angel financing in 2009, got a $244,000 grant under the U.S. Qualifying Therapeutic Discovery Project in 2010 and received a $3.9 million grant in 2011 from NIH. The company’s preclinical pipeline includes programs for hepatitis B, respiratory syncytial virus, chronic obstructive pulmonary disease and broad-spectrum antibiotics. -- Joseph Haas

Daiichi Sankyo: The Japanese drug giant with a long history has jumped on a recent bandwagon by forming its own venture group, as our friends at PharmAsia News reported March 4. To date, Daiichi Sankyo has invested as a limited partner in other venture funds as a window into deal flow and to gain preferential co-investment rights. But it has now created its own direct-investment vehicle to be overseen by global R&D chief Glenn Gormley, who is based in New Jersey. It joins Merck Serono, Merck & Co., Shire and other pharma companies with relatively new venture groups. Daiichi Sankyo didn’t disclose how much cash the group will have to invest, but corporations are using even relatively small amounts to invest aggressively, as corporate venture becomes a larger part of the biotech funding landscape. Corporate groups are now frequent investors in early-stage companies, once a no-go zone. In 2012, for example, Novartis’s venture group was just as active in Series A investments as Third Rock Ventures, which is one of the few traditional VCs still gung-ho for company formation. -- Daniel Poppy and Alex Lash

All of the Rest: A Series E financing led by Invesco Perpetual brought Glide Pharma £14M… In a combination Series A/loan, Dezima Pharma raised €14.2M to fund development of a dyslipidemia candidate acquired from Mitsubishi Tanabe… Attempting to overcome mucosal barriers in treating disease, Kala Pharma closed on $11.5M in Series A financing… The Dundee Corp. provided $10.5M in additional funding to TauRx for its Alzheimer’s compound… Blaze Biosciences completed a $8.5M Series A to support work on high-res technology for tumor visualization… The venture arm of leading Korean aesthetic firm AmorePacific led a $7M Series B for Brickell Biotech… With proceeds going towards Alzheimer’s agent ladostigil, Avraham added $5.7M to its Series B, now totaling $8.7M… DecImmune raised $3.2M to help develop an antibody that reduces tissue damage due to heart attack… Botanical products company KannaLife raised $1.5M in Series A funds...using social media and nonprofit advocacy to solicit biomedical research materials, Sanguine Biosciences completed a seed round… Public Swedish autoimmune/cancer company Active Biotech raised SEK270M from Investor AB… Celsion’s zero coupon preferred stock offering grossed $15M… Opko Health led a $16.4M financing for RNA-targeting RXi Pharma...oncology-focused EntreMed privately raised $11M… To fund a clinical de-risking bioequivalence study of its lead Parkinson's candidate, Canadian biotech Cynapsus closed on $Cdn6M from a syndicate including an undisclosed strategic investor… In a follow-on offering, Immunomedics raised $14M… Diabetes-focused DiaMedica announced a public offering of units… Orphan drug company Hyperion is planning to sell 2.6M shares publicly…Merck Serono spun off (and seeded with €2.5M) its latest start-up Calypso Biotech to pursue inflammatory bowel diseases… OrbiMed Advisors is reportedly raising a second pain-Asia health care fund worth $500M. -- Amanda Micklus

Wolf yawn photo courtesy of Flickr user ArranET.  

Deals of the Week and the Other Innovation Problem

Health care innovation, the R&D spark that ignites the alliances and M&A often featured here in Deals of the Week!, is part of the problem. At least when it comes to affordability.

Almost uniquely across business sectors, health care innovation invariably drives costs higher, while elsewhere innovation usually leads to cost reductions.

This observation, put forward by Mark Pearson, head of the health division at the Paris-based Organisation for Economic Co-operation and Development (OECD) at The Economist's 2012 Global Healthcare Summit in London Nov. 29, is a worry for pharma companies expecting ever higher prices for their shiny new targeted therapies.

A second driver of increasing health care spending is the lack of productivity gains achieved by making changes to the health care labor force, pointed out Pearson. Health care apparently has far and away the worst record among workforces when it comes to increasing productivity, particularly in Europe. The medical profession is full of restrictive practices, like the way training is pursued, and restrictions on who is allowed to prescribe, or allowed to perform minor procedures.

These are both bigger drivers than the growth of the elderly population, which is often cited as the reason why health care spending is increasing, Pearson argued. The increasing number of elderly patients is only a weak driver of health care spending, accounting for around 10% of the rise in health care costs in European countries, he noted.

Bringing more private funding into health care is one solution, and maybe the only solution, to fill the gap between health care expectations and cost, Pearson continued.

But it must be the right sort of private financing. Private health insurance which just duplicates publicly funded health care is particularly bad at improving the efficiency of health care systems, Pearson said. It just explodes costs. What's needed is supplementary insurance, which builds on a core group of services.
Finding new sources of funding is one area where the experience of developing countries can shed some light. In Singapore for example, those patients who want to have better hospital experience can pay extra for larger, more luxurious rooms.

Developing economies, such as Chile and Mexico, also have experience in defining a set number of diseases and conditions that the public health care system will treat, with other health care paid for by patients out-of-pocket.

Pearson liked the idea of "sin taxes," for instance taxes on fatty foodstuffs in France and Denmark, but admitted that they don't raise much money. They might make sense for public health reasons, but they are not the future for financing health care. Instead a rational discussion about what services a public health care system is prepared to fund is needed, so that a larger private market can develop, he concluded.

--John Davis

With that suggestion, we turn to see which innovations might have attracted the attention of Europe's economists in this week's ...

Sanofi/Selecta: Selecta Biosciences has signed its first Big Pharma partner, Sanofi, in a deal to discover up to three targeted, antigen-specific immunotherapies for life-threatening allergies. The deal announced Nov. 28 gives the French pharma license to one program and options for two more. The financials were fuzzy, with no up-front payment disclosed and an imposing but unstratified $900 million in development, approval and commercial milestones should all three succeed, and tiered double-digit royalties on potential product sales.
The companies will apply Selecta’s targeted tolerogenic Synthetic Vaccine Particles (SVP) platform to discover and advance potential immunotherapies designed to abate immune responses against an undisclosed, life-threatening food allergen. Based in Watertown, Mass., Selecta researchers will conduct the early-stage work in tandem with Sanofi’s Boston-based scientists; when a candidate is chosen for clinical development, Sanofi will take over development. The companies currently are pondering two additional indications for immunotherapies to food- or air-based allergens, Selecta CEO Werner Cautreels said in an interview. In 2011, Selecta partnered with the Juvenile Diabetes Research Foundation to seek a tolerogenic vaccine for type 1 diabetes using Selecta’s SVP platform. Months later, it partnered with the Science Applications International Corp. (SAIC) to work toward a synthetic malaria vaccine. That work is being financed by NIH’s Malaria Vaccine Product and Support Services contract.--Joseph Haas

AstraZeneca/Pfizer/Quebec Provincial Government: Quebec’s new Neomed Institute, a drug discovery effort unveiled Nov. 23, will be seeded with a $77 million cash investment over five years, plus about $30 million in in-kind donations from AstraZeneca PLC, the initiative’s primary backer. Also contributing funding are Pfizer Inc. and the government of Quebec. Heading up the effort will be former biotech executive Max Fehlmann, previously the president and CEO of the Quebec Consortium for Drug Discovery (CQDM).
CQDM, which is backed by seven pharma companies including AstraZeneca and Pfizer, focuses on creating new tools for drug-discovery an “open innovation” environment, said Fehlman, while Neomed has more of a classic biotechnology business model. To start up the project, Pfizer is contributing $3.5 million while the provincial government is kicking in another $28 million. AstraZeneca is the largest initial contributor, however, providing $5 million in cash plus facilities, lab equipment and three pain molecules. Fehlmann said Neomed has $38 million in cash at present – including future donations from other firms and the in-kind contributions, the total investment is expected to exceed $100 million.The research center was closed under a workforce reduction announced by AstraZeneca in February that also resulted in the shuttering of a facility in Sodertalje, Sweden. Fehlmann said the incentives that brought pharma R&D efforts to Quebec in the first place, such as tax incentives and a strong academic community, remain in place. “It is now my challenge to go and get additional pharmaceutical companies into our consortium,” Fehlmann said, adding that he already has begun talks with the other companies involved in CQDM’s efforts. One of those is Merck & Co. Inc., which announced a $12.5 million investment in research by three university-affiliated and hospital-based research centers in Quebec on Nov. 26. That investment, part of a larger five-year $100 million commitment by Merck to R&D funding in Quebec, does not rule the New Jersey-based pharma out of participation in Neomed, Fehlmann added.--JH

Evotec/Probiodrug: German CNS specialist Evotec AG’s latest collaboration is with Germany’s privately-owned Probiodrug AG to develop new therapies for treating major age related diseases.
Under the terms of the agreement, announced Nov. 28, Evotec will set up and validate assays to support the pre-clinical and clinical development of glutaminyl cyclase (QC) inhibitors for the treatment of Alzheimer's disease. Glutaminyl cyclase is a proprietary enzyme target discovered and validated by Probiodrug which plays a crucial role in the pathogenesis of Alzheimer's disease as well as potentially other diseases.
Evotec remains on a collaborative “roll,” partnering with drug companies to discover new compounds and bring them into clinical trials. Last month it linked up with fellow German firm Bayer AG in a five-year collaboration to develop drugs for endometriosis, a frequent and painful condition in which endometrial cells grow outside of the uterine cavity. The German drug discovery company also has broad collaborations with Roche and Boehringer Ingelheim GMBH to find therapies for diseases of the central nervous system. Evotec also has a pipeline of preclinical and clinical CNS drugs of its own and it intends to find partners to take on development of the drugs in late-stage clinical trials.--Sten Stovall

Nestle/Chi-Med: Food and nutrition giant Nestle SA announced a joint venture with Chinese health care company Hutchison China MediTech Ltd. to explore nutritional and medicinal products based on Chi-Med’s Chinese medicine library and fund Phase III trials on an existing clinical candidate. The Nestle Health Science division, established two years ago, joined with Chi-Med in a 50-50 JV that created Nutrition Science Partners Ltd., which will specialize in gastrointestinal products derived from botanical plants. The JV will also oversee late-stage development of Chi-Med’s Phase III-ready inflammatory bowel disease drug HMPL-004. Nestle has made an initial cash investment to establish the JV, and will fund a 2700-patient Phase III trial beginning early next year. The move is part of Nestle’s overall strategy in personalized health care, which includes nutrition, drugs and diagnostics; the company acquired GI diagnostics company Prometheus early last year as well. Nutrition Science Partners expects to build a pipeline in GI, and may also extend its reach into metabolic disorders and brain health in the future. Nestle Health Science president and CEO Luis Cantarall will be the JV’s chairman, while Chi-Med CEO Christian Hogg will be a director and its general manager.--Paul Bonanos

Roche/Broad Institute: Roche is hoping to get a little more bang for its buck by repurposing some of the drugs that have been languishing on its shelves for as far back as 20 years. The Swiss pharma giant has tapped the Massachusetts Institute of Technology’s and Harvard University’s Broad Institute to screen more than 300 compounds that it had previously tested in a variety of indications. The compounds were sidelined during preclinical or early clinical development because they either did not prove efficacious in the tested patient populations or addressed a disease area that wasn’t pertinent to the Roche pipeline; none fell due to safety concerns. Roche believes that the amount of time and money already spent on the compounds make them a very valuable resource and potential fast-track development opportunities. The initial agreement between Roche and Broad is expected to span two years. Beyond that, the partners will evaluate any progress and determine if any of the compounds are worth investigating further. Roche’s head of medicinal chemistry, Karen Lackey, told “The Pink Sheet” DAILY that the company hopes to find at least 10 to 15 projects that could merit further clinical trials.--Lisa LaMotta

Curis/Genentech: In conjunction with a debt financing deal that net the biotech $30 million in fresh, non-dilutive capital, Curis Inc. said on Nov. 28 that it had in-licensed from Roche’s Genentech unit exclusive, worldwide rights to develop and commercialize a Phase I anti-cancer agent. Curis has brought in GDC-0917, a small molecule that antagonizes IAP (inhibitor of apoptosis) proteins, which Genentech has studied in 42 patients with refractory solid tumors or lymphoma. Genentech gets $9.5 million up-front, potential “first commercial sale” milestone payments should the molecule, now named CUDC-427, makes it to market in certain territories ,and and single digit royalties on net sales. Curis receives a royalty from Genentech on sales of Erivedge (vismodegib), which was approved by FDA to treat advanced basal cell carcinoma in January 2012 and is in Phase II for a less severe form of the disease. Curis has used this royalty to secure its debt financing – essentially trading future revenue for a bolus of cash that will fund ‘427’s development, and development of other drugs in its pipeline, now. Analysts predict the deal gives the biotech an extra year of cash runway at current burn rates.--CM

BioCryst/Presidio: This week’s “No-Deal” is of a predictable nature, as the planned merger between BioCryst Pharmaceuticals Inc. and Presidio Pharmaceuticals Inc. has fallen apart in the weeks since dual setbacks hit BioCryst’s pipeline. In early November, BioCryst said it would withdraw an IND for an experimental hepatitis C therapy over toxicity concerns; a few days later a Phase III study of the company’s peramivir antiviral was halted due to lack of efficacy. Though the writing seemed to be on the wall at the time, on Nov. 8 BioCryst said then that it would move forward with its planned merger with privately held Presidio, though it would work to conserve cash. On Nov. 30, the companies mutually terminated the deal.--CM

The Innovation Value Proposition: What To Expect At This Year's PSA

"Innovation ecosystem" is a buzzword in the biopharma industry these days – but the best way to approach building and sustaining innovation is under debate from all angles.

Most of the focus is on the developed world, where industry is wondering if it can afford to continue innovating effectively using traditional strategies amidst a payer environment focused largely on holding down healthcare costs. The uncertainty has real implications: Note the ballistic rhetoric of top executives at GSK, Sanofi and others about their commitment to conducting R&D in Europe, where reimbursement issues continue to hurt sales.

More recently, some in pharma are beginning to cite emerging markets as sources of innovation. The thinking is that emerging markets, as largely blank spaces ripe for design, are fertile sources of new ideas  that can blossom unencumbered by regulatory, territorial and infrastructure hurdles that in established markets slow adoption and raise costs. With strong government backing, some countries are even beginning to show signs of scientific creativity—ostensibly the epitome of industry goals—note recent developments in China and India. That’s a far cry from general industry thinking, which has pigeon-holed emerging markets mainly as sources of revenue growth and cost savings for clinical development, and lacking in healthcare delivery infrastructure and a deep scientific expertise.

Discussion of how to fix innovation and afford it and more will be the focus of Elsevier’s Pharmaceutical Strategic Alliances conference in New York next week (Sept. 17-19). With Paul Stoffels, worldwide chair of J&J's pharma business as a keynote speaker and others such as Andrew Baum of Citigroup Healthcare and Philip Ma of McKinsey speaking on pharma's looming value crisis, the conference hopes to provide takeaways for best approaches to a changing pharma paradigm.

Meanwhile, IVB spoke to Krishna Udayakumar, head of global innovation at Duke University’s School of Medicine and interim executive director of the year-old non-profit International Partnership for Innovative Healthcare Delivery, about the status of emerging market innovation and its implications for broader global markets. Udayakumar will be a participant on a panel dedicated to “Reverse Innovation,” i.e. innovation in emerging markets, at the conference.

In 2011, Udayakumar helped set up The Medanta Duke Research Institute in Gurgaon, India, a joint venture between Duke and Medanta, to provide early-stage clinical research through proof of concept to biopharma companies. Duke more broadly is looking at new paradigms for early-stage clinical trials and as part of that strategy, it is offering “a new model for academia to work with industry,” Udayakumar said, calling India a “greenfield opportunity to take what we have learned about workflow, patient comfort, and facility design” and efficient clinical research and apply it.  Initially, the founders expected multinational companies to provide the majority of the business for MDRI, but local pharmacos are also taking the bait—implying that local companies are starting to produce innovative compounds.

But innovation in emerging markets is about much more than scientific prowess. Witness IPIHD: the product of discussions on the part of Duke and McKinsey, the consulting firm, to promote and expedite new models of delivering care, largely in emerging markets, that help expand access to healthcare while holding down costs. That’s a goal that should be of interest to everyone in pharma these days—and the hope is that IPIHD’s efforts will not only benefit emerging markets but the broader global arena as well. Indeed, a number of pharma companies are members and active partners on some delivery programs, albeit small ones for now.

Pharmaceutical Strategic Alliances takes place Sept. 17-19 at the New York Marriott Marquis and there’s still time to register.

Medanta image from www.rediff.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.)