2011 M&A of the Year Nominee: Endo/AMS

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Endo’s $2.9 billion in cash acquisition of American Medical Systems Inc., in June 2011, throws the spotlight on the use of deal-making to go beyond the quick fix. In doing so, Endo had to overcome internal resistance, investor second-guessing, and industry's current preference, it seems, for high-stakes specialization over diversification.

But overcoming obstacles in order to exercise a grand ambition is not the chief reason Endo deserves the DOTY reward. No, the real draw here is management’s adamant vision in the face of a changing reality. Every good company constantly evolves, but only a few complete radical makeovers as rapidly as Endo has. Clearly, external drivers forced Endo’s hand: namely its over-reliance on one therapeutic area, and one medication, Lidoderm, in particular, the ever-riskier reliance on R&D innovation, and the long-term implications of health care reform.

Faced with similar problems, however, many companies, large and small, have huckered down and focused harder on innovation in their core expertise. Others have turned to in-licensing late-stage assets, withdrawing from the R&D-based business model. Endo has taken a third approach – not ditching pharma R&D completely, but moving beyond it to define its strategy not by therapeutic area, but by its customer base, that is, through a “continuum of care” approach that binds it closer to doctors and payers.

Endo was on the finals list for DOTY in 2010 for its HealthTronics acquisition—the first of its major diversification moves--but didn’t win; its return to the polls in 2011 is a testament to management’s perseverance and guts, this time, with a deal that follows similar reasoning on a larger scale and in doing so erases all doubts.

The deal in question thrusts Endo further into urological devices and services, a sector it had little presence in two years ago. Until 2008, Endo derived close to 90% of sales from its pain medication franchise, led by the best-selling topical pain drug Lidoderm. Urology now accounts for $1 billion of its sales, or more than a third of Endo’s total revenues; its key therapeutic areas have expanded to urology and oncology -- and not just drugs but devices and services as well. AMS complements other key acquisitions that Endo has made since ex-J&J executive David Holveck took over as CEO in April 2008: Indevus Pharmaceuticals (2009), HealthTronics, Qualitest (2010), and Penwest (2010).

As such, the company has built a presence in urology that “includes a broad network of partnerships and relationships with the overwhelming majority of US-based urologists,” CFO Alan Levin told analysts at a recent investor forum. The data generated by intensifying relationships is “critical to enhancing the organic growth potential of our urology franchise,” says Holveck. The company furthermore has identified potential cross selling opportunities for several of its product lines – a sticking point, until now, with Wall Street -- and a savvy way to gain more market data. A pilot program now getting underway, for example, trains AMS' men’s health division on selling the Fortesta gel, a newly launched topical testosterone replacement for hypogonadism, which Endo gained from the Indevus deal. The pharma urology reps are getting trained on AMS men’s and women’s health products. Other opportunities for selling synergies include Endocare cryoablation therapy, which came with the HealthTronics acquisition, and AMS’s GreenLight laser for benign prostatic hyperplasia.

If R&D-focused pharmacos are struggling to find the right value in innovation, Holveck says Endo has found the right mix through diversification, both within pharma and beyond it. “Understanding how the continuum of care is given and the products that interrelate with that care,” adds value to the urology practice, he says. And it also reduces event risk, which is implicit in the branded portfolio. Health care reform’s impact is a case in point. Endo estimates it will cut $40 million from the branded pharma business’ top line due to increased discounts to payers, particularly reflecting the higher Medicaid drug rebates. But it should also lead to higher sales on the generics side of the business. And, pointed out Levin, devices have not been greatly affected by health care reform proposals, aside from a 2.5% tax on US revenues, which takes effect in 2013.

For this opportunity, Endo has paid well – the multiple for AMS, itself a spin out from Pfizer, which private equity firm Warburg Pincus acquired in 1999 -- was approximately 14 times trailing EBITDA, the Qualitest multiple slightly less. The process wasn’t at all easy, as Endo’s management is first to admit, and the combination of devices and drugs still leaves Wall Street a bit queasy. But the stock has climbed nearly 50% since Holveck came to the company in April 2008, and although it's just treading water year to date 2011, that’s better than most of the industry. Just as important, Endo is poised to move swiftly in a rapidly changing health care environment.

No Glass Ceilings: Medtech Women Gather at Unique Industry Meet-Up

MedtechWOMEN co-founders Amy Belt and Deborah Kilpatrick

Something new happened in the medical device world two weeks ago. It wasn't a new technology or a big research discovery, nor was it a breakthrough treatment for heart disease, cancer or diabetes, though it could possibly lead to one of these.  

What happened was an unprecedented medical technology conference, featuring exclusively women speakers, panelists and attendees. The sold-out Medtech Vision conference in Menlo Park, Calif. on September 15 and 16 brought together more than 200 business executives, entrepreneurs, investors, physicians, inventors, providers, patient advocates, policymakers and regulators and generated an energy that attendees claimed – and I will vouch -- was not just palpable but electrifying.  

The idea was hatched a year ago when Covidien Ventures director Amy Belt got fed up with the typical medtech meeting scene. "I was looking up from the audience and realized that there were no women on the podium – again. I was frustrated not to see women on the podium, as well as on boards and executive teams, because I know the women experts are out there and I wanted to hear from them," Belt said. So she pulled together a like-minded group and set about, with major support from Covidien, Abbott Laboratories and law firm Fish & Richardson, to create something new.  

The invitation that landed in my inbox July 27 came from a new organization called MedtechWOMEN and promoted the conference as "the first ever to highlight women on the forefront of medical innovation." Intrigued, I anticipated speeches about glass ceilings and male dominated C-suites. Boy, was I wrong. Instead, the presentations and panel discussions proved true to the meeting's agenda: to identify solutions to today's big challenges in medtech: a jittery venture capital community, shifting models of care delivery and reimbursement, increasing regulatory demands, and laser-like attention to healthcare outcomes and costs.

Speakers set right to the task with pointed advice. On an investor panel, Versant Ventures managing director Beckie Robertson advised against entrepreneurs working on small projects. "The opportunity for a win-win is in meeting a huge unmet need and getting out before commercialization," she said. Johnson & Johnson worldwide VP of new business development Susan Morano agreed, highlighting spectacular exits in the last two years for companies that genuinely responded to unmet needs. 

Among big populations with unmet needs are women themselves, noted Lynn Westphal, director of women's health at Stanford University. Westphal named several common diseases and treatments that are inadequately studied in women, explaining that females often display symptoms and respond to therapy differently than males. Imagine the opportunities, she suggested, awaiting companies that break the mold and extensively enroll women in large trials for cardiovascular, cancer, diabetes and other diseases. 

Interventionalists and surgeons had their say, too. Surgical oncologist Shyamali Singhal explained that for new technology to be adopted, "it has to be faster, easier, and more doable than what I'm doing now in surgery." And the designers of those new technologies need to interact more with physician users, said Bonnie Weiner, a cardiovascular researcher, clinician and former president of the Society for Cardiovascular Angiography and Interventions. "Nobody ever asks us how we're going to use the device. Come to the cath lab and follow us around!" 

On a reimbursement panel, speakers agreed that the days of "build it and they will come" are over, and the way forward is to improve health outcomes or procedure workflow. "We look for clinically meaningful improvement in outcomes" backed by high-quality evidence, said Betsy Thompson, chief medical officer for the San Francisco regional office of the Centers for Medicare & Medicaid Services. Advancing patient safety is also a good bet, she said: "If a new product improves safety but not effectiveness, we would probably cover it." 

Liesl Cooper, VP of global healthcare economics, policy and reimbursement at Covidien, pointed out that with patients paying more for their care, industry also needs to think more about how to educate them. "We're not used to that," she said. "Shame on the medtech industry for not touting better outcomes such as a 24-hour stay compared to a six-day stay!"

So what difference did it make that the people talking were all women? Amy Belt put it this way in her opening speech: "Leadership doesn't have to wear a navy blue blazer. Women represent 51% of the population, 58% of the population over 65, spend two out of three healthcare dollars, are half of the graduating classes of physicians today and over 90% of all the registered nurses. Why would it make sense for women not to be significantly represented in leadership positions where key decisions are made about the delivery of care and investment in innovation when they represent half the population, control the healthcare dollar and provide the majority of healthcare services?"

Beyond Belt's introduction, though, the conference was not about advancing women, but about advancing medical technology and healthcare. MedtechWOMEN founder Deborah Kilpatrick, a senior VP at diagnostics firm CardioDx, was pleased it went that way. Women's place in the industry "was just not what we were there to discuss," Kilpatrick said. 

Nevertheless, the thousand-watt energy at Medtech Vision was a departure from the standard atmospherics of industry conferences. It reflected, I think, the pride of 200 women medtech leaders seeing themselves assembled in one place, listening closely to each other, making new connections, and realizing – unexpectedly, inspiringly – that solving the challenges ahead may suddenly have gotten a little bit easier. -- Mary Houghton

Deals Of The Week: CATT Fight

Well, the cat (er catt) is out of the bag – and, n,o we aren’t talking about Kate Middleton’s decision to wear a long-sleeved ivory confection with flower appliqué details when she tied the Windsor knot.

While fashionistas, pundits, and the British nation had their eyes trained on Westminister Abbey, the biopharma industry was focused on the release of data comparing the utility of the high priced Lucentis versus the much cheaper Avastin to treat wet age-related macular degeneration. And as everyone now knows, the data from the 1200-patients trial sponsored by NIH suggest that in this particular setting, there seems to be little reason—based on overall outcomes—to spend thousands of dollars on Lucentis when Avastin works just as well for a fraction of a cost.

Dr. Phillip Rosenfeld, an ophthalmologist at the University of Miami Miller School of Medicine, was particularly blunt in his assessment in a NEJM editorial that accompanied the data’s publication: "Healthcare providers and payers worldwide will now have to justify the cost of using ranibizumab [Lucentis]," he said.

That’s not to say Genentech and Novartis aren’t channeling their inner Churchill (or perhaps, more appropriately, their inner John Paul Jones). Already the companies are highlighting potential unanswered safety questions, including discrepancies in dosing and a slight increase in the incidence of non-specific serious adverse events, mostly hospitalizations. Expect the drug companies to play up whether the controlled conditions of the NIH trial can adequately be replicated in a real world setting too.

Given we are talking about people’s sight, those questions may provide a persuasive argument for docs and patients wary of not using the formulation that has FDA’s stamp of approval. Provided payers play along, of course.

And that's why Medicare’s decision is so critical. Avastin vs. Lucentis has become the poster child for the comparative effectiveness debate; thus, you can bet industry will be watching closely to see whether or not CMS initiates a coverage review that would limit Lucentis’ use. Such a decision would certainly give private payers more license to limit the medicine as a first-line treatment option.

The ripples of CATT will almost certainly be felt outside the walls of Novartis and Roche/Genentech as well. Ophthalmology – particular treating diseases that blind—has become an area of interest for big pharma because of the unmet medical need for new therapies. Because back of the eye diseases are treated by a highly trained and technically savvy group of specialists, the sector has long been a favorite of the venture community as well.

What does this mean for new AMD drugs coming down the pike like the complement inhibitors developed by Optherion or the anti-PDGF inhibitor developed by Opthotech? Given such medicines work by a different mechanism of action than the anti-VEGF inihibitors Lucentis and Avastin, their value proposition is still a little bit easier to explain. But whether potential partners will bite without superiority data is another question.

Certainly the CATT data seem to make life much tougher for Bayer and Regeneron, who now face some thorny questions about their VEGF Trap-Eye medicine, aflibercept. Phase III data released last fall showed the drug to be non-inferior to Lucentis, with fewer doses required. But with data from CATT suggesting drugs like Lucentis and Avastin can be given at less frequent intervals, a dosing advantage alone seems unlikely to be enough to ensure Regeneron and Bayer coverage and commercial uptake of their medicine – especially when data showing a much cheaper alternative can do the job.

Whether you think the CATT results are the cat’s meow or worth nothing more than a cat call, it’s time for another edition of deals of the week…

Johnson & Johnson/Synthes: The deal garnering the lion’s share of the PR this week is Johnson & Johnson’s $21.3 billion tie-up of orthopedic trauma device maker Synthes, announced April 27. Under the terms of the deal, J&J will pay $181.75 per share for Synthes in cash and stock, an 8.5% premium over Synthes’ stock price close on April 26 and a 21.7% premium over its close on April 14, when rumors about a possible tie-up first surfaced. It’s the largest deal in J&J’s history, coming half a decade after the diversified giant passed on upping its $25 billion bid for Guidant. Strategically the Synthes buy-out makes a lot of sense: it gives J&J the pole position in orthopedics boosting sector revenues from around $5.6 billion to more than $9 billion, and deepens its expertise in trauma fixation devices, an arena less prone to payer oversight and the vagaries of a slowing economy. (Fixing the damage arising from a major accident ain’t exactly elective.) At the time of the Guidant bidding war, analysts noted J&J’s interest in that company and the size of the deal said a lot about the health care company’s view on the relative merits of investing in med-tech versus pharma. Given the Synthes acquisition, the question of J&J’s dedication to Rx is sure to resurface, though the early approval of Zytiga may help the balance.

One interesting wrinkle is whether this big orthopedic deal could presage additional dealmaking in CV, since within J&J there’s historically been a school of thought linking opportunities in these two markets. As rumors about the possible J&J/Synthes tie-up coalesced, speculation ran the gamut. Thanks to the precipitous drop in market share of its drug-eluting stent biz, some predicted J&J would exit CV altogether, selling off its Cordis business; others said 'no,way,' opining this will spur J&J to re-up in CV, perhaps via acquiring percutaneous valve-leader Edwards Life Sciences.

Because J&J is paying for Synthes mostly in stock -- just 35% of the payment is cash -- the health care firm has plenty of ammunition for additional deal making. Given J&J's hefty balance sheet, its use of stock to ink the deal took some by surprise since it creates additional unwelcome earnings pressure. Even though the deal bolsters the struggling DePuy subsidiary, which like the consumer division, has seen major setbacks due to recalls, some claim J&J is simply putting a Band Aid (pun definitely intended) on its problems. Critics argue the company’s manufacturing problems are significant and that integrating Synthes will detract from the hard work required to fix a broken system. —The EBI Device team

Kadmon/Nano Terra: Sam Waksal’s Kadmon is at it again. After its deal-making bonanza last fall – recall the firm acquired Three Rivers and set up a strategic partnership with Valeant—Kadmon is teaming up with privately-held Nano Terra, a nanotech accelerator developing technologies with applications from biopharma to more industrial settings. Terms of the tie up weren’t disclosed but they do provide Kadmon with an exclusive license to three novel, clinical stage assets and access to Nano Terra’s proprietary Pharcomer Technology drug discovery platform. (FYI, the product candidates and the Pharcomer technology were originally developed by another private biotech, Surface Logix, and only recently acquired by Nano Terra, though no formal announcement about that deal appears to have been made.) Perhaps the most interesting asset for Kadmon is Slx-2119, a selective Rho-associated coiled-coiled kinase 2 (ROCK2) inhibitor that impacts cell shape and cell migration and may play a role in diseases as diverse as diabetes, cancer, and spinal cord injury. As part of the recent alliance, the assets and technology will be transferred to a new joint venture owned by Kadmon and Nano Terra called NT Life Sciences.—EFL

Sequella/Maxwell Biotech Venture Fund: Anti-infectives developer Sequella of Bethesda, Md., signed an unusual deal that gives Maxwell, a venture fund that specializes in Russian investments, rights to tuberculosis treatment SQ109 in Russia and the Commonwealth of Independent States, which includes Armenia, Kazakhstan, and Ukraine. Maxwell is taking an undisclosed equity stake in Sequella, but the parties do not consider the transaction a round of funding. Sequella could receive up to $50 million from Maxwell, the first tranche being an upfront payment and near-term milestones that the companies declined to disclose. Run by former Pfizer discovery executive and incubator chief Alex Polinsky, Maxwell has responsibility for development and approval of SQ109 in its licensed areas. Sequella has completed three Phase 1 studies of SQ109 in the U.S. and is currently running Phase 2 efficacy studies in TB patients in Africa. It is also testing the compound as a treatment for Helicobacter pylori infections and fungal infections. Sequella officials told the IN VIVO Blog that the company has not raised traditional rounds of venture capital, instead leaning on individual investors and hedge funds to supplement government grants. -- Alex Lash

Eli Lilly/Medtronic: While drug companies routinely team up with device makers to find better ways to deliver drugs, the April 26 deal between Eli Lilly and Medtronic, to research and develop a new treatment for Parkinson's disease is notable for two reasons. For starters, the collaboration involves two very early stage technologies. But the alliance also facilitates Lilly's move into a new area of CNS that heretofore hasn’t been a primary focus. If all goes according to plan, the alliance will result in a combination of Lilly's modified form of glial cell-derived neurotrophic factor (GDNF) and Medtronic's implantable drug infusion system. Because the large protein growth factor can't get past the blood brain barrier, and, on its own, isn't targeted, the Medtronic device would deliver it directly to the dopamine-producing neurons that degenerate as Parkinson’s disease advances. The companies aren't disclosing much about the terms of their alliance, except to note that it is a 50-50 split in both costs and revenues and spans clinical development, regulatory and ultimately commercial stages. The aim is to produce a combination product that can be submitted jointly for regulatory approval. The partners don't have a fixed time line for getting their therapy through development, but expect to move it into the clinical within five years, said Ros Smith, a senior research director of regenerative biology at Lilly.While the modified GDNF is most advanced, Lilly also has several compounds in pre-clinical development for Parkinson's disease. Medtronic, for its part, doesn't currently sell a device that delivers drugs directly to the brain, although it markets a deep brain neurostimulation technology for treating Parkinson's disease and sells implantable pumps and catheters for delivery to the spinal cord.--Wendy Diller

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

A Deals Of The Week Valentine

The most anticipated deal of the week – Sanofi Aventis’ multi-billion take-out of Genzyme – has yet to come to fruition. That’s not to say the deal is a no go (wouldn't the aftermath of THAT be fun to watch). Indeed, public statements by the French pharma’s Viehbacher suggest Sanofi still desires the big biotech, but is being measured in its diligence.

The months long saga has been more “he said/he said” than SEC-leaked endearments; still for journos avidly covering the “news” the nothings have been sweet. In advance of Monday's Hallmark holiday, perhaps its time for Viehbacher to dial up the Canadian charm, and send a love letter (containing the desired contingent value rights to Campath/Lemtrada, of course) to Termeer and company. (If the deal goes through, does this makeTermeer Viehbacher's work spouse?)

IN VIVO Blog suggests borrowing a line or two from Robert Browning's famous missive to one lovely Elizabeth Barrett. You know, the one that spawned Sonnets From The Portuguese and the immortal question "How do I love thee?" Perhaps something like this..

I love your verses drugs with all my heart, dear Miss Barrett Henri, -- and this is no off-hand complimentary letter that I shall write, --whatever else, no prompt matter-of-course recognition of your genius and there a graceful and natural end of the thing: since the day last week summer when I first read your poems realized the worth of Cerezyme and Fabrazyme despite the manufacturing snafus, I quite laugh to remember how I have been turning again in my mind what I should be able to tell you of their effect upon me (especially after this recent earnings report) ... Perhaps even, as a loyal fellow-craftsman (and CEO honor-bound to return shareholder value) should, try and find fault and do you some little good to be proud of herafter!

Of course, said fault-finding comes with its own ulterior motives, but whether Sanofi's shareholders will be proud of the outcome depends on the deal's final price tag. In the spirit of reciprocity, we suggest Termeer start counting the ways he loves Sanofi, not least because of the exit package he stands to receive if the deal goes through.

In the interim, if you can't say it with contingent value rights, at least remember to say it with flowers. Oh, and make sure to read another edition of...


Cephalon/Alba Therapeutics: Hours before reporting full-year results on Feb. 10, Cephalon said it signed an option agreement for Alba's treatment of the autoimmune disorder celiac disease. Cephalon will pay $7 million upfront and extend a credit line to Alba to fund a Phase IIb trial of the drug, larazotide acetate. After completion of the study, the Frazier, Pa.-based Cephalon will review results with the option to purchase assets related to the drug for $15 million. Beyond the $22 million in upfront and option fees, Alba is eligible to receive unspecified regulatory and sales milestones should Cephalon bring the drug to market. Celiac disease, also known as sprue, is caused by an autoimmune reaction to the ingestion of gluten, found in certain grain-based products such as bread and pasta. It affects more than 2 million people in the US. Cephalon said on a conference call that is sees significant revenue opportunities for larazotide. The deal is Cephalon's first since founder and CEO Frank Baldino passed away late last year after a four-month medical leave of absence. New CEO Kevin Buchi was previously Cephalon CFO and COO and a longtime colleague of Baldino. -- Lisa LaMotta

Salix/Progenics: Progenics Pharmaceuticals this week found a new development partner in specialty player Salix Pharmaceuticals for its subcutaneous injection to treat opioid-induced constipation, Relistor, one of the casualties of the Pfizer/Wyeth deal. Recall that Wyeth, which initially licensed the compound in 2005, paid Progenics a $10 million break-up fee in 2009 to take back product rights. During an extended transition period, the world’s biggest pharma has continued to sell Relistor via a 1700-member sales force, but 2010 worldwide sales were an anemic $16 million. Thus, the entrance of new suitor Salix via a sweetheart of a deal is undeniably good news for Progenics. As part of the alliance announced February 7, Salix pays $60 million upfront plus milestones for worldwide rights (excluding Japan) to Relistor, and will assume all development, registration, and commercialization costs for the drug. Salix, which only intends to market the drug state side, will also pay Progenics 60% of the revenue earned by contractors on ex-US sales. Salix is confident its GI-focused sales force can fully monetize Relistor’s value, thanks in part to an oral product formulation currently in Phase III development. CEO Carolyn Logan told investors February 7, "Relistor just [did] not receive all the attention it would receive in an organization like ours." – Joseph Haas & Ellen Licking

Pfizer/Ferrosan: From Russia and Norway and Eastern Europe with love? Pfizer’s acquisition February 7 of Danish firm Ferrosan’s consumer health care unit shows diversification is alive and well within the world’s biggest pharma, even as the company pulls back on R&D. Exact financial terms of the deal weren’t disclosed, but sister publication "The Tan Sheet" reports executives from Ferrosan's owner, Altor Equity Partners, said the deal was larger than €100 million ($136 million according to same-day conversion rates); analysts with UBS Investment Research, meanwhile, assume a price around $600 million based on Ferrosan's recent yearly sales figures. The deal gives Pfizer some key brands -- including Multi-tabs multivitamins, Bifiform probiotics and the Imedeen skin care supplement line – in Nordic countries as well as the rapidly growing market of Russia. More importantly, it expands Pfizer’s global footprint, allowing for the expanded distribution of its own nutritional brands, such as Centrum multivitamins and Caltrate calcium and vitamin D supplements. – Elizabeth Crawford

Danaher/Beckman Coulter: The big deal of the week was diversified med-tech play Danaher’s $6.8 billion acquisition of Beckman Coulter, which has struggled to get its testing business back on track after an FDA-triggered withdrawal of its cardiac troponin test last spring. The sale isn’t unexpected; following the resignation of Beckman CEO Scott Garrett in September 2010 and ongoing quality issues, speculation about a possible deal has been rampant since December, when it was widely repored the firm had retained Goldman Sachs. Nor is it surprising that Danaher is the ultimate buyer; Beckman is not known as a particularly innovative company and has been very slow to move into the molecular diagnostics space. It therefore makes sense that its assets, heavily centered on consumables and services in clinical chemistry, would be of greater interest to a company like Danaher, a noted acquirer of established instrumentation plays. In addition to pushing forward with ongoing clinical trials supporting two 510(ks) required for the market reentry of Beckman’s AccuTn1 troponin test, Danaher’s other main priority as the testing firm’s new owner will be completing quality control fixes and cutting $250 million in costs. – Jon Dobson

Optimer/Astellas: Promising new Phase III data surrounding its antibiotic candidate fidaxomicin has Optimer Pharmaceuticals preparing for a possible summertime launch of the drug, pending approval and a PDUFA date of May 30. While Optimer intends to keep the drug in-house in the US, the San Diego biotech has partnered with Astellas to advance and commercialize the drug in Europe, selected Middle Eastern and African nations, and the Commonwealth of Independent States. (In addition to US rights, the biotech has for now also retained Asian rights, although it may partner those territories soon.) Astellas paid $68 million up-front for the rights to fidaxomicin, with a further $156 million in milestone payments and tiered sales royalties that range above 20%. Optimer is positioning fidaxomicin as a first-line treatment for patients at risk of recurrence of C. difficile infections, which cause severe diarrhea often in hospitalized patients and those who have received other antibiotic treatments that have disrupted the balance of flora living in the gut. Robert W. Baird analyst Thomas Russo pegged the market for the drug at nearly $250 million annually by 2018. – Paul Bonanos

Needy Candy Hearts image courtesy of flickrer piratejohnny

Financings of the Fortnight Follows the Money Wherever It Goes

Your IN VIVO blog crew is a motley crew, and rarer will you find a motlier crew, at least not without umlauts. Collectively, we dig deeply into pharmaceuticals, medical devices, regulatory policy, reimbursement, and Philadelphia sporting activities. We've even been known to riff extemporaneously on the vuvuzela. Sorry about that.

Despite IVB's polyglot ponderings, Financings of the Fortnight tends to keep it tight on the pharma side. Once in a while we veer into devices or diagnostics, but generally the drug folks keep us hopping. This might change. It's no secret there's a shakeout in biopharma investing. Despite glimmers of economic recovery, first-quarter investment in drug-focused biotechs hit its lowest total, $619 million, in at least five years, according to Dow Jones Venture Source. And industry stalwarts are having trouble raising their next funds.

One axiom of reporting is "follow the money," so we'll be watching to see if some of the cash previously earmarked for drug startups goes into other life-science sectors or leaves health care completely. There's no hard evidence for this trend yet. First-quarter totals for medical services, devices and software were lower than nearly every quarterly total over 2008 and 2009. In other words, if there's a shift on, it didn't happen by the end of the March.

Even without the data, there's been plenty of intense conversation on the subject, as IVB guest blogger Steve Dickman noted last week. Dickman made a case for molecular diagnostics as the next field where VC might reap decent exits. You might point to the top-up round for Predictive Biosciences, a diagnostic firm with near-term commercial hopes which we describe below, as another sign that VCs are eager to pile into near-term exit opportunities. Then again, you might be Harold Varmus, who sounded a cautionary note about genomic exuberance in the May 27 New England Journal of Medicine. (Link tip from Merrill Goozner's GoozNews.)

Or, if you're looking for ripples that signal movement below the surface, perhaps you fancy the $60 million C round for Castlight Health, a consumer comparison-shopping tool for health care that's gotten quite a bit of ink this week. Veteran biopharma investor Bryan Roberts of Venrock was part of Castlight's syndicate, and IVB asked him if VCs are putting money into health services at the expense of biopharma or device investments.

Roberts demurred, noting "it's not really a matter of one or the other," but he did voice a common refrain: drug investing is getting harder because of regulatory and reimbursement uncertainty. (A perfect example: antibiotic developer Trius Therapeutics put its IPO on hold in March because it couldn't square away a protocol for a crucial Phase III trial. Trius announced June 16 it has reached agreement with FDA, though it didn't say when -- or if -- the IPO would get back on track.)

As Trius's travails suggest, the oft-discussed but elusive goal of capital efficiency seems even more elusive. And that could argue for service type investments. Of course, it helps if you can make money doing it--and Venrock's Roberts points to the 2007 IPO of Athenahealth, a maker of revenue-tracking software for doctors, as exhibit A in support of that thesis. Sure, anyone dreaming of IPO riches these days is likely to wake up with a cold wind blowing through the screen door. But with Uncle Sam and everyone else looking for better ways of treating sick people and keeping healthy people healthy, there could be acquirers aplenty looking for the right tools and services to make health care reform a reality.

We can't wait to look back six months from now to see if healthcare IT and molecular diagnostics have drawn more venture support. Meanwhile, the best way to keep following the money is to stick with...


Predictive Biosciences: More oncology molecular diagnostics are edging towards the market with VC backing. The latest is from Lexington, Mass.-based Predictive, which announced June 16 a $25 million C round led by new investor ProQuest Investments. All four current investors also chipped in. The cash will help Predictive complete two prospective, 1,000-patient clinical trials and bring to market its first product: a non-invasive bladder cancer assay based on its CertNDx platform, which detects protein and DNA biomarkers present in urine. Predictive is already working on distribution; in January, it bought a CLIA-certified lab, OncoDiagnostic Laboratory in Cleveland, and plans to roll out the bladder cancer test through a nationwide network of pathology and molecular diagnostics labs. Predictive last December licensed for an undisclosed amount the diagnostic rights to Fibroblast Growth Factor Receptor 3 (FGFR3) from several French health-care systems. It is combining the FGFR3 DNA biomarker with matrix metalloproteinase (MMP) protein detection in the bladder-cancer test. Flybridge Capital Partners, Highland Capital Partners, Kaiser Permanente Ventures and New Enterprise Associates are the returning investors, and Flybridge's Michael Greeley is the firm's chairman. Predictive previously raised nearly $32 million in two early rounds.-- A.L.

Castlight: Castlight’s $60 million Series C is one of the top venture financings of 2010 and the largest mid-stage C-round year to date. (Others include the respective $56 million and $45 million raises by Achaogen and Tetraphase.) The deal is noteworthy not just for its size but the diverse group of backers, which includes new and non-venture players such as the Wellcome Trust and the Cleveland Clinic, plus the company’s previous supporters Maverick Capital, Oak Investment Partners, and Venrock, as explained above. Castlight, founded in 2008 as Ventana Health Services, is a Web-based service aimed at letting employees compare out-of-pocket costs for procedures such as colonoscopies, X-rays or MRIs. While the service is for now geared toward providing intel on procedures, it looks to include information about pharmaceuticals, dental and eye coverage. The technology relies on complex algorithms to crunch claims data and calculate the costs to a consumer based on specific treatment decisions. In addition to a commercial buildout, part of the $60 million will go toward creation of assessments of that ever-elusive metric: the quality of care being delivered.--Ellen Foster Licking

Agile Therapeutics: The contraceptive maker said June 14 it has amassed $45 million to push its lead product into long-delayed Phase III trials. Dubbed AG200-15, the patch transmits both ethinyl estradiol, a form of estrogen, and levonorgestrel, a synthetic progestin, through the skin. It called the round a Series B, when in fact it was the first round after the firm quietly recapitalized late last year. Investor Growth Capital, a unit of Sweden's Investor AB, and Care Capital were co-leaders of the round, which also featured first-time backer Kaiser Permanente Ventures and previous investors Novitas Capital and ProQuest Investors. At least two early investors, TL Ventures and The Hillman Co., declined participation. The firm said nearly two years ago it was readying the patch for Phase III trials after reporting positive Phase II data, but the program was delayed. CEO Thomas Rossi declined to discuss specifically the Phase III delays. Rossi was previously with Johnson & Johnson and worked on the Ortho-Evra contraceptive patch that bears a black-box warning for blood clotting issues and has raised the ire of public-health watchdogs. Agile's chief medical officer told The Pink Sheet DAILY, the company's delivery technology allowed greater amounts of the progestin to pass through the skin than in existing patches, while its lower estrogen dose could remedy the clotting problems.-- Paul Bonanos

Genzyme: Putting in motion a plan it announced at last month’s investor day to buy back $2 billion of its stock, Genzyme will sell a pair of private debt offerings totaling $1 billion to fund the first tranche of the buyback effort. Slated to close June 17, the offering will consist of $500 million 3.625% senior notes due in 2015 and $500 million of 5.0% senior notes due in 2020. Genzyme says it will sell the debt to qualified institutional investors inside and outside the U.S. With shares down about 16 percent the past year, due in large part to manufacturing woes, Genzyme outlined the share buyback program May 6 as part of a five-part plan to increase shareholder value. CFO Michael Wyzga, asserting that the biotechs shares are undervalued, said Genzyme will purchase $1 billion of stock in the short-term, with plans for buying up another $1 billion by 2015. These purchases will be in addition to nearly $800 million in shares purchased under a 2007 buyback plan.--Joseph Haas

Otonomy: The San Diego hearing-loss startup said June 11 it raised a $10 million Series A from Avalon Ventures to continue its Phase I trial of lead compound OTO-104 for Meniere's disease, an inner ear disorder, and to fund preclinical work. That's roughly average for biopharma A rounds this year, not bad for a firm in a therapeutic field that drug makers have ceded to the device world, as our Pink Sheet colleagues noted recently. Is there pent-up medical need for pharmaceutical intervention? Note that the U.S. Department of Defense and Veteran's Administration together spend about $4 billion a year to cover hearing aids, tests, and evaluations for hearing loss and tinnitus. (There's also quite a market for aging rock stars.) Otonomy is openly pursuing partners for OTO-104 outside the U.S., but partnering deals in the hearing-loss space have been nearly nil so far. The only publicly-disclosed deal was in January. Novartis spent $5 million upfront for rights to GenVec's gene-therapy program to regrow hair cells in the inner ear. (Because of a different program, however, GenVec isn't doing so well.).-- A.L.

Photo courtesy of flickr user Andrew Turner.

DotW: Not Dead Yet

Obama's rousing speech on the issue of health care reform Wednesday night ensures that the issue is not dead yet. Given the number of democrats in Congress the odds of no bill passing hasn't really ever been the issue. The question has always been: can we get a bill passed that provides substantive change? Did those odds go up Wednesday night? Maybe.

They were certainly helped by Congressman Joe Wilson, whose outburst went a long way to proving Obama's point that the entire debate has been side-railed by incivility. (Though many have suggested Wilson must have confused Capitol Hill with Britain's House of Commons, Ezra Klein helpfully points out the infraction even broke the decency rules of our loud and unruly neighbors across the pond.)

True to form, Obama lost no time in seeking a teachable moment, using Wilson's quickly issued statement of regret to his advantage: “I do think that, as I said last night, we have to get to a point where we can have a conversation about big important issues that matter to the American people without vitriol, without name calling,’’ he said in response to questions from reporters at his Thursday Sept. 10 Cabinet meeting.

But despite checking off a number of boxes on a must-do list that included outlining both the dangers of maintaining the status quo and the specific advantages of his plan, many wondered in the aftermath whether Obama did enough for a cause that has become a linchpin of his presidency. Over at his blog at the New Yorker, Atul Gawande, whose work is now required reading in the Oval Office, soberingly summarized his take as follows:

"He checked all the boxes on my list. And yet I remain concerned that he may not have done enough. Our current health-care system—-bloated, Byzantine, and slowly bursting—-presents seemingly insurmountable difficulties. It is too big, too complex, too entrenched. What may be most challenging about reforming it is that it cannot be fixed in one fell swoop of radical surgery. The repair is going to be a process, not a one-time event. The proposals Obama offers, and that Congress is slowly chewing over, would provide a dramatic increase in security for the average American. But they will only begin the journey toward transforming our system to provide safer, better, less wasteful care. We do not yet know with conviction all the steps that will rein in costs while keeping care safe. So, even if these initial reforms pass, we have to be prepared to come back every year or two to take another few hard and fiercely battled steps forward."

Not very uplifting is it?

Outside of health care, the week was full of "not dead yet" moments. Swine flu is an epithet that continues to hog the limelight, despite pleas from Agriculture Secretary Tom Vilsack and the pork lobby. (Actually AP style says it's acceptable to use "swine flu" on first reference to H1N1. Seriously, we keep track via twitter.) Meanwhile, Almirall is determined to resurrect its COPD drug aclidinium. And then there's Dynavax's Heplisav.

In biopharma deal-making, the Elan-JNJ deal is certainly a candidate for "not dead yet" but the clock is ticking, with next Tuesday the deadline for the two companies to reach a resolution on their Alzheimer's collaboration after a potential side deal linked to Tysabri caused Elan's other partner Biogen to cry foul.

For more dealmaking antics of "not dead yet" biotechs (and a few healthy ones too) read on for an always looking on the bright side edition of...

Evolva/Arpida: Swiss biotech Arpida's pain is Evolva's gain. The two biotechs announced a tie-up this week that enables Evolva to go public via the reverse merger route. The event won't stand to give Evolva much liquidity: the company's existing backers, which include Aravis, Astellas Pharma, Dansk Innovations, and Novartis Venture Fund, plan to close an equity financing round prior to the merger. The good news is the round--which Venture Wire reports includes three undisclosed new European venture capital investors--should give Evolva plenty of dry powder for the next couple of years, meaning the company won't have to try and tap the public markets for cash. According to VW, the biotech has already reeled in more than $24 million in commitments toward that round. According to reports, the boards of both companies have recommended the deal to their respective shareholders; with the merger, Arpida shareholders will own one third of the combined company, which will trade on the Swiss stock exchange under the Evolva name. The news is the official death knell of Arpida, which has suffered since an FDA advisory committee recommended last November that additional clinical data would be required for the approval of the biotech's intravenous antibiotic iclaprim, which is designed to treat complicated skin and skin structure infections. Nor does it sound like Evolva will attempt to resurrect iclaprim. The focus of the combined company will be on Evolva's pipeline, which include a renal/arterial thrombosis-targeted treatment in Phase I and preclinical programs for influenza and fungal infections. In a press release announcing the news, André Lamotte, Chairman of Arpida’s Board of Directors, noted the tie-up is "expected to generate [the] most value for Arpida’s shareholders." Oh really? We'd only note that reverse mergers have a mixed track record.

Biotechnol/Digna Biotech/Genentech: Despite management changes that appear to upend the scientific culture at Genentech, making it worthy of the appelation Rochentech, Genentech is not dead yet, announcing an out-licensing deal to a biotech consortium with locations in Portugal and Spain. Under the terms of the deal, Biotechnol and Digna Biotech will develop and commercialize Cardiotrophin-1 for potential use in specific liver indications, gaining full access to Genentech's CT-1 IP in return for paying an undisclosed up-front. If CT-1 proves to be a major success story, Genentech (and by extension, Roche) isn't shut out of future upside either. The big biotech has an exclusive option to development and commercialization rights to CT-1 proteins in the liver disease arena. If it exercises said options Genentech will have to reimburse the consortium its development costs and pay pre-agreed milestone payments and royalties on sales.

Genzyme/Targeted Genetics: Targeted Genetics is still on life support, but refuses to go gentle into that good night. (We hereby nominate the company for DOTW's award for best interpretation of the Black Knight.) Whether the company has found the holy grail to success is another story. As Luke Timmerman at Xconomy reports, the biotech pulled itself back from the brink with an 11th hour deal, selling off its most valuable intellectual property--its gene therapy manufacturing and adeno-associated viral vector technology--to Genzyme for $7 million. There's probably no other biotech that typifies the boom to bust, scrappy nature of biotech than Targeted Genetics, which spun off from Immunex in 1992 in the heyday of gene therapy's hype, has yet to cure anything, and has burned through more than $300 million in investor capital. But even this deal still means the company is running on fumes. Targeted Genetics gains just $3.5 million at the deal's close and another $3.5 million in installments tied to the successful completion of "specified transfer plan deliverables." Even as most other big pharma and big biotech tread cautiously when it comes to risky technologies such as stem cell therapy and gene therapy, Genzyme has been one of the few early adopters as it attempts to bolster its technical capabilities beyond the comparatively simple field of enzyme replacement therapy. Among the Big Biotech's gene therapy deals: two tie-ups in 2007, including one with Fovea for a gene therapy for retinal dystrophies and a manufacturing deal with Chinese biotech Sunway to help produce Genzyme's gene therapy candidate, Ad2/HIF-1a, being studied as a treatment for peripheral arterial disease. It's possible the Targeted Genetics deal is a recognition by Genzyme that it needs help with its AAV manufacturing process (In 2007, Genzyme brought in Sunway to design, fund, and perform Phase I and Phase II trials in China for various forms of PAD, with Sunway producing the molecule for clinical trials using Genzyme's manufacturing process.)

Abbott/Evalve: Percutaneous heart valves represent one of the hottest areas in the cardiovascular device industry today. What was once a one-on-one competition between a small company (Corevalve) and a big one (Edwards Lifesciences) is now turning into a clash of Titans. In March, Medtronic paid almost $1 billion to become the dominant player in the market for percutaneous aortic valve repair, via its acquisitions of European market leader Corevalve and next-generation company Ventor Technologies. Now Abbott enters the game, offering $730 million ($320 million in cash and potential milestones worth $410 million,) for Evalve, which is years ahead of competitors in the market for percutaneous mitral valve repair, a market that dwarfs that of aortic valve repair and replacement. There are 8 million people in the US with significant mitral valve regurgitation and 600,000 new cases diagnosed each year. If these numbers sound very similar to the immense problem of heart failure, that’s no coincidence. MR is implicated as both a byproduct and a cause of chronic heart failure. Evalve’s MitraClip is the first non-surgical mitral valve repair device on the market—in 7 countries in Europe--and a US approval is anticipated early next year. Abbott announces this new purchase for its interventional cardiology division on the heels of the launch of its Xience drug-eluting stent, allowing the company to capitalize on its popular stent to build a bigger cardiology business not wholly reliant on DES, a dependency that hurt competitor Boston Scientific because it had no second act after launching its Taxus stent. Abbott won’t be exposed to the same risk; for one thing, much of its market cap is sustained by its pharmaceutical business, and in devices, it’s clearly not just going to sit on its laurels. --Mary Stuart

Facet Biotech/Biogen: Just days after Biogen Idec went hostile in attempt to take over partner Facet Biotech, the object of its $355 million affection offered a strongly worded rejection. Facet was once the R&D side of PDL, a pioneering biotech that held key patents underpinning several top-selling humanized monoclonal antibodies, including Avastin, Herceptin, and another drug much in the news, Tysabri. Recall that PDL split in two last year, with the so-called Queen patents going into a holding company that kept the PDL name, and the R&D shop adopting the moniker Facet. In addition to $375 million in startup cash from PDL, Facet also received a pipeline that included two compounds which are co-owned with Biogen Idec since 2005: daclizumab for multiple sclerosis and voloxicimab for solid tumors. Perhaps Biogen, under the leadership of new biz dev head Michael Lytton, saw an opportunity to rebuild its multiple sclerosis franchise (regaining 100% of Tysabri will also help). Last month the Massachusetts-based biotech made an unsolicited offer of $15-a-share. After Facet agreed to in-license a CLL therapy from Trubion in late August, Biogen played hardball, dropping its offer $0.50. Facet management said Biogen's latest offer, which is roughly equal to the cash and equivalents Facet held as of June 30, "places no value" on its clinical and preclinical programs. Is this simply grandstanding by Facet to drive the deal price upward? (If so, can you blame them?) As we noted in this Pink Sheet Daily story, it appears Biogen can afford to go higher. Based on Facet's on-hand cash and current burn rate, Geoffrey Meacham at JP Morgan estimates the $355 million offer would cost Biogen less than $50 million when all is said and done.

Gray Sheet: CDRH Director Resigning Amidst Controversy

Courtesy of our friends at 'The Gray Sheet' we've heard that CDRH Director Daniel Schultz is leaving FDA.

Gray says that Schultz is "resigning from the agency after discussions with new FDA Commissioner Margaret Hamburg, the longtime FDA employee told staff in an Aug. 11 memo."

Schultz and the new FDA chief came to a "mutual agreement" that his resignation "would be in the best interest of the center and the agency." The decision isn't a shocker: the center--formally FDA's Center for Devices and Radiological Health--has been at the center of corruption allegations. Schultz and other FDAers have been accused of "coercing and intimidating staff into modifying device evaluations," Jessica Bylander writes for Gray. Schulz has been with FDA since 1994 and has been director at CDRH since 2004.

Read more at Gray Sheet's blog Medical Devices Today.

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

Milk..Check, Eggs...Check, Corevalve...Check

Let the bidding begin.

You just know Medtronic's $1.03 billion buying spree is only the beginning, not the end, of the long-anticipated land grab around the percutaneous valve replacement field with its two major sub-markets: aortic and mitral valve devices. There has been a lag of several years since Edwards Lifesciences did the first major deal in the space, acquiring aortic player Percutaneous Valve Technology (PVT) in late 2003. But the promise of the market has continued to grow as investment remained active, technology improved, and the competition increaed.

Give Medtronic credit for the executing the old "shock and awe" routine with perfection, by picking up a pair of percutaneous players in quick succession CoreValve Inc. and Ventor Technologies Ltd., but battles aren't won with the biggest strike, no matter how impressive.

Consider the opportunities in the aortic market alone. Industry data suggests the cases of aortic stenosis will hit 4.6 million in the year 2030, almost double the cases in 2000. But the real growth comes in treating the roughly one-third or one-half of patients who currently couldn't survive an open-heart procedure.

It's that potential that's pulling Edwards Lifesciences, St. Jude, and now, most vigorously, Medtronic into building armamentariums of devices to tackle both percutaneous valve replacement markets. This was fantastic news for CoreValve and Ventor investors as the folks at Dow Jones Venture Capital Dispatch can attest.

For Medtronic, these deals represent not just an investment in technology building because in CoreValve, it is getting a company that is already competing aggressively in the European aortic market, where CoreValve's smaller-sized system is running neck-and-neck with long-time leader, Edwards.

But just as we saw in the atrial fibrillation market recently, additional acquisitions are the sincerest form of flattery. (Medtronic, once again, aggressively snapped up two of the more promising business, CryoCath and Ablation Frontiers.)

So we turned to our colleagues at Medtech Insight for the goods on what percutaneous aortic valve companies might be the target of future acquisitions and topic of future headlines. For the full story on these aortic players, please check out the January issue of Medtech Insight for the technical and operational challenges facing the percutanous aortic valve replacement field. (And for those eager to understand the potential in the percutaneous MITRAL valve replacement industry, feel free to check out Medtech Insight's cover story in the current issue here.)


And here's the field of potential acquisition targets...

Direct Flow Medical Inc. Direct Flow Medical's Aortic Valve Prosthesis expects to initiate first-in-human trials by May of this year and obtain a CE Mark by the end of this year, enabling it to possibly have a device on the market by 2010. The Aortic Valve Prosthesis consists of a trileaflet bovin pericardium valve encased in a tapered, conformable polyester fabric cuff. It contains no metal, making it unique among the offerings.
CAPITAL RAISED: $35 million
EXTREMELY HAPPY INVESTORS (EHIs): Foundation Medical Partners, EDF Venturers, New Leaf Venture Partners, Spray Venture Partners, Vantage Point Partners and ePlanet Ventures. Oh, and a little company called Johnson & Johnson Development Corp.

Sadra Medical Inc. Sadra recently completed first-in-human studies in Europe on its Lotus valve system., a repositionable, retrievable, self-expanding transcatheter aortic valve. The company expects to begin a European feasibility study in the second half of this year.
RAISED: $20 million since 2003.
EHIs: Oakwood Medical, Onset Ventures, Pequot Ventures, SV Life Sciences. Boston Scientific invested in 2006.

JenaValve Technology Gmbh JenaValve hopes to have a CE Mark for its foldable porcine valve by the end of this year.
RAISED: $20 million since the start of 2006.
EHIs: Atlas Venture, Edmond de Rothschild Investment Partners and NeoMed.

That's just a sampling, but keep an eye out for AorTech International, Heart Leaflet Technologies Inc., Cormove, and Advanced Bio Prosthetic Surfaces Ltd.

Image courtesy of flickr user lonelysandwich through a creative commons license.

Big Tent for Stent Trial Is All About Predictability of Results

Eight large product companies--including the top four drug-eluting stent (DES) companies, Abbott, Cordis, Boston Scientific, and Medtronic, as well as drug companies Bristol-Myers Squibb and Sanofi Aventis, makers and co-marketers of current anti-platelet blockbuster Plavix, as well as Eli Lilly and Daiichi Sankyo, co-developers of the much anticipated prasugrel—are collaborating on a large-scale, $100 million clinical trial assessing late-stent thrombosis.

That's interesting, we suppose, but hardly surprising and not likely to lead to any remarkable findings. Rather, it is the very predictability of the study’s likely results that is, we’d bet, what’s brought everyone to the table.

For one thing, the role of anti-platelet therapy following DES implantation has been aggressively studied for years and got a boost when the whole late stent thrombosis (LST) debate took off a couple of years ago. And every study, including several presented at this year’s TCT meeting in Washington DC where the news of the launch of the new study was announced, has shown the same thing: yes, patients face a much lower risk of LST when they stay on their meds for some period of time.

The new study may determine what the optimal Rx regimen is, but the notion that patients need to follow that regimen is what everyone’s betting will come out of the new study—and it’s hardly news. Only the direct opposite—that staying on an anti-platelet therapy has no impact on LST—would register as anything like a surprising result.

Moreover, what the WSJ called “an unusual display of collaboration,” among the companies—unusual, presumably, because they’re all fierce rivals in this space--is also hardly that. There’s no competitive issue at all here. All eight of the product companies are hoping and betting that the study results prove the clinical value of aggressive anti-platelet therapy—the drug companies, because they want to sell more drugs, the stent companies because they would like to show, once and for all, that the LST problem is more about the use of drugs than the use of stents and, more importantly, that the problem of LST is treatable with drugs.

Indeed, this could be an important study for both the Pharma and Device companies, but more so for the latter, if it conclusively demonstrates that physicians need not be concerned about putting their patients at risk by implanting a DES—if it proves to be the kind of large, definitive study that everyone called for when the LST crisis first broke.

But unless the study shows that one or two of the four stents being studied have substantially lower LST rates when the patient follows the appropriate drug regimen, there won’t be much of a competitive impact—this will be the rising tide that lifts all boats. And again, just based on earlier studies—LST has also been much studied in DES trials, particularly in the last two years—while head-to-head comparisons of various DES have shown different rates of stent thrombosis, they haven’t been meaningful.

In fact, if anything, the study’s risk, especially to DES companies, may lie not in findings that would show one stent superior to another, but just the opposite: findings that basically confirm everything we already know. The LST scare that burst onto the scene two years ago following data reported by Swedish researchers based on a Swedish patient registry was the device industry’s equivalent of Vioxx: a safety concern that caused havoc with what was once believed to be a blockbuster product category.

Drug-eluting stents are still the device industry’s one true blockbuster product. But the market has contracted—from $6 billion and growing a couple of years ago to $5 billion and stagnant—and reports from this year’s TCT suggest that while DES use has rebounded, that rebound has been mighty small.

The LST debate has been the leading cause of the contracted market. (Improvements in bare metal stents have also cut into DES sales, but only because of their implications in the LST debate.)

$100 million isn’t much spread among 8 companies, but only if, as stent companies hope, this kind of large, high-profile study conducted by a prestigious research organization, finally puts to rest the LST debate. If it doesn’t, if it simply raises calls for more studies looking at similar data—which is what’s happening a lot lately in cardiovascular circles—it could be a problem. --David Cassak

image of Taxus stent courtesy FDA via wikimedia commons.

Acclarent, By a Nose

Maybe Acclarent Inc. knows something we don’t.

Okay, let’s skip the obvious nasal puns. Acclarent—which is selling a device to treat sinusitis—might salvage what has been an absolutely dismal year for medical device VCs. The four-year-old device company ignored all the stop signs and filed to go public last week. No terms of the offering have been set.

Medical device investors would welcome any lucrative exits at this point. One medical device VC says he’s having a hard time looking his biopharma bretheren partners in the eyes these days. The biopharma folks are racking up big exits, primarily by selling their portfolio companies to industry leaders. Acquisitions, of course, have been the device VC's best friend in the past. The problem is, nobody is buying venture capital-backed device companies these days. Big device companies aren’t willing to place big bets and make big-time purchases in this questionable market.

The IPO market has been just as dismal for everyone. As we noted in our earlier post, CardioNet was the last venture-backed health care company to go public. It’s doing fine but so many other recent IPO companies are sagging under single-digit stock prices.

But Acclarent’s confidence isn’t the real story here. Founded in 2004, Acclarent is the spawn of an incubator (accelerator, whatever you’d like to call it) run by serial entrepreneur Josh Makower and backed by mega-venture fund New Enterprise Associates. Acclarent’s origin is a classic inventor’s tale as reported by colleague Steve Levin in this article.

For many serial entrepreneurs, one of the most difficult challenges is finding their next project. For Josh Makower, MD, who had launched device start-ups Endomatrix (incontinence; acquired by CR Bard Inc.) and TransVascular (cardiovascular; acquired by Medtronic Inc. ), the answer was right under his nose. A long-time sinusitis sufferer, Makower was frustrated with the existing standard of care for treating this condition.

Acclarent developed a small balloon that could be inserted deep into the nostril and inflated, opening up sinus passages and relieving the pressure associate with sinusitis. Since the traditional treatment involves highly invasive surgery that calls for cutting and removing bone and tissue to get at the sinuses, the company’s approach would seem like a no-brainer. But the company’s success depends largely on its ability to convince ear, nose and throat surgeons to be open to game-changing innovation.

We wouldn’t bet against Acclarent. In 2005, the company received FDA approval for the device. In 2006, it launched the device in the US and obtained a CE Mark. By 2007, it had an international sales effort in place. As of the end of last month, 3,000 surgeons have been trained on using the device.

However, Acclarent is a story, not a profitable enterprise. Over the first three months of the year, it brought in $10.2 million in cash but had a net loss of $8.6 million. It’s also carrying a deficit of $62.5 million.

Conventional wisdom suggests Wall Street wants proven businesses, not stories. Yet Acclarent obviously holds other opinions, or at least is positioning itself to be acquired by a larger player.

Either way, the company stands to be a huge win for NEA, which owns 44% of the company. Versant Ventures and Meritech Capital own 15% and 8%, respectively.

All together, Acclarent raised more than $70 million from investors. True, that’s a significant sum for a medical device company, but the quick sprint Acclarent made from start-up to IPO candidate not only puts its VCs in a good position for a strong return on investment, it also serves as another example of incubators bearing fruit for their VC sponsors.

For more on the tightening relationships between venture firms and incubator programs go to our START-UP here.

image 'By a Nose' from flickr user Chris Breeze used under a creative commons license.

While You Were Nice to Your Mother

Happy belated Mother's Day to all you moms out there. To help celebrate a day late, here are some tidbits of (completely stereotypical) motherly advice tied to a few industry happenings over the weekend.

• The squeaky hip gets the grease. Sunday's New York Times carries an article about artificial hips and the sometimes unwanted squeaking that can result with newer, ceramic, replacement joints. Merely an annoyance or a potential hazard?
• Don't drool! (or, Wipe your face!). Also from the NYT, in the event you don't like the novacaine-induced hour or so of numbness that follows a visit to the dentist, you're in luck. FDA just approved OraVerse, an injectible formulation of the antihypertensive phentolamine, which reverses numbness by dilating local blood vessels which whisks away the anesthetic.
• Don't count your chickens. A late Friday addition to FT.com explains why Sanofi and BMS shares were under pressure at the end of last week. Another generic Plavix may be about to enter the market, this time in Germany. European sales of Plavix were about $3 billion last year, according to the potential source of the generic, Schweizerhall Holding.
• Always wear clean underwear. Merck and Indian generics co. Ranbaxy have inked a deal to discover and develop anti-infectives. You really never know who's going to see them.
• It ain't over 'til it's over (applicable if your mother is Yogi Berra). Yes, Pittsburgh fans, we know the Flyers are in a 2-0 hole.

photo from flickr user shoothead used under a creative commons license

An Unhappy Face Book for Pharma

The government’s got a new type of social networking site under consideration for pharma. It is likely to create a list of key names and contacts which will generate a lot of sad faces.

Pharma will not want to list its friends and the friends would rather have some relationships be not quite so public.

Pharma companies may not have been paying much attention to developments in the medical device field. They should pay a little more attention to the new rules for disclosing consulting relationships between medical device companies and their consultants, including their agreements with doctors for speaking arrangements and market advice.

In September of last year, four medical device implant manufacturers (Zimmer, DePuy Orthopaedics, Biomet, Smith & Nephew) signed agreements with the US Attorney’s Office for New Jersey to address allegations that the firms had used “consulting agreements, lavish trips and other perks” as marketing and sales tools.

The companies signed the “Deferred Prosecution Agreements” and made payments totaling $311 million to avoid further court proceedings on the charges.

To use the power of publicity as a restraining tool, the prosecutors called for the companies to create lists of all of their outside paid consultants and post it prominently on their websites. (See here for a link to the 14 pages of Zimmer's consultant listings.)

This is a stripped down type of social network: Zimmer’s key contacts, where they are located (city and state) and how much the device company paid them in the last year.

One listing for Zimmer, for example, is Robert Booth, the chief of orthopaedic surgery at Pennsylvania Hospital and one of the surgeons who worked with Zimmer on the NexGen Legacy Knee and a knee designed specifically for women. Booth is listed as receiving over $1.8 million from Zimmer in the ten months of 2007 through October.

The government now wants to apply its new web spotlight approach on pharma companies and their relationships with the medical community.

Greg Demske, assistant inspector for legal affairs at the Health and Human Services Office of the Inspector General, told a Senate Special Committee on Aging hearing on February 27 that the OIG “is considering requiring similar disclosure requirements in future CIAs [corporate integrity agreements] with device manufacturers and pharmaceutical companies.” (See here for Demske's testimony.)

That’s a nice way for OIG to warn pharma companies that the next negotiations with OIG over a fraudulent marketing practices agreement or over alleged inappropriate gifts or inducements to doctors will lead to the requirement that the drug company publicize all of its contacts and grants/payments to the medical profession.

Zimmer is taking the corporate responsibility seriously after its run-in in the New Jersey settlements. The company testified to the Senate Aging Committee that it would take further steps to distance itself from the recipients of its largesse.

"With respect to Zimmer’s future funding of medical fellowships, residencies, and general educational programs,” for example, the company testified that “we plan to make cash donations to one or more appropriate, independent third-party institutions. These third-party institutions will choose the programs and applicants that will receive Zimmer funding globally. Zimmer will have no control or influence over the selection of the ultimate recipients of these funds.”

The company also embraced the “Physician Payments Sunshine Act” introduced by Senate Special Committee on Aging Chairman Herb Kohl (D-Wisc.) and Iowa Republican Charles Grassley. Zimmer says that it is looking forward to the sunlight and public disclosure from its agreements and the Congressional action.

Some lucky pharma company is likely to be next in welcoming the chance to create its facebook of contacts.