Get on the Brand Wagon

The new rules of drug safety mean that sponsors will have a lot to think about when they submit an NDA to the Food & Drug Administration. But while there’s a lot of new policy coming, companies shouldn’t overlook changes to the way they make one of their most basic decisions—what to call a newly approved product.

The brand name is a small part of the overall NDA. But it’s quite unsettling when FDA denies a sponsor its preferred option for a new drug name—sometimes wiping out years of brand name recognition. (Sanofi-Aventis’ obesity drug rimonabant—Zimulti, née Acomplia—is a good recent example.) And there’s always the odd case of a product that’s approved without an agreed-upon trade name—a disaster for any marketing department.

The Onion, of course, was way out in front of this

The process by which companies obtain FDA approval of a proprietary name has been pretty straightforward. Drug companies submit up to two names for review, and the agency tests for potential medication errors, as well as false and misleading claims. Sponsors can usually expect to hear back from FDA within 90 days of the user fee date—but there are always examples of reviews that take much longer.

But all that’s about to change.

Under a pilot program proposed in the Prescription Drug User Fee Act reauthorization package, the responsibility for testing brand names would shift from FDA to the drug sponsor. In exchange, FDA would commit to completing its review within a set time period. In essence, that would make the system more predictable for drug sponsors—albeit a bit more expensive. The RPM Report has covered this topic extensively; for more complete coverage, read this story and this story.

Want to learn more? The RPM Report is co-sponsoring an audio conference on this very topic with the Food & Drug Law Institute next week. Experts from FDA and industry will be on hand to answer all your questions about the changes to—and challenges of—getting a drug name vetted by the agency.

Our expert panel includes Debbie Henderson, FDA’s director of executive programs at the Center for Drug Evaluation & Research; Jerry Phillips, director of the Drug Safety Institute and the former head of FDA’s Division of Medication Errors & Technical Support; and Bob Lee, assistant general patent counsel at Eli Lilly.

The audio conference, “Naming Drugs: The Pharmaceutical Brand Name Challenge,” will be held on Wednesday, July 18 from 1 pm-2:30 pm. Registration information can be found on FDLI’s website at http://www.fdli.org/conf/413.

Big Pharma R&D Becomes Business Development …or at Least BD Now Runs Research

Lot of changes in business development recently.

In a management tiff, long-time Big Pharma dealmaker Tamar Howson rather unceremoniously left Bristol-Myers Squibb, where she’d been running worldwide business development, ending up at Bristol partner Lexicon Pharmaceuticals. Bayer-Schering, aiming again for top tier status, replaced veteran biz dev boss Chris Seaton with Michael Yeomans, ex-Aventis, via Biovail. A few weeks ago, Victor Hartmann, who in early 2005 had bailed on the top BD job at Novartis to take a flyer running BD at Vertex, left the biotech as unceremoniously as Howson left BMS; the IN VIVO Blog has got only hearsay reports on why, so we’ll leave well enough alone.

Look Out Below!

As far as our limited insight can tell us, none of these changes indicate much beyond the fact that grease coats the rungs of corporate ladders. But now news from Johnson & Johnson does reflect something we’ve long argued but which companies have been very slow to internalize structurally: Big Pharma R&D has become business development.

That’s why we’re so interested in the fact that J&J’s drug business has made its chief licensing honcho Tom Heyman head of discovery for the biggest R&D operation in its newly reorganized three-headed drug business. Heyman will be running discovery and early development for J&J's CNS/Internal Medicine Franchise, which incorporates its La Jolla, Pennsylvania/New Jersey and Belgian research sites.

Now, except for one fact, such a move wouldn’t be unprecedented. GlaxoSmithKline certainly gave its R&D organization a business development message when in 2006 it appointed its BD head, Moncef Slaoui, to run the R&D organization. But Slaoui at least had a research background; he's got a PhD. Heyman isn't a scientist at all: he’s a former patent attorney for Janssen.

Apparently this is just fine with Heyman’s new boss, Paul Stoffels, who most definitely is a scientist and one who understands the value of a business development--and an outsider's--perspective. Stoffels is the former Janssen researcher who turned some stagnating work at his former company, plus some new innovation, into a biotech called Virco. Virco in 2001 merged with fellow Belgian biotech Tibotec, and J&J purchased the combined company a year later, once Stoffels & Co. had proven its value, for some $320 million. Stoffels – following a J&J tradition – joined J&J, which hopes he can do what his predecessors clearly couldn’t.

And apparently one thing he wants to do is to make sure J&J’s discovery has a definite external spin. Heyman's certainly got the background to apply the spin; whether the organization accepts it -- from a non-scientist -- is another question.

Mitchell Goes To Washington

Tip of the cap to today's PE Week Wire (can't link to an email but go to PE Hub) for this one. Familiar face Kate Mitchell, managing director at Scale Venture Partners (formerly BA Venture Partners),will be representing the PE industry Wednesday at a congressional hearing on the proposed carried interest legislation.

While she primarily invests in software and business services companies she's also walked within life sciences circles from time to time, including investments in Acusphere and Songbird.

The very personable Mitchell serves on the board of directors of the National Venture Capital Association. Also testifying before the Senate Finance Committee will be representatives from Treasury, the SEC, the Congressional Budget Office and Mark Gergen, a University of Texas Law School professor, who, according to PE Week Wire, will argue in favor of taxing carried interest at 35% rather than 15%

Alnylam/Roche: IP, IP, Hooray!

Alnylam and Roche's major alliance in RNA interference could be worth more than $1 billion plus royaties to the biotech company. Unusually for an RNAi deal, those biobucks terms aren't completely back-end-loaded, and Alnylam will walk away on close with $331 million in upfront payments.

Two minutes in the penalty box up-front, with up to
twenty-three hours in total potential penalty minutes

So what does $331 million buy these days? Roche is taking a roughly 5% stake in the RNAi company, buying 1.975 million shares at $21.50 apiece, a more than 40% premium to the company's Friday close (though below the company's 52-week high). (Those shares--already turning a profit--are subject to a two-year lockup, and the companies agreed to a three-year standstill agreement.) Roche is also snapping up Alnylam's European research site in Kulmbach, Germany, complete with 40 employees, which Alnylam values at $15 million.

That leaves roughly $275 million, which covers Roche's non-exclusive license to all of Alnylam's existing IP in four therapeutic areas: oncology, respiratory diseases, metabolic diseases, and a subset of liver disease (Alnylam will collaborate with Roche on one or more targets within those areas). Roche can tack on additional therapeutic areas, for a price.

That's a lot of dough considering Alnylam can turn around and license its IP in those same areas tomorrow to another pharmaceutical company. According to CEO John Maraganore: "The license to Roche is non-exclusive, so the targets they can work on , as long as they haven't been exclusively licensed to other partners, Roche can pursue. But we are free to license those same fields to other third parties and we are free ourselves to work on any targets in those fields."

Talk about monetizing IP. This alliance changes the game in RNAi, which until the 2006 headline grabbing acquisition of Sirna Therapeutics by Merck had been a field dominated by deals boasting big-biobucks figures but small upfront payments.

Earlier this year we talked about the proliferation of RNAi technology beyond the confines of Alnylam and Merck, thanks to a surge of investment and drug development advances. It is this phenomenon that has enabled companies like Silence Therapeutics (nee SR Pharma) to strike its RNAi deal with AstraZeneca, certainly a validating moment for that biotech. But it remains a relatively select club compared to the various protein therapeutics-enabling technologies available as antibodies began ot hit their stride. Can purveyors of other technology platforms emulate Alnylam's success?

As we asked then: is there enoughRNAi IP to go around? Apparently there is, but it's pricey. We'll have more on these deals in the next IN VIVO.

Higher Tax, Fewer Deals?

The IN VIVO Blog has been somewhat mum on the carried interest debate. Frankly, this topic is being covered to death elsewhere (The link goes to PE Hub but there's no shortage of discussion.)

This topic is important, no doubt, crucial even, but Mom always told us if you don’t have something fresh and interesting to blog about than it’s better not to blog at all. (Well, she would have said that.)

So we’ve been asking around a bit, trying to get a sense from our VC community on the potential impact of these changes. To be honest, the change put forth by the Democrats didn’t really sound the alarm bells in our virtual hallways. But the same apparently isn’t true in the actual hallways of VC firms investing in life sciences. IN VIVO Blog expected VCs to answer queries with a “Congress will be Congress” attitude similar to the one put out when discussing changes at the FDA or CMS.

But there’s some genuine concern here. No question, much of that concern most likely has to do with a diminished paycheck. But there’s some fear surrounding the impact these changes could have on the availability of capital.

An email from one West Coast VC:

I really believe that these proposed new taxes will make it so that some new companies will not get funded. These taxes essentially raise the cost of capital and if the returns are not there to the GPs then they will not get funded eliminating many high risk or sometimes questionable deals. One has to remember that often deals look promising and then don’t make it while the opposite is true as well but maybe not to a greater extent. If the cost of capital is high then those marginal/high risk deals won’t get done.

It is the same concept as lower interest rates and lower borrowing hurdles allowed the housing market to boom. If the cost of capital rises then it eliminates those who are at the margin. The same is true in our business. Those on the margin lose—fewer jobs and lower growth.

The suggestion that this could eliminate “many high risk or sometimes questionable deals” rings true and does sound an alarm. After all, doesn’t that describe most biopharma deals and a good deal of device companies as well.

Could this change in taxation have a particularly detrimental impact on the life sciences industry, pushing VCs even further away from funding true start-ups? Even worse, would this aggravate the diversion of dollars away from smaller, venture capital firms looking to do these deals. Or perhaps, as A VC Blog suggests, the best VCs will just invest their own money, forget the institutional dollars.

A VC Blog also had what I thought to be a very thoughtful position later on.
Mom did teach us not to covet other people's stuff, so the "Tax the Rich" crowd won't get a sympathetic ear here. Still, the suggestion that the GP's carry on "other people's money" goes beyond that simplistic idea. The idea that this income should be taxed as salary isn't that far out (or far left) as some would like it to appear.

We’ll update with interesting points of view as we continue to talk to folks. But don't feel like you need to wait for a phone call. Consider this an open invitation to opine on what impact the suggested changes will have on the life sciences industry.

While You Were Dominating the Competition

If you were too busy playing in the Wimbledon semis and finals this weekend (or maybe just watching) to keep up with the news, IN VIVO Blog is here to help.

• Inhibition! Some news out of the International Society on Thrombosis and Haemostasis in Geneva this weekend. First up, Bayer's rivaroxaban was significantly more effective than Sanofi-aventis' Lovenox in preventing blood clots after knee surgery, Reuters reports. Rivaroxaban, a Factor Xa inhibitor, is being developed with Johnson & Johnson. Another Factor Xa inibhitor, Pfizer and BMS' apixiban (which is approximately a year behind rivaroxaban in development), also posted solid results, in a mid-stage trial. Reuters has the story.
  
• Indecision! UK's National Institute for Clinical Excellence (NICE) has changed its mind, and now considers Eli Lilly's Alimta cost-effective in treating mesothelioma in certain patients.


• Interference!! Roche and Alnylam announced this morning a broad alliance in RNAi therapeutics, worth up to $1 billion. Alnylam gets $331 million up-front in cash and equity payments. We hope you're not all RNAi'd out cause there'll be more on this later ...

Moody's Blues

European pharmaceutical companies may soon find themselves in a bind at the bank.

The credit ratings company Moody's Investors Services said yesterday that high credit ratings for these companies could soon be a thing of the past, as companies like AstraZeneca and Shire use debt to finance their acquisitions of expensive biotech companies.

What's the catalyst for the Moody's report? Nothing specific as far as we can tell, aside from the acquisitions mentioned above and others, such as Merck KGAA's takeout of Serono last year. Moody's has simply woken up to the facts that a) pharmaceutical companies aren't very good at keeping their pipelines full all by themselves and b) those companies they turn to--the biotechs--have all the leverage in deal negotiations, resulting in top-dollar takeout and alliance prices. Many future deals could, like AZ's Medimmune buy, be financed with debt; that said debt will become more expensive is bad news.

For an industry with generally pristine credit ratings this "moderately negative" outlook isn't going to rock the boat too much. But at the same time as Big Pharma increasingly borrow to buy back their own shares and bulk up pipelines, it's another sign that things aren't what they used to be for several of the industry's blue chips. If borrowing becomes much more expensive and patent expirations tweak cash flow, the decline could accelerate.

Hat tip: Reuters, via Pharmagossip

AZ, Silence team up in RNAi

AstraZeneca is joining the RNA interference crowd via a deal announced earlier today with Silence Therapeutics (formerly SR Pharma/Atugen). AZ will pay the biotech an upfront fee of ₤7.5 million, two thirds of which is an equity investment in Silence at 146p/share, a 10% premium to the company's recent share price. The companies will focus on respiratory diseases, discovering and developing proprietary siRNA molecules against up to five targets over three years.

The alliance is certainly small potatoes in comparison with the Big Pharma's embrace of other large molecule technologies (see MedImmune etc.), but not wholly out of synch with the vast majority of deals in the RNAi space. Until the conspicuously high-value takeout of Sirna Therapeutics by Merck & Co. last year, just about every siRNA agreement was back-end loaded. With up to $400 million in fees and milestones this one is no different. A more apt comparison would be GSK's April 2006 deal with Sirna in the respiratory area, which netted the biotech only $12 million up-front (half in exchange for equity).

For Silence the AZ backing provides not a small degree of validation in a space that's quickly becoming crowded with variations on a technological theme and a multitude of IP skirmishes. Moreover respiratory disease is not Silence's singular focus--IN VIVO Blog is anticipating a bigger deal in the oncology area. Our most recent coverage of the RNA interference space is here.

Phase II is the new Phase III

It's what you might call a slow news day for us so we figured we would dip back into our colleague Roger Longman's presentation from our Euro-Biotech conference last week. Roger's on vacation, see, so he can't stop us from pilfering his slides.

One of the points he emphasized during his talk and illustrated with some data from our Strategic Transactions Database is the idea that products that have cleared clincal proof-of-concept, i.e. the Phase II hurdle, are attacting the kind of deal dollars only seen previously for Phase III-stage products. The value of relatively scarce Phase III products these days is another thing altogether.

Taking a look at this phenomenon using upfront payments as a proxy for deal value, above, and you can see what we mean. So while those biotechs that excel at drug discovery can in fact sustain themselves by selling IND-stage candidates, which we pointed out last week, others can play on the next valuation inflection point at proof-of-concept.

Are Phase II deals a remotely new feature of the biopharma dealmaking landscape? Of course not. But the volume of deals for Phase II products has shot up in the past few years, and upfront payments are simply booming. A few recent examples include Novartis and Antisoma's deal around the oncology product AS1404 ($75mm up front), Bayer and Regeneron's deal on ex-US rights to Regeneron's VEGF-trap product in ophthalmology ($75mm u/f), and going back to last summer, Johnson & Johnson's ex-North America, ex-Japan deal for Vertex's hepatitis C protease inhibitor ($165mm u/f). Follow the links to a more detailed analysis of each deal.

Various pharma execs have chalked the rise in Phase II prices up to their own companies' inability to reliably and predicably get products through proof-of-concept themselves. This is excellent news for clinical-stage biotechs. A few, like CNS-focused Synosia, have set themselves up as proof-of-concept specialists, in-licensing compounds in preclinical or IND or even Phase I, shepherding them through a human efficacy trial, and licensing them on for a significant profit.

Dalton Joins Pfizer

The make over of the corporate VC world continues.

IN VIVO Blog has recently learned that Pfizer Inc. brought aboard Barbara Dalton, formerly of SR One and EuclidSR, to lead its Pfizer Strategic Investment Group. In hiring Dalton, Pfizer is sticking with the decision to be represented by professionals with experience on the front lines of venture capital investing rather than shuffling people out from the corporate side of the business.

Dalton joins Debra Yu, formerly of Delphi Ventures and Bay City Capital, who helped start the group three years ago. She replaces Ilya Oshman. She’ll report directly to Ed Harrigan, senior vice president of worldwide licensing and business development. “We are certainly pleased to have Barbara join us – she brings a great deal of experience, is very well-respected in the field, and will surely put her stamp on Pfizer’s venture investment group,” Harrigan told IN VIVO Blog in an email.

Pfizer is taking a unique approach with this venture effort. First, as we stated earlier, it’s bringing in outside people with venture investing experience and, more important, connections. To be sure, any VC or chief executive will return a phone call from Pfizer. But the program clearly benefits from having familiar faces represent in the field at conferences and other venture gathering places.

Second, from the very first day the venture group steered clear of Pfizer’s internal research and development wheelhouse—pharmaceuticals—as well as some external efforts (remember the Pfincubator and our other posts?). Instead, the group sought to invest in companies that might influence how pharmaceuticals are used, marketed or paid for.

The group has built a significant portfolio in diagnostics and, no doubt as part of this effort, the corporate side of the house has stood up and taken notice, becoming an aggressive and progressive player in diagnostics. “She brings the needed talent and personality to the job that is important as our venture activity evolves to its new place in the organization," Yu told us in an email.

Prior to moving over to EuclidSR in 2003, Dalton had been president of SR One, one of the grand daddies of corporate venture programs in the pharmaceutical world, for two years. Founded by Peter Sears in 1985, SR One first invested on behalf of Smithkline Beckman. It has survived all these years as its corporate sponsor went through mergers.

Dalton became president in 2001 when Brenda Gavin, who took over for Sears in 1999, moved on to co-found Quaker BioVentures in 2001.

Dalton left SR One in 2003 with two other principals to become full-time investors at EuclidSR, a New York venture capital firm. This group grew out of a partnership between Euclid Partners, a venture capital firm, and SR One. The firm that sought to invest in companies that benefited from the “convergence” of health care and information technology.

EuclidSR raised at least one fund in 2000, the first year of the partnership. Dalton and other SR One principals invested on behalf of both GSK and EuclidSR until their departure in 2003. It’s unclear what Dalton’s departure means for EuclidSR. She couldn’t be reached for comment.