Bio-Rad Salutes You

In the unlikely event you haven't seen this over at the WSJ Health Blog today, we felt the need to post this here as well. Bio-Rad has raised the bar. How 'bout it, Applied Biosystems? Whatchoo got?



HAT TIP: WSJ Health Blog, where you can read the back story.

Private Equity Goes Public

One of the simplest metrics we have to measure interest in a company or industry is just how jammed the rooms are at the JP Morgan conference. It's there people can literally vote with their feet...and their elbows and shoulders and briefcases and pepper spray (well, not yet) to find a few square feet to take in a company presentation.

So if an SRO presentation reflects strong interest, then this year will be a big one for private equity and health care. (The entire discussion is available here, btw.)

Last week's Private Equity Panel discussion literally could not have been more crowded with every seat, storage container, alcove and appropriate patch of carpet filled by people eager to hear what four sages from the Private Equity World had to say about their own industry and health care.

The conversation was lively and informative, and since no one left early to hit the cocktail parties (the session started at 5 p.m.) we’re guessing those many in attendance found it useful.

Unfortunately, the conversation seemed more focused on the services sectors. This isn’t a knock on the collective wisdom of Madison Dearborn Partners (represented by Tim Sullivan), CCMP Capital (Steve Murray), Welsh, Carson, Anderson & Stowe (Paul Queally) and Bain Capital (John Connaughton). All are well-heeled firms led by brilliant folks. But the firm we really would have liked to hear from was Warburg Pincus.

WP’s sweet spot seems firmly in line with our own: biopharma, devices and everything in between. Of course what moved us to write this is this week’s announcement that Warburg Pincus would spend $239 million to acquire Lifecore Biomedical Inc. The announcement came just after last week’s panelists suggested the criteria for “take private” would be much higher than last year, resulting in a slow down of such deals. “I think the vast majority of the deals done in the last 18 months will have very disappointing returns,” says Queally. “Risk was mispriced throughout the system. So I think it was a great time for public equity investors but not so good for private investors.”

But the panelists drew an important distinction. Murray says transactions aimed at taking a company private “because there was the availability of cheap financing and the other parts we’ll figure out later” will be scarce. But those firms with a plan to turn around or advance companies that have a strategic fit will still happen.

Warburg Pincus generally falls in the latter category. Last year, the firm paid $4.5 billion for Bausch & Lomb and invested $75 million in publicly traded Inspire Pharmaceuticals Inc. In 2006, Warburg Pincus secured a deal with French Orthopedics company Tornier.

IN VIVO Blog expected big things from the private equity industry in 2007 following the Biomet acquisition in 2006. (See our look at the new Biomet here.)


At first, the results were disappointing. Overall private equity dollars being used to acquire device companies dropped from 2006-2007. But the drop seemed far less significant when you realized that 2006 consisted mainly of the Biomet deal while 2007 figures were made of up of several smaller deals, including the Bausch & Lomb acquisition.

What’s going to happen in 2008? The panelists predicted a slow recovery as the private equity industry tries to digest all the companies consumed during the all-you-can-eat-affair of 2007. But we’re a little more bullish on the life sciences front. Warburg Pincus will still find deals. Meanwhile, firms like Avista Capital are identifying spin out opportunities from larger firms like Bristol-Myers Squibb and Boston Scientific. In fact, 2008 is starting with more than $1 billion in private equity acquisitions since Avista’s two deals didn’t close until this month.

Life sciences companies will probably draw much attention from the folks on the panel. “We will not take drug discovery risk,” says Connaughton. “But we love to build companies that help biotech and small and large pharma develop their drugs. But we do not want to take drug discovery risk, we're not smart enough.”

But then again. “We’ve done diagnostics, device and pharma,” says Queally. “It’s almost the nature of the company as opposed to the specific sector. In other words, is a company is going through dislocation? Is it maturing? The device industry over the past few years has matured to the point where they are trying to optimize a portfolio. Pharma is trying to figure out how to focus. All those things are things we bring to the table. If we can get those companies at appropriate valuations we can bring some value and generate some good returns.

“There was a time 10 years ago where every single device or pharma company was trading at 15 times,” he continued. “It’s very difficult given that leverage is a piece of our capital structure to garner that kind of return. But now they have come down and are going through dislocation. I would see a lot of opportunities in upcoming years.”

Well, this would explain why the room was so crowded.

The Big Winner in the Vytorin Debacle? It Might be Lilly

Steve Nissen's latest star turn, advising doctors everywhere to stop using Vytorin until there is better evidence it improves health outcomes, is surely going to be a boon for Pfizer and AstraZeneca.

Those companies' good old fashioned statins (Lipitor and Crestor, respectively) will surely pick up a bit of ground in the cholesterol market.

But that is sure to come at a price: If (when?) Congress holds hearings on the Great Cholesterol Coverup (we’re guessing at the hearing topic here), you can bet everyone in the cholesterol class will take some lumps for their aggressive marketing. It won’t help that the Energy & Commerce Committee which is investigating Vytorin is also investigating Pfizer’s Lipitor DTC campaign.

Here's another company that stands to gain: Eli Lilly & Co.

Why? Because the emergence of Steve Nissen as perhaps the most visible critic of pharmaceutical industry practices and products means that people are sure to pay even more attention when he says a drug company did things right.

Here is what Nissen had to say about Lilly's anticlotting drug prasugrel during our FDA/CMS Summit for Biopharma Executives. "The company did a courageous trial against an active comparator and they informed the medical community: What were the benefits, what were the risks, and a reasonable and sensible person can look at that and say I get it.”

"The results with prasugrel were a very good result," Nissen said. "The drug prevented more myocardial infarctions than the bleeding episodes it caused. I think the drug is an advance."

Nissen said more or less the same thing to the New York Times when the pivotal trial results on prasugrel were published, and he has since given more interviews underscoring his belief that the drug should be approved by FDA as quickly as possible.

That, to put it mildly, would be wonderful news for Lilly. The company lost about 15% of its value during the fourth quarter as Wall Street fretted about the mixed data. (The RPM Report has just published more on this topic on our website. You have to be a subscriber to The RPM Report to read our complete analysis, or sign up for a 30-day free trial to get a taste of what you are missing.)

Orion to Cover Both Sides of the Atlantic

In most venture circles, talk around forming an international strategy generally leads to VCs staging fact-finding missions to China and India. But a great deal of opportunities still lie in the Old World as VCs grapple with how they might do a better job at investing in Europe where the industry is maturing but the capital can sometimes be scarce.

A new firm is in the market to raise a fund that will target this particular problem. Orion Healthcare Equity Partners, founded by Mark Carthy, who has left Oxford Bioscience Partners, and Joël Besse, formerly of Atlas Venture, is seeking a $250 million fund to invest in both sides of the Atlantic, according to people familiar with the effort.

The new firm will maintain offices in London and Boston and expects to bring aboard additional partners later this month or early next. Orion apparently will pursue clinical-stage companies or assets in the U.S. and Europe. It’s unclear whether the firm would attempt relocate assets from one continent to the other, but that seems to be a possibility.

Carthy and Besse certainly have expertise in straddling the Atlantic. While at Oxford, Carthy served on the board of UK-based Solexa Ltd., the genomic sequencing company that would be acquired by Illumina Inc. He also represented Oxford in its investment in another UK company, PowderMed Ltd., which Pfizer would acquire after several Trans-Atlantic transactions.

Meanwhile, Besse managed many of Atlas’ European investments from its London office. He was among the founding investors in publicly traded Actelion Pharmaceuticals Ltd. and Novuspharma S.p.A.

Clearly, Orion will have some homegrown competition (or co-investors depending upon how you want to perceive things). We've been writing about VCs and VC investments in the UK, France, Germany and Spain. But a little more capital certainly wouldn't hurt.

What will be interesting to see how institutional investors view a trans-Atlantic fund. In years past, firms with strategies that covered both sides of the Atlantic had to work hard to sell their plans to limited partners. But times have changed. The investment climate does show some positive signs of life, and the world is a considerably smaller place than it was four or five years ago.

The Man Pharma Loves to Hate

It’s the headline lay media outlets love to report: “High-Cost Cholesterol Drug Combo Shows No Benefit Over Lower-Cost Generic Statin.” From a health care reporter’s perspective, nothing is more juicy than a study that shows that a cheap generic drug is more effective than a expensive new medicine. Especially when the study is sponsored by a drug company.

And that story is made even better is when Steve Nissen goes on national television to say things like this: “My advice to physicians is to not use these drugs...for first-line indications anymore. These should really be relegated to drugs of last resort until we have some evidence that they produce a health outcomes benefit.”

But that’s exactly what happened to Merck and Schering-Plough’s hot new cholesterol combo, Vytorin. The drug, which combines another relatively new drug, ezetimibe (Zetia) with generic simvastatin, was found to have no effect on the accumulation of plaque in the arteries, and may even increase plaque growth.

Yikes. No wonder Schering and Merck waited two years to release those findings. Wall Street certainly showed its displeasure: Schering’s stock price fell 8% yesterday, and Merck’s shares slipped 1.3%. And Merrill Lynch downgraded its rating on Schering’s stock, from “buy” to “neutral.”

But Merck and Schering aren’t just in hot water with investors. The companies released the data after Bart Stupak (D-Mich.), chairman of the House Energy & Commerce Committee, opened an investigation into the delay. Now Stupak is sure to haul Merck and Schering executives up to Capitol Hill to testify at what surely will be a very public, very messy hearing.

“In light of today’s results, which were released nearly two years after the Enhance trial ended, it is easy to conclude that Merck and Schering-Plough intentionally sought to delay the release of this data,” Stupak said in the statement. Stupak, of course, was the man behind the Ketek hearings last spring, when FDA’s David Graham returned to Capitol Hill to revive his role as a drug safety whistleblower. So he’s not exactly friendly with Big Pharma.

That’s all bad enough for Schering and Merck. But Nissen, head of cardiology at the Cleveland Clinic, twisted the knife in a bit deeper, appearing in virtually all major news outlets to blast the efficacy of Vytorin and Zetia. (In fact, we would challenge anyone to find a major news story that didn’t quote Nissen.)

Nissen became the go-to guy on cardiovascular drug safety following his unauthorized meta-analysis of GlaxoSmithKline’s Avandia data. With Vyotrin, he adds the mantle of Dr. Efficacy. Here’s what he told NBC’s Today show: “It was a shocking result for the medical community, and it suggests that this mechanism of cholesterol lowering produced by Vytorin and Zetia is simply ineffective at providing any benefits to patients.”

It was comments like those that led to the anti-Merck and Schering “hysteria” on Wall Street, according to Sanford Bernstein analyst Tim Anderson. “In isolation,” Anderson says, “the results probably would have led to a share price rise for SGP and MRK, but largely due to negative comments from prominent cardiologist Steve Nissen, share prices declined.” (Well, either that or analysts underestimated, and continue to underestimate, how bad these results really are--particularly for Schering-Plough, and especially as those same analysts estimate that "about 70 percent of Schering’s earnings depend on Zetia and Vytorin," according to this morning's New York Times.)

Either way, the reaction confirms our belief that Steve Nissen has become a pretty powerful force, and why our colleague, Ramsey Baghdadi, labeled him as a “serial drug killer.” (For Ramsey’s profile of Nissen in The RPM Report, you can find it here. Those who aren’t yet subscribers can sign up for a free trial to read the story.)

There is an important distinction in Nissen’s role in Avandia and Vytorin: he isn’t taking down Vytorin with his own analysis, but using the visibility gained from Avandia to publicize what he sees as a drug that provides minimal efficacy. But given the sharp drop-off in Avandia prescriptions after Nissen got involved, you can guess where Vytorin and Zetia scripts may be headed—especially once AstraZeneca (Crestor) and Pfizer (Lipitor) start using the data in sales calls.

And finally, for those of you that thought the DTC advertising nightmare was somewhat over, think again. Here’s Nissen on Katie Couric’s “Eye to Eye” last night: “We see no evidence of benefit from this very heavily advertised, very heavily used medication.” If that's not an open invitation for more attention from Capitol Hill, we don't know what is.

Nissen Weighs in on ENHANCE

You know what he's going to say ...



Remind you of this?

Lesson from the JPMorgan Conference: Exceptions That Prove the Rule

Look both ways before you cross The Street

Roger Longman's earlier post about biotech hype got us thinking about a few conversations we had and presentations we watched last week, the way the financial markets respond to--or don't respond to--the optimism of chief executives, and how sometimes that optimism turns out to be quite warranted.

For example it seems like every year we sit down at the St. Francis on Day One and listen to Celgene chairman/CEO Sol Barer, PhD, promise the world to the room chock-full of investors. This year that promise was more stratospheric growth for the company's blockbuster Revlimid, even in the face of competition from Millennium's Velcade.

And you know what we thought to ourselves this year when a once-again upbeat Barer suggested that "in many ways we are at the beginning of Revlimid's commercialization," then threw up a slide crammed with ongoing or planned studies of the blockbuster and guided that sales at the firm would jump to $1.8 billion from $1.4 billion? We thought well why the hell not? Celgene keeps delivering. Barer didn't even have to mention the company's acquisition of Pharmion to get investors excited; that deal, and Pharmion's products, barely registered during his spiel.

That said, skepticism has to be the default view when countered with the overwhelming optimism that characterizes the hype Roger wrote about last week. And in today's R&D and regulatory climate (the results of which we've well documented) it's relatively easy to be a skeptic. Technologies may be fascinating and drugs may be promising (we heard about our share of fascinating technologies and promising drugs last week, for sure), but in the end most technologies don't end up churning out dozens of drug candidates for one reason or another and most drug candidates themselves fail. That's simply just the way it is.

But then there are the Celgenes of the world. And maybe the Vertexes? We sat down with Vertex Pharmaceuticals CEO Joshua Boger, PhD, at the JP Morgan conference to talk about telaprevir (née VX-950), its leading HCV protease inhibitor. (We won't go into the specifics of the massive HCV opportunity here, but note we've covered the area pretty extensively in the past in this IN VIVO feature and this shorter piece on Vertex's landmark ex-US deal for telaprevir with J&J's Tibotec, among other pieces.)

Vertex's stock has been pummelled by Wall Street in recent months following the interim analyses of its first two large Phase IIb trials of telaprevir last November. Those trials have so far established telaprevir, which is further along than any other experimental direct antiviral in HCV, as a potential breakthrough therapy in HCV. The company's stock fell because even though the interim look suggested the drug would find a place in first line HCV therapy (SVR rate at 24 weeks was 61% in the first trial, 65% in the second), given the confidence Vertex displayed in the molecule's prospects--and the sheer size of that J&J deal--one could be forgiven for thinking telaprevir was going to do better. And then make you a sandwich and wash your car.

And then there are the concerns about the drug's thrice-a-day administration that we have heard from other observers, who suggest that even if Vertex is first to market by a couple years, HCV patients might wait for something more convenient. They've waited for years already, in some cases, why not another year or two?

Boger seemed weary of explaining the fallacy of this argument but gave it a go for us anyway. "There are a lot of amateur market opinions," he said, and people are confusing HCV treatment with HIV treatment: the latter is a chronic, for-the-rest-of-your-life regimen, but the former could be shortened to less than six months with the addition of telaprevir to existing interferon and ribavirin standard of care (currently a 48-week therapy). Vertex's critics "couldn't be more wrong," he said. "This isn't a chronic condition where you take the drugs forever--this is a cure."

Vertex hasn't seen a compliance issue in its clinical trials, Boger maintained, and even if it would be nice to have a protease inhibitor with twice-a-day or once-a-day administration, he said, it wouldn't be as a means to boost compliance. Rather it would be easier to combine a twice-a-day drug with other direct antivirals that could follow telaprevir to the market, such as an HCV polymerase inhibitor.

And as for patients waiting for a better drug, Boger bristled and chalked that up to wishful thinking from competitors. HCV is a case where a drug that makes the first leap in patient benefit will define future drugs' clinical and regulatory pathways, he said, plus take the lion's share of pent-up market demand that will never exist again. "I've never seen a field where the potential of being first to market is this big," Boger said.

Is that more hype? And has Vertex's own hype come back to bite it recently? Maybe, but that doesn't mean they won't succeed with telaprevir. We wouldn't bet against them.

Novo Scraps Inhaled Insulin

The dismal failure of Pfizer/Nektar’s Exubera loudly called into question whether inhaled mealtime insulin was commercially viable at all.

The answer—surprise, surprise--is that it’s not, at least according to Novo Nordisk. The Danish firm announced last night that it was scrapping its Phase III inhaled insulin program, which uses Aradigm’s AERx liquid aerosol system.

The slight irony here is that the (already painfully delayed) AERx program was killed because it failed to show “sufficient clinical or convenience benefits” over the various insulin analogs already available to patients—including, prominently, those using Novo’s own FlexPen, a discreet and simple-to-use injection device.

Novo’s decision doesn’t mean that other late-stage inhaled insulin wannabes, including Lilly/Alkermes and MannKind will follow suit. But as we argued in this IN VIVO feature, Pfizer’s snafu means the going will be tough. Novo was at best going to be third to market, and the brick-sized device (far larger than Lilly/Alkermes’) had long been recognized as a problem—that’s why Novo had begun a next-generation program in-house. And the product required refrigeration.

So the writing was on the wall. In fact it’s somewhat of a relief that Novo has finally put this long and expensive project to bed, taking a non-recurring cost of about $260 million (DKK 1.3 billion), which will hit 2007 operating profit. Mads Krogsgaard Thomsen, CSO and EVP of Novo Nordisk had already last year acknowledged that “this is not going to be a huge product.” Now it won’t be one at all.

Not that this spells the end of pulmonary delivery for Novo. The problem with all of the current batch of inhaled insulins, according to Thomsen, is that they’re short-acting, meal-time insulins that must be taken alongside basal insulin—the ones available with tiny, pain-free injection devices. Exubera's failure showed that patients (and payors) understandably, were reluctant to add onto that regime something even more complex. And Pfizer, for reasons we outline here, failed to reverse the treatment sequence by persuading physicians to prescribe insulin earlier on.

So given that meal-time insulin is typically a fifth or sixth step in diabetics’ chain of medication (which progresses from diet-and-exercise, through oral anti-diabetic drugs to GLP-1s and then basal insulin) why did drug companies focus their inhaled efforts on this and not basal insulin? “Becase we had no choice,” says Thomsen, technological limitations meant that prandial insulin was the only one which could be formulated for inhalation.

Those limitations are no longer, he continues. Novo now intends to focus on developing pulmonary forms of basal insulin and GLP-1. We outlined in a feature last summer the importance of glucagon-like-peptide (GLP-1) analogs (and Phase III GLP-1 analog liraglutide in particular) to Novo’s business, so it’s no surprise that GLP-1s feature in the firm’s fresh set of pulmonary delivery plans.

These are a way from the market, however—liraglutide itself can’t be formulated for inhaled delivery because its half-life is too short; nor can Lilly’s first-to-market Byetta. Still, “we’re not starting from scratch, either; we have an inhaled, bioavailable GLP-1 candidate in late-preclinical trials,” asserted Thomsen on a conference call following today’s news.

Novo’s shares were down nearly 4% this morning; chances are Aradigm might have a bad day when the US exchange opens. But Novo’s put on a brave face. “We’re going from being followers in a commercially unattractive area, inhaled meal-time insulin, to leaders in a highly commercially-attractive area—a new generation of inhaled long-acting basal insulins and GLP-1 analogs.”

At JP Morgan, Stryker's Big Smile

As he strode to the podium in during last week’s JP Morgan investor conference in San Francisco, Stryker Corp. CEO Steve MacMillan was all smiles. Of course, most CEOs try hard to put on their happiest face at conferences like JP Morgan. But MacMillan—and Stryker—had particular reason to smile.

According to Mike Weinstein’s medtech team at JP Morgan, over the past two years, Stryker has been the second-best performing medical device stock, up 70% over that time. And 2007 was a particularly good year for the company; after divesting its slow-growing—and not particularly core--physical therapy business, the company seems likely to have recorded its seventh straight year of double digit sales growth (final 2007 numbers had not yet been reported by the time of the conference). MacMillan noted that only 14 companies in the Fortune 500 have achieved six straight years of double digit growth, and half of those are retail companies. Stryker’s 2007 year-end sales should reach $6 billion, double what it was five years ago.

Plus, in what was clearly the orthopedic industry’s biggest story of 2007—the settlement of the DOJ investigations into surgeon contracts—all orthopedics companies fared well, but Stryker may have come out smelling best. (See our take here.) Of all of the Big Ortho companies, it was the only one not to have had to pay under the settlement terms, a reward some say for playing a key role in the original investigation.

What next for Stryker? Apparently more of the same. MacMillan cited two priorities going forward: finding opportunities from some recent investments in the company’s sales force and in its R&D, spending on which increased nearly 20% in the past three years over the previous three years, and what he called “a disciplined assessment of potential future platforms.” What does that mean? Not clear. But at last year’s French Orthopedics meeting in February, the hot rumor was a reported acquisition of Smith & Nephew by Stryker. Nothing ever came of those rumors (At least nothing yet, and who knows?) But at JP Morgan, MacMillan himself seemed to suggest that Stryker wasn’t likely to pull off any big deal soon. He said that while Stryker is “opportunistically” looking for new technologies and new deals, the company “doesn’t need to do any deals.” Particularly big deals. Indeed, MacMillan, referring to his relatively recent assumption of the CEO post at Stryker, noted that some CEOs try to make an impact on a company right away by doing a major deal, only to find they’ve done a bad deal. It’s a temptation, he says, he’s strongly resisted and for now at least Stryker doesn’t seem to need.

For more from MacMillan, check out this interview from IN VIVO the Magazine.

Public Confidence in Drug Safety: Solution is in "Plane" Sight

Active surveillance and data mining are scary, right? It is common wisdom that these tools in the hands of academics, health plans and regulators can only mean more bad publicity and product liability suits for the drug industry.

But there may be a blue sky ahead for the industry as it starts down the path to broader and more formal active surveillance efforts. The airline industry shows the way.

A front-page story in the Sunday, January 13 edition of The Washington Post shows how careful study of data on an industry's safety problems can translate somewhat counter-intuitively, into more public confidence (Post story).

The Post's Del Quentin Wilber reported very positively on the effects of data mining by individual companies into the "amazingly detailed" data collected by "small onboard memory discs." The review of safety issues and flight problems is serving to cut off major safety issues. "Outside experts and Federal Aviation Administration officials say," the Post writes, "that such data mining is part of a new era in the industry."

The Post writer notes that there is concern within the airline industry about talking about the data: "executives worry that they might scare passengers if they discuss potential problems." But, it is clear they are learning to live with the data and use it for more creative purposes. The biopharma industry should look at the airline experience as a harbinger of the added credibility with the public and user improvements that may emerge from the expansion of active surveillance, which got a boost from the last year's drug safety law (see here).

The drug industry followed the airline industry into the modern era of quality control production and quality assurance forty years ago. It will be good for industry and society if they follow them down the path to active surveillance.