Deals of the Year Nominee: Pfizer/Ranbaxy

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

In some circles, the event had its own acronym: LLOE – Lipitor Loss of Exclusivity. Now it has a date: Nov. 30, 2011 -- the end of the primary care era for pharma. Think that’s a little extreme? Well, you don’t get to be a Deal of the Year Nominee by playing it safe.

Except in this case you do. While most of the DotYNs you’ve read about here are essentially bets by firms that big ideas will work out in one form or another, this was a tale of two companies not wanting to take a chance. As we explained in the Pink Sheet, the deal gives some certainty to both sides, but what it really offers is closure.

In an era when product expirations – either through the lifting of exclusivity or the weight of safety problems--seem more common than product launches, this deal is an example of how big pharma can try to take its primary care jumbo jets in for soft landings. Protonix’s fall to earth offered a number of lessons for generic and brand firms to learn, and Ranbaxy seems to have gotten some good practice deal-making when it worked out a settlement on Nexium with AstraZeneca.
With the lawsuit behind them, both Ranbaxy and Pfizer can focus on what’s next. For Ranbaxy, it’s resolving manufacturing problems and figuring out how to be a regional growth engine for a big pharma. (The Daiichi/Ranbaxy merger, which may have contributed to the Pfizer settlement, is also a DotYN – vote for them both!)

For Pfizer, the question is how to learn to love being a drug maker again. CEO Jeffery Kindler may not have all the answers to that one yet, but by acknowledging the end of the Lipitor relationship, he’s moving in the right direction. Failing to recognize the seriousness of the problem helped cost the previous management team its jobs, so the decision to sign the divorce papers with the firm’s biggest product perversely takes a weight off the company.

But while the Ranbaxy settlement is a great example of what a company like Pfizer can get when it has a former general counsel as its CEO, that talent for certainty may also be emblematic of what a firm might miss out on. Because while some other new big pharma CEOs have been out trying to gobble up innovative technology or swallow up successful partners, one of the principal development decisions Pfizer has made with Kindler at the helm has been to stop placing bets on cardiovascular research.

But at least the financial community now knows how to model PFE’s LLOE. And so we formally nominate Pfizer/Ranbaxy for achievement in the category of playing it safe.

image by flickr user maxymedia used under a creative commons license.

Deals of the Year Nominee: Novartis/Alcon

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

The more legs you’ve got, the more stable you are when you’re standing still. But how do you get all those legs moving in synch?

Attitudes vary towards just how much diversification is worthwhile, but – with just a few holdouts -- drug companies agree that basing a business on novel small-molecule research is way too risky.

But as with multi-legged creatures, the problem with diversification is how managers good at (or at least familiar with) running one kind of business – R&D-intensive prescription drugs – do with another kind. Which is why the more conservative of the diversifiers aren’t actually getting out of the drug business per se – by going into branded generics or OTC medicine they’re still staying close, theoretically, to home. Take the most recent convert to diversification – Merck: its recent announcement that it would be going into follow-on biologics edges it toward a kind of generics but without the full-blown commitment to just-in-time product development and manufacturing and rock-bottom prices that the small-molecule end of that business requires.

Novartis, too, certainly recognizes the managerial challenge of diversification. Among the most aggressive of the industry’s diversifiers with extensive consumer and generics businesses, it moved this year even further afield through its play for Alcon (see our transaction summary here and a longer analysis here) – another nominee for deal of the year. Alcon’s largest and fastest growing business is in largely self-pay surgical products, which make up 45% of its total revenues. The consumer side of ophthalmology makes up another 15% -- the rest is specialty eye drugs.

Novartis is trying to minimize the problems of a pharmaceutical company managing a device business in part through the structure of its deal. Novartis is merely investing in the company (starting out with a 25% stake -- for $11 billion -- with a plan to increase it, sometime between 2010 and 2011, to 76%, for no more than an additional $28 billion). It theoretically won’t be managing Alcon any more than Alcon is managed by its current majority owner, Nestle. Instead -- once it owns a majority of Alcon’s shares -- it will be able to consolidate Alcon’s double-digit-growth-sales-and-earnings but without the executive headache of actually running the business. And with Alcon trading independently, investors should still be able to independently follow and profit from its progress, and with luck according it a bigger valuation than what it might receive hidden inside the much larger and slower-growing overall Novartis business.

The disadvantage: with Alcon as an independently trading company, Novartis can’t do the usual cost-cutting most acquisitions allow; nor will it be able to combine marketing efforts (e.g., between Novartis’ ophthalmic businesses in its Ciba Vision contact lens unit or its two eye drugs, in particular the macular degeneration drug Lucentis.

The closest recent comparator we know of to the Novartis/Alcon deal is what Bristol-Myers Squibb is trying to achieve in spinning off of its consumer nutritionals business, Mead Johnson (see our analysis, here). Bristol, too, wants to get the benefit of non-pharma growth without having to manage it. The company figured its pharma-oriented execs couldn’t pay quality attention to the much smaller and much different nutritionals unit; and that when they did pay attention to it, these earnest auslanders probably didn’t add significant value. Investors, too, ignored the group – Big Pharma analysts, hardly experts in the area, buried the Mead results in their spreadsheets.

By spinning off just 10-20% of Mead, Bristol opens up the company for investor examination, frees its own managers to focus 100% of their attention on the pharma business, and focuses Mead’s execs on the competition in nutritionals, rather than the competition for corporate resources. Meanwhile, Bristol still gets to consolidate Mead's top and bottom lines.

So far, quite similar. The big difference between the two deals is that Novartis is paying for its diversification (and had it waited six months, it could have saved 50% or so on its $11 billion down payment); Bristol wants to get paid (albeit the market meltdown will presumably lower the take it had hoped for).

And from an investor’s point of view, Novartis is therefore asking its shareholders to fund its attempt to do what investors might see as their job – buying stock. Since it’s leaving Alcon independent, Novartis can’t argue that its money will be adding much corporate value to the ophthalmic company. One could argue, on the other hand, that Novartis is limiting investor choices: because they could buy Alcon shares on their own, shouldn’t Novartis do something with their money that investors couldn’t (like buy pipeline)?

On the other hand, Bristol’s spinoff actually offers investors a new choice – if they prefer to unload pharma shares for stock in a nutritionals business, well, the menu of choices just got bigger (and theoretically Bristol wins either way). The real strategic equivalent: Novartis could spin off a minority of its generics business, Sandoz, which likewise has virtually no synergies with its parent and which might profit from some independence.

Or you could argue that Novartis is in fact offering investors a new set of choices. Those with a higher appetite for risk can put their money into Alcon; those who want the security of a big company, but now with a frisson of mid-size company excitement, can buy Novartis stock leavened with Alcon growth.

Image via Funny-Dog

The Long Campaign for FDA Commissioner (Part 3)

We’ve given you some of our thoughts on the candidates for FDA commissioner in the new Administration in several recent posts (here and here). Today, though, we tackle a bigger question: Why would anyone possibly want this job?

For a position that may well be the most thankless job in health care, an awful lot of people seem to be lining up to be the next commissioner of FDA.

With all the problems at FDA right now—a deeply underfunded agency with a nearly impossible mandate to protect the nation’s food and drug supply—it’s a wonder anyone would want to lead the agency. Add the prospect of contentious Senate confirmation hearings, a low public opinion of FDA, and a constant threat of whistleblowers, and you don’t exactly have your dream job.

But that hasn’t prevented people from wanting to be the next FDA commissioner. While much of the campaigning is taking place behind closed doors, some candidates are choosing to be a bit more vocal. Those individuals tend to fall into two categories; the Peter Rost Category of Candidates and the Steve Nissen/David Kessler Category of Candidates.

On one extreme end of the campaigning spectrum, there’s former Pharmacia marketing executive Peter Rost. As the Pfizer whistleblower over off-label promotion of the human growth hormone Genotropin, Rost is probably the one commissioner candidate that scares the bejesus out of pharma (or at least Pfizer) more than Nissen. Or he would if he had any chance of actually landing the job.

Not only is Rost openly campaigning, he is, in his words, “running” for FDA commissioner as though it’s an open Senate seat. Rost’s personal blog is now dedicated to his campaign run, and he has successfully solicited letters of endorsement from Sen. Sherrod Brown (D-Ohio) and Rep. JoAnn Emerson (R-Mo.).

On the other end of the spectrum, we’ll cite David Kessler. Kessler isn’t sending out press releases expressing his interest in the commissioner post, but he is indicating he’d be open to the job through public appearances. As we reported in an earlier blog post, when asked for his ideal profile for an FDA commissioner, Kessler essentially described himself.

The same goes for Nissen. While Nissen may be the last thing that anyone in industry wants in an FDA commissioner, he is laying out an agenda that sounds quite reasonable: more money for FDA, an end to the missed user fee deadlines, and restoring integrity to the agency. Indeed, we laid out in an earlier post why we think FDA commissioner Nissen wouldn't be the worst thing that ever happen to industry.

But even Nissen recognizes the challenges facing the next commissioner, and has publicly questioned whether anyone would want the job. Here’s what he said at FDC-Windhover’s FDA/CMS Summit last week:

“The problem is in the current environment, getting anybody confirmed looks like it could be really tough. You know what the last bunch of commissioners have gone through. You have to be a masochist to want to do that, and there aren’t a lot of people who would want to do that.”

Of course, in saying someone would have to be a masochist to want the job, Nissen didn’t mention whether he was a masochist. Knowing what we know about Nissen, we'd have to say yes.

image via run100miles.com. nothing particularly masochistic about that, eh?

While You Were Brainstorming

We're posting your weekend roundup a little early this weekend and we're bound to have missed a few things that happen Sunday and in the wee hours of Monday. Go ahead and fill in the gaps for us in the comments.

While you were getting roped into writing the IVB weekend roundup yourself ...

• Has it been a year already? It's the New York Times Magazine's "Year in Ideas" issue, one we look forward to immensely. Otherwise how would we know about Airbags for the Elderly (pretty much what they sound like) that help protect during a fall, or McSleepy, the first fully automated anesthesia system created at McGill University? (Guys, we're not even out of the As in this A-to-Z list.) Last year we devoted an entire post to the gems found in this list--no time for that in 2008, no sirree, we've got places to go and people to see and Deals of the Year Nominees to write-up. But we encourage you to read the whole list anyway. A formula for deciding whether to wait for the bus or to hoof it? Yes, please.
  
• Sure is quiet this weekend.
  
• OK, back to the year in ideas. You'll have to wind your own way through the alphabetized list over at the New York Times. But we wanted to remind you that our very own Deals of the Year! series is very much like our own version of the Times' list (except no where near as flashy, very focused on health care business strategies, and a bit haphazard--we don't need no stinkin' alphabetizin'). Sure we're not going to tell you why it might be bad to redshirt your kid in kindergarten or to eat more kangaroo meat (mmm, bouncy), but we're all over the stuff that matters: alternative financing, FDA's newfound negotiating power, technology trends, exit strategies and risk sharing. So be sure to review the nominees so far and stay tuned for half a dozen or so more this week. There will be no debates (unless you fire some up in the comments section, but we're going to call that unlikely based on past experience) but your chance to vote is coming. We'll open up the voting in about a week and leave it open into the new year, and announce your winners in early January.
  

n.b. post actually written by Casper, Beetlejuice, and Clarence Odbody

image by flickr user cayusa used under a creative commons license.

Deals of the Week: Don't Worry Be Happy

Because life needs an optimistic soundtrack. This week In Vivo Blog is adopting the "Don't Worry, Be Happy" motto made famous by Bobby McFerrin in the 80s on the sage advice of Christoph Westphal, CEO of GSK's Sirtris.

At MassBio's annual event on Dec. 9, Westphal urged audience members to think about the opportunities the current financial crisis has created. "I think many of you who are well-financed [also] are going to be able to build even stronger teams and do exciting things," Westphal said, according to "The Pink Sheet" DAILY. His other piece of wisdom? "I think the important things is to always be very well financed and to keep on a momentum path, so that the venture guys don't get nervous on you," he said.

Ah, sweet mystery of life. At last I know the secret of it all.

Sadly, Westphal's recipe for success came too late for folks at Emisphere, XTL, Panacos, and Elan, which all officially joined the ranks of IVB's "troubled biotechs" list this week. The fall-out for Elan was swift and particularly ugly. You can bet CEO Kelly Martin is having a hard time making "Happy Talk" these days. On Friday, the firm announced it was cutting 114 jobs and closing its Tokyo and New York offices, as it attempts to offset the slower growth of its lead drug Tysabri and strengthen its balance sheet. Whether or not the move goes far enough to appease increasingly angry shareholders remains to be seen. (On Thursday, Jack Schuler, former president of Abbott Labs and a 1% stakeholder in Elan, wrote a letter to its board expressing frustration at money wasted on private jets and an excessive number of company offices.) If it doesn't, Martin may have to change his tune to "You're not the boss of me now".

Certainly, Merck executives are clearly in "why worry now?" mode; after all there should be laughter after pain. Clearly their new initiative in follow-on biologics is going to be the answer to recent slower growth of Gardasil and the on-going fall-out from the Vytorin mess. Sadly, the same can't be said for Eli Lilly, which got caught flat-footed at its analyst day. When asked about Lilly's own potential interest in FOBs, CEO John Lechleiter clearly wasn't prepared for the question. “We’re very much considering it. It’s something we’re looking at,” he replied. GEEZ. IVB's response: De do do do, de da da da is all I want to say to you.

We bet next time Lechleiter get asked that question he won't be fooled again. If the news has got you singing the blues, we have the solution (and maybe even a lyric). It's that time again...



BMS/Exelixis: At Exelixis, it's love the one you’re with. Exelixis first began collaborating with Bristol back in 1999 – when the biotech was still basically a platform operation, using worm and insect models to define mechanisms for Bristol compounds. As the relationship deepened, Exelixis leaned heavily on Bristol to help it step up to a product development strategy – swapping, for example, targets and access to its biology platform for access to Bristol’s combinatorial chemistry and a later-stage cancer compound (see this 2002 In Vivo analysis for more). In the next deal, Exelixis paid back virtually the entire price of its X-Ceptor acquisition by selling Bristol a couple of X-Ceptor cardiovascular compounds. A year later it turned once again to Bristol to sign a more elaborate oncology agreement on some early-stage assets. So it was only natural that when GlaxoSmithKline turned down its option on a small collection of Exelixis cancer compounds, including the Phase III XL184 – presumably because of a mechanistic overlap with another Exelixis compound GSK had already optioned – the biotech would turn back to its most important partner. And their long relationship no doubt accounted for Scangos’ confidence, as he implied to IN VIVO at the time, that he’d be able to partner the product before year-end. In the current confidence-less market, Big Pharma partnerships are again becoming key – but ultimately informationless -- imprimaturs for the value of small company technology. The news of the Bristol deal (in return for rights to XL184 and the Phase I XL281, Bristol will pay $195 million upfront; $45 million guaranteed next year and fund most of the development expenses for XL184, all for XL281) prompted investors to return almost exactly the same amount of share value that the GSK “no thank you” had prompted them to subtract two months before. The equivalence is surprising: since the inception of their relationship in 2002, GSK has spent a total of $260 million with Exelixis (including an $85 million loan). The latest Bristol deal alone will put a guaranteed $240 million into Exelixis’s bank account (roughly $2 a share in cash – though since the stock was up only $1.22 on the day, you could actually argue that investors see the deal as value destroying). Or to put it another way: Exelixis got paid twice – first by GSK; and now by Bristol. Good deal. Kind of odd investors don’t get that.

Valeant/Dow Pharma: Valeant executives are likely crooning "I've got you under my skin" this week, after acquiring privately-held Dow Pharma, a Petaluma-based derm company founded in 1977, for $285 million in cash, plus another $200 million in milestones. Ever since Valeant scored a $125 million up-front payment from GSK earlier this summer for its late-stage epilepsy drug retigabine, the company has been buying up dermatology-focused companies in a valiant effort to solidify its standing as major derm spec pharma player. In mid-September the company paid $95 million for Coria Laboratories, a division of the privately held spec pharma DFB Pharmaceuticals, to gain its marketed acne products and the CeraVe skin care line. In November it spent another $12 million on DermaTech, which sells a number of over-the-counter products for sunburn, warts, and dry, itchy skin. This latest deal--at roughly 4.5 times Dow's annual revenues--shows the amount of money companies are willing to shell out for revenue-generating entities. (It also shows just how bad things are out there--it used to be that kind of multiple--while not small--wouldn't have raised many eyebrows. Not in this climate.) In addition to an approved topical drug for mild-to-moderate acne called Acanya, Dow also has a healthy service business providing topical formulations to other pharmaceutical companies. In 2008 that side of Dow's business generated $25 million in revenue, helping to offset the company's internal R&D burn. In addition to Acanya, Valeant gains five development-stage dermatology products and a revenue stream from previously out-licensed products that runs about $20 million annually. Valeant clearly believes that by morphing into a derm player it might have more success, particularly given the safety-first regulatory climate and penny-pinching payers. Topical products are less likely to raise red flags at the FDA because they are not absorbed systemically and private-pay line of cosmetics avoids the reimbursers (though the recession might make the out-of-pocket market significantly less attractive). Dow's venture backers clearly aren't complaining: Essex Woodlands, Galen Partners, and Skyline Ventures, which invested $36.5 million in the company in 2005, are more than in the clear given Valeant's proposed purchase price.

Novartis Option Fund/Ascent: Employees at tiny Cambridge, MA-based Ascent, which was in stealth mode until last month, are likely rocking out to U2's "It's a beautiful day." The company announced that Novartis, together with its option fund, had signed a deal to develop drug candidates against a specific GPCR target. The aggreement includes an undisclosed upfront fee and potential milestones totaling over $200 million, as well as royalties. It's also some validation for the biotech's nascent so-called Pepducin technology. GPCRs are one of the biopharma industry's favorite targets when it comes to developing new therapeutics (according to some sources, 40 - 50% of all marketed drugs target this protein class). Problem is that many of the seven-membrane-domain proteins have proven undruggable--at least with traditional medicinal chemistry approaches. Enter Ascent, which has a nifty technology that allows it to generate short lipopeptide molecules capable of acting as highly specific GPCR inhibitors. To date the company has generated 15 such GPCR inhibitors--at least in vitro--and CEO Rick Jones claims its scientists haven't yet found a receptor they couldn't antagonize (or didn't like). The biotech, which announced a $19 million Series A in November with backing from Novartis Option Fund, Healthcare Ventures, and TVM Capital, plans to identify one suitable IND candidate by mid-2009, probably in inflammation or oncology. As we wrote here, Novartis Option Fund is one of two option funds recently launched by Novartis. Both buy equity in companies and simultaneously secure options on other products, adding a business development spin to the funds' more traditional venture functions.




Unilever/Phytopharm: Unilever, retailer of Dove soap and Pond's cold cream, sang a modified version of "I'm Gonna Wash That Man Right Out Of My Hair'' this week, when it announced it was washing its hands of Hoodia, a functional food extract for weight management developed by Phytopharm. All the orignal patents and rights will revert to the UK-based Phytopharm; in addition, Unilever has granted the company a "non-exclusive, perpetual, irrevocable, worldwide, royalty-free licence, with the right to sub-license, to any Unilever patents, intellectual property rights and know-how connected with the Hoodia programme" according to a press-release. Whew, I'm sure that makes Phytopharm's board feel much better. Phytopharm's chairman Alistair Taylor announced the news in true British fashion--with a stiff upper lip--and did his best to spin the "disappointing" news positively: "We are pleased to have agreed [on] termination terms with Unilever which enable us to take the product forward with another partner. Phytopharm continues to believe strongly that there are alternative product formats and applications for the commercialisation of Hoodia." Maybe, but this isn't the first time a partner has given the extract back to Phytopharm. According to FDC-Windhover's Strategic Transactions database, Phytopharm first licensed Hoodia from South Africa's Council for Scientific and Industrial Research in 1997, then offered Pfizer worldwide development and marketing rights to the compound in 1998. Following the closure of its nutraceuticals group, Pfizer returned its rights to Phytopharm in July 2003.

AZ/Infinity: Infinity execs are channeling their inner Soup Dragons--or maybe they prefer the Stones' rendition?--this week. Yes, readers, they are free to do what they want with their HSP90 inhibitor program, thanks to the pocket full of cash (not kryptonite) they recently received from Purdue Pharma and its affiliate Mundipharma. As we reported in "The Pink Sheet" DAILY, Infinity will pay AZ nothing upfront to get back full control of its Phase III injectable, IPI-504, as well as its Phase I oral compound, IPI-493. As part of the break-up, AZ will pay its development obligations for another six months; if Infinity manages to launch a product, it will owe AZ a single-digit royalty. Although some have speculated that AZ saw something it didn't like in the ongoing HSP90 trials, there's no indication currently of increased clinical or regulatory risk associated with program, which includes a Phase III study in refractory gastro-intestinal stromal tumors and earlier stage studies in other indications. Instead, the break-up appears to be a case of an evolutionary incompatibility, marking the definitive end of a deal Infinity had originally signed with MedImmune, then an independent company. AZ certainly wasn't gettin' sentimental over the terms it inherited-- in particular, the 50/50 profit split MedImmune accepted because it lacked small-molecule and oncology expertise. Moreover, AZ didn't feel it particularly needed Infinity's expertise given it's world-leading oncology franchise primarily focused on small molecule drugs. It's not unreasonable to assume the two companies were in discussions to renegotiate the terms of the partnership--the current financial crisis has made such discussions commonplace. But Infinity's deal with Purdue in late November gave it the freedom to change the nature of any on-going talks. Thanks to Purdue and Mundipharma largesse--they agreed to fund virtually all of Infinity's R&D through at least 2013 and bought $45 million worth of equity at a 100% premium in return for ex-US rights to Infinity's pipeline (the exception being the HSP90 program)--Infinity can afford to re-acquire the program, gaining full rights to a relatively late-stage asset. Indeed, given the generous terms Exelixis got from Bristol on another Big Pharma-rejected Phase III cancer program -- see note above -- Infinity execs are undoubtedly practicing an up-tempo version of "Hey Big Spender".

(Photo courtesy of flickr user jovike through a creative commons license.)

The Long Campaign for FDA Commissioner (Part 2)

Yesterday, we told you about Steve Nissen's presentation during the FDA/CMS Summit for Biopharma Executives.

He wasn't the only speaker at the conference whose name has been mentioned as possible commissioner material. The opening keynote, for instance, was by Janet Woodcock, the head of the Center for Drug Evaluation & Research and the hands-down first choice of biopharma executives to be the next commissioner.

That is the first reason why she almost certainly won't get the job. As we wrote previously, industry support is definitely not something the Obama team is likely to weigh too highly when it gets around to making the pick. Nor is it likely that the new administration will pass up the opportunity to give the plum post to an outsider it would like to reward, rather than to a career FDAer, even one as abundantly qualified as Woodcock.

Indeed, the day before Woodcock spoke at the Summit, Rep. Bart Stupak (the chair of one of the Congressional committees that oversees FDA) wrote to the President-elect to declare that no agency insiders should be considered for the post even on an interim basis. Stupak, as "The Pink Sheet" reports, wants "a complete change in FDA's leadership."

Stupak, as it happens, chose the losing side in an internal Democratic party fight over leadership of the Energy & Commerce Committee, so his opinion may not carry as much weight as it once would have. But we're betting that the transition team won't be looking to antagonize Stupak unduly by nominating Woodcock for the job.

As for giving her the post on an interim basis, not only would that antagonize Stupak, but it would probably do exactly the opposite of what her supporters want: if Woodcock is the acting commissioner, she would almost certainly leave the agency once a Senate confirmed commissioner comes on board.

So who will the next FDA commissioner be?

We're betting that the closing speaker at the Summit, FDA deputy commissioner Frank Torti, will end up claiming that title--albeit only on an acting or interim basis. That, at least, is what the natural order of things would dictate, a fact that has been clear since Torti joined the agency six months ago.

And after that? Well, that's what campaigns are for.

Stay tuned: On Monday we'll bring you Part 3 of our campaign-for-commish series.

Deals of the Year Nominee: Vertex/Undisclosed Investors

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

Your next DOTY nominee is the best example we can think of from 2008 of a phenomenon that will surely gather steam as biotech firms search around for non-dilutive sources of capital: Vertex's June 2008 sale of the royalty stream on its HIV protease inhibitors (which are marketed by GSK) to a group of undisclosed investors.

How much for that money in the window? This time, $160 million. We discuss the concept of royalty and revenue financing in-depth in this IN VIVO feature from June.

Vertex's deal is part of its plan to dispose of non-core assets and shore up its balance sheet as it invests in its hepatitis C franchise; back in June the need to secure capital was less obvious, so Vertex also gets serious points for timing. (What's more, in September, before the economy really began circling the drain, Vertex finalized the terms of a $25.50/share follow-on public offering which eventually netted the biotech $220 million.)

"Receiving a $30 million royalty in 2011 is less relevant for the company" compared to potential future product revenues, Vertex CFO Ian Smith told us back in June. "Our belief is that we should get that money on the balance sheet now, and invest it in R&D. Money that has less significance to us in two or three years," when Vertex could be marketing its own blockbuster HCV protease inhibitor, lowers the company's financial risk today, he pointed out.

Amprenavir (Agenerase) and fosamprenavir (Lexiva) royalties totalled $34 million on sales of $242 million in 2007, but it wasn't like the market was attaching significant value to that royalty stream. Other biotechs are recognizing similar unappreciated or underappreciated revenue or royalty streams and looking to sweep up some cash while they can. Hey it beats selling shares or scrounging for debt, now more than ever.

And there's no shortage of buyers. Beyond the specialists like Paul Capital Healthcare and Cowen Royalty Partners et al., hedge funds are getting into the game as well (see TPG-Axon's April 2008 purchase of half the royalty stream to CV Therapeutics' A2A adenosine receptor agonist regadenoson (Lexiscan), the injectible stress agent, for $185 million).

Expect to hear much more in 2009 about this brand of alternative financing. The phenomenon is by no means new--but it's gathering steam, and it's not just cash-desperate biotechs that might find such deals beneficial, as Vertex's $160 million demonstrates.

"We've never been busier," Paul Capital Healthcare partner Lionel Leventhal told the audience at this years' PSA meeting. "The pharmaceutical industry is a vociferous user of capital and it doesn't matter how the markets are doing - they still need capital." With equity markets down and debt less than an ideal way for the industry to obtain the money it needs, royalties and revenue-interest financing is become more mainstream, he added.

image of bank$y graffiti art by flickr user guano used under a creative commons license.

The Long Campaign for FDA Commissioner (Part 1)

Who says Election season is over?

To us, it sounds like the campaign to run the Food & Drug Administration is just heating up. That, at least, is our impression after FDC-Windhover’s FDA/CMS Summit for Biopharma Executives last week.

Exhibit A: The presentation by Cleveland Clinic cardiologist Steve Nissen. As always, Dr. Nissen was energetic, engaging and pretty frank in calling ‘em as he sees ‘em. But we heard some things that sounded a bit different than we have heard before.

As “The Pink Sheet” reports, Nissen—who, with some understatement, observed that he is no fan of the Prescription Drug User Fee Act—nevertheless declared that, having taken the money, FDA needs to follow through by offering an answer in the agreed upon timeline. That isn’t going to make Nissen any new friends at FDA. In fact, Office of New Drugs Director John Jenkins spoke earlier in the day and delivered a passionate defense of the agency’s review performance in 2008, and he sat stoically through Nissen’s presentation.

But some of the industry folks in the audience must have been whispering “amen” under their breaths. Our unscientific read of conference attendees is that they are sympathetic to the challenges facing FDA’s review group, and wary of piling on the agency at the this moment in its history—but they agree with the principle that, given how much they pay in user fees, FDA ought to be able to give them an answer on time.

And we bet one company in particular agrees: Nissen singled out Lilly’s overdue application for prasugrel (Effient) as both a case where the agency owes the sponsor an answer one way or the other. (If you haven’t followed the ins and outs of that application, start here.)

Nissen also declared that FDA’s “core” problem is that it lacks the resources to fulfill its mission—and stressed his view that a strong, credible FDA commissioner will help the agency secure those resources from Congress. (Oh, and he let slip that he had just been up on Capitol Hill himself that morning, chatting with some of his friends in Congress.)

Last but not least, Nissen endorsed the call for a fixed-term for the FDA commissioner (five or six years) to help depoliticize the agency’s leadership. That, to our surprise at least, has become a rallying cry for Big Pharma in the weeks since the election, with CEOs like Schering-Plough’s Fred Hassan and Pfizer’s Jeff Kindler highlighting the idea in appearances before investors.

In other words, Nissen sounded a lot like someone hoping to win some industry support for the FDA job...or at least convince some people not fight too hard to block him.

When asked specifically whether he has his eye on the commissioner post, his answer was “no comment.”

But it was what Nissen said afterward that really caught our attention. “I am going to stay engaged in these issues,” he said. “As an advocate for patient safety, I want to be engaged one way or the other.”

One way or the other? Hmmmm.

Nissen then went on to describe his ideal candidate, and frankly, it sounded an awful lot like him. First, a commissioner should be a physician, “because if you haven’t ever taken care of patients, you don’t really have the necessary perspective.” Check. Nissen is a cardiologist at the Cleveland Clinic.

Next, the commissioner should be a “good scientist,” because the FDA has to be a science-based organization, and “decisions have to be made upon the basis of evidence.” Check. Nissen is deeply involved in pharmaceutical research with a host of drug companies (the money from which, he is quick to point out, is donated to charity without a tax break for him).

The FDA commissioner also “ought to know something about statistics.” Check. As Nissen was quick to point out, he presented a series of statistical slides during an advisory committee meeting in July on the approval standards of diabetes drugs.

Finally, he said, FDA needs a commissioner who is “passionate about the public interests.” Check. Nissen’s critics may question whether he is also passionate about his elevating his public profile, but there is no question that he has patients’ interests at heart in his self-appointed position as a drug safety advocate.

Now, bear in mind that just because Nissen (and others) are campaigning for the job doesn't mean that a pick is anything close to imminent. The new Administration has a lot on its plate, and (as we wrote here) FDA isn't even close to the top of the list. But the Obama team knows a thing or two about long campaigns, so we say: bring it on.

Tomorrow: a word from (and about) some other candidates at the FDA/CMS Summit…

--Michael McCaughan and Kate Rawson

Shocker! Infinity Regains HSP90 From AZ

How a pocketful of cash can change a biotech's negotiating fortunes.

According to a report in today's Pink Sheet Daily, Infinity Pharmaceuticals is announcing that it’s re-acquired from AstraZeneca the rights to its lead clinical program. Infinity will pay nothing upfront to get back full control of its Phase III injectable heat shock-90 inhibitor, IPI-504, as well as its Phase I oral compound, IPI-493.

As part of the break-up, AZ will fund its development obligations for another six months and, if Infinity manages to launch a product, will pay AZ a single-digit royalty.

Although we were not able to speak with AstraZeneca before press time, there’s no indication that it gave back the program because it's in trouble.

Certainly Infinity doesn't think so. A Phase III program in refractory gastro-intestinal stromal tumors trial is ongoing. Meantime, Infinity is expanding its Phase II two-arm lung-cancer trial, and just initiated a Phase I combination trial with Taxotere in an undisclosed indication. The company plans more trials to start in 2009.

Instead, the split appears to be a case of evolutionary incompatibility, marking the definitive end of a deal Infinity had originally signed in August 2006 with MedImmune, then an independent company.

The two companies had been nicely matched – MedImmune had no small-molecule capabilities and a single failed oncology program; Infinity had little money to prosecute its aggressive development program. In a deal for both of Infinity's lead programs -- its then-preclinical hedgehog cell-signaling pathway inhibitor and its then Phase I HSP-90 program (see the deal's evolution in our Strategic Transactions database), the companies agreed to a 50/50 expense-and-profit sharing partnership.

MedImmune paid $70 million upfront, with the potential for another $430 million in late-stage clinical development and sales milestones. (For more analysis of that transaction and other similar early-stage deals, see “The $100 Million IND".)

The deal worked well enough: although MedImmune had the rights and responsibilities for late-stage development, it stepped aside to allow Infinity, which had greater expertise in oncology, to run the Phase III GIST trial (Infinity CSO Julian Adams had invented and done significant clinical work on Millennium’s Velcade).

But the deal began to come apart once AstraZeneca acquired MedImmune. (Start here for our exhaustive coverage of that April 2007 transaction).

AZ probably didn’t feel it needed Infinity’s expertise. It knew little about large molecules--the reason it wanted to buy MedImmune--but plenty about small molecules. And it had a world-leading oncology franchise. It also had a competing hedgehog program – because of which, according to change-of-control terms in the original MedImmune/Infinity deal contract, AZ had to return hedgehog rights to Infinity.

AZ also probably didn’t like the terms it had inherited with the Infinity deal – in particular, the 50/50 profit split MedImmune accepted because it lacked small-molecule and oncology expertise.

With Infinity’s cash position worsening through 2008, it’s reasonable to assume that the two companies discussed a deal to reduce both Infinity’s 50% expense obligations as well as its 50% potential profit share – renegotiations now common in the industry (in September, for example, Zymogenetics renegotiated its atacicept agreement with Merck Serono so the struggling biotech could unload most of its funding obligations).

But if such a renegotiation was on the table, it undoubtedly fell off on November 20, when Infinity announced a huge deal with the privately owned, independent but affiliated spec pharmas Purdue and Mundipharma (click here for our Pink Sheet Daily story, our IN VIVO Blog report here and our Strategic Transactions report here). In return for ex-US rights to most of its pipeline--HSP-90 explicitly excluded-–the two companies and their owners provided Infinity virtually all of its R&D funding through at least 2013, along with the potential for more, and bought $45 million worth of equity (at a 100% premium).

In effect, Infinity solved its funding problem for the next five years or so – and at the same time created the possibility for a US-based commercial operation of its own.

It could thus afford to re-acquire HSP-90, gaining full rights to a relatively late-stage program – as well as the flexibility of raising extra cash by out-licensing ex-US rights. Meanwhile, AZ is able to advertise its willingness to help even a former partner – according to Infinity, AZ rushed ahead the negotiations to allow an early termination to the deal on good terms.

Bridegroom's Friend by Flickr user Andrei Shevelov used under a creative commons license.

In Follow On Biologics We Trust

Typically, Big Pharma business briefing days aren't known for being newsy events. Another year, another ho-hum pipeline update--complete with the requisite hyperbolic biodollar citations for clinical candidates to appease investors. But in the case of yesterday's annual Merck confab, that certainly wasn't the case.

At its day long event, the Big Pharma revealed the creation of Merck BioVentures, an ambitious new business unit with a heavy emphasis on follow-on biologics that aims to launch at least six such products in the 2012 - 2017 time period. The group will rely heavily on proprietary technology obtained when Merck bought the glyco-engineering biotech GlycoFi back in 2006 for $400 million.

In an interview with "The Pink Sheet" DAILY, Frank Clyburn, the newly appointed senior VP and general manager of MBV, noted that Merck plans to spend $1.5 billion over the next seven years in the hopes of putting at least five follow-on biologic candidates in the clinic by the end of 2012. "We are going to look at developing follow-on biologics in a number of therapeutic areas, a very diverse portfolio," Clyburn said.

The company is already 20% there. The only FOB Merck was willing to discuss specifically was its pegylated erythropoietin for anemia, a molecule called MK2578 designed to compete with Amgen's Aranesp currently in clinical trials that could launch as soon as 2012.

In comments to analysts and the press, CEO Richard Clark also played up the importance of FOBs to Merck's future growth strategy. Admitting that "2009 will be an important year of transformation and execution for us," Clark noted that "follow-on biologics represents a significant market opportunity due to the extensive patent expiries of leading biologics in 2017."

It is so nice to be right.

One of our favorite themes here at IN VIVO Blog--in addition to the potential benefits to biopharma of risk mitigation strategies--is that Big Pharma has a huge opportunity to become a leader in FOBs.

Think about it: as Congress continues to mull over FOB legislation, its increasingly unlikely that they will consider an abbreviated pathway to approval for these products. Indeed, it's going to take significant expertise on a number of fronts--clinical, manufacturing, and regulatory--to meet the case-by-case standards being contemplated by legislators for follow-on approvals. And, since the products are unlikely to be therapeutically substitutable, companies will also need significant sales and marketing expertise to actually make money on such products.

Who has the requisite know-how? With the exception of Teva Pharmaceuticals, it ain't the traditional generic makers. "Other players with vastly superior capabilities and resources may be at least equally—if not better—suited to participate...such as some large-cap pharmaceutical and biotech companies as well as select mid- and small-cap biotech companies," said Ken Cacciatorre, an analyst with Cowen and Co. in this April RPM feature by Kate Rawson.

A majority of Big Pharma even have the technology platforms to make it happen. Late to the biologics party, a number of Big Pharmas were extremely busy in 2006 and 2007 gobbling up so-called next generation antibody companies in their bid to build capability, especially in areas with already established intellectual property such as the anti-TNF space. In addition to Merck's purchase of GlycoFi, other biopharmas inking deals around next-generation players include GSK (Domantis), BMS (Adnexus), Pfizer (Biorexis), and Wyeth (Haptogen).

But until 2008, when Teva announced it was buying albumin-fusion play CoGenesys, the corporate spin has been about the opportunities to develop novel biologics. Teva's willingness to commit $400 million to its own FOB program seemed to jolt the thought-processes of other biopharma execs. In a matter of months, former GSK CEO JP Garnier was publicly signaling the strategic importance of Domantis' technology because it allowed the pharma to"re-do a monoclonal for everything that is on the market, from Avastin to Rituxan...without infringing IP. With a product that might even have a twist."

At Pfizer's analyst day in March, meanwhile, CEO Jeff Kindler indicated that the New York giant was also considering how to position itself in terms of FOBs. In response to a question about whether an abbreviated approval pathway would prompt the company to start developing follow-on biologics, Kindler responded: "I do think that's an opportunity for us."

But if Pfizer and GSK suggested they were willing to dip their toes in the FOB waters, Merck's news should be taken as a full-scale immersion. And it's really not that surprising. Anyone listening to Merck's financial guidance call last week knows the dire shape the pharma company is in thanks to slumping Zetia and Vytorin sales.

The company needs to do something to jump start its R&D. And using GlycoFi's technology to gain a chunk of the follow-on biologics market, poised to take off under the auspices of a new Democratic administration, is a logical place to start.

Thanks to heavily engineered yeast, Merck can develop specific protein versions that are "best-in-class" with "a better circulatory half-life, targeted tissue distribution and/or increased potency," according to Peter Kim, President of Merck Research Laboratories.

And that is the biological equivalent of the fast follower strategy Big Pharma has perfected so successfully for small molecules. At a time of increasing regulatory risk, what better way to gain a grasp on a new therapeutic modality than to create me-better versions of already well studied and hugely successful molecules such as Rituxan or Enbrel and then market the hell out of them?

It will be interesting to see if Merck's news spurs other Big Pharma down the FOB path. Certainly biotechs, such as Amgen and Genentech need to think carefully about life-cycle management strategies for their own products. Hours after the news broke, Lazard analyst Joel Sendek issued a report urging caution when it comes to Amgen:

"We view Merck’s biosimilar program as a serious long-term threat to Amgen’s anemia franchise. Neupogen follow-on biologics currently marketed in the EU have failed to acquire a very significant share of the market or dent usage of Amgen’s dominant products; however, in our view, Merck represents a more formidable competitor due to its marquee brand name and marketing expertise."

hang-glider dollar bill by flickr user J0nB0n used under a creative commons license.