The Optics of Health Care Reform

Going over a cliff is one thing. Seeing over it should be much easier.

But, at least for now, Wall Street isn’t ready to take in the view. How else to explain the drumbeat of headlines about the negative impact of health care reform on pharma during the 2011 year-end conference call season?

“No one is really looking beyond the cliff today,” Sanofi Aventis CEO Chris Viehbacher declared during his company’s year-end earnings call at the start of February. “I haven't sensed anybody in the investment community really trying to figure out who's going to win in 2014 and '15. That's just not there.”

Viehbacher made those comments in explaining why he intends to wait until mid-year to offer a longer term outlook, until the company is more completely over its own patent cliff. In Sanofi’s case, that means a full-year of Lovenox generics, resolution of the uncertain status of generic Taxotere, and the end of the line for Plavix. (For more on the company’s overall performance, read "The Pink Sheet" DAILY story, here.)

“I would suspect as we get through a bigger chunk of the patent cliff, and we get closer and closer to 2012 and 2013, I think we're going to have more of a receptive audience to that, and that's why I think we want to do it then. I just think we'd be shouting in the wind a little bit if we tried to do it today.”

It’s not that the patent cliff is unexpected or dramatically worse than predicted. “Two years ago I stood up in front of a lot of you and said 20%-25% of the sales of this company are going to disappear between now and 2013 because of generic competition,” Viehbacher noted.

Rather, there is an overall negative sentiment, he believes.

“This is an industry that tends to focus on the negative. People start worrying about patent expires the day after you launch a new product. If you're any good in R&D, they're not going to give you any value for it in your portfolio. And if you're not any good at it they're not going to like you either.”

That negativity may be overstated, but there is no denying that investors have taken a decidedly glass-half-empty approach when it comes to the impact of health care reform on biopharma companies.

To be fair, the up-front costs of the law are significant—and a real crimp on the profitability of an already challenged sector. (See “Taking Lumps From Health Care Reform,” The RPM Report, June 2010.)

The health care reform implementation also includes a number of elements that further accentuate the negative. It isn’t just the size of the impact from bigger rebates, the new “market share” fee and the Medicare Part D donut hole discount. It's what they do to the P&L statement.

The health care reform impact, essentially, hits the trifecta for what analysts don’t want to see in a quarterly report:

(1) Lower gross margins. The increased Medicaid rebate and the donut hole discount represent an off-the-top reduction in revenues, with no associated reduction in costs. The same number of units are sold, just at lower prices. That makes for reduced gross margins across the board.

(2) Higher SG&A expenses. The market share fee (which begins in 2011) is accounted for as a sales cost and recorded on the expense line. At a time when manufacturers across the board are trying to show their seriousness about cost-cutting, the fee offsets some of those savings. While that is no different in profit terms from an off-the-top-line revenue adjustment, it further clouds the picture for companies trying to show that they are delivering on past promises to downsize.

(3) Higher taxes. The market share fee is (by law) not tax deductible. That means most pharma companies will report an effective tax rate that is at least a percentage point higher than it was in 2010. Again, that doesn’t change the magnitude of the hit, but it makes yet another closely watched variable look worse instead of better. Viehbacher observed wryly that another industry headwind—European price cuts—at least include an associated reduction in tax liabilities. (On the other hand, with corporate tax reform on the table in Washington, this isn't such a bad time for companies to report higher effective tax rates.)

Lower gross margins. Higher expenses. A higher effective tax rate. You can see why Wall Street isn’t loving health care reform right now.

Still, the impact of reform pales in comparison to the impact of the patent cliff. And, unlike a cliff, there is an upside to reform. All those discounts, rebates and fees helped buy an innovator friendly intellectual property system for biologics and biosimilars, improvements in insurance coverage (especially for high drug cost seniors who fall into Medicare’s “donut hole”), and, eventually, a much larger insured population to buy pharmaceuticals.

It is just that that all that happens on the other side of the cliff.

When investors are ready to look that far forward they may be in for a surprise. At least for some companies, what looked like a cliff may turn out to be a valley, with real growth prospects on the other side of the patent expiry period.

image from flickr user andrea trassati used under a creative commons license

At Afssaps, Two Heads Apparently Better Than One

Whilst countries in the Middle East struggle with the concept of the democratic process, the French minister of health, Xavier Bertrand, is seeking to hand pick the next head of the national medicines agency, Afssaps.

His choice — in fact his second, as the appointment of Hubert Allemand, deputy head of the national insurance system, failed for some unsubstantiated reason — is Dominique Maraninchi, president of the National Cancer Institute (INCA). Bertrand hopes that the appointment, arising as a result of the Mediator scandal, will be rubber-stamped by parliament in a matter of days.

Maraninchi is likely to be only one visage of the double-headed eagle that health minister Xavier Betrand wants to place at the pinnacle of Afssaps. Bertrand is looking to divide responsibilities at the agency between a medical person — arise Maraninchi — and an administrator.

Upon his somewhat unwarranted, yet dishonorable, discharge from the post of Director General at Afssaps — he effectively resigned under pressure — Jean Marimbert set down three goals, the fulfillment of which would re-establish public confidence in the medicines agency: improved pharmacovigilance; increased transparency; and the abolition of conflicts of interest. The question is whether Maraninchi has the determination, the ambition and the credibility to pursue these aims.

Aged 61, Maraninchi has been involved in the fight against cancer for over 30 years, having co-authored in excess of 275 articles, founded a pilot unit for bone marrow transplant in the Paoli-Calmette Institute in 1981 and established a pilot unit for research into treatment with cytokines and immunotherapy techniques at the same instate in 1988. He was appointed Director of the institute in 1990, President of the National Centres for the Fight against Cancer from 2002-2004, permanent advisor to the interministerial mission for the fight against cancer in 2003 and President of the National Institute for Cancer in July 2004.

Whilst nobody can argue about Maraninchi’s impressive pedigree in the field of cancer, there is only limited evidence to suggest that he will be able successfully to nurse an ailing Afssaps back to health. Maraninchi has understandably limited experience of pharmacovigilance, having led an institute that predominantly looks for cures and not faults. Pharmacovigilance is unlikely to fall under the auspices of the next administrator, and therefore there appears to be a slight gap in Bertrand’s plans for Afssaps. Presumably he either expects Maraninchi to learn on the job, or to rely on the expertise of his staff.

Maraninchi is well-known for expressing the view that transparency and the effective provision of medical care go hand in hand. At a meeting organized by the Socialist MP, Gérard Bapt, president of the group for the study of environmental health at France’s National Assembly — the lower house of parliament — Maraninchi, at the time president of the national cancer institute, commented on the benefit of opening up the institute’s advisory bodies to include public health interest groups. It is likely, therefore, that he will pass the health ministry’s transparency test.

The issue that is perhaps likely to catch the imagination of the general public, however, is that of conflict of interest. Media reports highlighting potential links between the government and Servier have incensed the public. More recently, at a grilling of the Afssaps hierarchy at the National Assembly, one deputy took particular satisfaction in pointing to connections between Philippe Lechat, director of medicines evaluation at Afssaps, and Servier.

The connection was tentative at best, with Lechat only taking part in the past in administering clinical trials involving a couple of the companies’ products. However, in turbulent times such as these, the public interprets a relationship between doctors and drug manufacturers as being on a par with the pact between Faust and the devil.

What then, will the media make of a similar link between the esteemed — and, to quote the French media, charming — Maraninchi and both GSK and Roche, particularly in the event of a new health scandal? It appears that Bertrand is banking on the fact that Maraninchi’s medical pedigree — in contrast with Marimbert’s background as a civil servant — will inspire enough confidence to quash public concerns.

A Deals Of The Week Valentine

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

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

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

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

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

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


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

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

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

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

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

Needy Candy Hearts image courtesy of flickrer piratejohnny

Branded Drug Prices on the Up and Up

Branded drug prices increased in 2010, according to a recent report by Barclays Capital. While most Americans will not be shocked by this information, analysts from Barclays added that the consumer is not directly affected by Big Pharma’s bump in drug prices. Shock and awe ensue!

Branded drug price increases, which are strictly wholesale list prices, mostly affect the middlemen between Big Pharma and the drug counter – leaving consumers to pay normal co-pays and not feel the sting of the higher prices. (One might argue that consumers get hit with these costs elsewhere in the health care schematic through insurance premiums and other costs – but that is fodder for a different blog post.) “For branded manufacturers this [new price point] is a starting point to negotiate with large buyers of the drugs,” says the report's author, Barclays analyst Lawrence Marsh.

According to Barclays, which got its numbers from the kind folks at First DataBank, there were 181 price increases in 2010 at an average increase of 6.9%, compared with 185 price increases in 2009 at an average rate of 6.6%. While the year-to-year comparison is itty bitty, the 2010 numbers are up precipitously from just four years ago when companies increased prices of 158 drugs by an average of 6.2%. This data is based on the top 130 branded drugs by sales.

Marsh says we can expect the upward trend to continue in 2011 and possibly beyond. Why? Mostly because Big Pharma is facing a huge patent cliff and is trying to squeeze every penny from their blockbusters before generic competition floods the market. According to Barclays, prescriptions written for branded drugs were down by 8% to 9% in 2010 – so the drug companies are already feeling the effects of generic drug purchases. Merck made the top 10 list for increases in 2010 with its soon-to-expire antibiotic Avelox (moxifloxacin), bumping up the price 11.9% in September.

According to Marsh, the trend also reflects the shift toward niche markets with few competitors. There is little to stop a company from hiking its drug prices when its unique product is the only drug on the playing field. (Tsk Tsk!)

Drug companies aren’t totally evil – most of the increases don’t trickle down to their bottom lines. The additional funds are partly used to help offset the costs of rebates and prescription assistance programs.

Price increases tend to only happen once a year – usually in January, although companies have been known to hike the price a second time – usually in July. In 2010, Galderma led the pack for price increases with an increase of 20% in June to its acne cream Differin (adapalene) – that’s on top of the 14% increase it enacted in January. Others on the top ten list included AstraZeneca raised prices for Pulmicort Respules (budesonide inhalation suspension) by 10.1% and Seroquel (quetiapine) by 12%, Novo Nordisk raised the price of insulin Novolog Mix 70/30 by 14.5% and Daiichi Sankyo bumped up Benicar (olmesartan) by 11%.

~Lisa LaMotta

image by flickr user richard holden used under a creative commons license

Pfizer vs. Merck and the Future of R&D: Deja Vu All Over Again

Pfizer and Merck begin 2011 with brand new CEOs and not a whole lot else in common.

Merck's new CEO, Ken Frazier, took over the reins as part of a planned succession on January 1. Ian Read took over as CEO of Pfizer much more suddenly, when Jeff Kindler resigned abruptly in December.

Both faced essentially the same challenge as 2011 began: how to deal with unrealistic expectations for growth in 2012.

By now you know the story. Pfizer's Read responded by acknowledging that revenues would not meet expectations, but pledged that earnings would, thanks primarily to some deep cuts in R&D. Frazier, in contrast, said simply that Merck would no longer stand by its guidance, taking the position of defending R&D spending rather than sacrifice new opportunities for relatively short term earnings targets.

Ah, its good to have Merck and Pfizer posing a strategic dichotomy in R&D again!

A dozen years ago, Pfizer (under CEO Hank McKinnell) and Merck (under Ray Gilmartin) waged a similar battle for the hearts and minds of investors during an earlier (and much, much smaller) patent cliff period.

Remember when Pfizer swooped in to buy Warner-Lambert away from American Home Products? Though Pfizer wasn't the loudest advocate of the view, the acquisition put the company in the camp of those who argued that the future of R&D depended on "critical mass"--building the scale to allow huge investments across a range of therapeutic areas and targets to drive growth for the decade ahead. Pfizer followed the Warner-Lambert deal with the acquisition of Pharmacia, and built its position as the biggest of Big Pharma in that era.

Merck, on the other hand, declared its intention to eschew big mergers, with Gilmartin saying any mega-deal would be a "distraction" from the core business of delivering organic growth from internal R&D supplemented by licensing or small, targeted acquisitions. And Merck stood by its guns, become the first Big Pharma to weather a genuine patent cliff (Zocor, primarily) without making a big acquisition (or being bought up itself).

So who was right?

Well, its hard to argue that "critical mass" was such a great idea, what with Pfizer's Read taking the scissors to his company's bloated R&D budget. On the other hand, it isn't like Merck did so well with that organic growth thing either; the company's acquisition of Schering-Plough two years ago, was if nothing else a repudiation of the "distraction" argument.

The fact is that neither company succeeded in delivering a sustainable product flow over the decade that followed the strategic divergence. That is why both are in the pickle they are in today.

Read and Frazier are now charting different paths. It seems unlikely that both are right. But history says both could well be wrong.

image from flickr user mtsofan used under a creative commons license

Adimab, Arsanis, and Platform Cloning -- a New Biotech Model?

Adimab, the yeast-based antibody discovery company that has amassed a strong portfolio of partnerships and skyrocketed to a north-of-$500m valuation, has always said it had no plans to do its own development work. If only the company could clone itself, perhaps it could venture down the development path without getting distracted from its discovery platform opportunity -- and the high multiples that can be extracted from a company that doesn't need a ton of development financing.

Enter the clone, Arsanis.

Arsanis is a biotech essentially seeded with Adimab's technology platform that will apply this yeast-based antibody discovery engine to developing drugs against infectious disease targets. The company will run research out of Vienna, Austria and plans to hire 20-25 employees in the next few months, according to founder and chief scientist Eszter Nagy, MD, PhD.

Adimab doesn't own Arsanis (though it stands to make money if Arsanis succeeds), but Adimab's investors do. The new company has raised about $10 million from SV Life Sciences, Orbimed, and Polaris, three Adimab backers. We've spoken to all those firms, to Adimab, and to Arsanis' Nagy, who hails most recently from Intercell. We'll have more on Adimab's strategy, the new company and the advantages of the model for its venture backers in a forthcoming issue of START-UP.

For now suffice it to say that Adimab has enabled a newco with its technology, helped put together a familiar syndicate to back it, and those investors can now put more money to work behind that Adimab platform. If Arsanis is successful we bet you'll see additional Adimab clones in other therapeutic spaces where Adimab's brand of faster/cheaper/better antibody discovery can yield "an unfair advantage," as one of Adimab/Arsanis' venture backers puts it.

How the company defines success remains to be seen. The $10 million should see the company all the way through to "compelling preclinical proof of concept" for a couple of antibody programs against unmet needs in infectious diseases, the players tell us, all within the next two years.

Nobody involved with Arsanis has suggested this strategy is new to biotech, but we haven't seen it work exactly like this before -- perhaps the closest comparator are the twin antibody firms Medarex and Genmab.

Meanwhile, Tillman Gerngross and Errik Anderson, Adimab's CEO and COO (founders and board members at Arsanis), have with their team transformed Adimab from a C-corp to an LLC, something we reported in December, and plan to expand the company's slate of discovery collaborations. The LLC transformation -- no easy feat according to all involved -- allows the biotech to return money from forthcoming collaborations to shareholders in a tax-efficient way.

It also dispels the notion, Gerngross says, that Adimab is for sale. "We're completely uninterested in short-term liquidity. We don't want what has happened in the past, where the company gets bought and then has a limited impact," he says. "We have a greater ambition."

Deals of the Week: Super Sunday Edition

The news from around the globe wasn’t pretty this week, as uprisings in the streets coincided with dangerous weather, spreading misery from Cairo to Lake Shore Drive to northern Queensland. And while Deals of the Week is sensitive to the gravity of these situations – unlike a certain fashion designer who attracted plenty of attention for putting his foot in his mouth – we’re not above a bit of diversion as the weekend approaches.

Neither are at least a hundred million Americans, who will be parked in front of their TVs on Sunday. Whether your preference runs toward bratwurst and cheese curds or a Primanti Bros. sandwich with fries on it, or whether you just like expensive commercials and the Black Eyed Peas, chances are you’ll be watching.

This year’s Super Bowl matchup got DotW thinking: What were the crucial decisions that got the Steelers and Packers to the big game? Was it a deal, or even a no-deal, and is there a lesson that pharmas could draw from what they did? Like, say, keeping one potentially lucrative compound in-house while partnering a later-stage drug, the Pack sensed it was time to bet on Aaron Rodgers and trade aging Brett Favre in 2008, allowing their young star to emerge. The Steelers, meanwhile, dealt troubled asset Santonio Holmes to the Jets, despite his potential for delivering more value in someone else’s hands, and instead looked to their pipeline for standout deep threat Mike Wallace.

Like drugs in the clinic, the players’ performances are only somewhat predictable, and require enormous financial commitments with no guarantees. But a well-timed deal can leave exiting venture investors celebrating like B.J. Raji after his fourth-quarter pick against the Bears, while mounting discontent can get a biotech subsidiary pushed out the door like Wade Phillips.

With our metaphor in mind, admittedly stretched beyond belief like Dwight Clark's fingertips as he brought down The Catch, please enjoy this super edition of…

Alexion Pharmaceuticals/Taligen Therapeutics: Announced Jan. 31, the union of Alexion and Taligen is designed to be complementary in more ways than one. Both companies have designed drugs that inhibit pathways in the complement system, a subset of the body’s innate immune system in which blood-borne proteins attack pathogens. Alexion, which has thus far specialized in orphan diseases, said it would pay $111 million upfront plus unspecified milestone payments for Taligen, whose lead program has been studied for ophthalmology as well as other disorders. Taligen had been planning to partner its lead program, TT-30, for age-related macular degeneration while keeping it in-house for orphan indications such as atypical hemolytic uremic syndrome and paroxysmal nocturnal hemoglobinuria, two rare disorders linked to deficiencies in complement factor H. Cheshire, Conn.-based Alexion already markets a complement inhibitor for PNH, Soliris (eculizumab), although it affects a different pathway. Robert W. Baird analyst Christopher Raymond speculated that TT-30 could replace Soliris as Alexion’s lead program. The deal represents a payday for Taligen’s venture investors, which had supplied at least $40 million to the Cambridge, Mass., startup since 2004. They include Sanderling Ventures, Clarus Ventures, Alta Partners and High Country Venture. -- Jessica Merrill & P.B.

AstraZeneca/WellPoint: A new agreement between Britain’s second-largest pharma and US-based health benefits provider WellPoint is designed to give AstraZeneca deeper insights into “real world data” surrounding post-market outcomes for its medications. AstraZeneca struck a four-year deal to harvest information from WellPoint’s clinical outcomes research unit HealthPoint, which will deliver data concerning cost effectiveness, clinical effectiveness and comparative effectiveness. That information could prove influential as AZ negotiates with payers to cover new pharmaceuticals. The agreement will focus especially on medications for chronic disorders including diabetes, cardiovascular disease and dyslipidemia, and will draw from a database covering 36 million enrollees in 16 US states. Specific terms of the contract weren’t disclosed, although the companies said the agreement could be extended beyond its initial term. The agreement could also be used to identify areas of unmet need in order to spur research and development initiatives, according to AstraZeneca executive James Blasetto. Although AZ has contracted WellPoint to study specific disorders before, their latest deal is the broadest yet. -- Cathy Kelly & P.B.

Allergan/Map Pharmaceuticals: Botox marketer Allergan paid $60 million upfront for rights to co-promote Map Pharmaceuticals’ orally inhaled migraine therapy Levadex, which has completed Phase III clinical trials and could be ready for an NDA submission in the first half of 2011. The deal value could increase to $157 million if milestones tied to Levadex’s approval in additional indications such as adolescent migraine are met. The first order of business is getting approval for acute migraine; while the companies establish joint steering committees, Map retains ownership of the NDA, which also means it bears the costs associated with the submission. The amount of upfront money is worth noting, given what the deal doesn’t include: Map keeps rights to promote to primary care docs in the US and elsewhere, meaning it ostensibly could capture more value for the product through a series of smart licensing deals. Still analysts and investors were puzzled why Map, which can’t afford the costs of primary-care marketing in a competitive space like migraine, didn’t seek a partner from the get-go that could broaden Levadex's commercial reach to U.S. internists and family-practice docs, as well as physicians practicing abroad. -- Ellen Licking

Valeant Pharmaceuticals International/PharmaSwiss: Focusing its growth almost completely on deal-making, Canadian specialty firm Valeant got off to a quick start this year, announcing a €350 million ($480 million) purchase of PharmaSwiss on Feb. 1. Having said in early January that Valeant planned at least five ex-U.S. deals this year, including one of significant size, CEO Michael Pearson looks to have made a smart move in acquiring the privately-held generics and over-the-counter products firm. PharmaSwiss has averaged growth rates of 20% the past five years and with its management team staying, the company will transition into Valeant’s European base of operations a year after Valeant expanded via last year’s $3.3 billion reverse merger with Biovail. In addition to tax benefits from operating in Switzerland, PharmaSwiss offers its status as partner of choice for companies such as Pfizer, Eli Lilly and Amgen that want to commercialize products in Eastern Europe without adding infrastructure. Pearson said PharmaSwiss will continue that practice under the Valeant umbrella. Separately, in a deal announced Feb. 3, Valeant acquired all U.S. and Canadian rights to topical herpes drug Zovirax (acyclovir) from GlaxoSmithKline for $300 million. -- Joseph Haas

Apeiron Biologics/Merck KGaA: Austrian immunotherapy firm Apeiron has licensed a fusion protein consisting of interleukin-2 linked to a GD2 antigen-targeting antibody from Merck KGaA, and it aims to conduct Phase II/III trials with it. Money from an out-licensing deal struck with GlaxoSmithKline a year ago enabled Apeiron to snap up the product, which CEO Hans Loibner said he has kept tabs on for some time. Apeiron believes it has the knowledge necessary to conduct trials in the very small numbers of children who develop neuroblastoma, and Merck probably recognized that, Loibner said. The immunocytokine has shown preliminary activity in a subset of children with neuroblastoma in a Phase II study. Apeiron now has full development and commercial rights and would like to take the product to market, but that decision may change, Loibner added. The companies did not disclose financial terms of the deal. Apeiron's previous deal came in October 2010, in-licensing a recombinant human superoxide dismutase (SOD) from fellow Austrians Polymun Scientific, which Loibner believes has potential as a dermatological for the treatment of skin damage associated with radiotherapy. -- John Davis

Image of "The Vince" courtesy of flickr user WBUR.

Financings of the Fortnight Would Rather Not See The Rabbit Up Your Sleeve

Now you see it. Now you don't. This week, "it" could be the upper Midwest, now buried under eighteen zillion tons of snow. But more dramatically -- at least in our little corner of the world -- the disappearing act took place in Washington, DC, where the FDA slapped Orexigen Therapeutics with a complete response letter (CRL) regarding its obesity drug Contrave. In other words, now you see an approval on the horizon -- shazam! -- now you don't.

The rabbit up the FDA's sleeve was its requirement of a large cardiovascular outcomes trial before Contrave gets to market, as opposed to a post-marketing trial. FDA's Endocrinologic and Metabolic Drugs Advisory Committee voted for the post-marketing route by the slim margin of 11-8, even as it noted safety concerns. If investors thought that December vote was a ticket to ride, FOTF has a book we'd like you to read. Still, investors more than doubled Orexigen's stock price to $11 on Dec. 8, and it was only slightly less frothy Monday, at $9.09, before the FDA CRL news hit like a massive, thousand-mile storm. Now Orexigen and its investors are stuck like all those folks on Lake Shore Drive in Chicago, wondering what hit them.

OK, we're stretching our analogies to the breaking point, but stranded is an apt term. A pre-market trial will cost Orexigen tens of millions of dollars, possibly more than $100 million; its marketing partner Takeda isn't responsible for any pre-approval development costs, as our Pink Sheet colleagues noted this week.

Perhaps Orexigen could raise the cash it needs....oops. Did we mention Orexigen shares closed Wednesday at $2.68? The firm has been public since 2007, but it made us wonder if the setback -- with its high-profile example of regulatory uncertainty -- would make public investors, already picky about their biotech investments, even more skittish. In an informal FOTF poll of fund managers, the general consensus could be summarized with two notions: First, you're crazy if you think FDA is going to let any obesity drug through without unprecedented address of unmet medical need and spotless safety (in other words, don't hold your breath). Second, you're crazy if you bet on FDA listening to its advisory panels.

We also asked fund managers if FDA's decision on Contrave impacts decisions to invest in new issues? With three biopharmas lined up to go public this week -- Pacira Pharmaceuticals, Endocyte, and AcelRx Pharmaceuticals -- it's a salient question. As of this writing, only Pacira has debuted, raising $42 million Wednesday after initially targeting $64 million. (More below.) Endocyte has amended its goals. It's still shooting to net $68 million, but with twice the shares (10.7 million) at half the price ($7). It could start trading Friday.

On the potential of Contrave to slam the IPO window shut, the consensus answer: "If an IPO hopeful company hasn't gotten through approval -- and perhaps even reimbursement -- for its lead product, we're always going to be cautious." Thus, we think it's safe to say Orexigen's disaster only reinforced established opinion: When you bite on a diabetes or obesity stock, wash it down with an extra helping of caveat emptor. And even when you laissez les bons temps rouler in the markets, biotech is only where mavericks try to ride the wave.

Hang five, hang ten, or just hang in there, it's time for...



Seattle Genetics: The antibody-drug conjugate developer pulled in $178 million in a secondary offering that closed Feb. 3, cash that will help it gear up for filing its BLA this quarter for its lead product, SGN-35 or brentuximab vedotin, in both relapsed/refractory Hodgkin lymphoma (HL) and anaplastic large cell lymphoma (ALCL). Selling 11.5 million shares at $15.50 a piece, including an additional 1.5 million to the underwriters, Seattle was in a regulatory sweet spot, riding high from its pivotal trial data but not yet subjected to the unpredictable approval process. The firm has also retained US and Canadian rights to b. vedotin, with commercial partner Takeda responsible for all other countries in a deal signed in December 2009. The partners were buoyed when top-line data from a pivotal trial released last September showed objective response rates in 75% of the 102 relapsed/refractory HL patients, far higher than the rate the company said it was hoping for. B. vedotin is an anti-CD30 antibody that carries a toxic payload: the proprietary small molecule auristatin E. Seattle Genetics developed the entire suite of components. Approval would mark the first for an antibody-drug conjugate since Wyeth's Mylotarg in 2000, which was pulled from the market in 2010. But as we explain in this IN VIVO feature, advances in ADC linker chemistry, more sophisticated understanding of antibody targeting, and other factors have given Seattle Genetics and other companies such as ImmunoGen, Roche's Genentech division, Pfizer and Bristol-Myers Squibb hope ADCs can be biopharma's next big therapeutic platform. -- Alex Lash

Nektar Therapeutics: Once on the ropes when its inhaled insulin partner Pfizer backed out of the ill-fated and much-mocked Exubera program, Nektar has reinvented itself as an oncology drug developer. It recently decided to keep all rights to its lead compound, so with high development costs on the way Nektar tapped the public markets for $220.4 million in a secondary offering, issuing 19 million shares of common stock in a transaction completed Jan. 24. Underwriter Jefferies & Co. has a greenshoe option to acquire 2.85 million more shares by mid-February. Nektar executives surprised analysts in December, as we noted here, when they said new Phase II results for NKTR-102, a polymer-conjugated molecule designed to improve on approved chemotherapy drug irinotecan, were so encouraging that the company would halt ongoing partner discussions. While keeping the drug in-house could bring a higher upside, Nektar will face higher costs in the near term. Nektar had $303 million in cash and short-term investments on its balance sheet at the end of September. The company has multiple other programs under development, including a pain drug expected to enter the clinic in the coming months. It garners revenues from partnerships, including deals with AstraZeneca and Bayer. -- Paul Bonanos

Pharmasset: The hepatitis C drug developer raised $123 million in a follow-on offering that closed Jan. 24, as the Princeton, NJ firm begins the first cross-company collaboration to study two investigational oral drugs for HCV treatment, which we discussed here in "The Pink Sheet." The partnership is with Bristol-Myers Squibb, which will contribute its NS5A replication complex inhibitor BMS-790052. Pharmasset is bringing to the collaboration its nucleotide polymerase inhibitor PSI-7977, which is in Phase IIb studies in combination with the current HCV standard of care, pegylated interferon and ribavarin. Pharmasset released interim data from that study Jan. 6. Its other late-stage asset is RG7128, a cytosine nuceloside analog in Phase IIb and partnered with Roche. Pharmasset is one of several companies jockeying to provide next-generation HCV care that moves beyond the limited efficacy and nasty side effects of the standard of care. One challenge for the N.J. biotech: many of its rivals, such as Vertex Pharmaceuticals and Gilead Sciences, are much larger and better funded. On Sept. 30 the company had $127 million in cash, which means the new offering likely more than doubled its existing reserves. The offering included the sale of 1 million shares by selling shareholders; Pharmasset did not receive those proceeds. With the underwriters exercising their overallotment, Pharmasset sold nearly 2.8 million shares at $46.33 a share. -- Jessica Merrill

Pacira Pharmaceuticals: The first biotech IPO of the year looks like many IPOs from last year: It has a bad haircut. Specialty pain firm Pacira, which inherited SkyePharma's injectables business when it spun out in 2007, sold 6 million shares at $7 each Wednesday, raising just two-thirds of the cash it hoped for. Its previous target was to sell 4.25 million shares at $14 to $16 each, or approximately $64 million. Pacira's lead product is a non-opioid analgesic for post-operative pain, Exparel, a long-acting bupivacaine reformulated in a proprietary delivery technology called DepoFoam. Pacira filed an NDA in December with a PDUFA date of July 28. Its main investors are HBM BioVentures, MPM Capital, OrbiMed Advisors, and Sanderling Ventures. Whether the stock price and volume affords them an exit once the lockup period ends remains to be seen, but their path to liquidity was short compared to traditional biotech investments. Pacira inherited the formulation technology from SkyePharma and royalties associated with it, but about 20% of the royalties flow to private equity firm Paul Capital, which bought the rights from SkyePharma a decade ago. -- A.L.

Photo courtesy of flickrer AnnieGreenSprings. Check out her pictures of India, too!

Pfizer's UK Sandwich Has Wrong Kind of Filling

Pfizer's decision to close down its UK-based R&D site in Sandwich, Kent, is one the government could have done without. It means 2,400 fewer jobs in the UK, hits tax revenues and comes at a time when the politicians in power are still reeling from worse-than-expected economic figures for the country from the fourth quarter of 2010.

Pfizer says the move isn't a reflection of its views on the UK as a location for pharmaceutical research. Instead it's part of a broader, global cost-cutting plan that's been going on for a couple of years; Groton, Connecticut was hit in the latest slashings too (25% of the 4,500-strong workforce there is going).

The problem is that the Sandwich site at Kent is focused on areas that Pfizer's pulling out of: allergy/respiratory, internal medicine, urology, virology etc. Viagra's hey-day is over (at least for the manufacturer), leaving Sandwich with...well, the wrong kind of filling.

That said, some of the choiciest parts of the filling, notably pain research, will be moved to the drug giant's Cambridge, UK site, but we're not talking big numbers; R&D president Mikael Dolsten instead used the vocabulary long familiar to many of his colleagues, that of the biotech-like unit. "We're creating more of a biotech pain unit" in Cambridge, he said.

There's no doubt that this is still a snub to the UK (and Groton). CEO Ian Read outlined in the company's Feb. 1 results announcement key steps in the increasing-innovation-and-productivity process to include "a realigned global R&D footprint to increase our presence in key biomedical innovation hubs."


So we didn't need Read to tell us that Kent isn't a key biomedical innovation hub. Still, the closure -- which will occur over the next 18-24 months -- has triggered a flurry of activity among politicians to try to carve out a plan as to how to maintain R&D activities at the site. No doubt they're thinking of star-child GlaxoSmithKline (a UK-headquartered firm, incidentally), which is putting about £11 million, or a third of total funding, into a new bioscience innovation park near its current site in Stevenage, north of London, and which in November 2010 announced its plan to invest £500 million in local R&D and production, including adding manufacturing capacity at its Hertfordshire site for respiratory disease.

UK governments moves to try to attract and retain R&D-focused companies to Britain include a "patent box" offering lower tax on income generated from IP discovered in the UK, an innovation investment fund to help fill the empty VC coffers and thereby kick-start investment in biotech, and ongoing attempts to try to make conducting clinical trials easier, cheaper and less bureaucratic.

None of these are going to influence where the Pfizer behemoth does or doesn't choose to have a footprint. Meanwhile, moves to curb drug prices -- including the UK's plan to introduce value-based pricing, essentially putting an end to free (ish) upfront pricing -- aren't exactly compelling reasons to stick around in a market which, after all, is only worth about 3% of the total.

Update: 3pm (UK time): Alternative Fillings for the Pfizer Sandwich
Pfizer's biotherapeutics chief JC Gutierrez-Ramos told The In Vivo Blog this afternoon that "there's a lot of work ongoing to explore alternative parterships at the Sandwich facility," and that nothing's off-bounds. Multiple ideas, multiple discussions with partners of all types....CROs, investors, companies and academia. "Hopefully we'll see some results" of those discussions over the coming months, says JC.

Meanwhile, he's busy rolling out the company's ambitious plan to create biomedical research engines (or Centers for Therapeutic Innovation) in a handful of cities across the globe...which will one day include London, but, we understand, not Sandwich.

Let It Snow, Let It Snow, I-P-O

Watch out. Here it comes. Unless half the United States turns into an Otter Pop in the next 48 hours, a dozen companies could join the public markets this week, and seven of them are health-care related, says Renaissance Capital. Three of them are biopharma firms: Pacira Pharmaceuticals, AcelRx Pharmaceuticals, and Endocyte.

With the crazy discounts companies were forced to endure to cross the magic IPO bridge in 2010, we're curious to see what the new calendar year brings. (Other than tons of snow and ice.) As this blogger noted in the current issue of The Pink Sheet, the aforementioned AcelRx and Pacira, plus one more company a bit farther behind, Supernus Pharmaceuticals, are all reformulation/delivery plays. Pacira and Supernus are spinouts with technology already incorporated into commercial products at the time of the spinout. All are five years old or less, a relatively fast turnaround for a venture exit. That is, if their venture backers can exit when their post-IPO lockup ends.

Of the 14 biopharmas to debut since the IPO window re-opened in late 2009, only five have stock prices above their original IPO price (as of Jan. 26). The biggest gainer is Aveo Pharmaceuticals, up 64% from its March 11 debut at $9.

But looks can be deceiving. Some IPOs debuted only after drastic haircuts. Take the case of Zogenix, which is up 25% from its IPO. But it wanted to sell 6 million shares in the $12 to $14 per share range; it ended up on November 22 selling 14 million shares at $4 each.

The discounts have had palpable effects. Trius Therapeutics delayed its debut a few months as it reworked its Phase III plans with the FDA. In August the antibiotic developer sold 10 million shares at $5 each, a big step down from the 6 million shares at $12 to $14 each it hoped to sell. The extra $25 million or so was supposed to pay for a second Phase III trial comparing its lead compound torezolid to Pfizer's standard-of-care for skin infections, Zyvox (linezolid), according to president and CEO Jeffrey Stein. But Trius had to settle for $50 million and one trial, and it will now look to sell some ex-US rights or do a secondary offering to raise cash for a second trial. All of which means the two trials will be roughly in series, not parallel, and the data FDA requires to get an antibiotic approved -- requirements the agency has been overhauling for more than two years -- will be that much farther out.

Enter the delivery hopefuls. AcelRx is testing an oral form of the powerful painkiller sufentanil that a post-surgical patient self-administers in tab form under the tongue, meant as an alternative to press-a-button IV drips. Pacira is also in pain, with a non-opioid analgesic formulated in its Depofoam technology. Supernus is applying extended-release technology it spun out from Shire in 2005 to schizophrenia drugs.

Reformulation is unlikely to rescue beleaguered biotech investors, but if this week's crop of companies have successful debuts it will surely embolden VCs who've shifted their portfolios in recent years away from the long, tough slog of drug discovery and development. Joining AcelRx, Pacira and Endocyte in the chute are two health services companies, a dental implant maker, and a joint replacement maker.

Speaking of long lead times, look no further than the one company we've not really discussed here: Endocyte has a platform for small molecule drug conjugates, and it's got a folate receptor agonist in Phase II against ovarian and lung cancer. It was founded in 1995 and raised its first venture round in 1996.

Image courtesy of the Weather Channel.