What Lipitor? Pfizer's Strategic Shrinking Solution

Investor pressure on Pfizer to downsize radically has been rising for several months, controversial as it is, but Sanford Bernstein analyst Tim Anderson's jarring note on Monday underscored how serious Pfizer's new CEO Ian Read is about shaking up the ship.

"If we hadn't been there ourselves to hear it firsthand, we would not have believed it, but it seems from our recent meeting with CEO Ian Read that Pfizer may be destined for a significant shake up in the form of shrinking its behemoth ~$67 billion yr. revenue base," Anderson wrote. "No final decisions have yet been made, but all options appear to be on the table and through a series of major potential moves the "new" Pfizer might end up with annual sales of ~$35 to $45 billion/yr, something Read terms the 'innovative core…'"

The timing of such talk is hardly coincidental. Read was appointed CEO Dec. 5, almost exactly a year to the date from when Pfizer's leading drug Lipitor goes generic. What better way to deflect attention from that cataclysmic event than to rip up a company that just underwent a two-year reorg?

True, Lipitor may not face the worst kind of blood bath encountered by many small molecules once they go off patent, given various global six month exclusivities and extensions and Pfizer's own mapped plan for bolstering its sales in emerging markets. But analysts are projecting that the brand will lose at least 80% of its $5 billion in U.S. sales within a year.

And, if Pfizer spins out its $10 billion Established Products Business Unit – one of the plans under consideration -- even the 20% remaining revenues may no longer belong to it but to the new entity, in whatever shape that entails. Other moves in play include spinning out non-core consumer health, nutritional and/ or animal health businesses, which together make up about 15% of the company's total sales.

Underlying the yakking is a lingering disappointment in Pfizer's 2009 acquisition of Wyeth for $68 billion, as the company clearly has struggled to meet financial targets it set when it first announced the deal. A series of late-stage R&D failures also hurt. And there's the observation that even if the pipeline pans out, in an era of targeted therapy no one drug can move Pfizer's swollen needle. The stock therefore has barely budged, even as management cut spending, closed manufacturing sites, and shaved the once-generous dividend to help pay for the Wyeth acquisition.

Given all the challenges Pharma faces, the fierce discussion underway about right-sizing pharma is appropriate. But until now, deliberately downsizing an industry leader by taking $25 billion in sales off the table wasn't considered a viable option. Recall the debate that consumed Wall Street when Pfizer originally announced its Wyeth deal and Pfizer's then CEO Jeff Kindler's adamant argument that getting bigger was the best way forward.

In part, the sentiment underlying Pfizer's options – as Anderson points out -- could be the grass is greener in my neighbor's yard kind of wishful thinking, given how well the much smaller Bristol Myers Squibb has done as a focused company, which made a killing by spinning out its Mead Johnson nutritional subsidiary in early 2010. It could also be a response to investors looking for any sort of creative strategic idea to raise Big Pharma, and Pfizer in particular, from Wall Street's dumping ground.

Or, maybe it's all part of some brilliant rational plan. Two years ago, an unnamed source spoke to IN VIVO magazine about shrinking Pfizer: "But if Pfizer had wanted to do the spin-offs, they could have," one executive close to the transaction said. The tax problems with spin-offs, he believes, are no more challenging than those Pfizer is incurring by repatriating perhaps $8 billion in off-shore profits, which will likewise increase Pfizer's tax bill. In fact, this executive and others suspect that spinoffs will be in any event the longer term result of Pfizer's acquisition [of Wyeth]: after all, if Pfizer is serious about keeping its five business units managerially independent, each responsible for its own P&L, they'll also be larger and theoretically more sustainable–and thus better candidates for spin-offs."

No matter what course Pfizer takes, none of it gets the company off the hook for the need to improve its R&D. And there's no guarantee that shrinking will help that effort; while disciplined focus is helping Bristol on pharma innovation, it certainly isn't doing Lilly wonders (note the latter's recent efforts to bulk up its non-core animal health business, albeit on an entirely different scale than Pfizer's). But once again, the story will play well on Wall Street, which is waiting for some new ideas from pharma executives. -- By Wendy Diller

Seeking Value: How Lower Prices Can Make Sense

Angus Russell is CEO of Shire PLC. Shire is a global specialty biopharmaceutical company with 4300 employees in 28 countries. He will be the keynote speaker at the BIO-Windhover/Pharmaceutical Strategic Outlook Conference taking place March 30 to April 1 in New York.

The current issues faced by health care systems globally can be summed up in an excerpt from Michael Porter’s recent article in Harvard Business Review entitled “Creating Shared Value” --

“From society’s perspective, it does not matter what types of organizations created the value. What matters is that benefits are delivered by those organizations—or combinations of organizations—that are best positioned to achieve the most impact for the least cost.”

Nearly every health care system around the world is facing tight budgetary constraints, which is having an impact on what those economies are willing to pay for medical innovations. In particular, payors are demanding tangible value for the medicines that biopharma companies hope to bring to market. This message became crystal clear as I traveled in the past year to many of the 28 countries where Shire has a presence and met with the various stakeholders engaged in the drug development process.

Today, it is no longer sufficient to hit a clinical endpoint. As evidenced by the recent decision in the UK by the National Institute for Health and Clinical Excellence (NICE) to decline reimbursement of several clinically-proven drugs due to their perceived high cost and low value to the UK health care system, health care regulators are taking a much more critical look at the cost of a medicine and its implied value to society.

Given the changing landscape, what can companies do to increase the likelihood that their product will not only be approved by regulators, but also receive reimbursement that enables them to be appropriately compensated for their R&D investment? While the answer to this one billion dollar question – a figure some estimate as the average cost to bring a product to market – remains under debate, what has become abundantly clear is that life sciences companies must take into consideration the needs of a much broader group of stakeholders, and clearly demonstrate the value to society that can be realized through the development of innovative treatments for unmet health needs.

Historically, physicians were seen as the gatekeepers to the successful commercialization of a product. Nowadays, it's clear to most companies that patients, caregivers, advocacy groups, policymakers and payors – in addition to physicians – are all important influencers in what we at Shire refer to as the Circle of Value. It is essential that we engage with these stakeholders regularly to hear, and address, their unique needs and to gain insight into a host of factors that can have a very real and direct impact on the success of a drug candidate, ranging from clinical trial design, to meeting unmet medical needs in the marketplace and assessing prospects of obtaining product reimbursement.

Thus Shire has expanded the teams that engage with patients, policymakers and payors, which has allowed us to listen more effectively to the needs of these groups and adapt our approach to drug development and commercialization activities. As an example, Shire conducted a number of focus groups with physicians around potential pricing prior to the launch of our Gaucher treatment Vpriv. The feedback indicated that it would be beneficial to all involved if Shire priced Vpriv lower than the other approved product on the market.

Shire's management ultimately secured a price for Vpriv that is at a 15% discount compared with the only other commercially-available product for this rare disease, even though the market conditions suggested Shire could potentially have secured a premium price. In addition, as part of our patient assistance program, Shire instituted a co-pay funding plan specific to Vpriv for eligible patients in the US.

Of course, the resources a company has at its disposal to serve these stakeholders can only be effective when there truly is a need in the marketplace for a specific medicine or device. Thus Shire's approach to drug development first identifies an unmet need in the marketplace and what a new product’s value proposition needs to be in order to be considered a success. Shire conducts comparative effectiveness research, including the standard-of-care for that condition, early in the clinical development process. By doing so, we seek to demonstrate the tangible value associated with a product candidate; if we cannot do so, our process allows us to make a decision to discontinue a program earlier — and with potentially several hundreds of millions dollars still in-hand.

Delivering true value to the health care system through a market-driven, multi-stakeholder approach is critical in today’s times. The better drug companies can demonstrate and deliver value, the more likely they are to receive the reimbursement needed to meet the high costs of developing their medicines, and thus to generate revenues to reinvest in R&D – all of which helps patients and their caregivers, and contributes to the health of society overall.

Today’s FDA Advisory Committee Meeting, Brought To You By …

… FedFinancial Federal Credit Union, serving federal employees and their families in the Washington and Baltimore areas since 1935.

OK, so maybe the credit union was not the “sponsor” of Arcapta Neohaler, the chronic obstructive pulmonary drug reviewed by FDA’s Pulmonary-Allergy Drugs Advisory Committee on March 8 (the NDA sponsor is Novartis).

Nevertheless, the bottled water provided to committee members and FDA staff was courtesy of FedFinancial. The bottle’s label bore the credit union’s name and the slogan “Member Benefits Set Us Apart.” Also, included were the credit union’s toll-free phone number, website and the location of a branch office at FDA’s White Oak headquarters (Building 2, Room 1041).

As jaded attendees of FDA advisory committee meetings, the seemingly innocuous, though incongruous, presence of a promotional item struck us as odd, so we investigated further with the assistance of fellow colleagues from “The Pink Sheet."

(Full Disclosure: This reporter took a warm, unopened bottle of FedFinancial water following the Arcapta meeting because agency staff removed her personal bottle of water during their aggressive clean-up efforts of the White Oak Conference Center.)

Similarly labeled FedFinancial water was provided to the head table two days later at the Anesthetic and Life Support Drugs Advisory Committee’s March 10 meeting on pediatric use of sedative/anesthetic agents. Both the Pulmonary-Allergy and Anesthetic-Life Support committee meetings were held at FDA’s White Oak campus.

In contrast, the Peripheral and Central Nervous System Drugs Advisory Committee convened at the Hilton in Silver Spring, Md., on March 10 to discuss a monotherapy indication for GlaxoSmithKline’s anti-seizure drug Lamictal XR. No FedFinancial water for that meeting, however, as committee members and FDA staff had to make do with pitchers of water provided by the hotel.

So, what gives? In these desperate fiscal times, is FDA so tight on funding that it has turned to financial institutions to help defray costs of holding advisory committee meetings?

Not so, the agency says. In response to a question from “The Pink Sheet,” the CDER trade press office had this explanation:

“The water bottles just happened to be left over from a function within CDER in which the credit union, which has a branch on campus for employees, supplied water. The credit union did not (at least not intentionally) provide water to staff and panel members for last week’s meetings.”

So, that’s that. And yet, we can’t seem to let this go, because seeing high-level staff in FDA’s Office of Drug Evaluation II and the Division of Pulmonary, Allergy and Rheumatology Products swilling FedFinancial water gave us an idea.

What if FDA were to offer promotional opportunities during the course of its advisory committee meetings? Oh, we’re not talking about allowing Boehringer Ingelheim and Pfizer to advertise their COPD drug Spiriva during the committee’s review of Arcapta, as that would be an obvious conflict.

Instead, why not offer non-pharma companies, such as vendors or service providers, an opportunity to sponsor ads or “commercial breaks” in the meetings? We can see it now:

A full-page ad, attached to the meeting agenda, highlighting the Silver Spring Hilton’s banquet facilities as the perfect place for that Fall 2011 wedding reception.

The panel chairman’s announcement of the mid-morning meeting break: “The morning break is sponsored by Roto Rooter Plumbing and Drain Service, where their motto is ‘And away go troubles down the drain.’”

Or, “The voting results on Arcapta’s efficacy and safety are brought to you by the international accounting firm Ernst & Young. Ernst & Young – Quality in Everything We Do.”

Then again, the text of voting questions and the electronic voting process itself tend to cause so much confusion among advisory committee members that no reputable accounting firm might want its name attached to the process.

We’ll keep working on this one while we sip our FedFinancial water.

– Sue Sutter (s.sutter@elsevier.com)

Deals Of The Week Takes Action

It was quiet on the deal making front as major news this week was of a regulatory or clinical nature. Despite a three-month delay, GlaxoSmithKline and Human Genome Sciences earned a BlyS-fully easy approval March 9 for Benlysta (belimumab), the first new lupus treatment in 56 years. That the approval didn’t come with a risk mitigation scheme or onerous labeling shows yet again that regulators are treading lightly in arenas where good therapeutic options are lacking. (Just practice the phrase "unmet medical need" three times fast.)

The good news about Benlysta was likely a comforting balm for GSK – or at least distracted the big pharma’s investors. Less than 48 hours later, the company and its partner Tolerx announced disappointing results for a Phase III trial of their humanized anti-CD3 monoclonal antibody for Type 1 diabetes, otelixizumab. Otelixizumab’s failure wasn’t entirely unexpected: a similar drug from Eli Lilly (remember them?) and MacroGenics called teplizumab has also floundered in the clinic.

While otelixizumab's results haven't yet sparked a “no-deal”, it wouldn’t be surprising if GSK were to decide the DEFEND-1 data made its 2007 agreement with indefensible. For the moment, the big pharma is investigating additional dosing regimens of the drug and has halted recruitment in a separate clinical trial.

Of course, GSK has to share the late-stage failure spotlight with Sanofi-Aventis and its partner Regeneron, who revealed this week that their non-small cell lung cancer drug aflibercept failed to increase overall survival time relative to comparator docetaxel in a Phase III study. The announcement is a definite setback for the French pharma, which has spent the past two years rebuilding its oncology business with a greater emphasis on targeted therapeutics and biologics.

Of course, the failure also raises questions about Sanofi’s ability to meet its revenue goals via its internal pipeline, illustrating yet again that to scale its 2013 patent cliff, the drug maker had few options but to consider a sizeable acquisition on the order of Genzyme. (If anyone's still curious about that M&A, we'll have more in the c oming March IN VIVO.)

Aside from clinical setbacks, this week’s deal-making highlights feature Japanese pharmas, academic collaborations and the importance of reprofiling existing compounds to identify potential new uses. Drumroll, please...

Eisai/Epizyme: Privately-held Epizyme’s March 10 agreement with Eisai is the biotech’s second big pharma partnership of the year, following a January tie-up with GlaxoSmithKline. But Epizyme CEO Robert Gould is eager to stress that the two deals are different and serve separate parts of his firm’s business strategy. The deal with Eisai centers around EZH2, a preclinical epigenetic enzyme expected to yield treatments for lymphoma and other cancers in genetically defined patients. As part of the deal, Epizyme will receive $6 million upfront and can earn up to $200 million in milestones and up to double-digit royalties. The Japanese pharma also will cover 100% of R&D costs through human proof-of-concept, at which point Epizyme can opt in to share development and U.S. commercialization costs and profits. In contrast, the GSK deal centered on a defined but undisclosed package of histone methyltransferases. GSK paid $20 million upfront with the potential for up to $630 million in milestones plus double-digit royalties. That deal is basically a “handover” of the related assets to GSK, whereas the Eisai deal involves joint decision-making with the possibility of Epizyme taking on the role of full partner, says Gould. If Epizyme elects to opt in after proof-of-concept, it would co-commercialize the resulting drug in the U.S., while Eisai would retain development and commercial rights for the rest of the world.--Joseph Haas

AstraZeneca/Galderma: AZ on March 7 signed up global dermatology giant Galderma to reprofile some of its assets to treat skin diseases such as psoriasis, acne and atopic dermatitis. The five-year R&D agreement, for which financials weren’t disclosed, sees the French-based biotech gain access to several already-identified AZ compounds from within the big pharma’s core therapy areas, including oncology, inflammation and central nervous system. The deal is both a sign of the times, and a reminder of how AstraZeneca stands apart from some of its big pharma peers. It’s another example of large drug firms’ push to squeeze out all the value they can from their assets, especially in non-core therapy areas. This is the second reprofiling alliance AZ has struck: in 2009 it signed a similar agreement with Alcon in ophthalmology. Under terms of that deal, should Alcon discover potentially interesting compounds, it can license them on a case-by-case basis, with AZ eligible for regulatory milestones and royalties. The Galderma tie-up also emphasizes AZ’s ‘pure-play’ strategy and its preference to team up with recognized experts in areas it considers outside its expertise. That’s in contrast to companies like GlaxoSmithKline, which paid $3.6 billion in 2009 to buy dermatology player Stiefel, creating its own specialist business with attractive, risk-mitigating trimmings including OTC and aesthetic portfolios. Not that dermatology is, strictly speaking, a new opportunity for either GSK or AZ: both used to have their own skin-care businesses, in the days before dermatology went out of fashion. --Melanie Senior

Evotec/Harvard: It ain't just big pharma heading back to school. Even biotechs are looking for tie-ups with universities these days. German small-molecule drug discovery company Evotec announced a deal this week with Harvard University and the Howard Hughes Medical Institute to investigate new therapies for diabetes, specifically in the area of beta cell replication. Financial terms weren’t disclosed. Harvard professor Doug Melton will be the principal investigator, working alongside Chevy Chase, Md.-based nonprofit HHMI and the German pharma. The move deepens Evotec’s commitment to diabetes, following a deal last summer to acquire metabolic disorders specialist DeveloGen. That company, now operating as an Evotec subsidiary, has multiple projects underway, including insulin sensitizers and drugs that prevent destruction of existing pancreatic cells as well as compounds that induce beta cell regeneration. Its immune-modulating drug DiaPep277, which protects pancreatic cells, is in Phase III trials, and was partnered with Andromeda prior to the acquisition. DeveloGen also has an ongoing discovery partnership with Boehringer Ingelheim. Evotec says the goal of its new arrangement with Harvard and HHMI is to create orally available small-molecule drugs that trigger or support beta cell regeneration. --Paul Bonanos

Yakult Honsha/Aeterna Zentaris: Behold another sign that regional deal-making is alive and well. On March 9, came news that Aeterna Zentaris, a Canadian company specializing in oncology therapies, has partnered Japanese rights to its lead oncologic, perifosine, for $8.3 million upfront and another $60.9 million in clinical and regulatory milestone payments. Perifosine is a novel oral medicine that inhibits Akt activation in the phosphoinositide 3-kinase (PI3K) pathway, which is associated with programmed cell death, cell growth and cell survival. Phase III trials in colorectal cancer and multiple myeloma are ongoing in the U.S. and EU.The deal with Yakult Honsha, a diversified Japanese player that develops foods, beverages and cosmetics in addition to pharmaceuticals, represents the third time Aeterna has sliced up rights to perifosine. In 2002, it licensed North American rights to the molecule, in Phase I studies at the time, to privately held Access Oncology for at least $18 million. (Those rights transferred to Keryx Biopharmaceuticals when it purchased Access Oncology two years later.) Aeterna also cleaved off Korean rights to the molecule, dealing them to Handok. In general, blocking this particular cellular cascade is an area of great interest to pharmas looking to extend their oncology franchises, with developers of inhibitors specifically targetting PI3K striking rich deals. (Think Gilead/Calistoga or Sanofi-Aventis/Exelixis.) Deal terms for Akt inhibitors don’t appear to be as pricey based on Elsevier’s Strategic Transcations database. Of course, because Aeterna Zentaris out-licensed the highly valuable North American rights to perifosine at Phase I, it’s also limited the upfront potential dollars it could receive, demonstrating the trade-offs companies make when partnering at such an early stage. --EFL

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

Actelion On The Defensive: Corporate Governance White Paper

First, there were just words. Then there was a maiden dividend, the first of regular payouts to shareholders. Now there's a white paper on good corporate governance. Whether or not Elliott Advisors, a new-ish, almost-6% shareholder in Actelion, succeed in their (apparent) mission to force the sale of the company, they've certainly done a good job, it seems, reminding the company of its duties to its shareholders.

We're not taking sides here. Far from it. We dislike short-term, profit-seeking hedge funds just as much as the next (average) man (or woman) who isn't getting part of the spoils. (And Elliott, for the record, claims it's a long-term investor).

But Actelion's responses thus far to Elliott's Feb. 3 public missive, calling for CEO Jean-Paul Clozel and for Chairman Robert Cawthorn to step down from the board, and accusing the Swiss biotech of poor corporate governance, hint that perhaps management wasn't quite doing enough previously to explicitly reassure investors that they do, indeed, consider all the strategic options and judge each in terms of shareholder value, rather than against Clozel's personal, and well-documented, drive for long-term independence.

To the latest defense weapon, then: two dozen slides highlighting the company's super-high corporate governance standards, by Cawthorn.

"Eight out of nine of our board members are independent," shouts the slick slide-deck (Clozel is the odd-man out, which is why Elliott wants him off). We meet regularly and consider input and feedback from shareholders, it says. (We're paraphrasing a little.)

But not content with emphasizing its own (high) standards, Actelion's board is arguing that it's corporate governance is BETTER than your average U.S. standards. Under Swiss law, the full board is called to make more major strategy decisions than is the case for U.S. companies; Swiss companies need shareholder approval for many more actions than their U.S. counterparts, the deck claims, including dividends and issuing new equity.

If that isn't enough, the white paper goes on to essentially remind Elliott and their ilk of the power that they do have, as significant shareholders, over the composition of the board. Firstly, investors owning at least 1.5% can submit proposals for adoption at the AGM. Second, Swiss law allows a majority of voting shareholders to force directors out without cause, giving them "a powerful tool to assure their ongoing satisfaction with the Board." (In the U.S. removing directors requires a supermajority vote in most cases, says the paper).

It seems the corporate governance system is working rather well, then; no doubt Elliott will continue to leverage all the rights granted to it as a large shareholder. The company's May 5 AGM should be an interesting event.

Meantime, Actelion's board will be hoping that enough other investors join Rudolf Maag's camp: the 4.2% shareholder on March 7 became the first to speak out in support of the company's standalone strategy.

image by flickrer Ran Yaniv Hartstein under creative commons

Deals Of The Week: The Sushi Edition

The biggest deal of the week, Daiichi’s purchase of the California biotech Plexxikon for $805 million upfront, prompted headlines elsewhere about the rise of Japanese dealmakers. Faithful readers of IN VIVO Blog won't be surprised by such pronouncements. It’s a trend that has been gathering steam since Eisai’s take-out of MGI Pharma and Takeda’s land-grab of Millennium Pharmaceuticals. (And yes, that's about 3.5 years longer than Kyowa Hakko's bid for ProStrakan.)

Indeed, as we wrote in a May 2010 IN VIVO feature, Japanese pharmas are now serious contenders for partnerships outside their home country as domestic factors –including consolidation in the home market, slowing growth, and a strong yen – have become powerful forces of change.

And as the Plexxikon deal shows (see below) that’s very good news for biotechs of a certain profile –especially neurology and oncology players close to commercialization. Given the merger mania of the past several years, the pool of potential acquirers for biotech assets has diminished, meaning any new buyers willing to pay top dollar are welcome news. In addition, Japanese players like Takeda( or Astellas or Daiichi) seem amenable to terms that allow the smaller party a great deal of autonomy, whether it’s running a biotech as a stand-alone within the parent pharma or establishing co-promotion/co-development options as part of an alliance.

The continued activity of players like Daiichi means biotech execs should brush up on their Japanese and learn to love sushi. (What’s not to love about sushi?) As always, domo arigato for reading…

Daiichi Sankyo/Plexxikon: Kaaa-ching! Bidding by multiple companies and strong data for a late-stage, targeted melanoma drug helped drive Daiichi Sankyo’s eye-popping acquisition of privately-held Plexxikon this week. The deal is one of the priciest acquisitions of a private biotech since 2006, according to Elsevier's Strategic Transactions and in-line with J&J's take-out of abiraterone developer Cougar Biotechnology. Equally notable is Daiichi's down-payment. At a time when bigger and smaller pharmaceutical players are trying to hedge their risk by structuring earn-out heavy deals, the Japanese pharma is shelling out $805 million, a deposit that approximates 86% of the deal's potential value. Even without the additional milestones, this sum provides an impressive return for the nine venture capital firms who have staked 10-year-old Plexxikon, which has made a name for itself with its targeted melanoma drug PLX4032. But the deal's price tag is only a piece of the story; the advent of a dark horse buyer is another important consideration. Back in 2006, Plexxikon partnered the drug to Roche for $40 million upfront, retaining an option to co-promote the product in the U.S. market. In early January 2011, Plexxikon exercised this option, agreeing to reimburse Genentech, which is responsible for ongoing development of the medicine, for certain marketing and promotion costs. With the planned acquisition, this option - and the resulting enhanced royalties on product sales owed to Plexxikon - now transfers to Daiichi. That the Japanese pharma would spend so much to obtain only a piece of a potentially lucrative molecule illustrates both the scarcity of late-stage oncology assets and just how much Big Pharmas are willing to pay to get drugs with validated mechanisms of action in this competitive therapeutic area. (For more, see our 2006 feature "The $100 Million IND.") It also brings Daiichi in line with the other big three Japanese pharmas - Astellas, Takeda Pharmaceutical and Eisai - all of whom have used acquisition to bolster their U.S. oncology offerings. --EFL

Takeda/Intra-Cellular Therapies: Daiichi wasn’t the only Japanese pharma wheeling and dealing this week. Takeda also announced its decision to license Intra-Cellular Therapies’ preclinical, orally available phosphodiesterase type 1 (PDE1) inhibitors for treatment of the cognitive impairment associated with schizophrenia in what appears to be a heavily back-end loaded deal. Disclosed terms were pretty vanilla: Takeda makes an undisclosed upfront in exchange for exclusive worldwide rights, and will pay development milestones of up to $500 million, with another $250 million owed if the product(s) hit certain sales objectives. Takeda will be solely responsible for the development, manufacturing, and commercialization of the compounds. In addition to schizophrenia, Takeda also has rights to develop the inhibitors for other neurological indications, potentially including dementia, Parkinson’s disease, and Alzheimer’s disease. Privately-held ITI is built around scientific findings discovered in the lab of Rockefeller University’s Paul Greengard; in 2005 it also inlicensed a basket of preclinical compounds from Bristol-Myers Squibb. According to sister publication “The Pink Sheet” Daily, ITI hadn’t planned on partnering its PDE1 program quite so soon, but pharma’s level of interest in the compounds, which are very selective for the PDE1 subfamily and thus, presumably, won’t cause off target side-effects, was so high the company changed its mind. Neither company would discuss timelines or details on the clinical development program, but ITI's CEO Sharon Mates did say there were clearly defined endpoints for positive symptoms associated with schizophrenia, as well as standard cognition measurements. –EFL

Merck/Lycera: Privately held, autoimmune-focused Lycera signed a collaboration with Merck March 3 under which the two companies will discover, develop and commercialize small molecule candidates that orchestrate the differentiation of T-helper 17 cells. Diseases targeted by the partnership may include rheumatoid arthritis, psoriasis, inflammatory bowel disease and multiple sclerosis. The deal calls for Merck to pay Michigan-based Lycera a $12 million upfront payment, undisclosed research funding, as well as research, development and regulatory milestones of up to $295 million. (There are also potential low-double-digit tiered royalties on any products that reach the market.) The companies will collaborate on discovery and preclinical work, with Merck responsible for clinical development of any resulting candidates. The pharma also will hold worldwide marketing and commercialization rights to such candidates. Lycera, profiled in this 2009 Start-Up article, is backed by InterWest Partners, ARCH Venture Partners, Clarus Ventures and EDF Ventures. It brought in $11 million last April in the second tranche of a Series A financing announced in April 2009.—Joseph Haas

GlaxoSmithKline/Targacept: In a “No-Deal” that was not unexpected, GlaxoSmithKline, which announced plans to exit the central nervous system arena a year ago, terminated its partnership with Targacept March 3 to co-develop neuronal nicotinic receptor modulators in five therapeutic areas – pain, smoking cessation, addiction, obesity and Parkinson’s disease. GSK paid $35 million upfront to initiate the partnership in 2007, including a $15 million equity investment in the North Carolina biotech. Its resulting exit leaves Targacept in full control of all programs subject to the alliance, each of which is still in preclinical stages. Targacept, which still has a potential $1.2 billion, multi-program collaboration in place with AstraZeneca, said it made $45 million over the life of its deal with GSK. In a March 4 note, analyst Robyn Karnauskas of Deutsche Bank said AstraZeneca is Targacept’s key partner, as the companies await Phase III data for TC-5214 in adjuvant treatment of refractory depression in the fourth quarter of this year. Targacept, which had about $252 million in cash on hand at the end of 2010, also is awaiting AstraZeneca’s decision on whether it will opt in on the Phase II schizophrenia and ADHD candidate TC-5619 – top-line data in ADHD are expected by the end of this quarter, with AstraZeneca expected to makes its call by mid-year.--JAH

Ipsen/GTx: GTx can’t seem to catch a break. When its Ostarine-focused alliance with Merck blew up last year, GTx at least had the committed support of Ipsen. The two have been partners since 2006 when they aligned to develop the biotech’s selective estrogen receptor modulator (SERM) toremifene to treat the side-effects of androgen deprivation therapy in prostate cancer patients. And Ipsen remained true even though toremifene’s clinical development path has been strewn with obstacles, including a 2009 complete response letter requiring an additional Phase III clinical trial. That’s not to say the alliance didn’t change; after the CRL, the two parties revised their 2006 deal, releasing Ipsen from milestone payments in exchange for in bankrolling up to $58 million to support the additional clinical trial. This week comes news that Ipsen is calling it quits on toremifene after all. Apparently the projected costs associated with the needed clinical trial exceed the $58 million sum the two brokered in 2010. “We spent significant time analyzing the business case for toremifene 80 mg and have concluded that the most appropriate course is to terminate our collaboration,” GTx’s CEO Mitchell Steiner said in a statement. Ouch. Investors hammered GTx’s stock, which slid 9% on the news to $2.35. The troubles with toremifene could mean some hard choices for GTx, which ended 2010 with $58.6 million in cash and cash equivalents. The company will likely need to find another partner for at least one of its Phase III programs, whether it is toremifene or Ostarine, currently in development for the treatment of muscle wasting in patients with non-small cell lung cancer. --EFL

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

Winners & Losers: Shire Hands Back Juvista As Renovo Sinks

Shire's made some brilliant calls over the years. Buying genetic-diseases-focused Transkaryotic Therapies in 2005 for $1.57 billion was just one of them; the deal not only looks dirt cheap against Sanofi Aventis' tortured and expensive ($20 billion!) purchase of Genzyme, but also turned into what is now Shire's fastest-growing division, Human Genetic Therapies. (Yeah, ok, the 1997 Richwood purchase was another; with that $160 million deal came Adderall, the company-maker. But we digress.)

So Shire got the big things right. These days, thanks in part to some happy regulatory news, its shares are trading at an all-time-high (but maybe not high enough to prevent a take-out...oh dear we're digressing again.) One of Shire's smaller deals didn't work out, though: late on Wednesday evening it handed back rights to scar revision treatment Juvista to its maker, Renovo, after Phase III trials failed. Shire had already started to get cold feet on the drug in March 2010, after some equivocal Phase II results in certain settings, so in a damage-limitation move, it decided not to start U.S. trials (the ones it was due to fund) before seeing the results of E.U. trials (which Renovo funded).

The $75 million in up-front cash and $50 million equity that Shire paid for the drug in 2007 begins to look like small change in the context of Shire's $3 billion plus 2010 sales. Spare a thought, though, for Renovo, which is cutting 100 staff (estimated headcount: 110) and yes, dropping Juvista. Prof. Mark Ferguson, Renovo's founder and CEO, sounded utterly perplexed at how the Phase III trial could have faltered, given Phase II results showing some lovely scar healing. Call it "doing drug development". And call it a bit of a trend right now -- sadly -- in U.K. biotech. (We aren't looking at you, Antisoma.)

So we must look back to Shire, then, for our lessons in success. (Shire was a U.K.-based company once, before it moved its HQ to Ireland in 2008 for tax reasons.) And we must listen to CEO Angus Russell on April 1, one of the keynotes at BIO/Windhover's Pharmaceutical Strategic Outlook conference. The topic: how to apply the value-proving, unmet-need-fulfilling principles so core to rare diseases to the wider, less niche-y parts of the portfolio, including ADHD and GI. (If you're there, you can ask about any potential lessons from Juvista, too.)

image by flickrer Gary Simmons used under creative commons

Financings of the Fortnight Is Innocent Until Proven Guilty

Welcome to the jury service edition. We were called in to do our civic duty this week, and we were stunned when we made it through the voir dire and found ourselves on our feet, raising our right hand and taking an oath to well and truly try the cause before us.

Now impaneled for the first time and deciding the fate of a fellow citizen, your columnist is struck by how difficult -- and important -- it is to remember that a person charged with a crime is innocent until proven guilty. Everyone likes to think of himself or herself as open minded, but the real challenge is to keep the mind open in the pressure cooker of a criminal trial: sealed into a room, artificially separated from the outside world, and bombarded with new jargon, complicated timelines, and tangled facts, or egregious lack thereof.

We're also finding the process fascinating in the age of social media. All of us are constantly encouraged to be insta-pundits. Indeed, 140-character snap judgments are not just encouraged, they're lionized, but a juror's job is the opposite: You must banish the snap judgments. No, better yet, be skeptical of them, then gather them, shape them, and rework them into a coherent latticework of reason.

It's a weird out-of-body experience. It's also a lot like journalism, though with very different rules. While I've been deliberating with eleven others, my colleagues committed a small act of heads-up journalism, digging up notice in a Cephalon regulatory filing that the firm is starting its own in-house venture group. In case you missed it, here's our report. Cephalon joins Merck-Serono, Boehringer-Ingelheim and Shire, all recent joiners of the corporate venture club.

Any holdouts? The biggest, or so we thought, is the American Merck. Consider this response from Merck's SVP of worldwide licensing David Nicholson at last year's Pharmaceutical Strategic Outlook conference, when he was asked if Merck would ever create a biotech venture fund:

Look, there are some really fantastic VC folks out there and that's their business. Our business is discovering and developing drugs. At least to date, have we contributed to VCs and to their firms? Yes, absolutely. All parts of the various legacy companies of Merck have done that. That's something that we remain interested in. Are there concrete plans to set up a VC fund at Merck today? No. Does that rule it out forever? Who knows?

"Who knows" has arrived. Without fanfare, the big pharma has launched what it calls the Global Health Innovation Fund, a $125 million vehicle with five staffers who report into Merck's executive committee and chief strategy officer. The group's mandate is to invest beyond drugs: diagnostics, devices, information and health management tools, site-of-care services. The fund is run by Bill Taranto, who came to Merck from Johnson & Johnson, where he was most recently in charge of health care strategy and alliances. Taranto's been out stumping for the fund at conferences like this.

We asked about the fund's investments so far, and we got a tight-lipped response: Nothing yet disclosed.

Another holdout that comes to mind is Celgene. Though it's done one-off investments like the one Cephalon made in Japanese firm SymBio Pharmaceutical, which we describe below, Celgene doesn't have a venture group. But as we report in the upcoming issue of IN VIVO, executives certainly have been thinking about it -- and larger questions of how to tap into outside innovation -- as the big biotech grows more attuned to its size ($3.6 billion in 2010 sales), its dependence on one product (Revlimid, $2.5 billion in 2010 sales), and the pitfalls of having investors who want some of that cash back, dammit, instead of seeing it plowed into R&D (28% of fourth-quarter revenues) or marquee deals.

We're often accused of bringing you, dear reader, tasty little tidbits from the financial front. You can call us innocent, you can call us guilty, but you can't deny that you're reading another edition of...


Acetylon Pharmaceuticals: A few weeks back, we’d heard that oncology startup Acetylon was looking to tap a broad network of angels for an upcoming round of funding well into the double-digit millions -- a lot more money than can fit on the head of a pin. Now Acetylon has taken the first step, revealing in an SEC filing that it’s raised the first $12.4 million of a planned $30 million Series B round. Although it hasn’t revealed details about its investor group, CEO Walter Ogier said in a recent START-UP feature that Acetylon wanted to avoid working with traditional VCs. Rather, it planned to seek capital from friends and colleagues of its existing angel network, which includes The Kraft Group, a family philanthropic organization and holding company tied to the owners of the New England Patriots. The strategy appears to be working: The filing says 23 investors are already involved with the new round, more than twice the number involved in its $7.2 million Series A during 2009. (A $2 million convertible note followed last year.) Founded to investigate new drugs in the class known as histone deacetylase (HDAC) inhibitors, Acetylon is aiming to move its first drug candidate, multiple myeloma treatment ACY-1215, into the clinic. The company published and presented encouraging preclinical data about the drug in December. In a new wave of HDAC inhibitors in recent years, only two have been approved: Celgene's Istodax (romidepsin), which it nabbed in its takeover of Gloucester Pharmaceuticals; and Merck & Co.'s Zolinza (vorinostat). Both were approved for cutaneous T-cell lymphoma. -- Paul Bonanos

Tengion: Raise or fold: Those were the two options in the cards for organ and tissue regeneration firm Tengion. On March 1, two months away from running dry, the firm raised $31.4 million in a PIPE by selling 11.1 million shares at $2.83, a 13% discount to the ten-day average. Tengion also issued five-year warrants for another 10.5 million shares at $2.88. Tengion announced last month it only had enough cash to last through April, which would mark the one-year anniversary of the firm's 2010 initial public offering. The company priced 6 million shares at $5, though it wanted a stock price twice as high with fewer shares sold. The stock has since traded between $3 to $5 except for two days in mid-February, when it got a boost supposedly from rumored discussions of a stock-for-stock merger between Tengion and an undisclosed publicly traded company. But the price spike caused the potential buyer to pull out of those negotiations, according to Tengion. Device giant Medtronic was the big name in this week's stock sale. It bought 2.5 million shares and received a right of first refusal that expires Oct. 31, 2013 to Tengion’s Neo-Kidney Augment, a preclinical cell augmentation candidate designed to prevent or delay dialysis or kidney replacement by regenerating kidney tissue. Upon first glance Medtronic’s investment seems out of the ordinary, but Medtronic has been trying to build a regenerative biologics business. This past August it paid $118 million for Osteotech, which produces demineralized bone matrices, bone grafts, and structural allografts. -- Amanda Micklus

Advanced BioHealing: ABH is looking for a smoother road than what Tengion has experienced in the public domain. The Connecticut firm, also working on regenerative medicine products, has filed for an IPO with a $200 million placeholder. Just a placeholder, mind you, but it's at least a rough gauge of what the company and its advisors think of its prospects. It sells a bioengineered skin substitute called Dermagraft used to treat diabetic foot ulcers, and it would like to expand the product to treat venous leg ulcers. It's also working on a skin treatment for severe burns. This year started with a flurry of IPOs that mainly followed last year's trend of discounted pricing and, post-IPO, lukewarm reception for shares. It's something ABH's shareholders must be keenly aware of. Canaan Partners owns 41%, Safeguard Delaware 28%, and Wheatley Partners 15%. -- A.L.

SymBio Pharmaceuticals: Plenty of Western biopharmas have found interesting compounds sitting on Japanese drug makers' shelves. SymBio turns that formula on its head. The Tokyo-based specialty pharma in-licenses foreign products and brings them to the Japanese market. It just raised a ¥ 2 billion ($24 million) Series E round, which makes the company sound ancient. Not so; it was founded in 2005 by the former head of Amgen in Japan, and it shepherded the lymphoma treatment bendamustine to approval in Japan last October within four years of starting a Phase I study. The F round was led by Cephalon and JAFCO, with Cephalon boosting by an undisclosed amount its 17.5%, which it gained in its 2009 deal with SymBio to take over bendamustine rights in China and Hong Kong. Cephalon also has US rights to the drug through a deal cut by Salmedix, which Cephalon acquired in 2005. (Salmedix got the rights from Fujisawa Deutschland in 2003.) There's a lot of ink devoted to SymBio in our colleague Mel Senior's IN VIVO feature on Japanese specialty pharma here. The story is four years old -- note the reference to a "burgeoning private equity sector" -- but quotes like this one from SymBio CEO Fuminori Yoshida are timeless: "Many [non-Japanese] companies in niche areas, looking for partners in Japan, visit Japanese pharma firms, take their executives to a nice restaurant, and think they have a deal. Twelve months later, nothing happens." -- A.L.

Image courtesy of flickr user mira66 under a Creative Commons license.

FDA Drug Approvals: Back to the Future

The first two new therapies cleared by FDA in 2011 feel like hail from a bygone era: a serotonin inhibitor antidepressant and an angiotensin II blocking anti-hypertensive. This is certainly not how we expected the new drug approval process to work after the FDA Amendments Act was signed into law in 2007.

Our view of the new drug safety law was that it would favor drugs to treat relatively small, high need populations—and especially ones where robust risk management plans could deliver high value to very sick patients. Primary care blockbuster indications? Not so much.

As we like to put it, it will never be 1997 again.

Or will it?

Take the antidepressant Viibryd (vilazodone) and the angiotensin II receptor blocker Edarbi (azilsartan). Both enter crowded primary care classes that seemed vibrant and innovative 15 years ago, but feel saturated and, well, generic today. And both applications breezed through FDA early in 2011, gaining approval on the first cycle, with no deadline extension and no advisory committee review. Just like they probably would have in 1997.

Heck, when Forest acquired Clinical Data, the manufacturer of Viibryd, it felt even more like turning back the clock, with the company that brought Celexa and then Lexapro to market in the 1990s buying back into the class.

And it isn’t just these two drugs. For all the talk that “me too” drugs are out of favor, there have been other recent examples of "me too" success at FDA. Like, for instance, pitavastatin—a statin!—which cruised through FDA in 2009. Or Watson’s Rapaflo, which breezed through in 2008 to provide yet another alpha blocker option for men with BPH.

Those recent approvals are surprising not just for their nostalgic value. They are remarkable as examples of products making it through the agency at a time of chronically dismal new drug approval statistics. Viibryd and Edarbi cleared FDA amid some fairly prominent disappointments for orphan products (Protalix’ Uplyso gets a complete response; Pharming’s Rhucin gets a refuse to file letter), seemingly tougher standards in oncology (think Avastin and TDM-1), and some setbacks for attempts to repurpose old blockbusters for new indications (Contrave for obesity, for example).

What’s going on here?

Okay, first of all, it isn’t 1997 again.

For one thing, even with the two latest approvals, FDA will be lucky to reach half the total in NME/novel biologics for 2011 that it cleared in 1997. FDA approved 44 new molecules that year, compared to just 21 in 2010, and there is no reason to expect a higher total in 2011. (For a comprehensive look at the pending new products in 2011, check out this week's issue of "The Pink Sheet," here.)

And, while the new drugs are coming into huge classes, they don’t exactly have 1997-level blockbuster expectations. Kowa/Lilly’s launch of pitavastin (Livalo) generated just $5.7 million in sales in 2010. That’s just a few hours worth of Lipitor sales. Forest paid $1.2 billion to acquire Clinical Data and Viibryd. That’s a lot of money—but doesn’t exactly suggest anyone things Viibryd will be a billion dollars a year any time soon.

On the other hand, it’s not like other recent launches are doing so great either. Lilly isn’t getting rich on Livalo, but it isn’t getting very far with Effient either--at much higher cost.
And Effient—despite (or perhaps because of?) a massive dataset including a head-to-head comparative trial—struggled through FDA, requiring a protracted review and a public airing of safety questions at an advisory committee, followed by still more internal wrangling over whether and how to address those questions.

Compare that to Edarbi, which went through FDA in 10 months without any public hiccups--and with head-to-head superiority data versus the market leader. It didn’t need an advisory committee, because—as FDA explains in the approval letter—

“This drug is not the first in its class, the safety profile is similar to that of other drugs approved for this indication, the clinical study design is acceptable and similar to previously approved products in the class, evaluation of the safety data [when used in the treatment of hypertension] did not raise significant safety or efficacy issues that were unexpected for a drug of this class, the application did not raise significant public health questions on the role of the drug in the diagnosis, cure, mitigation, treatment, or prevention of a disease, and outside expertise was not necessary; there were no controversial issues that would benefit from advisory committee discussion.”

That may not sound like a ringing endorsement of the products therapeutic potential, but at today’s FDA lack of controversy might be as good as it gets. Commercial models aside, it is just possible that the secret to a first cycle, on time approval is as simple as “me too.”

Cephalon Joins The Corporate Venture Party

For the start-up community --and increasingly certain distressed VCs -- the birth of a new fund devoted to early stage biopharma investing is an event to be celebrated. And, as we've noted before, pharma, through so-called corporate venture divisions, is increasingly the cause for the celebration.

With deep-pocketed parents to ensure available follow-on funding, these groups can invest where traditional VCs have curtailed their efforts, while simultaneously giving pharmas an inside track on pipeline programs of interest as the competition for outside innovation increases. It's the perfect alignment of strategic intent and financial return, and the impetus for a wave of new CVC starts from the likes of Shire to Merck Serono to Abbott (though that's mostly device-oriented.)

The latest pharma to join the corporate venture party appears to be Cephalon, a one-time specialist in neurodegenerative diseases that’s diversified considerably over the years. In a regulatory document filed last month, Cephalon announced the retirement of executive vice president of technical operations Peter Grebow, but indicated he would continue to work for the specialty pharma as a consultant, during which time he would “assist with the establishment of Cephalon Ventures.” (Bolding courtesy of IN VIVO Blog.)

Grebow's "retirement" -- hey, it's kind of like a staged acquisition-- kicked off yesterday. And, according to the SEC docs, his consulting career -- with the ability to bill $750 per hour, with a maximum of 1,000 hours over the course of a year! – began today. (Like many contractors, he doesn't get benefits--and healthcare is expensive.)

This is the first concrete reference to Cephalon Ventures, but it's likely the division has been in existence for for several months. Grebow’s online bio lists him as EVP of Cephalon Ventures, although a previous reference to the organization’s existence beginning in April 2010 in an older bio has been stricken from the official version. An attachment to the filing adds that Grebow “shall make himself available to the Company to assist with respect to Cephalon Ventures, including advice with respect to the formation of N-Versx Pharmaceuticals and the review and selection of Cephalon and third party compounds for licensing.”

Cephalon’s 10-K, also released last month, doesn’t mention N-Versx, and an afternoon of intrepid reporting (including the requisite Google search) turns up nothing linked to the start-up beyond the filing.

Adding to the intrigue, Cephalon is also listed (pdf) as one of the lead investors in SymBio Pharmaceuticals' new $24 million Series E funding, although nothing in SymBio's announcement suggests that the investment came from Cephalon Ventures versus the corporate parent. Moreover, the company already held a stake in SymBio based on an existing licensing agreement for oncology drug bendamustine hydrochloride.

We’ve reached out to Cephalon for clarification, seeking not just confirmation of the venture group's existence but additional information regarding important details like the size of the fund, its investment thesis (a strategic imperative or a financial return--or both?), and whether the unit will also be creating newcos with existing Cephalon assets. We haven't yet received a definitive response, but we promise to report back when we do.

In the interim, it seems like a bit of good news for early stage biotechs --especially those developing therapies in areas of strategic interest to Cephalon. It's also potentially good news for Cephalon, a company that's logged a strong 2010 with $2.8 billion in sales, but nevertheless faces challenges.

CEO Frank Baldino passed away in December, leading to a management transition, and the company is set to lose patent protection for sleep disorder drug Provigil (modafinil), its top seller. Since the beginning of 2010, Cephalon has inked a number of acquisitions and alliances, giving it rights to branded generics (Mepha), a stem cell therapeutics program (Mesoblast) , and pipeline drugs for leukemia, asthma and back pain.

At the risk of being a bit premature, IVB offers its official welcome to Cephalon Ventures. May your party be just beginning.

Image courtesy of flickrer calsidyrose via a creative commons license.