Amgen Braces for Another Review of EPO Safety: How Bad Will it Be?

Investors loved what they heard from Amgen CEO Kevin Sharer at the JP Morgan conference in San Francisco.

The stock price jumped nicely when he announced that the company’s cost-cutting plan is paying off already, with earnings per share for 2007 expected to come in well above Amgen’s revised guidance—and in fact almost in line with the low end of the company’s original forecast for the year before the EPO disaster unfolded.

Investors also responded to Sharer’s assurance that EPO sales have stabilized now that the market has had time to adjust to new restrictions on coverage imposed by the Centers for Medicare & Medicaid Services in the chemotherapy induced anemia market.

You have to feel good for people at Amgen to see a bit of positive news after a dreadful year. (How bad was 2007 for Amgen? The 5% jump after Sharer’s January 8 presentation brought the company back within range of $50 per share—which is where the stock was five years ago. Ouch.)

What we took away from the presentation, though, was not quite as rosy. The company is bracing for another potential hit to the EPO franchise when it goes back before the Oncologic Drugs Advisory Committee to review still more negative safety data about EPO. (Amgen markets epoetin as Epogen and darbepoetin as Aranesp; the company also manufactures Johnson & Johnson’s epoetin brand Procrit.)

It was ODAC that really started Amgen’s headaches in 2007 when it made unexpectedly harsh recommendations about restricting use of EPO, so there is obviously reason for Amgen to be nervous.

Sharer stressed that Amgen is prepared for ODAC and urged investors to focus on how the company fared during a Cardio-Renal Drugs Advisory Committee discussion of EPO safety in the kidney failure market, rather than the ugly discussion that took place during an ODAC meeting in May.

But he also kept mentioning the meeting.

When he said “the ESA revenue picture is stable,” he added, “but obviously the dialogue isn’t over.” Then he talked about the timing of Amgen’s annual business review, which was supposed to take place in February—but, Sharer said, will now be “in the June timeframe.”

Why? “We want to make sure our team is fully focused on giving the very best preparation for the March ODAC. If we have the business review as we originally thought in February, that would be a conflict for the same people. I think you as shareholders and I certainly as management want those people focused on ODAC. So we’ll pick another date for you.”

“It will be obviously after ODAC and we will have more to talk about then.”

Hmmmm.

Here’s what we had had heard about the ODAC meeting before Sharer spoke.

(1) It would take place in March;

(2) FDA would in essence be asking the committee to support another relabeling of the drugs to bring the FDA label more explicitly in line with CMS’ coverage policy; and

(3) There would be discussion of additional post-marketing requirements, and in particular a demand by FDA for a placebo arm in a study the sponsors are proposing that would compare the historical dosing paradigm for EPO head-to-head against the intermittent model covered by CMS.

We asked both Amgen and FDA to confirm those details, but both said that they were not in a position to discuss anything about the advisory committee review because the date is not yet set.

Well, it sounds like our sources were right about the March date, at least.

Generic EPO Should be a Big Deal. But Is It?

Novartis’ Sandoz division was on Friday granted European Commission approval for its biosimilar version of Johnson & Johnson’s epoietin alfa (Eprex). It’s not a huge surprise, given the positive recommendation earlier this summer, and given that Sandoz has done this before: growth hormone Omnitrope became the first biosimilar drug to gain European approval last year (and, after a long legal kerfuffle, got onto the US market, too).

But this should nevertheless be a big deal. We’re talking, after all, about a cheaper copy of EPO, the blockbuster anemia drug that made Amgen. A drug with sales that top $7 billion globally. Of all the biologics in generic firms’ sights, this has to be by far the most valuable--the "killer biologic," as one of you readers put it in a comment on a previous post. EPO is one of the most expensive drugs on many hospital formularies, and accounts for a huge chunk of payor expenditure.

At last!, we should be saying, the long-threatened generic biologics revolution has come to pass. Injectables will get cheaper, patient access will improve, originators will be forced to innovate and move on.

The reality isn’t quite so revolutionary. Sandoz is one of the few companies with the resources to persevere with biosimilars; many smaller firms dropped out as it became clear how onerous clinical trial and regulatory requirements would be.

Commercialization ain’t a slam dunk, either. Sure, a 20% discount counts given the prices of these drugs. But it’s up to individual countries to decide on whether docs may substitute the originator drug with a biosimilar. Innovators have done a good job lobbying against interchangeability. Questions and concerns over safety standards mean that biosimilar firms have an uphill struggle on the marketing and educational front, ensuring that these products are perceived as equivalent, not potentially dangerous cheapies.

Still, Sandoz will be helped considerably by the fact that its biosimilar has been granted the same international non-proprietary name (INN) as the reference drug, epoietin alfa (to the delight of the European Generic Medicines Association, since this goes some way at least to proving their case for scientific equivalence). Sandoz’s EPO will be available under three different brand names, though, likely in order to leverage locally-recognized and trusted generic brands across the various European markets.

Stada, another surviving biosimilars stalwart, had to settle for a slightly different INN for its generic EPO--epoietin zeta, filed in June 2006. That probably helped drive their decision to hand over commercialization to US-based specialist hospital marketer Hospira last November. The move was about “curbing financial risks” associated with the project, whose approval, as the press release optimistically states, “is still possible in late 2007”. Also last year, Mayne Pharma pulled out of a marketing deal with Pliva (now part of Barr Pharmaceuticals) on generic EPO. The product was approved in Croatia in 2005 but hasn’t got past the EU regulators.

In sum, Sandoz's approval in itself isn’t much of a threat to J&J, even less to Amgen, which sells epoietin alfa as Epogen in the US. But it is symbolic, at least in its timing, of an end to the monopolies that innovators have enjoyed on hard-to-make biologics like EPO, a topic we discussed in more detail in this IN VIVO feature.

Sandoz’s head of Biopharmaceuticals Ajaz Hussain knows that biosimilars’ take off will be slow; he told IN VIVO Blog about it earlier this summer. But take off they will, eventually—and when they do, this approval may well be looked upon, if only retrospectively, as one of the most important steps along the way.

EPO’s Future Back in FDA’s Hands

FDA Commissioner von Eschenbach: Whose Side is He On?

That sigh of relief you heard on Tuesday came from Amgen and Johnson & Johnson, when an FDA advisory committee declined to recommend significant changes in the labeling for EPO products in renal failure patients. As a commenter put it in response to our preview of the meeting, “history didn’t repeat itself.”

Probably just as important for the companies was the tone of the meeting. It was a tough meeting—any advisory committee focusing on safety concerns with your biggest products is going to be tough—but in general FDA officials avoided making inflammatory comments or otherwise suggesting that they are going to somehow make life even tougher for the anemia therapy sponsors.

After the meeting, a bunch of Wall Street analysts did something they haven’t done in a long time: they raised their forecasts for 2008 revenues from Aranesp, Epogen and Procrit, and Amgen’s stock responded accordingly.

So is the worst over?

Well, that depends. After the meeting, FDA officials said they plan to finalize the new labeling for the EPO therapies in a matter of weeks. The new labeling will address use of the drugs both in the renal failure/dialysis setting and in oncology.

And right now at least, the oncology setting is where the action is. Amgen, J&J and the oncology profession are waging an all fronts campaign to reverse the restrictive coverage policy put in place by the Centers for Medicare & Medicaid Services in that setting.

A key point of contention is whether CMS’ policy contradicts the FDA-approved labeling for the drugs. (The RPM Report has just published its latest coverage of that issue online. Not a subscriber? You can read the story for free by registering for a 10-day trial here.)

The argument that CMS is restricting access to FDA-approved uses of EPO clearly resonates politically. ASCO’s point about the conflict between CMS’ policy and the EPO label was cited in a “sense of the Senate” resolution urging reconsideration of the coverage decision.

So when FDA issues final labeling plenty of people will be paying close attention. The sponsors hope that FDA will reinforce their view that CMS’ treatment model is ridiculous—in particular, by repudiating the ceiling that CMS has set on hemoglobin levels for chemo patients. If that is how the final labeling reads, the pressure on CMS to reconsider its policy is sure to intensify.
Of course, there is another possibility: FDA could back up CMS instead.

FDA is not likely to insist on labeling that requires treatment exactly along the lines proposed by CMS, but FDA could try to tweak the labeling so that it more clearly states that treatment should maintain hemoglobin levels at the lowest level to prevent transfusions.

Or the agency could support CMS less formally, simply by stating publicly that the coverage policy is consistent with FDA approved labeling. FDA Commissioner Andrew von Eschenbach is an oncologist by training, the former head of the National Cancer Institute, and a prostate cancer survivor. With the political pressure on CMS ratcheting up, the Medicare agency is surely rooting for some show support from the commissioner of FDA.

But will they get it?

So far, there has been nothing. An FDA spokesperson says she is unaware of any plans for the agency or the commissioner to weigh in on the coverage policy, saying that falls outside the agency’s “central mandate to review drugs for safety and efficacy.”

The head of FDA’s Office of Oncology, Richard Pazdur, participated in the September 11 advisory committee review of EPO use in renal failure, but he did not use that forum to make any comments about the CMS coverage policy.

But stay tuned. The September 11 advisory committee review is definitely not the last word on EPO.

FDA’s Careful Reading of the EPO Market

The headlines today focus, quite logically, on the big question that the Food & Drug Administration will be asking the Oncologic Drugs Advisory Committee on March 13: should the approval of EPO (Amgen’s Aranesp and Johnson & Johnson’s Procrit) for use as supportive care in oncology be rescinded?

In briefing materials posted on FDA’s website today, the agency lays out the issues it wants the committee to discuss, including the possibility of removing the indication for use of the drugs in the cancer setting. (EPO products are also used to treat anemia in other indications, primarily kidney disease.)

The possibility of FDA withdrawing the approval of what has been a standard component of chemotherapy regimens for almost 15 years is truly astonishing to consider. But it is by no means surprising that the committee will be asked to discuss that possibility. When FDA announced the latest ODAC visit for EPO in January, the agency made very clear that it would be at least raising the possibility of withdrawing that indication altogether. (You can read our analysis of the issues at stake March 13 here.)

The more interesting reading for biopharma executives trying to make sense of the new drug safety climate comes in an appendix to the briefing materials, containing the review of potential risk management options for EPO by FDA’s Office of Surveillance and Epidemiology.

Assuming the committee supports leaving at least some oncology indications in place for EPO, the discussion will quickly turn to risk management options. And, as of the end of this month, FDA is armed with the power to make those programs mandatory.

The FDA Amendments Act, signed into law in September, spells out a series of tools that FDA can require as part of Risk Evaluation & Mitigation Strategies. What it does not do is spell out how, in practice, FDA will choose which tools to apply—and how to determine what is or is not an effective strategy.

That is where Appendix 2 in the briefing documents comes in.

To us, it reads like a case study in how the agency will define the metrics for success in REMS.

The message it sends is unmistakable: "success" for a sponsor facing a serious safety question looks an awful lot like failure in a commercial context. When FDA wants to know if a REMS is working, it will look at market data or other commercial tracking statistics for evidence that use is declining—either overall or in submarkets of concern.

The analysis is filled with market research statistics. The agency uses retail prescription data to look at how use of the drugs has been affected by risk management steps taken so far. The review acknowledges reimbursement changes by the Centers for Medicare & Medicaid Services as an important factor as well (though we would argue that CMS’ policy probably is the biggest reason for reduced use of EPO.)

But the agency drills down much deeper, looking into metrics like settings of use. Aranesp, FDA finds, is used most commonly in outpatient clinics (54% of vials sold), while Procrit’s largest in non-federal hospitals (39%). Outpatient pharmacies are relatively small markets for each brand, FDA notes. “Interestingly, the long-term care channel accounted for approximately 10% and 5% of sales distribution for Procrit and Aranesp, respectively.”

The agency also looks at indications associated with use of the drugs. “The top two diagnoses or indications associated with the use of Procrit and Aranesp as reported by office-based physician practices were ‘other and unspecified anemias’ (ICD-9285), and ‘chronic kidney disease’ (ICD-9 585), each accounting for roughly 60% and 12% of use during year 2007.”

FDA and the committee will discuss options ranging from informed consent procedures to “voluntary” limits on advertising to restricted distribution programs—including programs that would restrict use by setting of care or by indication. So data on prescription trends, settings of use and indications will be useful for determining what types of risk management tools might work—and, more importantly, for future assessments of whether the programs are in fact working.

And, let’s be blunt: until FDA has better measures it will be looking for less use of a product with safety considerations. That is one of the uncomfortable new realities of the era of REMS: investing in marketing campaigns that intended to produce overall reductions in prescriptions, reductions in off-label indications, or reductions in vials shipped to “interesting” submarkets, like long-term care.

Amgen Feels the Effects of CMS’ Long Shadow

To no one’s surprise, sales of Amgen’s flagship anemia product darbepoetin (Aranesp) dropped sharply in the third quarter, 23% worldwide, and 36% in the US. Given the tough new restrictions put on coverage of Aranesp and J&J’s epoetin brand Procrit in the key Medicare market, a big hit was inevitable.

Still, it is worth looking at the full impact of the Centers for Medicare & Medicaid Services coverage decision on Amgen’s third quarter results. (If you haven’t been following this, you can catch up by clicking here.)


Given the tight coverage policy, it is no surprise that EPO use is way down in the Medicare market directly controlled by CMS.

But the coverage policy is casting a much bigger shadow than that.

First, there is a spillover effect into the private insurance market for chemotherapy patients. Amgen EVP-commercial operations George Morrow reported that use of EPO in chemotherapy induced anemia patients is down 30%-40%--even though no private payors have adopted payment policies that are as restrictive as CMS’.

“Clinics and hospitals are struggling with 2-tier medical practice,” Morrow explained. “They do not want to treat all of their patients to the lowest common denominator—and here I am talking about the NCD with a hemoglobin of 10. On the other hand, they find it ethically discomforting and administratively burdensome, to implement one treatment protocol for Medicare patients in another widely diverging protocol for all other patients.”

Morrow is optimistic that the picture will brighten over time. “We are also seeing a steady increase in the adoption of differential treatment protocols, by largely more sophisticated clinics and hospitals, as oncologists reluctantly adapt themselves to the new reimbursement environment.”

There is another possibility: that private payors will begin to move more in line with CMS’ restrictions. That is the usual pattern: CMS leads and private payors follow.

The spillover from the coverage policy doesn’t stop there. Amgen is also seeing an impact on use of EPO in myelodysplastic syndrome, even though the company successfully persuaded CMS not to put new restrictions on that indication. “Even though reimbursement remains in place, physicians have reduced utilization,” Morrow reported.

It doesn’t stop there. “We are seeing some modest spillover of the ESA reimbursement concerns for colony stimulating factors or CSF. In other words, there is a generalized fear of not getting reimbursed leading to more cautious utilization.” That was a factor in holding back growth of pegfilgrastim (Neulasta), Morrow said. Sales were up 8% for the quarter, but underlying demand was flat.

“We are actively investigating and addressing any clinical or reimbursement issues that are inappropriately impacting Neulasta utilization,” Morrow said.

That impact comes on top of the effect Amgen already acknowledged from a loss of promotional support for the brand while the sales force addressed the concerns about EPO.

Amgen is still hoping it can find a way to force CMS to reconsider its position on EPO, but it acknowledges that to be a long shot. “As physician groups continue their dialogue with CMS, we hope a compromise can be reached that gives doctors sufficient latitude to make the best decisions, consistent with their understanding of the available science and their own clinical experience, while also meeting important CMS objectives,” Amgen CEO Kevin Sharer said.

Asked what kind of “compromise” he envisions, Sharer replied. “Its hard to say. Our financial plan is to manage the company on the assumption that the NCD will stand.”

That seems like a safe assumption. A Reuters interview with CMS Chief Medical Officer Barry Straube suggests that the agency isn’t going to budge any time soon.

J&J sure seems to be moving on. Amgen acknowledged during the call that reimbursement wasn’t the only issue affecting Aranesp this quarter: the product also lost market share against Procrit—a development that would have dominated the discussion of Amgen’s prospects a year ago when Aranesp was relentlessly taking over the market Procrit used to own.

Amgen CFO Bob Bradway explained that the share loss came in Public Health Service hospitals, “where our competitor offers some very steep discounts, discounts that we felt that we weren't going to match.”

Amgen isn’t happy that J&J is recapturing share in the EPO market, but there may be some comfort to the company in being able to talk about those issues. After a year dominated by regulatory and reimbursement issues for its flagship franchise, a year where the company was forced to consider what else it might turn to besides EPO, Amgen surely longs for the days when it only had to worry about the competition.

Good News for Amgen and J&J on EPO—but not for the Rest of Pharma

CMS: The Other Drug Safety Agency

Amgen and Johnson & Johnson got some good news when the Centers for Medicare & Medicaid Services finalized its proposed policy on coverage of erythropoietin stimulating agents (ESAs) in cancer patients. The final policy is about as good as it could be for the companies under the circumstances—much better than the agency originally proposed.

CMS agreed to continue to cover EPO in a number of important chemotherapy settings and also dropped some of the toughest dosing restrictions in the proposed policy. So the worst may be over for darbepoetin (Aranesp) and epoetin (Procrit) in the cancer market. Both Amgen and J&J reported sharp revenue declines for their respective brands during the quarter in response to safety concerns—and especially payment changes—but both expect growth to resume from the new, lower baseline.

CMS may have backed off from the most draconian aspects of its proposed limits on EPO coverage, but the agency is not backing off from the position that it does not have to defer to the Food & Drug Administration when it comes to responding to emerging drug safety issues.

In that sense, the final coverage policy is not a change from the agency’s initial proposal—and that is a message that the rest of the biopharmaceutical industry cannot afford to miss.

The RPM Report has written extensively about the activist role taken by CMS in the EPO safety debate. Simply put, there are now two agencies—FDA and CMS—that manufacturers have to consider when thinking about regulatory responses to drug safety issues.

CMS made it abundantly clear in the proposed EPO policy that it does not intend to wait for FDA to finalize its review of the safety issues before acting. And in the final policy, CMS is sticking to that position.

“CMS and FDA are separate agencies with different statutory missions, and operate under distinct legal authorities,” the final policy notes. “We are encouraged that the separate and independent analyses of the FDA and CMS have raised similar serious concerns about the use of ESA treatment in patients with cancer and related neoplastic conditions.”

“FDA deliberations are not public and their timeline for making changes (if any are made) in the labeling for ESAs is unknown. We believe the safety concerns that we have identified in this document required CMS to act quickly to protect beneficiaries.”

There are still plenty of regulatory hurdles ahead for ESAs. FDA hasn’t finalized labeling changes for EPO in response to the safety issues—and both FDA and CMS are just getting started on reviewing use of the agents in the renal failure market.

But one thing is clear: CMS is not going to take a back seat to FDA when safety issues arise.

EPO Fatigue: Amgen Hopes History Doesn’t Repeat Itself

Did you ever have a recurring nightmare? That is what Amgen Inc. and Johnson & Johnson want to avoid next week when another panel of expert advisors to the Food & Drug Administration weighs in on the safety profile of EPO therapy to treat anemia in chronic renal failure patients.

The Cardiovascular & Renal Drugs Advisory Committee will discuss the safety profile of Amgen’s Epogen and Aranesp, as well as J&J’s Procrit, on September 11.

Amgen has been making the rounds on Wall Street, assuring investors that it is ready for anything at the Cardio-Renal Committee.

Why? Because the last time an FDA advisory committee met to discuss those same products—the Oncologic Drugs Advisory Committee in May—it did not go well. The committee recommended much stronger restrictions on use of the drugs than anyone anticipated. And things got even worse a few days later, when the Centers for Medicare & Medicaid Services issued a proposed coverage policy that sharply limited the drugs.

CMS compromised a bit when it issued a final coverage policy in July, but not enough to spare Amgen. The new payment rules prompted a major restructuring by the company in anticipation of a big drop in Aranesp revenues.

Now Wall Street is wondering what to expect from the nephrologists when it is their turn to review EPO.

In recent weeks, Amgen has been making the rounds to large investors and analysts with to assure them that it has a solid game plan in place for the meeting. The company says it has seen FDA’s briefing materials and they don’t look surprising or onerous. (The public will be able to see those materials on Friday or Monday, on FDA’s website.)

What will Amgen do? Here is how SVP-North American operations Jim Daly described the company’s approach back in June. Asked during a Goldman Sachs conference what the company would do differently to prepare for the Cardio-Renal Panel, Daly replied: “I think we’ve learned a lot from ODAC, which is go in prepared for a scientific discussion but also be prepared for wherever it goes.”

“I think that community also needs to play a more proactive role, and the good news here is that the nephrology community already has been very active with the FDA. Their primary concern is that they are taking an oncology dosing paradigm and imposing it on nephrology patients, and it’s a very different disease state.”

Still, Daly said, “we need to be prepared in case the agenda goes into other areas, whether it be the cost of ESAs, whether it be the utilization patterns as a result of reimbursement, I think we need to be prepared to address those.” Daly recalled a “pointed moment” in the ODAC review when “one of the physicians said does anybody here know what community oncologists do and why they do it? And the response was no, but I do know they make $1,200 a dose, therefore we can’t leave the prescribing decision in their hands.”

If the Cardio-Renal meeting “goes to that level I think that would be very disappointing, but I think we have to be prepared to deal with that. The best response will come from someone in the audience that says that is preposterous.”

In other words, expect plenty of patient and provider representation ready to speak up on Amgen’s behalf.

But will that be enough to ensure no unpleasant replay of the May ODAC meeting? Citigroup Yaron Werber doesn’t think so. The headline to Citigroup’s Aug. 30 note says it all: “Beware of CRDAC—the Bite May be Worse than Expected.”

Why is Werber concerned? Because “we have learned that Rich Pazdur, head of FDA’s oncology division, will be present in an oversight role. Given his aggressive stance, his presence in CRDAC is a clear concern.”

That seems like a lot to read into one FDA official’s participation in the meeting, but it does underscore a larger point about the regulatory response to the EPO safety issues. As Werber puts it, there is a “theme that FDA/CMS view EPO to have modest benefit w/growing evidence of harm. Thus, panel might be more contentious than expected even on dialysis.”

Werber isn’t alone in worrying. After all, several analysts note, Amgen assured them it was on top of the situation before the May ODAC meeting.

One other thing: Citigroup expects CMS to follow close on the heels of the advisory committee with a national coverage decision about use of EPO in nephrology. And, Werber warns, it is possible that the combined impact could be to make Citigroup’s forecast of a 10%-15% decline in the nephrology market in 2008 overly optimistic.

If Werber is right, Amgen investors have another tough three months to look forward to. Should make for an interesting week next week.

EPO Relabeling: Its Not the Black Box, Its What FDA Says About the Black Box

Whoever said actions speak louder than words hasn’t been paying attention to the regulatory response to drug safety issues involving the anemia therapies darbepoetin (Aranesp) and epoetin (Procrit, Epogen).

FDA unveiled strong new warnings on the EPO brands marketed by Amgen and Johnson & Johnson on November 8. The new warnings stress the dangers of using the agents too aggressively to elevate hemoglobin levels, and emphasize that there is no evidence that the drugs improve symptoms of anemia—they should only be used to reduce the risk of transfusion.

It is safe to assume that the new labeling will have absolutely no impact on how the drugs are actually used.

On the other hand, what FDA said about the new labeling will have an impact.

That’s because FDA used the relabeling to repeat its position that restrictive coverage rules implemented by the Centers for Medicare & Medicaid Services are “generally consistent” with the revised labeling.

FDA first made its position on the EPO drugs clear almost a month ago, in a letter to two powerful members of Congress. And in so doing, the agency ensured that the labeling change itself would be anti-climactic at best. That’s because it is CMS’ coverage policy—not FDA’s regulatory actions—that will drive use of the products going forward. (Although FDA still isn't done with EPO; what the agency does next probably won't make much of a difference to Amgen and J&J commercially, but will nevertheless be a key milestone in the implementation of the new drug safety law. You can read all about that in The RPM Report's November issue.)

The question of how the label matches the CMS coverage policy came up repeatedly during a media conference call hosted by FDA November 8. Office of Oncology Drug Products Director Richard Pazdur observed that the labeling says care should be taken that hemoglobin levels not exceed 12 g/dL. “This is not a target,” Pazdur stressed. “This is an upper boundary for safety.”

Office of New Drugs Director John Jenkins highlighted several elements of the labling, including the addition of a new chart summarizing results of six clinical trials showing an adverse impact on survival or tumor progression. The chart includes a column highlighting actual average hemoglobin levels achieved in the trial (data available for three of the six studies). Although the trials targeted hemoglobin levels above 12, actual measures achieved were below 12 in two of the three cases, including only 10.6 in one study that found an adverse survival outcome.

So, Jenkins observed, FDA has added to labeling a warning statement emphasizing that the available data cannot exclude a risk in patients whose hemoglobin levels are maintained below 12. In other words: FDA is saying the drugs are dangerous when used in patients with hemoglobin above 12, but the agency is not saying they are safe when used at levels below that.

Instead, Jenkins said, FDA's goal is to encourage conversations between doctors and patients about whether to use EPO “at all” and then to use “the lowest dose to prevent transfusion.”

Amgen and J&J, of course, see things a bit differently. In fact, they both formally asked CMS to reconsider the policy on November 8, the same day the new labeling was adopted.

Sharer responded to FDA's position that the CMS policy is consistent with the labeling. “I think the issue of consistency here is a bit of red herring," Amgen CEO Kevin Sharer said on an investor conference call to explain the new labeling. " I think the real issue is physician discretion. Clearly, the labeling gives physicians discretion here and the NCD does not. We see that as the point of policy that really needs to be focused on.”

Sharer, though, is not promising anything in terms of changes. "Our financial plan is to manage the company on the assumption that the NCD will stand.”

The reconsideration request certainly looks like a long shot. Sharer acknowledged that the submission does not have a lot of new data in the “literal use of the word data.” It does include a new study conducted in Germany showing now adverse outcomes in patients with Hodgkin’s lymphoma, and it includes some early data about signals of increased transfusions in the US resulting from the policy.

But what it mostly does is reargue the points addressed by CMS in the policy. “Over the course of this year, many different individuals, capable individuals and entities have looked at this data and come out in favor of giving the providers discretion,” Sharer said. “We think the weight of opinion of others looking at this data is very very important information.”

Amgen and J&J: Falling in Love All Over Again

With most of our bloggers on vacation, we haven't yet troubled ourselves to analyze the Bristol bid for ImClone (if imitation is the sincerest form of flattery, we trust Roche is feeling good). And we didn't jump on Sanofi's buyout of Acambis either. (Thank goodness our colleagues at "The Pink Sheet" DAILY actually work in August!)

But even the dog days of summer can't stop us from taking note of this one: Amgen is giving global rights (except for Japan) to a clinical stage neuropathic pain project to...(drum roll please) Johnson & Johnson.

Considering the companies have spent the past two decades in an endless series of disputes, arbitration and litigation over their last licensing deal, involving a little product called EPO, that is news indeed.

If there ever was a case of adversity bringing people closer together, this is it.

Amgen and J&J have both said that their working relationship has been improved by the all-out effort to save the EPO franchise from regulatory and reimbursement challenges. So much so that Amgen CEO Kevin Sharer told the JP Morgan conference in January that “I never thought I would say this, but this circumstance has made us and J&J quite effective partners.” That may not be much of a silver lining from everything that has befallen EPO--but it sure is hard to imagine the two companies reaching this agreement two years ago, when the only place their executives were likely to exchange confidential information was in court.

Amgen's willingness to deal with J&J also suggests that it really means business when it talks about winnowing down its pipeline. In fact, Amgen has already shown it means business, in fact; Japanese rights to the neuropathic pain compound were already sold as part of a large partnership with Takeda in Japan.

Now the terms. Amgen receives $50 million up front--or a refund of one-quarter of the $200 million Amgen paid to settle antitrust litigation with J&J over EPO last month. Amgen will also receive development milestones of up to $385 million. There are additional commercial milestones and a sales royalty too.

And, no, there is no copromotion agreement.

Amgen/J&J Settle Bundling Dispute: Did Both Sides Lose?

In June 1988, Iran and Iraq ended an eight year conflict by accepting a United Nations mandated cease fire--Iraq the ostensible victor, but both sides exhausted militarily and devastated economically. A year later, the Food & Drug Administration approved Amgen's erythropoeitin brand Epogen.

We didn't see the connection at the time, but it suddenly seemed clear to us when Amgen and Johnson & Johnson announced last week that they have settled antitrust claims in a case filed by J&J over bundling of Amgen's EPO brand Aranesp with its Neupogen and Neulasta franchises. J&J will receive $200 million, so we guess they "won"--but it is hard to see how either company comes out ahead in the latest chapter in the endless series of disputes arising from their EPO partnership.

Recall that Amgen and J&J have been in dispute off-and-on over dividing up the EPO market for the better part of 20 years. Indeed, Amgen only markets Aranesp because it prevailed in an arbitration case with J&J over rights to the product.

But the bundling dispute took the contentious relationship between the two companies to a new level. When J&J launched a scorched earth litigation and lobbying campaign, there were plenty of people concerned that it could backfire by making both companies--and, indeed, the whole industry--look bad.

We aren't the type to say we told you so (okay, yes we are--we told you so), but when safety issues flared up with EPO, the perception that use of the products was driven in large part by contracting practices and reimbursement plays sure didn't help.

And, with both products damaged, a settlement was probably a pretty simple matter at this point. When this fight began, it was a high-stakes battle over every inch of ground in a lucrative and growing market. Now both armies are in retreat--and this isn't a fight either side wanted.

Shire’s Clean-Out: Dynepo Next?

Hats off to Shire for cleaning out its cupboards and out-licensing $213 million worth of non-core drugs to Spain's newly-listed Almirall. The industry’s notoriously bad at passing unwanted assets down the food-chain, for reasons we know well—too much hassle, no glory, potential egg-on-face.

Egg-on-face isn’t an issue here: Almirall’s unlikely to turn peppermint oil Mintec, one of their eight prizes, into a blockbuster. Anyway, if anyone’s going to find a new use for an old drug, Shire is--this is the group that turned amphetamine salts marketed in Germany for obesity into a multi-billion dollar CNS franchise.

As for hassle: $213 million isn’t a bad bit of money for a company Shire’s size. That’s enough for, say, another couple of Juvistas. (Shire recently paid $75 million up front and made a $50 million equity investment in Renovo for scar treatment Juvista, around which it may build a new franchise, as we reported here.)

$213 million is also enough to plug a gap left by another non-core asset that may yet be the next to emerge from Shire: Dynepo.

Remember Dynepo? It's basically EPO, a follow-on biologic that Shire bought through its $1.57 billion acquisition of TKT in 2005. Dynepo was in fact the core focus of the deal--so much so that Shire had a back-up plan to license the product for $450 million in case the acquisition fell through.

Lucky for Shire it didn’t. Dynepo sells a miserable $2 million per quarter, a far cry from the estimated $150-200 million annual peak sales that Shire, and analysts, were forecasting. Meanwhile two other TKT drugs, Hunter Syndrome treatment Elaprase and Replagal for Fabry disease, are doing very nicely thank you—the $80 million or so combined second quarter 2007 sales of both products exceeded analyst expectations.

There’s a lesson somewhere here about the value of acquiring the restaurant over selecting from the licensing menu, if the industry needed one (which it doesn’t, it seems.) But what about Dynepo?

Its trouble is that it’s neither here nor there. Dynepo offers no advantages over existing EPO drugs—it’s just plain vanilla EPO, and the short-acting version at that. Shire has no hope of competing in the mainstream with the likes of Amgen or J&J. Yet Dynepo isn’t a full-on generic copy of EPO, either, like Sandoz’s recently-approved epoetin alfa.

The Sandoz drug may have some chance, one day, of being substituted in cost-conscious markets for the reference innovator drug, in this case J&J's Eprex (though admittedly, biosimilar substitution will be a long journey, as we reported in a previous blog post.) Not so for Dynepo.

Small wonder, then, that Shire’s management doesn’t want to invest in a new manufacturing plant for Dynepo, and admits the drug “is fighting for space” in the portfolio. We know that, unlike most pharmaceutical firms, Shire’s not allergic to selling. But will anyone buy?

FDA Sides With CMS in EPO Battle; Labeling Change Next

Rep. Stark is smiling; Amgen isn't

Amgen Inc.’s uphill climb to reverse restrictive coverage policies for darbepoetin (Aranesp) just got a little steeper.

The Centers for Medicare & Medicaid Services’ position that it will not pay for use of Aranesp or Johnson & Johnson’s competing EPO brand epoetin (Procrit) in patients with hemoglobin levels above 10 g/dL “is generally consistent with the available data and the published scientific literature.” So says the Food & Drug Administration in a letter sent to two prominent House Democrats: Oversight and Government Reform Committee Chairman Henry Waxman (D-Calif.) and Ways & Means/Health Subcommittee Chairman Pete Stark (D-Calif.).

The letter, signed by acting Assistant Commissioner for Legislation Stephen Mason, gives CMS a vote of support the agency desperately wanted. It looks like CMS is making its position stick—and that is a development that should matter to companies across the industry, not just Amgen and J&J. (Why? We have written extensively about that in The RPM Report—including this article just going to press. Not a subscriber? Click here to register for a free trial and check out our coverage.)

FDA’s letter ends any lingering hopes for a quick reversal of the coverage policy, despite an all-out campaign by Amgen and J&J to enlist support in Congress. Amgen seemed to have gained a lot of traction on Capitol Hill, especially in the Senate, where a non-binding resolution urging CMS to reconsider the policy passed at the start of September, and where many Hill watchers expected a binding resolution to be included in a Medicare bill this year.

But one of the critical arguments underpinning the Senate legislation has been the contention that CMS’ policy is consistent with the FDA approved directions for use for EPO. As currently written, FDA’s label says EPO should be used to maintain hemoglobin levels at the lowest level sufficient to avoid the need for transfusions, and not be used once hemoglobin rises above 12 g/dL. Amgen, J&J, and a whole bunch of oncologists think that means CMS’ policy—refusing to pay for use above 10—is inconsistent with the labeling.

CMS has stuck by its position despite the political pressure. But no one knew for sure what FDA thought or what it would say when it finalizes new labeling for the drugs to reflect advice from two advisory committees convened in May and September. (Here is our recap of the situation, including a nifty picture of Commissioner von Eschenbach holding the PDR.)

So Waxman and Stark asked. FDA still hasn’t finalized the labeling, but it did answer the critical question. “The current labeling advises that the hemoglobin not exceed 12 g/dL,” Mason wrote. “FDA considers this to be an upper safety limit for ESA dosing, not a target for therapy. FDA is aware that there has been some confusion about the dosing recommendations in the current approved labeling and will work to clarify that confusion as we complete labeling changes that we are currently discussing with Amgen.” (Amgen is the license holder for both Aranesp and Procrit, so J&J is not directly involved in the labeling discussions.)

“Transfusions are not normally given to patients whose hemoglobin is 10 g/dL or higher,” FDA said. So I guess we know what the new labeling will say--not that it matters anymore, since FDA's letter of support is far more important to the future of the anemia therapies than anything the labeling ultimately says.

Oh, and FDA didn’t stop there. “There is no evidence that ESAs result in improved survival, tumor control, health-related quality of life at any hemoglobin level in cancer patients undergoing chemotherapy,” the agency wrote. “ESAs were approved based on their effectiveness in reducing the need for red blood cell transfusions.”

Don’t expect Amgen to take that answer lying down. But the company has an even tougher road ahead if it hopes to change CMS' mind.

Is it Time to Buy Amgen?

Maybe it’s time to buy Amgen. Yeah, you heard right.

Many of Amgen’s shareholders—including the CFO—have scuttled over the past few months, frightened away by the seemingly endless series of blows to hit the US biotech. That’s why the stock’s at a year-low and down 30% since the start of 2007.

Over the last week, a dozen or so further percentage points were knocked off by May 10th's FDA advisory committee meeting and by the CMS’s proposal on Monday to curb Medicare payments for Aranesp in certain cancer patients.

Can it get any worse? Apparently some of Wall Street’s analysts think so. Several cut their ratings on the stock last week, according to the Wall Street Journal’s Health Blog, including long-time bulls Lazard Capital Markets.

Now, we’re not analysts. (Nor are we shareholders, nor are we share-tipping.) But, let’s face it, analysts have been known to be wrong. Dare we suggest there are whiffs of panic? Perhaps hints of lemming behavior—the slope on this once-loved stock has reversed now for, what, six months, so game’s up?

Now granted, there may be just one or two more potential hitches—the most significant being FDA’s planned fall meeting to discuss the use of EPO drugs in kidney failure. Nephrology makes up a far larger chunk of Amgen’s $6.6 billion EPO sales than oncology, and any ruling here could hit both Epogen and Aranesp.

But Amgen’s already trading at an almost 15% discount to its biopharma peers based on estimated 2007 EPS. And, as they say, in every cloud is a silver lining.

For one thing, any bad for EPO drugs is bad for Amgen’s competitors, too—including Roche's Mircera. Look out on May 20th , the Mircera PDUFA date: a bumpy ride for Roche may help Amgen.

And on a more positive note, Phase III pipeline drug denosumab may be the best in the entire biopharma sector pipeline, if you believe Mark Schoenebaum at Bear Stearns. “It could be a $5 billion drug, Amgen’s biggest ever,” he told IN VIVO last month. The first data is due by year-end. And if you believe Amgen, there’s also a wicked Phase II pipeline tucked away somewhere—if you haven’t heard about it yet, you will soon.

If investors don't start buying Amgen again soon, maybe, just maybe, the stock will hit a low that an acquisition-mad Big Pharma can't resist. The idea is around, if improbable.

But then, Merck & Co. came back, didn’t it?

High Noon Haiku: Endo, RNAi, and EPO

Sometimes we don't have the time to cover all the stories we'd like. But occasionally we'd like to link over to them anyway, while encouraging you, the reader, to give us a short take on the rest of the day's news. Welcome to High Noon Haiku. Give it your best shot in the comments (remember, it's 5-7-5) ...

AZ and Silence
New deal in RNAi
Where are the details?

***

Amgen, J&J:
EPO benefits outweigh
The risks, FDA!

***

Peter Lankau's gone
Endo didn't waste much time
Holvek's the new boss

***

Wall St. Journal blog
Has good piece on new blind gov
Too bad they're Mets fans

(image via threadless.com)

Europe's Best-Kept Biotech Secret?

European investors pining for a biotech champion used to muse about the lack of a Genentech- or Amgen-equivalent on the Continent. (Despite Amgen's recent woes--of which you can read a detailed analysis in May's IN VIVO--a few probably still wish for one.)

But maybe some are overlooking what’s in their own back-yard. Shares in Denmark’s Novo-Nordisk have almost doubled in the last two years as the firm has quietly pushed to number one in the insulin market, beating big guys Eli Lilly and Sanofi-Aventis.

With sales of €5 billion ($10 billion) last year, and a market cap just short of $40 billion, Novo’s only half an Amgen. But its challenges aren’t half as big, either.

For one thing, Novo doesn't face a Mircera-equivalent competitive challenge to its insulin portfolio. Nor does it face safety issues--in part since insulin isn't widely used in indications outside diabetes. Insulin's also less expensive than many other protein drugs, so, although on payors' hit lists for bio-genericization, it faces not quite the same reimbursement risk as EPO. (That's probably why insulin is almost completely absent from European biosimilar firms' pipelines.)

Although patents on basic recombinant insulin are long gone (while Amgen still holds on to EPO and sons), engineered analogs have a while to run. And anyway, new entrants still struggle, it seems, even Pfizer-sized ones.

More importantly, the glucose-control pathway offers a related protein, GLP-1, for Novo to take mastery of. Glucagon-like peptide is a hormone that enhances insulin secretion in a glucose-dependent way. Shame for Novo that Lilly and Amylin are already there, selling first-in-class Byetta and doing fine, thank you.

Still, Novo's CSO Mads Thomsen told the IN VIVO Blog they can do better with likely second-to-market GLP-1 analog liraglutide; in terms of administration, dosing and side-effects. Meantime Novo is hedging its bets in the growth hormone space, in hemostasis management, and with newer efforts in inflammation and cancer.

But unlike Amgen, whose pipeline betrays a future with many more small molecules, and in many more therapeutic areas, Novo is sticking to its core capabilities—protein engineering. That’s why it yanked its oral anti-diabetic efforts in January (too competitive, too genericized, and what can follow Merck's Januvia anyway?).

Novo needs liraglutide to work as well as says it does. But if liraglutide does come good--we could know early in the second half of this year when the first batch of Phase III data is due--Novo may yet be likened to Europe’s Amgen. Albeit, perhaps, the Amgen of last year, not this year.

Amgen Cashes out of Japan; Follows Bristol's Risk Sharing Example

It’s a sign of the times when Amgen starts licensing its drugs to mid-sized Japanese pharma.

Sure, we knew that troubled Amgen, hit by declining sales of EPO drugs and growing competition--including from forthcoming biogenerics--was looking for ways to cut costs. It had already last year declared workforce culls and its intention to partner certain R&D assets.

But this double-deal with Takeda, announced this morning, is still worth a second look. In Part I, Takeda gets Japanese rights to 12 of Amgen’s pipeline assets in exchange for $200 million up front, up to $340 million in development costs—not just for Japanese, but for worldwide development—plus up to $362 million in sales-linked milestones, and royalties. The Japanese firm will also buy Amgen’s Japanese subsidiary for an undisclosed sum.

That regional deal’s interesting enough: Amgen, while touting its wider international expansion outside of the US, is exiting Japan. It wouldn't be the first; other companies have acknowledged that this tough market is best tackled by locals, who’ll pay dearly for access to assets. Amgen's move is also about cutting infrastructure—a trend, and need, that we’ve talked about in the context of Big Pharma’s unwieldy bureaucratic machines (and Amgen, too, is increasingly compared to Big Pharma, as we noted in this IN VIVO feature.)

Part II is the most telling bit of this deal, though. For another $100 million upfront and $175 million in additional success-based milestones, Takeda takes on worldwide rights to Phase III motesanib, a small molecule angiogenesis inhibitor for cancer. It'll pay double-digit royalties on Japan sales, but will also cover 60% of ongoing development expenses outside of Japan, and share profits on a 50-50 basis.

This, in case you hadn't noticed, is Amgen doing risk- and cost-sharing, big time—like Bristol Myers Squibb did via monster deals in early 2007 with AstraZeneca and with Pfizer. Amgen's not only got itself a partner in a market that's now clearly non-core, but has also secured a good chunk of its ex-Japan costs, too, on all 13 molecules.

Amgen didn’t used to do out-licensing, at least, not until a lonely deal with InteKrin last January. Now it knows it has to: it needs the cash to help cushion some of the EPO blow (which may yet get worse following the next ODAC meeting in March) and, with commitments to cut 14% of staff, it doesn’t have the development muscle to deal with its entire pipeline in-house.

Not that motesanib is the crown jewel; far from it. It'll hardly be the first tyrosine kinase inhibitor to market, after all--hence Bear Stearns analyst Mark Schoenebaum's comment that the motesanib terms are particularly good for Amgen, since "we believe that the molecule's future is bleak."

Osteoporosis candidate denosumab is the company’s big hope—some say its only life-line—and Japanese rights to that went to Daiichi Sankyo last year, for what may now appear a rather paltry $20 million up front and $150 million contribution towards global development costs.

But Takeda’s nevertheless doing ok here. Twelve of the 13 Amgen assets are large molecules, granting the Japanese company its own foothold in biologics door, following similar moves by compatriots Astellas and Eisai Co. (along with most Western Big Pharma). Many of those were acquisition-driven, though (read more about the various strategies here).

By effectively signing a regional Japanese deal, Takeda gets to cut its teeth in biologics development alongside experts—albeit paying a price for that privilege—and will likely enjoy the comfort of ex-Japan approvals for some of the compounds before taking on the task itself at home.

And worldwide rights to motesanib—a small molecule—ticks another of the boxes on Takeda’s wish-list: international expansion. All Japanese firms (at least, all the larger ones) are desperate to expand outside their domestic market because of sluggish growth and harsh price cuts. That’s in large part what drove Eisai’s $3.3 billion cash acquisition of US spec pharma MGI Pharma in December 2007—a headline-grabbing transaction that Takeda will have badly wanted to answer to, if not, this time at least, out-do. (Read more about Eisai/MGI here.)

Photo "Pharma Spam Tower" by Flickr user shimown used under a Creative Commons license

Biosimilars: Dead Before They Really Got Started?

That was a conclusion that it was possible -- even feasible -- to draw after listening to several of the sessions at the European Generics Association's International Symposium on Biosimilar Medicines in London last week.

Most overtly, it was a suggestion by Alan Sheppard, Principal and generics expert at IMS Health. After showering the audience with numbers, he concluded -- albeit with the caveat that this was his personal view, not IMS'-- that, "as we move towards modified biologics, it may be nearly the end for biosimilars already."

You'd think that with billions of dollars' worth of patent expiries happening now or due before the end of 2012 and the rash of austerity drives by payers across the globe, it would be biosimilars' hey-day. They're copies of those most expensive biologics, after all. And those biologies are what's helping push the global drugs bill up and up -- by about $50 billion each year.

But no. Global biosimilar sales might have doubled each year since 2007, but the global market was still worth only $235 million in mid-2010, according to IMS. And in the one example of a biosimilar capturing decent (60%) market share, EPO in Germany, "it looks as if penetration may be slowing off," Sheppard ventured. Meanwhile, biosimilar growth hormone in Germany just hasn't happened: with less than 4% market share, it has been a failure.

"If I'm absolutely honest, people are disappointed," admitted a former senior executive at Teva during coffee.

Some of the problems are well-known. Lack of interchangeability is probably the most significant: if pharmacists can't automatically substitute an originator drug with a biosimilar, it means doctors need to actively prescribe biosimilars. Most don't feel confident doing so. "At the moment, biosimilars create uncertainty in the doctor's office. Innovator drugs offer a solution. Biosimilars don't have that clear advantage, and actually, they may carry some unknown risk," given the limited trial results supporting their use, relative to that of the innovator drug. That was the view of Arnold Vulto, a practicing pharmacists and Deputy Head Hospital Pharmacy at Erasmus University Medical Center in Rotterdam, Holland.

His point: doctors need reliable and accessible information, particularly around proof of bioequivalence, to change their minds. That information is missing, for now.

Meanwhile, originators have got their act together and are busy launching life-cycle managed enhancements to their drugs -- new delivery pens or longer-acting versions.

They're also enjoying biosimilars' effective lock-out of the US, where the regulatory pathway remains unusable, Sanford Berstein analyst Ronny Gal reminded the audience in London. That' because it's so easy for originators to sue hapless biosimilar firms for infringement, thus blocking approval for up to 42 months -- however shaky the infringement claim may be.

And Europe hasn't escaped the lawsuits either: Norway, a land of low drug prices, embraced biosimilars enthusiastically, adding biosimilar filgrastim to its automatic substitution list in mid-2010. The country's health department had, via a hospital tender system, secured a price for the biosimilar copy that was less than a third of that of the original, Amgen's Neupogen. But Amgen sued -- and was successful, in part because the country's laws aren't sufficiently up to date, according to Steinar Madsen, Medical Director at the Norwegian Medicines Agency. The health department will shortly decide whether to appeal the decision.

Madsen reported that Norway's doctors -- like those elsewhere across Europe -- want to see interchangeability studies, proving the drugs' safety even through several switches backwards and forwards, and robust pharmacovigilance tracking systems. New European-wide pharmacovigilance legislation will help a bit.

But fundamentally, said Madsen -- a doctor himself -- the only way to increase biosimilars' market share is reduce the influence of doctors, and allow insurers to tender for the cheapest drugs and ensure they are used from the start of treatment. "EMA should modify their position that choice [of treatment] should be left to the doctor," he declared.

That's hardly likely. But all is not lost. The generics proponents are waiting for the next, they say far more valuable chapter in biosimilars' short history: antibodies. "Biosimilar antibodies have far more potential than this first round of drugs," the former Teva executive told The In Vivo Blog. They'll go into less competitive markets than the likes of growth hormone, GCSF and EPO, and will thus support higher prices," he said.

Given their complexity, mAb lookalikes are hardly going to coast past the regulators, though, nor past those uncertain doctors seeking a reason to prescribe. Still, the tough reality of health care economics -- plus the commitment of large players like Teva, Sandoz and Merck, who continue to invest despite the challenges -- mean we haven't seen the last of biosimilars yet.

image by flikrer TuTuWoN used under creative commons

The Downsizing Opportunity: Pipeline on the Cheap?

The IN VIVO Blog was in Michigan last week, attending a profiting-from-downsizing symposium.

Would Pfizer—we wondered at the Michigan Growth Capital Symposium--use its pull-out from the state (and the near-term freedom of some 2350 full-time Michigan-based Pfizer employees) as a way of pursuing an alternative research strategy—an experiment in externalization?

The venture world is all over Pfizer right now, looking for preclinical and clinical programs. And they’d particularly love ones that come wrapped with some of their key scientific supporters. Theoretically, we reasoned, the Michigan shut down could allow Pfizer to at least keep some of these researchers tied to the mother ship by letting them – on the VCs’ dime – take ownership of programs Pfizer will be shelving. Meanwhile, Pfizer would get equity and some kind of option on the programs, should they prove interesting to its marketers. If uninteresting to them, the program still might prove commercially worthwhile, giving Pfizer a nice equity upside.

But from the discussions in Michigan, and subsequent chats with VCs, it’s increasingly clear that Pfizer—despite an ongoing program to study how it should go about out-licensing or spinning off internal assets—isn’t moving fast enough. Its best Michigan-based researchers will soon be working for other companies, including Pfizer competitors. And when they're gone so will be the best conduits to, and conductors of, Pfizer's unwanted research programs.

Not that Pfizer is uninterested in venture opportunities that provide it relatively low-cost access to interesting programs. But if our Pfincubator post is to be believed, Pfizer would prefer to win cheap access to programs it didn’t create. That seems to be the intention behind its San Diego venture idea, in which Pfizer swaps infrastructure and capital for a start-up’s equity and options on its research output.

Success of that program seems just a bit more likely than an experiment at Novartis. Its pharma division’s option fund aims to co-invest with other venture funds but get, along with its equity, an option on its investee’s product. Since most VCs we know aren’t in the habit of giving co-investors in a round a better deal than they get (in this case, Novartis would get equity at the VC price plus the option), we don’t think this arrangement will get much traction. We’re likewise skeptical that VCs backing the start-ups Pfizer hopes to woo to its San Diego facilities will be particularly happy about ceding product rights for cheap space and some cash. We’ll be happy to be proven wrong.

Indeed, neither the Pfizer nor the Novartis venture adventure leverages its parent’s real differentiable assets—de-prioritized research programs. And it is only with that kind of unique asset (money and space are commodities) that a drug company can create the opportunity to get both equity appreciation and pipeline help. Novartis in particular should understand the value here: its only major recent primary care launch, Tekturna, came about because a small, privately held company, Speedel, created a product out of a de-prioritized Novartis program—on which Novartis had kept an option.

Pfizer and Novartis aren’t alone in their unwillingness to let start-ups take over assets on their shelves. Most companies won’t. Pulling together all the relevant information is expensive, invasive, and potentially competitive. It actually took the shutdown of all of its early-stage research efforts for Procter & Gamble Pharmaceuticals to try to monetize some of its unrealized value. It’s getting equity in a new Cincinnati-based spin-out, Akebia Therapeutics, which is developing two ex-P&G programs: an angiogenesis promoter (initial target: peripheral artery disease) and a Fibrogen-like EPO inducer. P&G also out-licensed two other programs—one for heart failure and one for atrial fibrillation, but these went to established companies, one large, one small.

But that doesn’t mean pharma shouldn’t do it – at least as an experiment in an alternative research strategy. Roche is the leader here—in deals, for example, with new companies, like Synosia and Amira, based around Roche IP. Lilly has certainly done plenty of out-licensing to already existing companies, like Vicuron and Cubist, but its recent deal with Versant Ventures to exploit its Chorus development division is a big step in the start-up direction.

The real question is whether more pharmas will begin to take advantage of the enormous opportunity to experiment with virtualized R&D – at very little cost to themselves. With the retirement of Pfizer's R&D chief and its most senior opponent of out-licensing, John LaMattina, it's likely that Pfizer will reassess the strategy it's so far pursued. In that reassessment, they'll soon realize that if they don’t provide some of the key research assets, they can’t hope to get low-cost options on what the start-ups do with them.

Basilea to J&J: See You in Court

Johnson & Johnson might want to phone Philadelphia Phillies GM Ruben Amaro, Jr.

No, the diversified health care giant probably isn't looking for a utility infielder or a starting RHP. But it does find itself in a situation Amaro has quite a bit of recent familiarity with: dealing with players (in J&J's case, a partner) seeking arbitration.

This off-season the (World Series Champion) Philadelphia Phillies and GM Amaro have avoided arbitration proceedings with all ten players who were eligible--locking up stars like Cole Hamels and Ryan Howard to multi-year deals. Johnson & Johnson just has one arbitration hearing to worry about right now: Basilea Pharmaceutica's claim filed today related to delays in approval of the companies' ceftobiprole antibiotic in the US and EU. (Of course J&J has a little institutional experience with arbiters too ... with EPO.)

Basilea watchers woke up to a flurry of announcements today beyond its planned annual results--not least the news that the antibiotic's EU approval process has been delayed so that good clinical practice (GCP) inspections could be carried out by EMEA. The EU's committee for medicinal products for human use (CHMP) has already recommended the drug for approval, but that recommendation must now be revisited post-inspections, and the delay could put potential approval well into next year.

Meanwhile Basilea is burning through its roughly CHF293 million cash balance and the estimated CHF100 million payments related to EU approval are for now out of reach. Anticipating approval and gearing up for a commercial launch--it had planned to co-promote the drug in the US and areas of the EU--will further add to the firm's costs. Adding insult to injury on today's call management had to deal with disgruntled shareholders annoyed with the company's shares' precipitous drop.

This is just the latest delay in ceftobiprole's commercialization. In the US, where J&J is also the drug's sponsor with FDA, an NDA was submitted in May 2007. But in March 2008 the companies received an approvable letter and in late 2008 FDA's complete response letter identified further data integrity and study conduct issues, and requested a new audit plan for CRO monitoring.

Basilea has been careful to say that it is pleased with the data from the drug's pivotal studies, saying that the problems were instead related to monitoring and quality assurance, and that issues related to the data and the process of monitoring the data were distinct. "The issues that have been brought up ... indicated that [regulatory authorities] had questions about the monitoring of the trial, the quality assurance program ... these are questions about how the trials are monitored and run and this has caused a delay," said CFO Ron Scott on Basilea's earnings conference call this morning. "The mechanism we have to address that delay is the arbitration process."

Presumably the arbitration process isn't the first port of call when a dispute like this arises, indicating an unsurprisingly frazzled relationship between the partners. So what does Basilea want out of arbitration? "Certainly we have not received our milestone payments yet," and the value of the opportunity lost not having ceftobiprole on the market in Europe and the US, noted Scott. Essentially, "compensation for the impact of the delay on Basilea," he said.

That impact is far from fully measured right now--and Basilea declined to disclose when arbitration will begin, only saying that typically these types of arbitration procedures might take one to two years, regardless of what is stipulated in a contract about a timeline for the process. Barring a settlement, the ruling will be in the hands of the Netherlands Arbitration Institute.

Basilea's move to take J&J to court is rare, and should make for an interesting dynamic at joint steering committee meetings. But the ingredients for further disputes--higher regulatory hurdles, increased out-sourcing of clinical trials, and more biotechs than ever facing ostensibly life-or-death FDA or EMEA decisions--are abundant.

Hey J&J: Amaro's office is at Citizen's Bank Park, Pattison Ave., Philadelphia.

Financings of the Fortnight: Sunshine Breaking Through?

No one we know would say that biotech’s financing drought is ending. Hardly seems possible.

But conversations are taking on--dare we say it-- a slightly more optimistic tone. The Nasdaq biotech index, for one thing, continues its upwards trajectory. Most of that performance, we admit, stems from good news out of big-cap players like Elan, Amgen, Gilead and maybe a few others. It’s not a sustained small-cap phenomenon – yet.

Certainly no one’s predicting the imminent opening of an IPO window (closest thing we’ve seen to a pharma IPO filing is Vitamin Shoppe).

Indeed, there are plenty of what we’d probably call financings-under-duress, the kind of deals both investors and companies have to do to keep fighting. Oxigene, for example, followed the Alexza pattern in buying back, at a discount, its financing partnership with Symphony Capital – saddling Symphony with a lot more stock in Oxigene, and thus a lot more risk. More upside, too, of course – but that wasn’t what Symphony’s model was designed for.

We’d also note that pharma continues to provide not merely the only exits for biotech, but a fairly substantial percentage of its financing, too. Corporate VC remains at center stage – with the Avila financing from the Novartis Option Fund only the most recent example.

But a few bits of unexpectedly good news are at least quickening the industry’s pulse. Human Genome Sciences surprised the market by meeting the primary endpoint in the first of two Phase III trials on Benlysta, the first lupus drug in years to actually show real clinical results. HGS acted fast and raised more than $300 million – the industry’s biggest common-stock offering since Vertex raised $320 million back in February. Orexigen, too, raised a not-too-shabby $75 million after it announced that its obesity drug Contrave had met virtually all of its clinical goals in its Phase III programs.

And deals like Amgen’s with GlaxoSmithKline on denosumab likewise indicate why biotech does have an argument or two in its long-term favor. GSK paid a ton of money for a relatively limited set of rights – indeed, most surprisingly, agreeing to split indications on the drug with Amgen (you’ll remember that Amgen virtually destroyed the split-indication deal nearly a quarter of a century ago with its EPO deal with Johnson & Johnson).

And for those cock-eyed optimists in the group, there is some talk about IPOs. Quiet talk, perhaps. But at least a few people have speculated about Portola, which thanks to big deals with Novartis and Merck, doesn’t have to worry about financing expensive later-stage trials for the next several years and can instead focus on advancing its earlier-stage programs. And should either elinogrel (with Novartis) or betrixaban (with Merck) prove particularly interesting, well, there’s a nice little tinge of acquisition in the air to entice an IPO investor.

So, on that optimistic note, let’s get to some of the more interesting deals we’ve seen over the last fourteen days.




Avila Therapeutics: In a deal that combines equity financing with an option on an early-stage research program, Novartis Option Fund led a $30 million Series B financing on July 27 for Avila Therapeutics, which uses its proprietary Avilomics platform to design and develop covalent drugs in the areas of cancer, autoimmune disease and viral infection (you can see our write-up from The Pink Sheet” DAILY, here). NOF is a $200 million fund that seeds innovative companies through initial and follow-on investments – the initial investment is coupled with a program option to provide early validation of the company’s technology. Avila says it will use the proceeds to advance its first program into clinical development – its lead programs are a protease inhibitor for hepatitis C (AVL181) and a molecule targeting the Btk kinase (AVL291), an emerging target in oncology and autoimmune disease. The Waltham, Mass.-based company did not say which of those programs would advance to clinical development first, and neither company identified the therapeutic target of the program for which NOF has option rights. Avila says its drugs work through protein-silencing – the molecules’ covalent nature enables them to bond strongly, selectively and resiliently to disease-causing proteins, theoretically producing superior therapeutic outcomes. The drug candidates’ covalent bonding also makes them effective against mutations in disease targets, according to Avila. Participating with NOF in the Series B were Avila’s original investors – Abingworth, Advent Venture Partners, Atlas Venture and Polaris Venture Partners. The four VC firms staked Avila with $21.3 million in Series A funding in 2007, and also made a convertible debt purchase this past May that initially brought Avila $5 million and eventually could yield $15 million. – Joe Haas

Limerick Biopharma: South San Francisco, Calif.-based Limerick recently raised $15 million in a Series C round with its existing investors to begin advancing its Cellular Transport Pump Activators into clinical development. Giving the company some additional credibility, Corey Goodman, co-founder of Exelixis and Renovis and more recently the head of Pfizer’s Biotherapeutics and Bioinnovation Center, took on the chairman’s job (he’s served on Limerick’s board since 2007). Limerick’s CTPAs offer promise both as chaperone therapies and in monotherapy for cholesterol disorders. Primarily, CTPAs are intended for adjunctive use with existing or experimental drugs to improve their side-effect profiles and efficacy by activating cellular transport pumps to redistribute drugs away from areas where they have adverse effects. In theory, this will minimize toxic side effects without reducing a drug’s intended activity. While testing its candidates in the areas of immunosuppression and pain, however, Limerick also discovered that CTPAs remove cholesterol from peripheral and pancreatic beta cells, lowering serum cholesterol and glucose. The company’s secondary goal, therefore, is to develop CTPAs as therapies for hypercholesterolemia and hyperglycemia. Founded by Wendye Robbins, a Stanford professor and former president of NeurogesX, Limerick has raised $35.5 million total since 2006. The July 15 Series C was led by OVP Venture Partners, which previously was known only for leading seed and Series A rounds. In addition to OVP, Limerick’s other returning investors include Altitude funds, Arch Venture Partners and Sevin Rosen Funds. The firm hopes the current round can provide funding through proof-of-concept of one of its lead programs – one is set to begin Phase I study in immunosuppression this year, while another that could enter the clinic in 2010 will be targeted at metabolic disease. – Joe Haas

Cognition Therapeutics: There are a few drugs on the market that treat symptoms of Alzheimer’s disease, but the goal is to actually stop disease progression. Along with the actual scientific challenge of figuring out how to treat the disease, there’s also the problem in testing candidates: trials for such drugs are expensive and long. Plenty of costly failures litter the way (like Myriad Genetics’s Flurizan in Phase III—closely following Lundbeck’s lost $100 million up-front payment in their deal for the candidate). But the medical need and economic opportunity for solving the Alzheimer’s problem keep producing big new deals. For proof, just see Pfizer’s deal for dimebon and J&J’s recent investment in Elan’s Alzheimer’s immunotherapy program including bapineuzumab. Financing for biotechs breaking into the disease-modifying arena is picking up too (see Satori Pharmaceuticals), and now Cognition Therapeutics has pulled down a $1.2 million Series A financing—through the sale of equity and conversion of notes--from investors led by Ogden CAP. Founded in 2007, the company is developing small-molecule inhibitors of toxic beta amyloid oligomers, which are associated with memory loss and neurodegeneration. The start-up’s drug libraries were licensed from California State University Channel Islands where they were designed by former Amgen medicinal chemist Gilbert Rishton, PhD, who is now Cognition’s chief scientific advisor. Rishton’s chemical conditioning method takes extracts from terrestrial and ocean plants and adds chemical reagents to produce the low molecular-weight candidates, which are eventually screened in cellular assays that monitor the toxic oligomer’s effects on biological functions in mature primary hippocampal neurons. Cognition was seeded in 2007 with $200,000 in funding from Pittsburgh Life Sciences Greenhouse, which also participated in the current round.—Amanda Micklus

OxiGene: On July 21 OxiGene announced two financing events that will keep it alive for another year -- through the third quarter of 2010. The company, which works on vascular disrupting agents, closed a registered direct offering that grossed $10 million. It sold 6.25 million shares at $1.60, a 20% discount based on the ten-day pre-announcement average, as well as short- and long-term warrants to purchase up to 5.6 million in common shares. It also managed to grab another $12 million by buying back Symphony Vida Holdings, an off-balance sheet entity created with private equity firm Symphony Capital Partners. In October 2008 Symphony provided Vida with $15 million in cash to support development of OxiGene’s Oxi4503 (combretastatin A1 diphosphate), which is in Phase I for solid tumors, and Zybrestat (fosbretabulin) in ophthalmology. At the time, Symphony granted OxiGene a four-year option to acquire Vida for twice the amount that Symphony invested in the entity. But Sympony would only make that money if OxiGene lasted that long. So OxiGene is issuing Symphony $12.5 million in stock to pay for Vida ($2.5 million less than Symphony actually put into the financing vehicle) to get the $12 million cash still in the vehicle -- with Symphony now into OxiGene a lot more deeply than it ever planned to be (it owns 44% of the biotech). More or less the same thing happened with Symphony’s original deal with Alexza – which likewise bought back the Symphony vehicle for a big slug of stock, giving Symphony a 23% stake.—Amanda Micklus


Image from Flickr user Magh and used under a creative commons license.