Friday, November 30, 2007

Prasugrel: Lilly Tries to Stop the Bleeding (Part 1)

We were a bit taken aback by Lilly CEO Sidney Taurel’s editorial in the Wall Street Journal earlier this week recounting the damage done by the frenzy of speculation about the prospects for the platelet aggregation inhibitor prasugrel.

Taurel takes financial journalists to task for trading in “leaks and rumors where scientific data are concerned” and calling on “would-be pundits” who “have not had firsthand exposure to the scientific results or specialized knowledge under discussion” to “qualify your comments if you must make them at all.”

Its not that we disagree with Taurel. Like most self-respecting journalists, we are only too happy to join in any critique of the sloppy practices of our competitors (since we of course are the exception that proves the rule, right?).

No, what took us aback about the piece was its premise: the almost quaint notion that pharmaceutical companies can somehow put the genie back in the bottle and have the final say in when or how information about their products—even unapproved products like prasugrel—will be disseminated to the public.

Taurel’s argument, in effect, is that journalists, analysts and investors should have waited patiently for the release of the pivotal trial data on prasugrel (the TRITON study) at the American Heart Association meeting November 4, rather than engaging in a frenzy of speculation based on news that Lilly had suspended two other trials of the drug. Lilly decided to report that data there, and in a companion piece published by The New England Journal of Medicine.

Lilly, of course, couldn’t release the data early because it committed to an embargo prior to the AHA presentation. “Such guarantees of exclusivity are not only common, but also appropriate, in focusing expert attention on important research,” Taurel writes. “A definitive source and a ‘zero hour’ of first-hand disclosure for complex scientific data help to limit misinformation.”

Ah, the good old days. Things used to work that way for sure. But in the era of the internet, clinical trial registries, managed care claims databases, FDA drug safety newsletters, and emerging active surveillance systems, it is simply no longer possible for drug sponsors to hope to control the information flow about their products. (Not too mention the unbelievable proliferation of would-be pundits known as bloggers.)

In this case, Taurel laments, “10 days before our ‘zero hour,’ word leaked out, causing us to confirm that the two prasugrel trials had been suspended, although our promises to NEJM and AHA prevented us from explaining why.”

The truth, as Taurel explains, was that prasugrel performed very well in the pivotal trial, but that there were “three small subgroups of patients” in whom a risk of excessive bleeding appeared to outweigh the benefits. “Based on the small chance that patients in the three identified subgroups might be given prasugrel and experience serious bleeding, we advised our researchers to suspend the two trials pending a review,” Taurel writes.

But the damage was done. “The media entered a feeding frenzy, catered by commentators on Wall Street and elsewhere who speculated that prasugrel posed broad risks and had probably failed its major trial. Our stock began its trip south and, more seriously, some doctors and patients were left with false impressions.” Lilly’s shares recovered somewhat after the data were finally reported on November 4.

We might quibble a bit with choosing prasugrel as the case to make this argument—claims of patient harm seem overdone here when we are talking about a drug not yet approved by FDA. Commercial harm, yes. Harm to Lilly’s investors, yes. But it is a bit of stretch to say patients were harmed.

But still, Taurel is right about the potential for media feeding frenzies to cause tremendous harm. Its happened before, for sure. Maybe Avandia is an example, or even Baychol—cases where coverage of an unexpected side effect led many patients to discontinue treatment on their own, leaving at least the possibility that more harm was done by untreated diabetes or high cholesterol than by the adverse events in question.

Even so, Taurel sounds a bit like Lear raging against the storm. We understand his concern, but it is hard to imagine any way he or any other industry CEO can reverse the winds.

We aren’t the only ones who think that. Plenty of smart people in government and industry are talking about the revolutionary changes in information flow about medicine—including a whole bunch of executives at Lilly. In fact, though this is impossible to handicap, we would be willing to bet that Lilly is at the forefront of recognizing and adapting to a world where the pharmaceutical company sponsor is no longer at the center of the information flow about drug products.

We have heard several Lilly executives speak publicly and privately on this very theme. During a panel discussion on clinical trial policy at the University of North Carolina in February, one Lilly executive talked about the move towards active surveillance as potentially engendering a “Wikipharmacy” model in which product use information is no longer generated by FDA and the sponsor in labeling negotiations, but rather by a global community of users exchanging information on real-world experiences with the drug.

And Taurel himself has talked about it. During a policy address at the Cleveland Clinic early this year, Taurel focused on the revolutionary potential of healthcare IT advances. He even talked about the importance—and benefits—of public access to data once jealously guarded by manufacturers.

“For businesses that generate health data and new knowledge, it’s time to learn the benefits of openness," Taurel said in Cleveland. He went on:

"We need to open our minds to the notion that electronic outcomes data – once the privacy of individual patients is protected – represent a legitimate ‘commons,’ a resource to which access should in most cases be widespread and easy.”

“That’s not to ignore the fact that great effort and expense goes into collecting many types of health information. Certainly at Lilly, we spend hundreds of millions of dollars every year on clinical trials. But the key insight in our situation, and I think it applies quite broadly, is that unlike most other assets, health information actually becomes more valuable the more it is used, studied, and applied. It does not depreciate.”

So what gives with the Journal editorial? Did Lilly decide that openness is wrong? Hardly. Taurel even repeats his argument that openness is critical for industry: “Trust hinges on our openness in sharing everything we know about who should use our products—along with when, how and at what dose—and who should not.”

What we are really seeing here is not a vain attempt by a pharma company to turn back the storm, but an example of one way to try to advance against the wind.

The frenzy around prasugrel hurt Lilly, but it also provided an opportunity for the CEO to talk about the product in a prominent forum. The fact is that Lilly (and its partner, Daiichi Sankyo) plan to submit a new drug application based on TRITON to FDA before the end of the year. Anything Lilly can do to shape the climate for that review is critical.

When you look at it that way, maybe the most important line in the editorial is the sentence at the end of the fifth paragraph, citing a quote from the Journal’s earlier reporting on prasugrel: “If you can't get a drug on the market with that kind of data, we should stop developing drugs.” That is a message not just for business and science reporters, but for FDA reviewers as well.

So will Lilly get this drug on the market with this kind of data? Coming Monday, one would-be pundit will share his thoughts on what it will take to make that happen.

Deals of the Week: For Sale By Owner

For some US home owners, this week brought bad news: the National Association of Realtors reports sales of previously owned homes hit their lowest level since 1999 and single family homes suffered the biggest price drop on record in October.

Thank heavens lower sales forecasts haven't spilled over into pharma land, where M&A is the sector's only bright spot. (It certainly isn't R&D.) Hoping to take advantage of pharmas' hunger to acquire, a number of companies--including MGI Pharma, GPC Biotech, and QLT--decided this week to put themselves up for sale. In honor of their entrepreneurial spirit--or as QLT's press release noted, a willingness to "review all strategic alternatives"--IN VIVO Blog gives you Deals of the Week: The For Sale By Owner edition.

  • MGI Pharma/GPC Biotech/QLT: All three companies hung out for sale signs this week. (Okay, we know this probably shouldn't count as a "deal". Try and think of it as the preamble to a deal.) It may be a sellers market in pharma land, but its tough to think either GPC or QLT will fetch a high price. As we've noted here, GPC has taken a beating for the failures associated with its lead drug satraplatin. QLT, too, has suffered in recent years as its lead therapy Visudyne competes with new anti-VEGF drugs such as Genentech's Lucentis. (Interestingly, QLT just spent $42 million on a drug-eluting punctual plug technology developed by Forsight Labs. For more, check out this recent START-UP article.) It's possible that an unlisted company seeking a route to the public markets might find attractive the significant cash reserves of either company--$90 million for GPC and $300 million for QLT. The picture may be rosier for MGI Pharma, however. As we wrote a couple of weeks ago, Celgene was willing to spend nearly $3 billion for Pharmion, a rival of MGI's. Reuters reports potential suitors could include Amgen, which might be interested in MGI's Aloxi, which treats chemotherapy-induced nausea, and BMS, which given its focus on specialty markets such as cancer, might be very interested in the biotech's Dacogen. Still all three companies should be wary of becoming the next BiogenIdec, which hung out its own for sale sign over a month ago, and still hasn't closed a deal.

  • TPG Capital/Axcan Pharma: Here's a lesson for BiogenIdec and the other companies that have put themselves on the block. If you can't find a pharma company to buy you, maybe you should consider private equity. On Thursday Nov. 29, TPG Capital ponied up $1.3 billion for the Canadian Axcan Pharma and its portfolio of treatments for gastrointestinal disorders. As the NYT's Dealbook blog notes that this is the latest in a string of smaller buy-outs brought on by the credit crunch and the halt in mega-merger deals.

  • GSK/Merck: Merck sold GSK exclusive US rights to an OTC version of its cholesterol lowering drug Mevacor for undisclosed milestones and royalties. It was the company's second big deal in less than a week, and came just as US workers were emerging from their tryptophan-induced hazes. (Only a British company would announce deals the day before Thanksgiving and the Monday after.) Despite the dearth of details disclosed, the announcement is intriguiing. Mevacor lost patent protection back in 2001 and Merck, in conjunction with Johnson & Johnson, tried twice to obtain OTC status for the drug--the last time back in 2005. What makes the GSK-Merck team think its more likely to succeed this time around? Perhaps it's the more open outlook FDA has embraced in approving OTC versions of Plan B and Roche's diet pill Xenical. (For more on the FDA and OTC, read here and here.) More likely, its the tremendous success Glaxo has had selling Xenical as Alli. In its earnings call last month, GSK estimated it would sell between 5 and 6 million weight-loss kits this year for about $1 billion in revenue. Merck certainly has nothing to lose. And who knows? If GSK can succeed with OTC Mevacor, it could pave the way for a US version of OTC Zocor, which has existed in the UK since 2004. An FDA advisory panel will discuss the switch at a meeting on Dec. 13.

  • Astellas/Agensys: On Tuesday, Astellas Pharma announced plans to buy cancer antibody play Agensys for $387 million, including a $30 million net cash balance. The deal comes a few months after another Japanese pharma, Eisai paid $325 million for a different cancer antibody player, Morphotek. The Japanese pharmas tend to adopt US and European companies' fads a little later, so it makes sense that Astellas is only now jumping on to the large molecule bandwagon (For more on this, read here.)

  • Sanofi Aventis/ Regeneron: One company that isn't, so to speak selling-out, is Regeneron. Instead, it's done a fantastic job of monetizing its therapeutic platform, called VelociSuite. In addition, to this deal with Sanofi, worth $85 million upfront plus $475 million in research funding over the next five years. the company has also inked partnerships with Bayer and AstraZeneca in the past year. (For more on the Bayer deal, click here.)

Has Forest Found a Successful NDA Path?

Is there a way out of the woods for pharma companies hoping to win approval from the Food & Drug Administration for products for broad primary care populations?

FDA’s imminent decision on Forest Lab’s pending new drug application for the beta blocker nebivolol for hypertension may show one way.

Because of a two-and-half year delay, the product is coming up for a final decision at one of the worst times for applications aimed to provide treatment for an indication which is already served by a broad array of existing products.

FDA’s senior staff has been telling astonished sponsors that the new de facto approval criteria being imposed by FDA reviewers require convincing arguments of comparative safety or efficacy advantages for primary care drugs. (You can read more about that in “Straight Talk from FDA” published by The RPM Report in November.)

By serendipity, Forest may have the type of relatively familiar and market-proven product (from outside the US) that can satisfy the new climate.

The delay in the NDA may actually have helped the cause for the product by taking some of the pressure off the NDA review schedule for FDA. The product has a well-defined tolerability profile and an extensive marketing record outside the US.

Forest is facing an approval decision at the end of 2007 because Forest’s partner on the product (Mylan Labs) received an approvable letter in May 2004 when it was developing the product by itself. Mylan quickly put nebivolol up for out-license after the setback. Forest bought rights to the product in January 2006.

Mylan submitted an update to the original application with answers to FDA’s questions on preclinical data in early May of this year. Nebivolol falls into a familiar class. It is a third-generation beta blocker where two other third-generation products have been on the market for many years. The broader class of all beta blockers has been around for forty years. Nebivolol itself has been marketed in Europe for over ten years.

Throughout its development phase in the US, Forest and Mylan have stressed the product’s improved side effect profile. In a summary of the first published data from a US clinical trial in September of this year, Forest reports that the incidence of adverse events “commonly associated with traditional beta blocker use, including fatigue (3.6% vs. 2.5% with placebo), erectile dysfunction (0.2%), and depression (0.2%) was low. Moreover, nebivolol was not associated with adverse changes in blood glucose values.”

Mylan and Forest suggest a potential added benefit as a vasodilator based on an effect on nitric oxide. One of the researchers who has been writing about the product frequently during clinical development, George Bakris, MD, Rush University Medical Center, wrote in a managed care journal recently “the risk for diabetes is lower, the metabolic effects are lower, and people with diabetes who have clear NO dysfunction may have particular benefits from this agent.”

Forest is obviously eagerly awaiting this launch and says it has committed $80 million in 2008 to fund the marketing support. Is FDA ready to take the risk of approval on even an old product? If not, 2007 already a memorably bad year for drug approvals will go down as even a worse nightmare for the industry.

Thursday, November 29, 2007

Sanofi Aventis Walks the Talk

Sanofi Aventis had already promised at their September R&D meeting that they wanted to increase the number of biologics in their pipeline, and to be “more proactive” in business development. Today they showed that they meant it, by announcing a wide-ranging fully-human antibody collaboration with Regeneron.

Sanofi will pay Regeneron $85 million up front and up to $475 million in research funding over the next five years ($75 million in the first year and up to $100 million in years 2-5), during which time Regeneron will lead research efforts across a range of antibodies, developed using its VelociSuite of technologies. At IND-stage, Sanofi has the option to co-develop candidates identified within the collaboration, and if it chooses to do so, will take the lead and foot most of the cost.

Indeed, although the press release describes development costs as “shared”, Regeneron will only pay its portion if the candidate is successful. “We’ll fund 100% of Phase I and Phase II,” said Jean-Michel Levy, SVP Business Development, and 100% of the Phase III costs in the first indication. Additional Phase III trials would be 20% funded by Regeneron, and the biotech will “reimburse half of the overall development costs from its share of future profits to the extent that they are sufficient for this purpose,” according to the release.

Will they be? Well, Regeneron will receive 50% of profits in the US, although Sanofi will lead commercialization and consolidate sales. Elsewhere, the smaller party will receive between 35% and 45% of the profit pie, although its co-promote option—still a popular deal feature these days, even though there are signs that might change—is on a worldwide basis. If aggregate sales reach $1 billion, Regeneron will be entitled to up to $250 million in sales milestones (which would help with the development-cost pay-back…)

Big Pharma laying rich stakes in antibodies is hardly a new concept; we’ve tracked the trend extensively, including here. What’s perhaps more surprising is that this is but a licensing deal. Granted, Sanofi has increased its 4% stake in Regeneron to 19%, for $312 million. But a standstill agreement prevents it from increasing its share beyond 30% four years hence.

By that time, it’ll be clearer whether the deal’s as productive as Sanofi needs it to be. The most advanced candidate, targeting the IL-6 receptor, has already begun clinical trials in rheumatoid arthritis and a follow-on antibody to Delta-like ligand-4 (an anti-angiogenic approach) should reach the clinic next year. The deal’s potential output “will reinforce our presence in oncology and internal medicine” (including RA), noted Jean-Claude Muller, SVP, Admin and Resources, “but it’s not limited to these areas. Any target coming out will help our portfolio.”

Indeed, Sanofi’s a bit desperate these days, following the rimonabant (Acomplia) flop and a large patent expiry cliff due at the end of 2012. So why didn’t they just buy Regeneron? Management didn’t answer that question on the call. Perhaps they don’t think exclusive rights to the technology are necessary--Regeneron in February this year licensed its technology, for the first time ever, to AstraZeneca, and shortly after to Astellas. “We don’t expect this deal to have any impact on those arrangements,” Sanofi said.

Besides, Regeneron hasn't got a drug on the market yet. And Sanofi already has a large stake, through a 2003 collaboration, in Regeneron's most advanced program, VEGF Trap (aflibercept), which began Phase III trials in prostate and non-small-cell lung cancer in August.

Sanofi may feel it doesn't need to spend billions of dollars (Regeneron’s market capitalization was about $1.1 billion this morning, although well short of its Spring peak) buying a group that may work better as a standalone. It wouldn't be the first time the Roche/Genentech-style model has been emulated. And anyway, with Sanofi holding a 19%-plus stake, any other predator’s going to struggle.

Wednesday, November 28, 2007

Sirtris Strikes Again

In a short paper to appear in tomorrow’s Nature, scientists at Sirtris Pharmaceuticals describe the in vitro and in vivo data supporting the development of their next-generation activators of Sirt1, one of the members of the sirtuin family of proteins. It’s another opportunity for their persistent PR machine to talk up the company’s founding premise: that activating sirtuins, which appear to play a role in the aging process, may be useful in treating a variety of things, including diabetes.

Unlike its first drug, a formulation of resveratrol (a Sirt1 activator found in red wine, which is now in early-stage trials), Sirtris found the molecules analyzed in the Letter to Nature by specifically screening for activity against Sirt1. “From a pharmacological perspective, we’ve proved the mechanism,” Sirtris CEO Christoph Westphal said yesterday in a phone interview.

The next-generation Sirt1 program, along with its development of other sirtuin activators, puts Sirtris firmly in the lead in sirtuin field. So much so that Lenny Guarente, the scientific founder of rival company Elixir Pharmaceuticals (now in registration for an IPO), whose discovery that the sirtuin-expressing gene sir2 is an important regulator of life span in several species, has jumped from Elixir to the Sirtris Scientific Advisory Board.

For years, Guarente and Sirtris co-founder David Sinclair, a former member of the Guarente lab, were estranged. And while some news outlets cast Guarente’s bolting as validation for Sirtris -- and it IS a good story -- it’s at least as much a reflection of Elixir’s affirmative determination several years ago that sirtuin-related drug development was just too early to support a company, leading to the in-license of an oral diabetes drug from the Japanese pharma Kissei in March 2006 and an early-stage growth hormone stimulator (a ghrelin agonist) from Bristol-Myers, both of which Elixir’s S-1 rank ahead of its sirtuin program.

No doubt Elixir abandoned Guarente a long time before he actually split. And the circumstance could have been predicted as far back as 2004, when Vaughn Kailian, ex of Millennium Pharmaceuticals and Cor Therapeutics, became Elixir’s Chairman. Kailian, a general partner at MPM Capital who focuses on late-stage investments (and also – DISCLOSURE, DISCLOSURE -- is a director of Windhover Information, IN VIVO’s publisher), is well known for advocating the rapid build-up of commercial capabilities. Indeed, during his tenure at Millennium, the competing interests of research and commercialization created a duality of cultures: what IN VIVO described at the time as “The Two Millenniums.”

Sirtris continues to build its sirtuin platform and expects to bring the first next-generation Sirt1 activator into the clinic in the first half of 2008. It's also got the benefit of buzz from frequent scientific publications in the evolving sirtuin field -- including their link to cell survival/protection mechanisms, which we discussed in the Science Matters column in START-UP a few months back -- as well as the elucidation of the roles of other anti-aging genes/proteins.

That said, it'll be interesting to see if the momentum lasts as it approaches the challenges of later-stage clinical trials.

Emergent Emerges

A $60 million Series D for any device company is interesting, but perhaps one of the more eye-catching elements of Evalve Inc.’s new round is the participation of Emergent Medical Ventures, the new firm founded by serial entrepreneurs and investors Tom Fogarty and Allan May.

In a phone call from Piper Jaffray’s health care conference, May confirmed our belief that this is Emergent’s very first investment, and it’s an atypical one at that.

As we wrote back in the spring, Fogarty and May hope Emergent Medical will redefine early stage medical device investing or at least--as Fogarty states--return the practice to its roots when the VC's focus wasn't on investing per se, but on "actually starting companies—to take them through the process of innovation and value creation."

In the phone call, May says the firm will make a handful of “one off” investment in later-stage companies intimately familiar to Fogarty. Evalve is the first. Fogarty invested in the company while he was with Three Arch and had remained a board member, although he is stepping down as part of this round.

Cyberheart will be the second. That round should close later this week, May says. (Check out our profile on the company here.) May asked that the third not be identified yet, but IN VIVO magazine readers will recognize the name.

Emergent—as the name suggests—will spend the bulk of its time and capital on starting medical device companies the ole fashioned way. May said he hopes to close on the first $100 million fund by the end of this year. (They’ve already secured two-thirds of it.) Emergent also added to its team bringing aboard general surgeon Ken Baker as an associate, May said.

DTC User Fees Clear First Hurdle; New Era for Advertisers Ready to Begin

An update on an item we reported last week: the status of the new direct-to-consumer advertising user fee program created as part of the huge Food & Drug Administration Amendments Act enacted in September.

As of November 26, FDA had received commitments from advertisers to submit at least 130 television ads for prescription drugs for pre-review by the agency.

That is well above the 68 commitments the agency needed to get by November 26 in order to launch the program. It is also way more than the 47 commitments the agency had received when Division of Drug Marketing Advertising & Communications Director Tom Abrams provided an update during a Food & Drug Law Institute conference 10 days earlier.

The program was designed with the assumption that there would be about 150 pre-reviews per year. That looks like a pretty sound estimate. FDA may be a little short of that number in advance commitments, but sponsors can decide later in the year to submit ads (albeit with a higher fee as a penalty).

“The next steps are to tally the number of ads and establish the fee per ad,” FDA says. The agency plans to “issue a Federal Register Notice stating the fee and will also invoice the participating companies.” The law requires FDA to have the money in hand by January 26, so there may still be some nervous moments early in 2008 while the agency waits for the checks to come in.

FDA is authorized to collect $6.25 million in fees to fund reviews in 2008, plus another $6.25 million to establish a reserve fund for future years. So if the agency ends up with exactly 130 commitments, the fee for a review will be just under $100,000.

That may sound like a lot to pay for the privilege of having a regulator criticize your ad before it airs.

But it is a pretty small price to pay compared to the alternatives. FDAAA didn't just authorize the new user fee program; it also gave FDA new authorities to punish advertisers that the agency thinks cross the line. Ads pre-reviewed by FDA are safe, as long as the sponsor made all the changes suggested by the agency. The new fines for violative ads start at $250,000 for a first offense, and increase to $500,000 for repeat violations. That’s not a ton of money, but then you have to factor in the cost of being made an example of by the agency.

More importanly, the pre-review program is probably the last chance for industry to fend off more draconian measures to restrict or even ban DTC ads. An outright ban is unlikely to survive Constitutional review by the courts, but that doesn’t mean Congress won’t find other ways to make advertisers miserable.

Now the question is: what exactly will FDA do with its pre-reviews? The agency has always been willing to make comments on ads prior to broadcast, but it has never before had enforcement tools to punish companies that decline to take its advice. We think that change in the balance of power will make a significant difference. You could read more of our thoughts on that in “The New Era of DTC,” from The RPM Report in October.

Frazier Joins $600m Club

As we reported two weeks ago, Frazier Healthcare Ventures wrapped up $600 million for its sixth and largest health care fund to date.

The new partnership maintains Frazier’s place near the top of the venture peak. Only Domain Associates manages a larger fund. Essex Woodlands Healthcare Ventures closed on $600 million last year.

Managing Partner Alan Frazier says the strategy behind the new fund won’t be significantly different than the one used to deploy the $475 million from its fifth fund. “The increase of the fund is really being devoted primarily to growth equity,” Frazier says. “I continue to believe that venture capital itself is not something that scales terribly well. “

Frazier says the larger fund won’t prohibit the firm from investing in start-ups. In fact, the majority of new investments made by the firm likely will be in early-stage companies. Frazier suggested most later-stage commitments will go to the firm's own portfolio companies.

“We have as of late put in a little more money into our own companies,” Frazier says. “I think that is reflective of the fact that the IPO market for biotechs requires a little bit further development. It’s a rather unpredictable market so you want to make sure you have enough capital.”

Over the last 14 months, nine of Frazier’s portfolio companies have gone public or been acquired including three biopharmaceutical companies Cadence Pharmaceuticals Inc., Trubion Pharmaceuticals Inc. and Amicus Therapeutics Inc. Frazier says the firm has maintained its position in each company.

Frazier has benefited from the rush to acquire venture-backed biopharmaceutical companies as well. On the acquisition front, two biopharma companies from Frazier’s portfolio—CoTherix Inc. and Cerexa Inc.—were acquired earlier this year. Four portfolio companies that had drawn growth equity investments from Frazier—CHG Healthcare Services Inc., Aspen Education Group, Priority Solutions Inc. and MedPointe Inc.—also were acquired.

Biopharmaceutical investments will account for roughly half of the new fund, Frazier said, while medical device investments will draw anywhere between 20% to 30% of the capital. Growth equity opportunities—established companies with products and revenue—will draw roughly the same amount of capital, he said.

Frazier says the final total matches the hard cap the firm had set when it began raising the fund. The capital principally came from investors in Frazier’s previous funds, but the new partnership brought in some additional LPs.

With the new fund, Frazier will maintain its team of general partners: Frazier, Dr. Nathan R. Every, Patrick Heron, Trevor J. Moody, Nader J. Naini, and Dr. James N. Topper as well as Thomas S. Hodge, the firm's chief operating officer.

Tuesday, November 27, 2007

The Values Debate: How Much is Your Drug Worth?

What is the right price for a medical breakthrough?

That is a question that pharmaceutical and biotech companies spend a lot of time working on.

It is obviously a business critical question.

But it is also a political question, a fact that industry may not like but cannot afford to ignore.

The federal government is already the biggest payor for prescription drugs in the US, albeit through a patchwork of programs and contractors. And the US Congress is always ready to weigh in and substitute its judgment for the private sector's.

What does all this mean? Well, that's a question we can help you with. Or at least, we can find some real experts to help you. We've invited a bunch to speak at the FDA/CMS Summit for Biopharma Executives on December 6 and 7 in Washington DC. Speakers include top government officials (like HHS Deputy Secretary Tevi Troy and Centers for Medicare & Medicaid Services Coverage Group head Steve Phurrough), thought leaders from industry (like Hoffmann-La Roche Inc. CEO George Abercrombie, Amgen VP Josh Ofman, and Merck VP Ian Spatz) and plenty of other influential policy professionals. (Want to read more? Here is our press release.)

And remember, this is just one theme of this year's summit. We'll have plenty more content on the new drug safety rules, the pressures on drug development, off-label promotion, follow-on biologics and much much more.

See you next week!

Sunday, November 25, 2007

While You Were Giving Thanks

Time to shake the rust off after the long holiday weekend. We hope you had a great Thanksgiving, though ours ended on a bit of a sour note with last night's Philadelphia Eagles defeat. We are not giving thanks for covering the spread.

In the news while you were in food-coma ...

Wednesday, November 21, 2007

Quite A Set of Lung (Companies)

Are the public markets ready for TWO interventional pulmonology companies?

With Tuesday's filing for an $86.25 million IPO yesterday, Broncus Technologies Inc. became the second company with a device that could treat serious emphysema to seek support from public investors. We reported on the first way back in September when Emphasys Medical Inc. filed for a near identical amounts. (Seriously, $86.25 million vs. $86.3 million? Who is cheating off of whom here?)

Technologically and clinically, this is exciting stuff. According to Broncus’ S-1, 3.8 million adults in the United States have reported that they had been diagnosed. The company suggests—as they should—that many people go undiagnosed. The filing cites a 2005 survey by the National Center for Health Statistics that states the “prevalence of emphysema in the U.S. increased at an average annual growth rate of 2.4% from 1997 to 2005, with approximately 675,000 new diagnoses between 2003 and 2005, the most recent years for which this data is available. We estimate that emphysema is responsible for approximately $5 billion in direct healthcare costs in the United States each year, comprised primarily of hospital and physician costs and oxygen use.”

Although their approaches are quite different, Broncus and Emphasys hope to treat people with the most serious—and most expensive—cases of emphysema. Today, severely sick people have very few options. Drugs and supplemental oxygen can help. Other than that you’re looking at highly invasive transplants or lung volume reduction surgery. The two companies developed products that can be delivered through the airways so no opening of the chest is required.

Broncus’ Exhale emphysema product line includes needles and stents that are used, respectively, to create new airways and prop them open, allowing trapped oxygen to escape. The company says as the air escapes, the diaphragm regains some of its normal range of motion, enabling the patient to breathe more easily. Broncus’ procedure takes one or two hours under general anesthesia or conscious sedation.

Emphasys Bronchial Valve is a one-way valve that, once inserted in airways, allows trapped air and fluids to escape during exhalation but prevents any air from entering the airway inhalation. The device provides the benefits of lung volume reduction surgery without the risk of open surgery. With airways leading to disease portions of the lung blocked off a patient is able to breathe more effectively. The entire procedure lasts between 20 and 40 minutes, according to the company’s S-1.

At this point, Emphasys would seem to have one distinct advantage. It’s further along in clinical testing than Broncus. As we noted in September, Emphasys has submitted the results of its pivotal trial to the FDA. It hopes to have market approval next year.

Broncus, meanwhile, has a longer road to hoe. According to the S-1, the company has enrolled more than 100 subjects worldwide in our studies and clinical trials, “including approximately 40 subjects treated in our pivotal Exhale Airway Stents for Emphysema, or EASE, Trial for the treatment of severe homogeneous emphysema.” The company hopes to complete enrollment by the end of next year and file for its PMA in 2009, with an eye on having a product on the market in 2010.

That might be too long a time horizon to interest IPO buyers, but stranger things have happened.

One of those stranger things happens to have happened to Broncus’ off-spring, Asthmatx Inc. That company, a spin off from Broncus, had filed to go public in 2005 only to withdraw the offering. CEO Glen French says the company, which is developing a device to treat severe asthma, was ready to go public at the price it wanted, but instead opted to sign a $50 million financing deal with Olympus Medical Systems Corp. French says Asthmatx got the money it wanted and sold a smaller stake than it would have during the IPO.

So perhaps Broncus will be able to tap into the thin vein of IPO buyers willing to gamble on unproven—albeit ingenious—devices. There can be huge upside there. But by filing an IPO the company also could be positioning itself to draw interest from significant corporate investors or, perhaps, even a potential acquirer.

Uncertainty Surrounds FDAAA Implementation

The recurring joke at the Food & Drug Law Institute’s November 16 conference on implementation of the Food & Drug Administration Amendments Act was that no one knows what to call the law. The acronym (FDAAA) is decidedly unfriendly, prompting pronunciations ranging from “F-D-triple-A,” to “fuh-DAAAA,” to (our favorite), “F-D’oh.”

The uncertainty about what to call the thing is funny. The uncertainty about what some of the key provisions mean for FDA and industry is no laughing matter.

The FDA speakers at the FDLI conference ended up raising at least as many questions about the new law as they answered. Here are just a few key ones.

(1) When will FDA be able to spend the new user fees it is collecting under the bill? Hard as it may be to believe, the new Prescription Drug User Fee Act, negotiated over the course of 2006 and enacted essentially intact in FDAAA this year, has not yet given FDA the raise it so desperately wanted. FDA started collecting the fees at the new, 25% higher rate on October 1, but because Congress has not yet passed an appropriations bill for the agency, it can’t actually spend the money. FDA Chief of Staff Susan Winckler told FDLI that the agency should be able to cope with the current budget situation for the rest of the year, but it will definitely struggle to meet new performance goals if it doesn’t get authorization to spend the money by the first quarter of 2008.

(2) When do sponsors have to file Risk Evaluation & Mitigation Strategies for drugs currently covered by risk management programs? March 24. Or September 24. It depends how you read the law. FDA Chief Medical Officer Janet Woodcock said that issue will be resolved by the agency’s chief counsel. Since the REMS authority is the centerpiece of the new law—and since it is by no means clear to sponsors what products are going to be covered by the REMS provisions—that is a pretty important deadline.

(3) Will all Phase IV commitments be mandatory under FDAAA, or just ones that FDA considers most critical? “I hadn’t thought about that,” Woodcock said. Typically, new drug approvals include a host of different types of post-marketing commitments, Woodcock noted, some of which are more important than others. But at this point FDA has no idea whether it plans to make all post-marketing commitments mandatory—and hence subject to new enforcement authorities included in the law.

(4) Will the new direct-to-consumer ad user fee program get off the ground? It looks like a close call. We delved into this one already, so we won’t repeat ourselves. (Click here.)

(5) What on earth did Congress mean to do by revising the Citizen Petition rules? A three person panel at FDLI, including FDA deputy associate general counsel Jeffrey Senger, spent a good while parsing the language. The section is clearly meant to address concerns that petitions are used by brand manufacturers to delay generic launches. But how will it work in practice? There are lots of "thorny" questions; “I don’t have answers,” Senger said. “Truly the courts will determine many of them.”

So there is plenty of uncertainty ahead for industry as it awaits decisions about FDA on the new rules for drug safety and other sections of FDAAA. FDA is plowing through the issues, and Woodcock pledged that the agency will make it all work. “I am not a lawyer, but I am an implementer,” she told FDLI. “We will be doing these things in the timeframes envisioned by the law.”

Some progress is clear: new requirements for registration of clinical trials take effect December 26, and the National Library of Medicine will have the system ready for industry to start using on that date. The new user fees are in place, even if FDA can’t spend the money yet. And discrete steps—like forming a new internal pediatric review committee and an external risk communication advisory committee—are done.

More importantly, it sure sounds like FDA thinks it can implement the key REMS section without any new guidance or regulation. “I don’t see a lot of regs coming from this,” Woodcock said, noting that FDA already has guidances on risk management plans in effect.

And, most significantly of all, it is clear that the new legislation is going to be implemented with an eye towards making the drug safety system work better for everyone. FDAAA signals a “new phase in drug regulation,” Woodcock said. The new authorities are “pretty groundbreaking.”

But, she added, “it doesn’t diminish our commitment to make safe and effective drugs available in a timely manner.” FDA will use its new powers “judiciously.” And, she said, the new tools “may help ensure that treatments get to and remain on the market.”

If only industry could be sure about that....

Deals of the Week: The Alice's Restaurant Edition [UPDATED]

This post is called Deals of the Week, and it's about deals, and the week, but Deals of the Week is not the name of the blog, that's just the name of the post. And that's why I called the post Deals of the Week.

You can get anything you want at the IN VIVO Blog.
You can get anything you want at the IN VIVO Blog.
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You can get anything you want at the IN VIVO Blog.

Now it all started three days ago--it's been three business days since our last DotW posting, but we decided it would be a friendly gesture for us to fill you in before the tryptophan coma sets in.

(News flash: The NY Times reports here on the possible health dangers of the annual holiday feast. Sadly, the palpitations induced by the requisite Thanksgiving toast were not mentioned. Thankfully, humorist Brian Unger has some helpful suggestions in this NPR podcast.)

In honor of the day, we hope you consider joining the IN VIVO Blog Movement. All you've got to do is walk into the office wherever you are, just walk in and say "You can get anything you want at the IN VIVO Blog." And walk out.

You know if one person, just one person does it, they might think he's really sick and they won't take him...And can you, can you imagine fifty people a day, I said fifty people a day (okay, we'd really like 1000) walking in, quoting a line from IN VIVO Blog and walking out?

And friends, they might think its a movement. And that's what it is, the IN VIVO Blog Movement.

Remember Deals of the Week? (This is a post about Deals of the Week.)

Without further ado, we bring you this week's installment: the Alice's Restaurant Edition. (Feel free to sing along in four part harmony. With feeling.)

  • Celgene/Pharmion: As pharma-land speculated on the fates of BiogenIdec and Genzyme, Celgene surprised the Street with its $2.9 billion cash and stock offer for Pharmion (35% cash, 65% equity, at an almost-50% premium to Friday’s close). As colleague Melanie Senior notes in this post, the deal makes exquisite sense, given Pharmion's six year relationship with Celgene for ex-US rights to the controversial cancer treatment thalidomide (Thalomid). While the acquisition certainly gives Celgene heft, it may also make the company even more attractive as a take-over candidate for desperate Big Pharma. One reason (described by Michael McCaughan in more detail here): Celgene's restricted distribution program for Thalomid is routinely cited by FDA as one of the few, clear successes in the industry. And as pharmas move into specialty areas where risk management is critical, having Celgene's in-house expertise could be a boon.
  • BiogenIdec/Neurimmune Therapeutics: As noted here, Neurimmune eschewed VC funding, opting instead for an undisclosed upfront and biodollars that could one day reach $390 million. (Another case of American blind justice?) Interestingly, this marks the third early stage neurodegenerative deal BiogenIdec has inked in the past 15 months. In August 2006, the biotech signed a deal worth up to $25 million with Amorfix, a Canadian theranostic company profiled in this START-UP article, for potential ALS therapeutics. And in September 2007, Biogen teamed up with the Brain Science Institute at Johns Hopkins University to identify and develop therapeutics for MS and Parkinson's and Alzheimer's Disease.
  • Olympus/Gyrus: When you plunk two billion buckaroos on the table, people tend to take notice--even if it isn't a particularly crowded or dynamic space. Tongues were wagging after Olympus announced its decision to acquire UK-based Gyrus, which makes visualization devices for use in minimally invasive surgery. It's interesting that Olympus appears willing to pay a premium—by some estimates up to 60%--for a publicly held company that has had its share of struggles. It's not clear what's driving the big dollar value. Perhaps Olympus's desire to dominate in the endoscopy market--or did they sense someone else was going to play? An FT article speculates that there may have been other suitors. Among the rumored contenders: Johnson & Johnson and Stryker. At the same time, Monday's deal clearly validates Gyrus' 2005 acquisition of ACMI, a merger that (as we wrote here) helped solidify Gyrus's position in a number of urologic and gynecologic categories.
  • Merck/ Nicholas Piramal: Call it the first step to off-shoring proof of concept. With the price of Phase II deals climbing ever higher, Merck took an unusual step this week to get POC compounds on the cheap. It's going to India. (Not China!) The company announced a deal with Nicholas Pirama India to research and develop new oncology drugs against two selected targets. Under the agreement, Nicholas Piramal will develop the targets from the discovery stage up to proof-of-concept and then hand them back to Merck, which will handle late-stage clinical trials and commercialization. For its work, Nicholas Piramal stands to receive milestone payments of up to $175 million per target, as well as royalties on sales of any products resulting from the collaboration. Here's the release.

And remember, you can get anything you want at the IN VIVO Blog.
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(apologies to Arlo Guthrie)

UPDATE: Because excess is de rigueur at Thanksgiving, we give you this bonus deal, just announced: GSK has ponied up $1.65 billion for Reliant Pharmaceuticals, a privately held company focusing on in-licensing and developing late stage cardiovascular drugs. Reliant has four marketed products, including US rights to Lovaza, an omega-three derivative designed to treat high-triglyceride levels. Reliant's certainly had it's ups and downs: in 2005 the company tried to go public and failed and this past August it filed again for a public offering potentially worth $400 million (for our analysis of Reliant, see this IN VIVO article). Reliant's acquisition adds credence to our twin track IPO/M&A thesis: i.e when companies register for IPOs they are effectively putting themselves on the auction block. (Remember Adnexus?) In addition, it's the second spec pharma tie-up this week, coming just days after Celgene's take-out of Pharmion. It seem's likely that other spec pharmas could be acquired near-term. MGI is reportedly for sale, and there could be increased pressure on ProNovo BioPharma, the original developer and manufacturer of Lovaza, which still retains ex-US rights to the product. On a conference call this morning, ProNovo management refused to speculate on that possibility. One final note: ProNovo and Reliant aren't the only ones benefitting from GSK's deep pockets: the Boston Business Journal reports that Alkermes will receive $175 million when it sells its stake in Reliant to GSK. Not a bad Thanksgiving present, eh?

Tuesday, November 20, 2007

What's Next for Celgene?

First a confession. I (correctly but timidly) voted for "someone else" in the IN VIVO blog poll on the next biopharma acquisition target. That said, I certainly never would have picked Pharmion.

Celgene, on the other hand, would definitely have been one of my choices.

No, we don't have any good scuttlebutt to base that on. Its just that we've been writing and thinking a lot about the impact of the new drug safety legislation--and especially the new authority given to the Food & Drug Administration to impose risk management plans. You can't think about the impact of tighter post-marketing safety regulation and restricted distribution programs without thinking a lot about Celgene.

The company's STEPS program for Thalomid is routinely cited by FDA as one of the few, clear successes of the restricted distributuion regulatory model. It is also a clear commercial success, helping both Thalomid and the follow-on Revlimid make it to market and generate a nice healthy revenue stream--despite onerous monitoring and surveillance burdens for the sponsor.

Not only that, Celgene has a patent on the STEPS program, carving out an unusual and now unusually valuable intellectual property position for a biopharma company. So, as the rest of the industry wrestles with how to make money under the new regulatory order, I expect a lot of people will be taking a close look at Celgene.

If you are looking for a place to start, try a story from The RPM Report's Kate Rawson: "Building a Business in Drug Safety." When Celgene pioneered that business model, it looked like a clever niche strategy for a specialty pharma business. In the new drug safety era, it may become more like business as usual.

Who Needs VCs?

Apparently not Neurimmune Therapeutics, a University of Zurich spin out that began operations in April this year. This antibody-focused start up plans to go direct from seed- to deal-funding, according to CEO Ed Stuart, skipping the VCs entirely. “It’s a new business model,” says Stuart, former managing director and CBO at Munich biotech firm U3 Pharma.

So far, so good. The company started out with $5 million of seed money, most of which came from chairman and lead investor Karsten Henco, a former CEO of Evotec and founder of various other biotechs including Qiagen. Yesterday it upped the ante somewhat, and signed a deal with Biogen Idec that could be worth up to $390 million.

Ok, so we’re skeptical about biodollars. But Stuart assured the IN VIVO Blog that it “wasn’t all post-approval milestones,” and that there was a good chunk of up front money too. Those funds, along with the seed finance, “will fund the company for a number of years,” he said.

For now, Neurimmune’s only got about 10 employees, so it’s not a big burn. But this is nevertheless a rich and validating deal for the young firm that’s hardly out of the blocks. So what’s it doing? Something rather simple, actually. It seeks out antibodies among healthy individuals and uses a range of assays and other selection techniques to identify those that might be useful in fighting certain diseases—particularly CNS diseases.

So in the Biogen deal, Neurimmune will identify antibodies that bind to amyloid beta, thought to be the main culprit behind the neuro-degeneration and loss of cognitive function among Alzheimer’s patients. “We have already found a number of antibodies among healthy patients that recognize amyloid-beta,” explains Stuart. And since Biogen now has access to that entire program, it will receive several amyloid-beta-relevant antibodies over the next couple of years that it will go on to develop and commercialize.

Neurimmune calls its platform Reverse Translational Medicine, since “we’re starting not with disease, but with healthy people,” explains Stuart. It’s a logical approach—if someone at risk doesn’t have Alzheimer’s, what’s protecting them? Importantly, it also skirts the IP roadblocks that prevent many new antibody companies from using conventional techniques such as phage display or transgenic mice to create antibodies against certain well-validated targets. “We don’t face the normal IP issues,” notes Stuart, “since we’re not tampering with antibodies in any way at all. We’re getting out of people something that has already been optimized—by Nature.”

Mother Nature’s never that simple. It’s likely that several antibodies are required to protect people against certain diseases, and this range probably varies among different sets of individuals. As with many small molecule drugs, several moieties might be required to interact with several receptors. “It’s too early to tell,” says Stuart. And if Neurimmune's scientists aren't tampering with antibodies, just finding them, what’s to stop others doing the same? It’s all in the selection assays and the clinically-relevant questions asked of those individuals supplying the antibodies, says Stuart.

Anyway, Biogen Idec is apparently sufficiently convinced to have signed what is, in Henco’s words, “among the largest pre-clinical deals,”—and to have done so while much of its management’s attention is on selling the company. So does Neurimmune have a robust change-of-control clause in place? “We’re smart people,” said Stuart.

Maybe that’s why they’re avoiding VCs, too.

Pharmion’s Euro Bet Pays Off

So while we all speculated on who might buy Biogen Idec and whether Genzyme would be next, out comes Celgene with its $2.9 billion cash and stock offer for Pharmion (35% cash, 65% equity, at an almost-50% premium to Friday’s close). “We didn’t see this coming,” admitted Citigroup analyst Yaron Werber on the conference call.

Neither did we. But it makes sense: it’s another case of licensor buying licensee, since Pharmion had in 2001 acquired ex-US rights to Celgene’s controversial yet successful thalidomide (Thalomid), marketed first for leprosy in the US and then for multiple myeloma. That deal (amended three years later) had already given Celgene a small equity stake in Pharmion; now Celgene receives 100% of ex-US sales instead of the 23.5% royalty that Pharmion otherwise would have paid.

The big problem is the potential for anti-trust issues: Pharmion’s biggest-selling drug, azacitidine (Vidaza), was approved in 2004 for myelodysplastic syndromes (MDS), the same indication targeted by Celgene’s leader, Revlimid (a variation on the thalidomide theme, lenalidomide) which is on track for nearly $1 billion in sales this year.

The companies have indeed allowed an extended period for FTC review, saying the deal won't close before the end of the second quarter of 2008. But Sol Barer, Celgene’s Chairman and CEO, expressed confidence that anti-trust would not scupper the deal, claiming that Revlimid and Vidaza address very different market segments within MDS. Indeed, this deal will be less about overlap and cost-cutting than about leveraging Pharmion’s commercial organization, he said.

Now admittedly, Pharmion’s European organization is smaller than Celgene’s in sales rep terms. The opportunity there, noted Barer, is for cost-avoidance, since Pharmion was about to strengthen its European infrastructure pending Thalomid’s imminent approval. (For now the drug's only used off-label in Europe.) Now it may not need to. But Celgene certainly will tap into Pharmion’s European expertise as it launches Revlimid in Europe—this was Celgene’s first EU drug approval in June 2007.

Indeed, it’s Pharmion’s European angle, along with its focus, that ultimately allowed it to score this high value deal, worth over 10 times its $256 million in annual revenues. CEO Pat Mahaffy knew from the time the company was founded in 2000 that a European presence would stand the company apart from its in-licensing-focused peers. (You can read more in this 2002 IN VIVO feature.) He’d seen it happen already during his time as CEO and president of NexStar, sold to Gilead in 1999 for $550 million in large part because of the European sales force that Mahaffy had set up.

By being one of the first to offer an integrated development and commercialization service in Europe, Mahaffy reckoned he’d win some product rights on which to build the business. He did. He won Thalomid, though hardly a risk-free proposition, even now: Gruenenthal, the original marketer of thalidomide in its original indication as a treatment for morning sickness, still faces lawsuits. (Read more on this website.) Pharmion also won rights to Vidaza from Pharmacia, again taking a risk since the project had stalled and required further late-stage trials ahead of approval.

The gamble on Vidaza paid off, though: promising Phase III results released in August triggered a near 60% rise in Pharmion's share price, more than undoing the downward blip earlier that summer when GPC's satraplatin, to which Pharmion has European rights, first stalled at the FDA. Pharmion's shares have been rising ever since. Indeed, Celgene's generous premium comes on top of a near all-time-high for Pharmion's stock--more than enough incentive to sell even if Mahaffy didn't want to.

And from our conversations with him, he probably didn't. Mahaffy was one of the few industry CEOs who really did seem to want to build a stable, independent business. More than that: Pharmion is one of the few spec pharmas which seems to have the capacity for long-term independence (a challenge we discussed in this IN VIVO feature), having built an expertise--in European commercialization and in oncology--that distinguishes it as an in-licenser, allowing it to punch way above its weight in the competition for important products.

Congratulations to Pharmion's shareholders. But we're still a little saddened by the loss of one of the rare recent start-ups which succeeded based on a truly innovative commercial strategy.

Monday, November 19, 2007

DTC User Fees: Will This Program Fly?

A new program to allow prescription drug advertisers to pay for a pre-review of TV spot by the Food & Drug Administration is struggling to get off the ground.

With about a week to go before the first critical deadline to create DTC user fees, FDA has gotten commitments from industry to submit 47 ads. That is about 20 short of the absolute minimum necessary to get the new review system up and running—and way short of the 150 ads used as the benchmark in creating the plan.

The new user fees were created by the FDA Amendments Act signed into law September 27. The program allows advertisers to buy a pre-review from the agency; sponsors are free to advertise without paying the fee, but if they want the agency’s feedback before the ad airs, then they have to participate.

The logistics of the program are a bit convoluted. Because the fee is voluntary, the agency first needs a commitment from sponsors to participate; then it calculates the fees and sends out invoices. Sponsors are supposed pay up front; they can change their minds later and pay a penalty to participate.

But if everyone waits, the entire program will shut down. The law stipulates that FDA must collect at least $11.25 million to get the program up and running by January 25. Since there is a cap set on the fee, that means FDA must get commitments from industry for 68 ads in order for the program to take off.

Time is tight. The program was designed with the hopes that everything would be in place ahead of the start of the fiscal year on October 1. That obviously went out the window when FDAAA--which includes groundbreaking drug safety provisions--took most of the summer to complete.

In October, FDA published a notice seeking commitments from sponsors by November 26. During a Food & Drug Law Institute meeting on FDAAA implementation November 16, Division of Drug Marketing Advertising & Communications director Tom Abrams provided an update.

First the good news: FDA is already doing the ad reviews and meeting the goal of responding within 45 days. Abrams says FDA has already gotten 12 ads under the program, and has provided feedback on 4. The agency is comfortable it will answer the next eight within 45 days as well.

But there is reason for concern. The agency has commitments for 47 ads so far, Abrams said. The division director is confident that sponsors are interested in making it happen; he said he understands that the challenge is getting sign off within corporations to make the commitment to participate.

But, he stressed, time is running out. FDA needs answers by November 26 so it can calculate the fee and collect the money.

WilmerHale attorney Scott Lassman, who helped negotiate the new user fee program on behalf of the Pharmaceutical Research & Manufacturers of America, underscored that concern. The new user fee “is in some jeopardy,” he told FDLI.

Assuming companies are able to turn around their commitment notices in time, there will still be some nervous weeks ahead, Lassman pointed out. That is because the deadline for FDA to collect the money is firm: January 25. It is not good enough for the agency to have commitments or even to have invoices out. The law says it must “receive” a total of $11.25 million by then -- or shut down the program.

Oh, and one other thing. Even if FDA does collect the money for the pre-reviews, it can’t actually spend it unless or until Congress passes an appropriations bill for the agency for 2008. FDA is currently operating under a continuing resolution—an issue that hangs over every aspect of implementing FDAAA.

There is a silver lining. As Lassman points out, lower than expected participation should mean faster reviews. Assuming FDA collects enough money to meet the January trigger point--and assuming Congress finishes an appropriation bill in some reasonable timeframe--FDA will be able to hire 27 new staffers just for TV ad reviews. The goals set in the program were based on having 150 ads to review; if the agency only has to review half that many, it should be able to do virtually all of them within 45 days.

The stakes are high, Lassman says. “This is industry’s opportunity to show a voluntary program works,” he told FDLI, noting that there was a big push in Congress for a blanket moratorium on ads for new drugs. Still, he acknowledged, “there are legitimate reasons to deliberate.”

The betting here is that industry will come forward and make it work. Why? Because the “voluntary” user fee program sure looks a lot better than the alternative. As we discussed in The RPM Report last month, the new law also gives FDA the authority to require pre-review of DTC ads whenever it chooses. And, more importantly, it gives FDA the power to impose fines on ads it deems violative.

Anyone who obtains a pre-review from FDA (and makes all the changes requested by the agency) is protected from fines. FDA can still change its mind about an ad, but it must give the sponsor a chance to change the ads before it can levy fines. So the pre-review is really a form of insurance, and one that looks relatively cheap.

So if you plan to run TV ads in 2008, it probably makes sense to get that notice in to FDA before heading out for the Thanksgiving holiday. It may seem odd to be thankful for the chance to pay more money to FDA, but given the alternatives that is probably the right spirit.

Now, who gets the wishbone?

Delivery Delays

Making money in drug delivery has always been tougher than its boosters promise. And 2007 has once again proven that point (for more on this topic see Start-Up and IN VIVO articles here and here).

Most spectacularly, Pfizer dumped the inhaled insulin Exubera (though, realizing its rudeness, it quickly decided to pay its partner, Nektar, $135 million as a kind of a forgive-me gift and make all the right noises about helping it with the insulin supply and technology transfer a new marketing partner would need.

Meanwhile, Procter & Gamble abandoned Nastech and their nasal parathyroid hormone project (good story on this at the WSJ Health Blog). The original deal back in 2006 was trumpeted as worth $577 million to Nastech – though as it turned out Nastech didn’t even get the full $15 million in first-year milestones.

And while undoubtedly some of the management changes are merely coincidental, it’s intriguing to us that the top three names in drug delivery—Alkermes, Nektar and Emisphere—have all gotten new CEOs this year. Only Emisphere’s Michael Goldberg was actually pushed out, but the fact that all of these companies are pretty long in the tooth and still trading at or below their 10 year share-price averages (even, in the case of Alkermes, when you delete from the average the crazy period of 2000) has got to give you some sense of the fatigue that sets into managers who have to run this business. Says a senior official at one of the Big Three: “Boards are saying to the senior executives ‘it's time to deliver on delivery.’"

OK, OK--there's been good news, too. Vivus got its transdermal estradiol spray Evamist approved – and with it a $140 million milestone payment from marketing partner KV Pharmaceuticals. Not bad for about three years’ work – and some evidence of a working economic model.

United Therapeutics saw its stock jump about 50% early this month when its TRIUMPH-1 trial showed that its nebulized formulation of otherwise injected or infused treprostinil boosted walking distance for pulmonary hypertension patients. Next stop: an aerosolized version using Aradigmn’s AERx Essence inhaler.

XenoPort takes more research risk for its programs—prodrug formulations of existing molecules. Its gabapentin prodrug was attractive enough to convince GlaxoSmithKline to fork over $75 million in cash and dangle another $500 million in regulatory and sales milestones for the compound. And the early Phase III data it released a few months after signing the GSK deal certainly heartened investors, who have nearly doubled the price of the stock.

But the XenoPort deal also highlights the challenge that continues to frustrate drug-delivery companies and their investors. XenoPort’s prodrug is a new chemical entity that offers hard-to-duplicate molecular advantages. By and large, the products of drug delivery don't do that. Most don't make a big enough difference in therapeutic outcome to justify a big investment—in partnering terms, in development programs, and in launches.

The Exubera example is instructive. Originally, Pfizer thought inhaled insulin's convenience was enough of an advantage to make the product a winner. And they weren't alone: so did their partner Aventis, the maker of basal insulin Lantus. But certainly within the last few years Pfizer had begun to realize that Exubera needed a superiority claim. And that would be expensive--far more expensive than Pfizer had ever dreamed. Pfizer in fact needed to test Exubera against Lantus. Sanofi, which by then owned Aventis, certainly didn't want to risk Lantus getting shown up and cannibalized by Exubera. So Pfizer had to spend lots of time and $1.3 billion buying out Sanofi’s share before it could get the Exubera vs. Lantus trial going. But Pfizer couldn't wait to launch the drug until it had the comparative data -- so Exubera came onto the market clothed only with convenience. You know the rest.

The Exubera failure will help keep Big Pharma, and investors, on the sidelines of drug delivery. That’s one reason for investors’ indifference to what looked to us like the enormously positive data on once-weekly Byetta LAR: it did a bit better than the twice-a-day Byetta in reducing A1C levels but no better in reducing weight: its basic advantage is that it's a lot easier to use.

Convenience is pretty attractive to mid-sized companies like KV or United Therapetics. And they’re willing to pay for it. For them, a drug with a minor advantage can provide great growth. But they’re limited in what they can sell well. They're not, for example, particularly good at missionary sales—as Cephalon has demonstrated with its underwhelming results on Alkermes’ alcoholism treatment Vivotrol.

Alan Frazier of Frazier & Co., an investor in a variety of drug delivery companies, including XenoPort and Alexza, noted that VCs "always underestimate how much it takes to develop these systems," which can be quite complex. And they've got to be complex, he notes, because they have to provide real thereapeutic advantages over the convential therapy. So you end up with a great deal of investment on the technology side, he says--and then even more on the development side. After all, he says, pharma companies have been burned by drug delivery technology failures so they want more and more clinical data -- including Phase III trials. "Tough to finance,” he laments.

In short, drug delivery--the supposedly cheaper and less risky alternative to NME development--is often just as risky and certainly no cheaper.

Sunday, November 18, 2007

While You Were Acquiring

Back when we ran our "who's gonna get bought next" poll on the IN VIVO Blog most of you followed the herd--and chose Biogen Idec. All of you who chose "someone else," take a bow (we know you had Pharmion in mind). Tonight Celgene announced it was buying the cancer-focused biotech firm for $72 per share, for a grand total of $2.9 billion. We'll have more on this on Monday. (Had this deal not happened we may have gone with "While you weren't covering the spread against MIAMI.")

Friday, November 16, 2007

Venture Rounds: You Stay Classy, San Diego

San Diego's life sciences start-up community took a bit of a hit recently. Enterprise Partners Venture Capital suspended its fundraising after an ill-advised attempt to raise a life sciences-focused fund instead of its traditional formula of investing heavily in information technology and life sciences companies.

The blow to Enterprise Partners represents the latest in a string of disappointing fundraising results for local firms. We swapped emails with Partner Drew Senyei but he declined to discuss the fund raising. (Tip of the cap to PE Week Wire which first reported the news.)

Unlike the Bay Area and Boston, San Diego doesn’t boast a network of homegrown venture capital funds. Enterprise Partners probably had been the largest but now it sits on ice. Forward Ventures, for example, settled on a $150 million fund in 2003 after failing to secure larger funds. The firm—which invests exclusively in life sciences—is still investing that fund and has no immediate designs on raising a new one, according to Partner Standish Fleming.

Meanwhile, we haven’t heard much from smaller San Diego-based firms like Windamere Venture Partners and Hamilton Bioventures. In an email, Scott Glenn, managing partner of Windamere, says the firm is still making investments but it apparently hasn’t raised a new fund since 2001. We tried but couldn’t reach Hamilton BioVentures in time for this post.

Yet, the region keeps chugging along as one of the top recipients of life sciences venture capital. According to the....take a breath...The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson, which tracks data by region, San Diego biotech companies raised more capital in the first three quarters of this year than they did all of last year. (We'll give you details in the upcoming Start-Up.)

Avalon Ventures, of course, is building on past success. Founded by Kevin Kinsella, the firm invests both in life sciences and information technology--as Enterprise Partners once did. It's likely to keep building on that model. "From our perspective (the San Diego venture scene) is great," Kinsella says. "I don't care if there are any other firms. When we need to syndicate, we have the Bay Area and East Coast firms. If we like a deal the chances are one of our confreres will also like it."

San Diego's life sciences start-up scene has other obvious strengths. The first is an established life sciences industry, although the acquisition of Idec Pharmaceuticals may have put a kink into that. The second is it's a relatively short flight from the Bay Area and Silicon Valley so firms can send a partner down for the day or set up offices as Sofinnova Partners and Sanderling Ventures have done.

The third is the weather, which can be particularly appealing to East Coast firms like Domain Associates. Partner Jim Blair says two Domain general partners spend half their time in San Diego where they're joined by two full-time general partners and three principals.

Check out the next issue of Start-Up for more.

Step Ups

According to one institutional investor, Frazier Healthcare Ventures is ready to close $600 million for its sixth fund. It previously closed on $450 million in 2005.

Frazier likely had little difficulty reaching the once unfathomable peak of $600 million (remember MPM's second fund?). Skyline Ventures quickly wrapped up its own $350 million fund this week, shooting past its $300 million target right up to the hard cap. "All of our significant limited partners from the previous funds came back and we got a number of new ones," says John Freund, managing director. "We got them the way we like to get them from referrals by our existing LPS." Skyline will employ the same strategy with the fund as it did to deploy its previous $200 million fund.

HealthCare Ventures, which recently lost general partner Eric Aguiar to Thomas, McNerney Partners, likely will be in the market for a new fund next year. Augustine Lawlor, who was named managing general partner over the summer, says the firm’s focus and fund size will remain the same.

Essex Woodlands Health Ventures added Lisa Ricciardi, former Licensing and Development SVP at Pfizer, as an adjunct partner. She'll be responsible for both sourcing deals and working with portfolio companies, giving her a completely different take on partnering. "I was on the buy side of a company that could do anything it wanted," she tells IN VIVO blog. "The goal was to look at a potential partner and see 30 opportunities when others only saw 10. To be on the other side—working with small companies that are really struggling with decisions on the $5 million to $10 million level, I hadn’t appreciated that a trade sale or partnering decision had such an enormous impact. It’s so interesting. It’s the absolute other side of the coin."