Monday, March 31, 2008

TriVascular2: A Superior Sequel?

At first glance, the news that Boston Scientific Corp. is selling off its endovascular assets for $65 million seemed straight-forward. After all the struggling device giant, which is still reeling from the Guidant purchase, has spent the past six months tossing unwanted or "non-core" assets overboard in an effort to right its ship.

However, the buyers of the assets make this a particularly interesting deal. Rather than sell the business to a private equity firm or a corporate player like it has done previously, the Natick, Mass. company sold the new venture--TriVascular2--back to some of the venture firms that it had acquired it from in the first place.

Chief Executive Michael Chobotov reportedly has been working to get the band back together since 2006 when Boston Scientific opted to shut down the operation, only a year after exercising its right to acquire it (ironically for $65 million up front). Boston Scientific officials apparently decided developing TriVascular's Enovus AAA endograft, a potential repair method for abdominal aortic aneurysms, would be too expensive to pursue.

It's hard to say what took so long. It's worth noting that Boston Scientific, in its annual report released in February, reported receiving a warning letter in August 2007 regarding "the conduct of clinical investigations associated with our abdominal aortic aneurysm (AAA) program acquired from TriVascular, Inc." The company said it was taking corrective actions but also noted in the report that it had terminated the program.

This might have diminished interest from outside investors until the matter was resolved.

Under the new investors, Chobotov will assume--or resume--the post of president and chief executive, the role he held before Boston Scientific acquired the company in 2005. Two other key founders of the original TriVascular, Robert G. Whirley, Ph.D. and Joseph W. Humprhey, rejoin the company as vice presidents of research and development and manufacturing technologies, respectively.

Meanwhile, Delphi Ventures and Kearny Street Partners (a firm founded by former TriVascular investors ABS Ventures) rounded out the syndicate led by venture giants MPM Capital and New Enterprise Associates.

(We'd be remiss if we missed the opportunity for shameless self-promotion. Readers of Medtech Insight were told in the current issue that a deal was happening.)

No doubt, this will be dubbed one of the larger Series A device deals in history. But let's get real folks. This isn't a Series A venture investment. It's a spinout led by venture/private equity hybrids and backed by smaller venture firms that had backed TriVascular through predecessor funds. It's worth noting that the release made a point of saying all previous investors were invited to participate. But De Novo Ventures, a prior investor in TriVascular, apparently did not take part in the new round.

Now TriVascular2 executives have what they couldn't get from Boston Scientific--money. A portion of the Series A money will go back to BSX, which also retains a minority stake (10% by our reckoning). But, according to the release, the "remaining funds have been earmarked to finance the continued clinical development of the company’s novel endovascular repair devices over a two- to three-year time frame. In addition the investors have reserved $30 million in subsequent funding intended to finance the company through the filing of a PMA."

With close to $100 million to this project, it's difficult to see how Trivascular's investors can repeat the ROI from the original purchase--a sequel is only rarely as good as the original. But it can happen. For example, MPM General Partner Jim Scopa feels Terminator 2 was superior to the original. So he's quite confident Trivascular2 faces a large enough market opportunity to warrant such a commitment.

While You Were at ACC

The weekend news in pharmaland was dominated by Vytorin (again--see below) and a few other stories coming out of the ACC meeting in Chicago. No surprise there, and no surprises in the NCAA Tourney, with four #1 seeds making it to San Antonio. In other more important news, it's Opening Day ...

  • The publication (in the NEJM) and presentation (at ACC) of the long-awaited Enhance data did little to improve the current prospects for Merck/Schering-Plough's Vytorin/Zetia franchise. At ACC an expert panel put together to discuss and debate the results essentially suggested the drugs were used waaaay too much, and that "people need to go back to statins." (The pharmacos' response to the publication/presentation is here, The Pink Sheet Daily has the story here, the NYT weighs in here, and the WSJ story is here.) On Friday, the companies said they were expanding the Improve-It outcomes study everyone is waiting for, and results won't be available until 2012. UPDATE: Merck off about 12% ($12bb in market cap), Schering-Plough down 27% ($8bb) in early trading.
  • Two Vancouver-based RNA interference drug and delivery companies are merging, and Alnylam and Roche has each promised them a $5 million wedding present. Tekmira Pharmaceuticals (a spin out of Inex Pharmaceuticals) and Protiva Biotherapeutics said Sunday they were combining their RNAi therapeutics and delivery businesses, retaining the Tekmira name and Toronto stock exchange listing. Alnylam and Roche each committed to buy $5 million in Tekmira stock at $2.40/share at the close of the deal, nearly triple Tekmira's Friday closing price of $0.87. Alnylam will have access to the combined company's liposomal delivery technologies (which under the agreement will be sublicensed to Roche and Regulus, the micro RNA JV set up by Alnylam and Isis) and Tekmira will secure a license to Alnylam's IP to develop seven siRNA drugs under its InterfeRx program.

  • The AP notes incoming Lilly CEO John Lechleiter's penchants for perambulation and blogging, though we imagine these things are tough to do simultaneously. Throw in addressing Lilly's current woes and this guy's got a full schedule (though the most recent prasugrel data should put a spring in his step). Walk the walk with the Boston Globe.

Photo by flickr user Atelier Teee used under a creative commons license.

Friday, March 28, 2008

Venture Round: Weekly Wrap Up

Welcome to Venture Rounds, IN VIVO Blog-style.

Each week we'll be providing some high level wrap up of the venture scene along with never-before-seen news when we can dig it out. The format may be kind of fluid, but we'll try to break things down as they relate to venture funds, portfolio companies and other bits of miscellanea.

Check in here on Fridays, and if you've got any comments please pass them along. We love reading comments. We do. We really do.

VentureWire reported earlier this week that Morgenthaler is preparing to raise a new $400 million venture-only fund.

Wisely, Morgenthaler is looking to separate its venture and buyout units, which traditionally have invested from the same fund. It's hard to imagine how this arrangement worked in this age of strategic specificity given the very differnet demands--and return potential--of venture and buyouts. But Morgenthaler found a way, until now.

No surprise, the firm isn't talking about or confirming any fund-raising. The article attributes everything to LPs. But in an interview with IN VIVO Blog, Partner Gary Shaffer is revealing that he won't be a partner in any new fund.

Shaffer, who invested in both life sciences and technology companies, says he's leaving VC behind to focus on two things, his family and non-profit ventures. Right now he's heavily involved in Habitat for Humanity and Project Hope, a home-building effort centered around New Orleans. But he has designs on increasing the charitable portfolio to include international efforts as well.

Shaffer produced a pretty good track record during his 15 years as partner. He was involved in the firm's investments in AneuRx, Cardiovascular Imaging Systems, Coalescent Surgical, Menlo Care, and Perclose, all of which were acquired.

Meanwhile, he also played a part in SONIC innovations and Thermage, both of which have gone public, and Emphasys, which has filed to go public. He intends to slowly slip off his current board seats which include CardioMind, Emphasys, OptiScan, Peregrine Semiconductor and Vertiflex.

Morgenthaler's life sciences bench remains pretty deep. According to the VentureWire piece, its senior member, Robin Bellas, will take over management of the venture firm.


Meanwhile, VentureBeat is reporting that CMEA Ventures has closed on its own $400 milllion fund. The report draws on some details from VentureWire, but neither report identifies the firm's life sciences team, which can be found here.


We've done numerous articles about companies pursuing opportunities in pulmonary space. But Breathe Technologies Inc., which announced its Series B financing this week, seems to have a new take.

Breathe Technologies is developing a unique family of compact,ultra-lightweight, ambulatory respiratory ventilator systems for the hospital,homecare and pandemic markets. Annual worldwide sales of conventional respiratory systems that the company's products could enhance or replace are estimated at more than US$2 billion.
A respirator would appear to be the kind of capital equipment investment venture firms might avoid. But Breathe took the modest $15 million round from Kleiner Perkins Caufield & Byers, as well as its first round investors Synergy Partners International, Delphi Ventures and Life Science Angels.


Finally, it's time for our SEC Documents of the Week. Kohlberg, Kravis & Roberts--which made a melting ice shelf-sized splash into biopharmaceuticals by leading the historic $250 million Series B in Jazz Pharmaceuticals Inc.--sold off a tiny piece of its holdings in the newly public company.

According to three Form 4s filed on March 12 (go here, here and here), KKR Financial Holdings III, LLC reaped $17.8 million through the sale of common stock warrants and "15% Senior Secured Notes due June 24, 2001.

However, KKR isn't cashing out. First, Jazz shares aren't doing so hot, with prices bouncing around $10. Second, KKR holds a H-U-G-E stake in Jazz, roughly 35%. According to the 424B4 filed after Jazz's Spring 2007 IPO, KKR had to decide whether or not to exercise warrants to acquire 245,540 shares "within 60 days of March 31." It appears KKR sold 175,384 of the newly public shares and kept the rest, 70,156.

To see who else is beginning to cash out on deals, check the Venture Round in this month's Start-Up magazine.

Any private suggestions, tips, Red Sox banter or recipes? Email me here.

Deals of the Week: Dark Clouds

It seems we'll end the month without a big oldfashioned biotech-pharma licensing deal to crow about in Deals of the Week. A few pharma-pharma co-promotes, a handful of biotech acquisitions, sure. Probably a coincidence, right? But maybe this observation from earlier in the week is the metaphorical dark cloud on the horizon (the actual dark cloud above was in this blogger's backyard on Wednesday afternoon). Will investor antipathy and skepticism toward biotech dealmaking generally (and the validation that used to come with a Big Pharma's stamp of approval specifically) put a semi-permanent funk on the sector's alliance activity? Here's to going out like a lamb. On to ...

Lilly/Sanofi-Aventis: Sanofi-Aventis sales reps have some extra time on their hands – thanks mostly to the regulatory delay – kindly put -- on rimonabant (for analyses and summaries, see here, here and here). Meanwhile, Lilly, slicing the erectile dysfunction market yet thinner with its recently approved low-dose, daily version of Cialis, needs some sales help. On March 13th, they signed a two-year co-promotion with a one-year option, which we learned about from our smart friends at The Wall St. Journal Health Blog.

We wish them both luck. In apparent anticipation that the co-promotion, like many others, will stumble a few times before hitting its stride, Pfizer has increased its Viagra sales calls by about 25%, according to ImpactRx (Viagra was approved 10 years ago yesterday, notes the WSJ in another post). Indeed, the advantages of the new low-dose Cialis hardly seem easy to explain. The daily version is for men who want to have sex more frequently – say, twice a week, says a Lilly website. But for twice-a-weekers, old Cialis – with its 36-hour window –works just fine. And there’s no cost difference between the low- and high-dose versions. On the other hand, the new dosage – which can be taken daily -- may help Lilly position ED in the patient’s mind in the same way he thinks about his chronic diabetes or hypertension. If you’re taking an ACE inhibitor every day, why not just pop a low-dose Cialis along with it?

Shire/TAP: Shire has teamed with recently torn-asunder TAP Pharmaceutical Products to co-promote its once-daily mesalamine (Lialda) mild-to-moderate ulcerative colitis treatment in the US. Specifically Shire is tapping (sorry) the former Abbott/Takeda JV for the services of 500 GI-focused and primary care sales reps to augment its current 120 specialty-rep efforts. The three-year deal should give Lialda quite a boost. The relatively new formulation of mesalamine (approved in January '07 and launched last March) has enjoyed a quick start in the market, taking an 8% share in its first nine months on the market (sales in '07 were about $50mm in the US). The terms of TAP's dissolution entitle Takeda to the group's GI assets (which include the soon-to-be-genericized blockbuster PPI Prevacid) while Abbott takes over oncology assets including the JV's only other marketed drug leuprolide (Lupron), and $1.5 billion paid out over five years. TAP had sales of $3.1 billion in 2007, dominated by $2.3 billion in Prevacid revenue. Surely the addition of Lialda will help take the sting out of that drug's impeding genericization. Terms of the Lialda deal weren't disclosed.

Philips/TOMCAT Systems: Philips Healthcare has entered into quite a few partnerships recently, but it’s not just tomcatting around. In February the Healthcare IT business of Royal Philips Electronics NV announced that it was restructuring its informatics strategy for the hospital in order to “seamlessly integrate islands of information, rather than focus on a single application or department” according to a press release. To that end, the company’s been on a tear, acquiring eight companies since early 2006 in various segments of IT and patient monitoring, (we list them in our discussion of the Respironics acquisition in January’s IN VIVO) Yesterday Philips snared a ninth acquisition target, TOMCAT Systems Ltd., the leading provider of information systems to hospital cardiology operations in the UK and Ireland. TOMCAT offers a comprehensive and integrated system for managing all of the clinical and administrative needs of cardiology patients in the hospital, that means everything from displaying test results to making appointments for patients, and it fits into Philips’ goal of offering a continuum of care in clinically focused business segments. Building the infrastructure that follows a patient from the home to the hospital and then back again is a daunting undertaking involving many moving parts, but Philips appears to be tackling it single-handedly, and if any company can succeed, it probably can. The parent company posted 2007 revenues of $36.8 billion in revenues, with the Healthcare division accounting for $8.9 billion of that Royal sum.

... and finally, your Howie Mandel/Noel Edmonds moment and excuse for us to break out the best example of our MS Paint skills comes courtesy of the on-second-thought termination of Raven Biotechnologies and Vaxgen's reverse merger agreement, announced this morning. Chalk one up to shareholder activism, and we suppose in this case, good sense. MPM BioEquities opposed the deal back in December along with other investors. MPM wrote at the time:

"VaxGen had over $75 million in cash and marketable securities, or over $2.30 per diluted share at the time of the proposed merger, yet management is still supportive of a merger with the stock trading at a market value of approximately $15 million, or $0.42 a share. Even with an outstanding convertible loan due in 2010, VaxGen owns other substantial assets, including a state-of-the-art biologics manufacturing facility, a clinical- ready anthrax program, and significant tax loss assets that net to a substantial premium over the current market valuation. In any scenario other than the current merger proposal, we believe VaxGen is worth over $2.00 per share."

Thursday, March 27, 2008

FDA’s “Roadside Bombs” and “Insurgents”

“Roadside bombs” and “insurgents” aren’t typically found in FDA’s regulatory lexicon. But that’s how FDA’s former drug center director Carl Peck described the situation the agency finds itself in right now.

Peck, speaking at the Food and Drug Law Institute’s annual meeting March 27, was referring specifically to a study making headlines today in the New England Journal of Medicine. The study, authored by well-known Harvard researcher Daniel Carpenter, looked at new molecular entity approvals between 1950 to 2005 and found that drugs approved close to the prescription drug user fee deadline ran a higher risk of being withdrawn and receiving a “black box” warning compared to those drug approved earlier in the cycle.

“The conclusion is that drugs approved just before PDUFA deadlines are less safe than those approved well before,” Peck pointed out after a solid criticism of “ambitious politicians” and “media competing for sales-enhancing headlines” (the IN VIVO blog is obviously not shackled by this particular criticism since the blog is free…remember that, people).

More specifically, drugs approved two months before the PDUFA deadline carry a 5.5 excess risk of being withdrawn and a 4.4 excess risk of getting a “black box” warnings. To read the NEJM abstract, click here.

FDA isn’t taking this one sitting down.

“FDA has tried to confirm the numbers that are in that article and we have been unable to,” Center for Drug Evaluation & Research deputy director Douglas Throckmorton commented at the FDLI meeting. “The numbers we have gotten are considerably different.”

The Wall Street Journal first reported that FDA was sending a protest letter to NEJM related to the study findings. To read the story, click here. Throckmorton says the discrepancy between FDA figures and Carpenter’s figures aren’t negligible. “We need to know what those numbers really are before we try to interpret them and we have a group within the FDA that’s working to try to understand where that difference is because it’s considerable.”

Throckmorton also pointed out what everyone in the biotech and pharmaceutical industries already know: almost every single new drug approval occurs at or just before the user fee deadline date. “The small fraction of products that aren’t—it’s an important fraction to look at—but whether that’s a balanced representation of what we’re doing” is debatable.

The CDER deputy highlighted that this is one particular research question that has a “right answer” and isn’t up for interpretation.

In other words, this isn’t likely to be a study to go the route of Avandia and other drug safety issues that never produced a general consensus. Judging from Throckmorton’s comments, the agency appears confident that it has the right numbers, not the academics. If that’s the case, chalk one up to FDA. Finally.

Wednesday, March 26, 2008

FDA Meets First REMS Deadline

The inaugural REMS class of 2008 was unveiled today and it’s a list of recognizable pharmaceuticals and biologics.

One of the most important premarket and postmarket pieces for biopharma companies of the FDA Amendments Act, signed into law on September 27, 2007, was the authority for the agency to require certain manufacturers to submit and implement a risk evaluation and mitigation strategies (REMS) program.

In essence, these are the risk management plans of old with timetables, a broad spectrum of possible requirements and penalties for non-compliance. The REMS can be as minimal as required labeling and a timetable for re-review of the program itself, or a very rigid, closed-loop, restricted distribution plan.

FDA had 180 days as of the day FDAAA was enacted for the REMS provisions to take effect—March 26. The March 26 notice in the Federal Register means FDA was right on time.

Here’s a few of the most notable drugs to get a REMS: Biogen Idec/Elan’s multiple sclerosis drug natalizumab (Tysabri); Celgene’s multiple myeloma and MDS therapy lenalidomide (Revlimid); Novartis’ schizophrenia drug clozapine (Clozaril); Danco Laboratories abortion pill mifepristone (Mifeprex); and Roche’s severe acne treatment isotretinoin (Accutane) to name a few.

One drug not on the list that caught our attention was Genentech’s allergic asthma therapy omalizumab (Xolair). Genentech had touted Xolair’s risk minimization action plan (RiskMAP) as a stabilizing event back in July 2007. To read our analysis, click here.

So how come no REMS? We asked FDA. The answer: the first list of drugs requiring REMS programs under FDAAA are those with pre-existing risk management plans that have restricted distribution systems. Xolair does not have such an explicit mandate.

More specifically, the Federal Register outlines six elements for drugs deemed to get a REMS plan:

1) Health care providers who prescribe the drug have particular training, experience, or certification;

2) Pharmacies, practitioners or health care providers that dispense the drug are specially certified;

3) The drug is dispensed to patients only in certain health care settings;

4) The drug is dispensed with documentation of safe use conditions, such as lab results;

5) Each patient taking the drug is subject to monitoring; and

6) Each patient using the drug is enrolled in a registry.

To read the Federal Register notice in full, click here.

FDA's timely enactment of the REMS provision shows the agency knows just how closely it is being watched with regards to the implementation of FDAAA and that agency leadership is taking the deadlines set in the law seriously. For biopharma companies, the question remains: how will life change? That one will take time to answer.

Why Investors Don’t Like Biotech Alliances

We all know that the public markets are not funding biotech. Add up all the dollars invested in biotech IPOs and follow-ons over the last three years ($16.2 billion) and it doesn’t equal even half of what VCs and other private-equity players have put into the industry ($33.3 billion).

But alliance dollars continue to climb.

And yet investors don’t seem to like them very much.

Since November 2007, there have been nine deals by public biotech companies with upfront payments (equity and cash) of greater than $20 million – to us a reasonable proxy for a biggish deal. Among them: Isis Pharmaceuticals’ mipomersen deal with Genzyme ($325 million upfront); Merck’s with GTx on its Phase II SARM and two backups ($70 million upfront); and Sanofi Aventis’ multi-antibody arrangement with Regeneron ($85 million upfront).

And yet, with all this mostly undilutive capital flowing in, the market’s reaction has been distinctly negative. The median share price among these nine biotechs is down 15% from the day the deal was signed.

The entire decline can’t be blamed on the deals. Dynavax signed a deal with Merck on its Heplisav hepatitis B vaccine, getting $35 million in upfront monies. Since then the stock is down 59% -- though that decline was almost entirely due to the fact that the company had to halt its Heplisav trial for safety reasons.

And to be fair, equities in general have hardly been popular in the run-up to and aftermath of the Bear Stearns fiasco.

But you’d expect better from companies with pretty darned good news. Regeneron, for the third time non-exclusively monetizing its VelocImmune antibody production system and this time adding a rich co-development deal on a series of programs, with spectacular downstream economics, has nonetheless lost 16% of its value since it announced the deal.

The day the market heard of the Isis/Genzyme deal, Isis shares jumped 28% -- undoubtedly helped by the amplifier of the JP Morgan conference, during which the deal was announced. Within a month, the company had given up nearly all of those gains (pre-Bear Stearns, mind you). It’s now trading 1% above its pre-announcement price. (Read about the comparative value of the Isis deal here.)

There’s a sort of dog-in-the-manger quality about all this. If investors won’t put in new money, you’d figure they’d at least appreciate it when Big Pharma did. Nope.

Certainly, they used to. At one time, a Big Pharma deal was the required validation for an IPO or additional public round. But now it’s clear that the market no longer gives a damn about such imprimaturs. Big Pharmas’ frequent missteps in development haven’t shined up their product-picking reputations. More importantly, biotech’s institutional investors now have the teams to do their own scientific and clinical homework.

Second, the M&A-based logic of the market leads investors to the conclusion that any product-based deal subtracts value. We’re not aware of any data that actually supports that conclusion (we’ll look into it, of course). But as long as acquirers are willing to pay a nearly 100% premium to what IPO investors are willing to pay, investors are hardly willing to jeopardize a potential merger windfall by selling off rights to a key product.

And finally, investors just don’t like some of the deals biotech is signing, despite the big dollars attached to them. One reason, noted Bill Slattery of Deerfield Partners at the opening BIO-Windhover panel in New York: deals often give Big Pharma development control.

That’s an apparently sensible practice. After all, large drug companies have the development experience to know what they’re doing. Two decision-makers generally take longer than one. And no one wants two voices, with potentially two sets of data, going to the FDA about the same molecule.

But investors are beginning to see things differently. Big Pharma frequently chases only the major indications for a biotech's programs, which may mean they ignore the smaller uses to which the molecule might be better suited – and for which it might be approvable. No approval -- no milestones, no royalties, no value in the biotech, no brass-ring M&A shot.

Take Merck’s deal with GTx. Merck paid the biotech $70 million in cash and equity to get development and marketing rights to its Phase II SARM Ostarine (a terrific validation since J&J had given up rights to the same thing a few years before), $15 million in R&D fees, and a potential $422 million in additional regulatory milestones.

But despite a 63% one-day jump -- good data reported from its most advanced drug, the Phase III prostate cancer therapy toremifene (Acapodene) -- the stock is still off from the day it signed its Merck deal. Indeed, over the three months following that deal, the company lost 33% of its value.

We’re sure there were a variety of reasons for the decline. But one of them is that investors don’t like the fact that Merck now has all development rights to Ostarine. Should toremifene fail, GTx’s future will largely be in the hands of Merck. And for all Merck’s good intentions, its first obligation will be to Merck shareholders. Which is why GTx shareholders have reason to be skeptical.

And more generally why investors are skeptical of biotech deals.

Tuesday, March 25, 2008

Big Pharma Outlicensing: Bad News for Biotech’s POC Model?

You would have thought Big Pharma's increasing willingness to outlicense would be good news for the industry. VCs love getting their hands on pre-baked assets; fully-formed spin-outs are even better—especially as these days, strings are a rarity.

But why is BP outlicensing? Not out of the kindness of their hearts, certainly. And not because it’s easy (getting GI-focused Albireo out of AstraZeneca took months). They’re doing it because cost-cutting and R&D prioritization demands it.

Plus, according to commentators at Windhover's Pharmaceutical Strategic Outlook conference in New York last week, Big Pharma’s various R&D experiments (translational medicine, productivity metrics, the externalization splurge) have led to a glut of Phase II programs. They can’t afford to take all of them through expensive late-stage trials--which is why Jim Cornelius, Bristol’s CEO, confirmed last week during PSO: “There will be more [risk-sharing, late-stage] deals like that between BMS and AstraZeneca” in January 2007.

Even size-obsessed, merger-maniac Pfizer has started to (at least) talk about outlicensing—a subject that was previously as good as taboo. “We have headcount for it,” admitted Barbara Dalton, head of Pfizer's Strategic Investment Group, to the PSO audience. “There will be spin outs in future,” she promised.

So here’s the thing, though: if Big Pharma is going to want to shed some risk and responsibility on its development programs, what of the growing numbers of biotechs seeking to bake assets as far as proof-of-concept (Phase II) and then license them—for enough reward, in theory, to justify avoiding Phase III risk and cost?

They're driven--justifiably, one would think--by rising Phase II deal values (see chart below). The question is how long that trend will last (and how valuable are these deals to biotech anyway, which we’ll address in another post)? So far, Big Pharma’s woes have benefited biotechs, driving up deal financials, improving biotech’s leverage, and allowing them to hang on to more value.

But the point of the POC lot is that they don’t, for the most part, want to take on later-stage responsibility (co-promotes and the like). Now sure, the right Phase II programs will always be in demand, as Steven Lee, CEO of POC-focused Summit PLC, was quick to point out during a panel discussing the virtues of POC versus the fully-integrated model. And there’s still virtue in this kind of low-risk strategy, he argued, particularly in Europe. Flexion’s COO Neil Bodick concurred: there’s value in sticking to one’s knitting; the “fully integrated model is doing to de-construct,” he predicted. For Bodick, “there are opportunities to be competitive in different [incomplete] segments of drug discovery and development.” (For more about Flexion, and about Bodick’s Lilly heritage, click here.)

That’s a neat argument, and probably a valid one in theory. (Some of us—the disaggregation-ists--feel it’s particularly relevant to Big Pharma, even though as we suggested here, they don’t seem to agree.) In practice, though, the POC model has yet to prove itself. Even Lilly’s six-year old Chorus experiment—the in-house inspiration for Flexion which likewise aims to get compounds to POC cheaper and faster than anyone else—“there’s no data yet” on whether the model leads to a better downstream success rate (or simply nastier surprises for later), acknowledged Bodick.

Meantime, fully integrated biotech (“FIPCO”) advocates such as Rigel’s Jim Gower or NicOx’s Michele Garufi are still out in force, despite skyrocketing regulatory risk. How else has biotech ever created significant value, they ask? The trend towards more specialist drugs, requiring small sales forces, makes going-it-alone plausible.

Sure, “you have to be a bit crazy” to undertake multi-thousand patient trials and build a sales force, acknowledged Gower. But with a broad portfolio, a handful of existing partnerships, and, most importantly, investors’ green light to take a punt on the lead program, there’s no reason to hand over the jewels. Especially if the value and number of Big Pharma deals do indeed lose their luster.

Monday, March 24, 2008

A DPP-IV Head Scratcher

A manuscript in press is suggesting that the mechanism of DPP-IV inhibitors, like Merck’s blockbuster Januvia, may eliminate a potentially beneficial natural effect, especially in obese people.

The DPP-IV’s are designed to prevent the enzyme dipeptidyl peptidase-4 from degrading GLP-1, a hormone that stimulates insulin secretion. Specifically, they stop it from clipping two amino acids from GLP-1 and converting it to a metabolite, GLP-1(9-36).

Researchers have long believed that the GLP-1 metabolite is inactive, but this may not be the case. “This idea that 9-36 is not a discarded product is not generally accepted,” explains Joel Habener of Massachusetts General Hospital, who discovered GLP-1 nearly 30 years ago. The notion that the metabolite performed some function was first aired by Habener's colleague Dariush Elahi (now at Johns Hopkins) at an oral presentation at the American Diabetes Association Scientific Sessions in 2006. (Abstract 363-OR, for those of you with the book.)

Elahi led a research team that infused subjects already in a fasting state with a steady flow of glucose, then gauged the changes in that steady state glucose metabolism after administration of GLP-1 metabolite. They found that GLP-1 metabolite lowered plasma glucose concentration in obese subjects, and concluded that it was insulinomimetic—GLP-1 metabolite acted like insulin to lower glucose levels in the liver.

That’s of interest because the main source of fasting hyperglycemia in type 2 diabetics is uncontrolled hepatic glucose output, Habener explains, and fasting hyperglycemia, along with post-prandial surges of blood sugar, are the major contributors to elevated HbA1C. (That the effect of the GLP-1 metabolite was more pronounced in obese, insulin-resistant subjects – it was up to 50% greater than in lean subjects in the experiment -- is also significant because obesity is an obvious risk factor for the development of type 2 diabetes. So you especially don’t want to remove it from them.)

At the time of the ADA meeting, a paper describing these properties of GLP-1 metabolite was already under review at The New England Journal of Medicine. But NEJM rejected it. Subsequently, so did Diabetes, the Journal of Clinical Endocrinology & Metabolism, and the American Journal of Physiology.

The general consensus, both at the ADA and among journal editors, was that the findings went so much against current thinking that the researchers needed to show the mechanism. “It was not part of the current understanding,” Habener explains, “which is that the 9-36 is an undesirable degradation product, an inert metabolite, and that it’s good to prevent it at the expense of increasing the insulinotropic hormone [referring to GLP-1].” The paper was finally accepted by Obesity, but after that journal changed editor and publisher at the end of 2007, publication of the first three monthly issues of 2008 log-jammed. (The paper is now slated for the April issue.)

It’s yet to be determined how profound an insulin-like effect the GLP-1 metabolite has on the liver. But the Obesity paper does get into a possible rationale for the effect of GLP-1 metabolite and its ramifications (a discussion Habener won’t put on the record prior to publication).

The next step for Elahi, Habener, and colleagues will be to give subjects GLP-1 under the same fasting conditions, either with or without a DPP-IV inhibitor (one group would therefore make GLP-1 metabolite and the other group would not), to see the extent to which inhibiting the production of GLP-1 metabolite in this way affects them. “If we give concomitant administration of DPP-IV inhibitor to block the formation of 9-36, we should attenuate the good effect [of GLP-1] in reducing hepatic glucose production,” Habener predicts. To be sure, it'll be interesting to see the extent of that attenuation.

The blocking of GLP-1 metabolite production might help explain why DPP-IV’s are not more potent: Januvia, for example, is less effective as monotherapy than the older and much cheaper drug metformin, although without some of the side effects. GLP-1 analogs, such as Amylin/Lilly’s Byetta, are not degraded by DPP-IV and so do not generate GLP-1 metabolite. Thus, like the DPP-IV’s, they fail to deliver that second potential insulinomimetic punch—an argument in favor of assessing whether GLP-1 metabolite could offer a new therapeutic strategy for diabetes.

As of last week, Obesity appeared to finally be back on track. According to the journal, the April issue should be out March 31. So stay tuned.

Update: As of March 27, lead author Elahi had yet to see the proofs of the Obesity paper, suggesting it's unlikely to be in the April issue.

Update: the Elahi-Habener paper is now on-line (April 17 AOP) at the Obesity journal website. Title is: GLP-1 (9–36) Amide, Cleavage Product of GLP-1 (7–36) Amide, Is a Glucoregulatory Peptide.

While You Were Egg-Hunting

Whether your egg was of the plastic, chocolate, or old fashioned white-and-yolk variety we hope you had a good weekend. The IN VIVO Blog is still recovering from a long week of conferencing in New York and we should have a few more thoughts to share from PSO later this week. Meanwhile here are a few things you may have missed over the weekend. That sound you might have heard was the utter destruction of our NCAA tourney bracket ...

Easter photo from flicker user eurodrifter used under a creative commons license.

Thursday, March 20, 2008

Deals of the Week: TGIS

Thank goodness it's spring. It's been a long, dark winter in pharma land, both metaphorically and in reality. This week proved no exception. Share prices at Basilea, Epix Pharmaceuticals, and Pharming all plunged on bad development or regulatory news, while Alkermes and Kosan both announced staff cuts. Pfizer is closing its Groton manufacturing plant and laying off another 80 employees, while China confirms it was the source of the heparin contaminant that was responsible for nearly 800 adverse events and 19 deaths.

But despite the bad news there are reasons to hope, especially on the regulatory front, where our own RPM writers are seeing--if not a rapid warming--at least a mild thaw. Cephalon's Treanda, for instance, won approval to treat chronic lymphocytic leukemia. Meanwhile, QLT seems to have persuaded FDA that a blood test is not necessary before doctors prescribe it's new acne drug, Aczone. Aczone was approved three years ago but never commercialized as the company set up additional clinical trials to ensure that the labeling would not mandate a blood test prior to prescriptions, an onerous step that would have limited drug sales.

On the deal-making side there was little to celebrate or mourn this week. Perhaps that's because so many attended either this week's Cowen and Co. conference, or Windhover's own BioWindhover and Pharmaceutical Strategic Outlook meetings (where, of course, those in the know were present). Given the schmoozing, undoubtedly there will be more to report on in the near future.

Presidio Pharmaceuticals/ XTL Biopharmaceuticals: There was one small tie-up worth noting in the HCV space this week. Presidio Pharmaceuticals inked a deal with XTL Biopharmaceuticals worth a $4 million in upfront fees and another $104 million in potential milestones. The deal is centered around XTL's preclinical molecule NS5A, which is in advanced stages of lead optimization. As part of the deal, Presidio obtained rights to several distinct chemical entities, including molecules that exhibit activity against both the HCV1a and HCV1b genotypes. Last year, Presidio outlicensed technology from Stanford in the HCV arena; and in February the company inked a research agreement with Numerate to build small molecule hepatitis C drugs. Still it's a space in which it's been tricky to succeed. XTL suffered it's own failure last June, when its Phase I molecule XTL-2125 was unable to reduce HCV viral load below levels seen with a placebo. The company discontinued the program. To diversify, in early 2007 XLT in-licensed Dov's neuropathic pain drug,bicifadine, in a deal worth $19 million.

(Photo courtesy of Flickr user Ga Music Maker through a commons license.)

Hard Time for Biopharma CEOs

Yes, times are hard for many biopharma executives. But we're referring to hard time in the other sense, as in time behind bars in a federal penitentiary.

If history is any guide, top executives across the industry should prepare for a wave of high profile enforcement activity from the Food & Drug Administration and the Department of Justice--cases where a civil settlement and fines may no longer be enough to satisfy prosecutors. It sure looks like the government wants to start putting people in jail.

The RPM Report has just published an article highlighting recent, not-so-friendly reminders from top FDA officials that they have immense power to pursue criminal cases against corporate executives--starting with the CEO--even if those executives did not participate in, or even know about, criminal conduct that occured on their watch.

Two officials quoted in press releases this week underscore that point. Here is the first:

“It is unacceptable that Americans have died and been seriously injured by what appears to be deliberate tampering. Whether this contaminant was introduced intentionally or by accident, the full force of the law must be brought to bear to bring those responsible to justice.”

That is Senator Edward Kennedy responding to FDA's announcement that it has identified the contaminant that apparently caused severe adverse reactions to Baxter's heparin products in the US. FDA still does not know if the contamination was accidental or deliberate, but note Kennedy's response: Accidental or not, someone must be held accountable. He underscored that point in a separate letter to FDA Commissioner Andrew von Eschenbach, asking for a criminal investigation.

Here is the second quote:

"Pharmaceutical companies do not run themselves, and those who engage in criminal conduct will be held personally accountable."

That is FDA Special Agent Kim Rice, quoted in a Department of Justice press release announce the indictment of Scott Harkonen, the former CEO of Intermune Inc., on charges of wire fraud and violations of the FD&C Act. The indictment follows from an off-label promotion and False Claims Act investigation settled by Intermune in 2006.

Intermune settled the investigation by agreeing to strict new codes of conduct and paying a fine of $37 million. That is a relatively large sum for a small company, but also is the type of fine that upsets some members of Congress who believe pharmaceutical companies are not been punished aggressively enough. Harkonen, on the other hand, faces a theoretical maximum penalty of 20 years in prison.

The company points out that the indictment of Harkonen, who left Intermune in 2003, does not in any way affect the settlement or Intermune's current business prospects. And of course we have no idea whether any of the allegations against Harkonen are merited.

What we do know is this: if the tough talk from FDA and Congress is to be believed, Harkonen will not be the only pharmaceutical executive brought up on charges.

Wednesday, March 19, 2008

CFOs: Agents for Change?

I'm not convinced. Last year saw an unprecedented five new CFOs among the top drug firms-- at Pfizer (Frank D'Amelio), AstraZeneca (Simon Lowth), Wyeth (Greg Norden), Amgen (Robert Bradway) and Merck (Peter Kellogg). This re-shuffle led to the question, posed during a panel at Windhover's Pharmaceutical Strategic Outlook meeting in New York City today, as to whether these money-men were going to be the drivers of (let's face it, necessary) change at Big Pharma.

Peter Kellogg joined Merck in June 2007 following stints in Big Biotech -- at Biogen Idec--and in the consumer industry, at Pepsi, before that. What has he brought across from those sectors? Well, the biotech experience allowed him, he said, to slip easily into the mega-dealmaking/collaborative culture that Merck has been touting for some years now, and the Pepsi learnings were useful in re-engineering cost structures (common in all Big Pharma these days).

But Kellogg's most radical predictions were more collaborations (especially risk- and cost-sharing ones) and more shrinking SG&A costs. Will Merck shrink so much as to become virtual? "No, that would be too extreme," he said. But the share of overall R&D spend on internal infrastructure will decline in favor of external collaborations, and even then total spend will grow only in the mid-single digits. "We will bring in more from the outside, and we'll be smarter about where we run our trials, and where to find patients."

The other CFO-panelist, Genzyme's Mike Wyzga, claims this Big Biotech's already applying lessons from his previous life in the software industry, where winning companies like Microsoft looked beyond the ten year horizon to figure out how to grow. "From mid-07 we stopped giving quarterly guidance, and instead we predicted 20% in average compound earnings growth out to 2011," Wyzga explained. That, he argues, shifted the company's outlook – and to some extent, the outlook of its investors -- beyond the next decade, as Microsoft did. "That's how you build continued sustainable growth."

Genzyme can already reasonably lay claim to some fairly radical moves, not least those creative financial engineering experiments that stretch back to the company’s earliest years. When Wyzga arrived a decade ago, Genzyme had four separately-listed tracking stocks, seven joint ventures, and 50% of a joint venture with spin-off Genzyme Transgenics (now GTC Biotherapeutics.) So for Genzyme, adapting to the future means maintaining that creativity and flexibility, while at the same time growing larger—closer in size to a mid-sized or even large pharma. There'll be no return to tracking stocks, Wyzga predicted. "Instead, we're creative in how we put deals together."

Evolutionary change, then, not revolutionary; and this driven as much by the dealmaking teams, it seems, as the bean-counters. Indeed, the boldest signs of Big Pharma change in today's PSO sessions were probably from Jim Cornelius, Bristol's CEO. In describing this once-big-but-now-midsized pharma's planned metamorphosis into a next-generation biopharma firm, he talked openly about shrinkage--the 50% cut in sales force that's already happened since 2000, and the further 15% planned reductions over the next three years. "Our total sales force for our recently-launched breast cancer drug Ixempra is 125," he stated. Compare that with the 1500-strong Plavix sales force--which, incidentally, may be out of a job by the end of 2011 when generics hit.

Perhaps this in itself--pharma talking about down-sizing rather than merger-mediated upsizing--is transformation enough.

CardioNet and The Bear (Market)

Following the closing of its $110 million round a year ago, CardioNet Inc. execs were confident their company would soon go public. At one point, one backer of the company--when IN VIVO Blog asked if CardioNet would go public sometime soon--answered our query with a rhetorical question: Does a bear (do its business) in the woods?

We took that as a yes, but not any old yes. It was a confident, perhaps cocky, yes that suggested CardioNet might be immune to the ills plaguing other device companies.

Well, as Larry Bird used to say. It ain't being cocky if you can back it up. Sure enough, CardioNet did go public, going out today at $18 per share. For any other company, an $18 opening share might be a triumph. For CardioNet, it was the absolute lowest price the company could go while abiding by the terms of the unusually structured $110 million financing.

As we've explained a few times, go to our article here or earlier posting here, buyers in that private round acquired shares that would convert into common shares at the time of the IPO, giving them a discount on the offering. Among the investors taking part were venture investors Sanderling Ventures and Foundation Medical Partners as well as H&Q Funds, but they were relatively small investors. Hedge fund reportedly were the biggest buyers.

According to the company's S-1, CardioNet sold 114,839 shares of "mandatorily redeemable convertible preferred stock" at a purchase price of $1,000 per share, giving the company $114.8 million.

The conversion of those "convertible preferred stock" depended on the offering price of the shares. Had CardioNet gone out at say $23 per share, the mid-point of the previous range, those convertible preferred stock would have converted into 5.9 million of common stock.

According to the S-1 filed when CardioNet adjusted the price to $18-$20, the conversion would have amounted to 7.2 million shares if the company priced at $19. So ultimately, investors in the round obtained more than 7 million shares.

But the deal included some fine print that essentially put a floor on the pricing of the IPO.

From the S-1:

Each share of the mandatorily redeemable convertible preferred stock will convert into shares of common stock in connection with the offering at a conversion ratio of $1,000 divided by 87.5% of the initial public offering price, subject to a maximum denominator of $23.40 per share and a minimum denominator of $15.70 per share.
By our math, 87.5% of $18--CardioNet's opening price--is $15.75. So CardioNet's $18 offering price rests on the price floor determined in the March 2007 financing. It looks to us that the company couldn't go any lower with an offering price and still abide by the terms.

Now the only remaining question is will the price hold? Early reports show it's holding--barely.

Further reading shows it wouldn't have been prudent to wait much longer. According to the S-1, after the end of 2007, the rate of common-shares per convertible preferred shares rose 5% each year, with the increase compounded quarterly. So the longer CardioNet waited, the more shares went to the investors in that final private round.

But one thing worth noting. According to the S-1 documents, Boston Scientific--which acquired a stake in the company through its purchase of Guidant--was scheduled to sell 400,000 shares at the offering. But, according Renaissance Capital's IPO Home site, selling shareholders sold 1.5 million shares through the offering, not 400,000. We're not sure who the additional sellers were. (UPDATE: Guidant/Boston Sci sold the additional shares as well.) (Doff of the cap to VentureBeat LifeScience for pointing that out for us.)

CardioNet is trading under the symbol, BEAT.
image by flickr user Vljay Pandey used under a creative commons license.

Tuesday, March 18, 2008

Mircera: Bad for Patents, Good for Patients?

Anyone following the heated Amgen-Roche battle over Roche's Mircera might be interested in some court documents posted today--notably Roche's license agreement for a proposed launch of its drug in the US, and Amgen's counter-brief. (Hat-tip to our friends at Bear Morgan...for this one.)

What, you say? Didn't Judge Young rule last October that Roche infringed Amgen's patents--the latest of several of EPO victories for Amgen over the decades?

Well, yes he did. But although Amgen won the patent battle, it hasn't yet won the public interest battle, apparently. The Judge basically isn't sure whether blocking Mircera from the US entirely, as Amgen is seeking via an injunction, would best serve American patients (and their government's wallets). So he left open the possibility, in a hearing two weeks ago, that Roche may launch the drug nevertheless.

There are conditions: Roche must pay Amgen a 22.5% royalty on US sales (as Roche had already said it was willing to do), it must price Mircera to the Medicare program with an average selling price the same or less than that of Epogen, it must provide evidence of clinical usage and the real world dosage of Mircera to allow a dose conversion factor to be calculated, and it must fund an independent monitor to account for royalty payments. Lastly, patients switched to the Roche drug must be allowed to access the product at the same price going forward regardless of the outcome of future legislation.

Fine, says Roche in its posting, we'll adhere to all that. And we think it's great that patients are offered choice, and a better treatment option--especially, it says, rubbing it in, "given the FDA’s recent re-examination of serious safety issues associated with Amgen’s ESA products." Amgen's behaved rottenly, the document continues (yes, we're paraphrasing somewhat), so any harm that may come to it following a potential modification of this injunction in Roche's favor should be ignored. Hail billions of dollars of savings to the U.S Treasury!

Amgen isn't used to this kind of post-victory set-back. And it could probably do without it, given everything else going on--not least ODAC's not-so-bad-but-not-great-either decisions on restricting ESA usage in chemotherapy-induced-anemia patients, etc. The Big Biotech comes back with just the points one would expect in a briefing support document (filed, with Roche's, ahead of a potential ruling early next month over whether Mircera will indeed be allowed this conditional entry).

Innovative drugs like ours have enhanced economic growth and reduced medical expenditures, Amgen says. Letting Roche in would create an unwelcome precedent, suggesting that even valid and infringed patents don't fully protect innovative drugs. Woe betide the end of private sector investment in drug R&D....etc.

Now, though we do hear that Amgen's IP-protection tactics have perhaps over-aggressively exploited quirks in IP law, and while we do feel, like Roche, that Amgen's monopoly has perhaps overstayed its welcome, the US biotech does have a couple of points here. If patents are judged to have been infringed, the infringer should be banned until the patents expire--that principle underpins the industry, right? And we also tend to agree with Amgen's point that "with all due respect, determining the appropriate amount Medicare should pay for biopharmaceutical products and medical treatments is not the province of this Court."

We're not lawyers and perhaps we missed the point. (Though if we may toot our own horns for a second, we predicted nearly two years ago that Roche would be willing--or required--to agree to cut prices as a condition for market.)

Still, the battle was over whether Roche infringed Amgen's patents. Turns out it did (whatever you think about how Amgen extended and protected those patents). Bringing issues of drug costs and patient choice into the court-room mix may be well-intentioned, but may also backfire big time if it dilutes the power of patents.

Come to Germany for Bargain Biotechs

Germany’s undervalued biotech firms are starting to attract the attention of US and UK venture capitalists, according to Peter Heinrich, CEO of publicly-listed MediGene. “There are positive signals in the last few months," he suggests, that life may be returning to the sector, which has remained a biotech wasteland since the spectacular bust early this decade.

Or maybe not quite a wasteland: rich individuals and families such as that of Dietmar Hopp have to some extent filled the gap left by most VCs in the last couple of years. But the Hopps have been stung too—not least by GPC Biotech’s crash and burn following poor Phase III results of prostate cancer drug satraplatin last fall.

That was the last thing Germany needed—a country where the fate of one biotech can still strongly influence investors' appetite for the entire sector. But MediGene hopes it can provide a more positive counter-story (and reverse the apparently inexorable fall in its own share price).

Already, it claims to be the first German biotech with products that have actually reached the market (Eligard is sold by Astellas for prostate cancer; Veregen was recently launched in the US by partner Bradley (now Nycomed) for genital warts). And this year, the biotech hopes to join in the marketing game itself, with plans to build its own dermatology-focused sales force in Europe.

But no, insists Heinrich, we're not going spec-pharma. MediGene is also maintaining R&D investment in oncology and auto-immune disorders, with data expected shortly from late-stage programs. “Ours is a dual model, allowing investors the upside of late-stage, in-house programs” with the protection against downside risk provided by revenues from marketed drugs, he summarizes.

Heinrich’s clear in his reasons for focusing downstream efforts on dermatology: it’s a niche area allowing for low-cost sales forces, Big Pharma isn’t interested, and there remain, he argues, plenty of US specialists who’ll need a European partner, despite recent consolidation in the sector (mentioned in this blog post).

MediGene’s dual-strand model is hardly new, though. Plenty of other European biotechs, especially in the UK, have been forced by risk-averse investors down this de-risked parallel-track route. The results have been mixed, as Vernalis’ recent collapse illustrates. Doing two things at once may appeal to investors in theory; in practice it’s hard to pull off.

So long as MediGene struggles to revive confidence in the sector, though, Germany should remain a bargain-hunter's hot-spot.

Monday, March 17, 2008

Dispatch from BIO-Windhover: When Licensing Bleeds Value from Biotech

Biotechs have always relied on four sources of financing: venture capital, public equity, M&A and alliances. When one or the other of these chair legs has weakened, biotechs have been able to lean on the others. But VC isn't enough; public equity has disappeared; and while there's certainly more M&A than there ever has been in biotech, with roughly 10 private acquisitions of any significance per year, and a third the number of public acquisitions, investors can hardly count on such purchases to give them the minimal returns they require.

Which means alliances are more important than ever. And it's difficult to argue with the fact that they're increasing in value, as the chart above -- part of Roger Longman's introduction to a panel discussion today at BIO-Windhover -- suggests. Not shown on this slide but also according to the data, average upfront payments are increasing as well.

In equity terms, alliances are great sources of non-dilutive capital given the stinginess (or perhaps outright disappearance) of the public equity markets.

The problem is that alliances too often inflict dilution of overall corporate value.

For private biotechs being steered toward an exit by venture backers, alliances are only a net positive if they don't overcomplicate the buyout math and undermine what might be a lucrative acqusition later on. In some cases a license can precipitate a takeout; in the case of Shire's deal-then-acquisition of New River, and Amgen's deal-then-acquisition of Abgenix, the original deals struck by the acquirers amounted to "buying an option to be first in line" at the M&A table, pointed out Campbell Alliance's Ben Bonifant.

For platform technology companies the balance is slightly different, pointed out Alnylam president and CEO John Maraganore, who noted that Alnylam "would do more deals like the Roche transaction," though that lucrative deal (which we wrote about here) would only be replicable perhaps "a few more times" before the value of doing a deal was outweighed by the resultant dilution of the technology rights to Alnylam's RNAi platform. To reduce that risk, he said, in future deals Alnylam may choose to retain certain additional rights to resulting drug candidates.

But granted that financial or strategic necessity dictates a product licensing deal, does retaining some important segment of commercial rights keep enough value for investors, particularly public investors, to remain interested?

Not as important as keeping development rights, argued Bill Slattery of Deerfield Partners. But that's usually not practical, argued Lisa Ricciardi (former licensing SVP at Pfizer and now an adjunct partner at VC Essex Woodlands). Drug companies would rather their biotech alliance partners stick to their knitting: research-based start-ups require different skillsets than development stage companies which are again different beasts than commercial ones. "Most larger companies would argue that they have all the capabilities necessary to do development themselves, and they'd prefer a straight license," she said. Sharing development is only something pharma does if it absolutely has to, she said. The risk of coming up with contradictory or confusing data from different trials by different organizations is simply too great.

"I don't totally disagree with you," chimed in Atlas Venture's Jean-Francois Formela, "but in order to be sustainable a biotech has to grow up and migrate from one stage of organization to the next." Though there is value in generating IND candidates for pharma (as firms like Plexxikon have shown), "you can't remain an IND generator forever," he said.

More important from his point of view, said Deerfield's Slattery: pharma frequently chases the big indications for a biotech's programs, too often missing or simply disregarding the indications for which they might be better suited -- as GlaxoSmithKline pursued the big markets of solid tumors for Cytokinetics' kinesin program instead of smaller-market leukemias. The result: the licensing deal ultimately bleeds value.

In short, even a lucrative co-commercialization right won't preserve a biotech's value if the development program is built to suit the Big Pharma's commercial ambitions, not the molecule itself.

FDA's Janet Woodcock: "Change Agent"

FDA Commissioner Andrew von Eschenbach expressed rare public irritability last week at the American Enterprise Institute.

What brought an edge to the voice of the usually unflappable, on-message commissioner? He bristled at the suggestion that the re-appointment of Janet Woodcock to head of the Center for Drug Evaluation & Research represents an attempt to rebuild the old ways of running the agency’s drug regulatory operations.

“I do not see her going back to CDER as business as usual,” von Eschenbach shot back in response to a question from a reporter during a Q&A session. She “is going back as a very, very strong change agent, and we have mapped and discussed many of those changes that she is embarking upon.”

Just because she has a long tenure in FDA management and is can be termed an “insider”, the commissioner said, “does not in any way, shape or form mean that she is not a change agent.”

For those that know the commissioner well, von Eschenbach’s sharp response came as a bit of a surprise. He generally maintains an unflappable demeanor and absorbs immense criticism for the agency and his management team without flinching. His restraint, in fact, is probably one of the factors in the constant beating on the agency in the media and on Capitol Hill.

So why get so irked about questions about the Woodcock appointment?

One answer is that von Eschenbach is worried that the staff within FDA is misinterpreting the appointment.

He says, in fact, that he has been “emphatic” within FDA in explaining his view of an active role for Woodcock at CDER. “The CDER that Dr. Woodcock will create for tomorrow is nothing like the CDER that she left,” he told the AEI forum.

Woodcock offers “understanding of the historical perspective as well as the external realities that are now impacting upon the agency,” the commissioner says (see here). She is “absolutely, the most extraordinarily gifted and talented person to lead” change at CDER, the commissioner told AEI.

Another reason for von Eschenbach’s pique is the lack of understanding from the outside world to the importance that he is putting on his end-of-term appointments at the agency. At this point on the down slope of his tenure at FDA, von Eschenbach appears to be viewing his recruitments and appointments to on-going agency management as one of his key lasting legacies for the agency.

The Woodcock appointment is “not the only appointment that has occurred and will occur at FDA; there will be others,” he declared. We have pointed out elsewhere the signs of stress and management holes within CDER (see here). FDA has a lot of mid-level and senior management positions to fill that will determine the character and focus of the agency through the next topside transition in early 2009.

Von Eschenbach stressed the need to “look at it in the totality of the kind of changes that are occurring both in staffing and in organizational structure and in the programs that we are implementing. In the totality of that, you will see the transformation that we are attempting to achieve.”

From the view of a lasting transformation, the Woodcock appointment is very savvy. She has identified herself in a court deposition as being a Democrat by political affiliation, but has clearly bought into one of the goals of the Bush Administration for FDA: to make the agency aware of changes that it can make to improve the drug development process–lumped for short-hand purposes under the sobriquet of the “Critical Path Initiative.”

By moving Woodcock off the commissioner’s staff to a line management position, von Eschenbach also opens up the possibility of recruiting someone for that deputy commissioner, chief medical officer position. If he can find someone to accept that position who has the credentials and political neutrality to survive a changeover of administrations, von Eschenbach may have a bigger role in shaping the post-election FDA.

Ex-FDA Commissioner Mark McClellan pointed out the key role for the chief medical office in a separate presentation at the AEI meeting. This is the job that was highlighted by the Institute of Medicine drug safety committee that reviewed and suggested structural changes needed at FDA in 2006. The position appeared to be designed for Woodcock, but now offers von Eschenbach a chance to find someone (probably from academia) who can try to survive the post-election changes.

McClellan told AEI that the deputy commissioner position could be a key slot for determining policy in the future. “The way you get the most done in the agency is to create a framework that enables people to get together and understand the weight of the scientific issues and get some scientific momentum behind the concepts and directions in which you want to take the agency,” McClellan said.

“Maybe the deputy commissioner for science at the agency…could bring together center directors and make sure that this gets built in consistently to what is going on in the agency.” McClellan said that driving policy at FDA takes a very hands-on consensus-building approach. It is like being a university president, he said. It cannot be achieved by “top-down directives.”

Instead, the management requires convincing “many people that are knowledgeable and pride themselves on being up-to-date on at least their particular area of expertise.” The commissioner cannot be expected to manage that process personally, McClellan suggested. The commissioner will have to rely on the next tier appointments–positions that von Eschenbach now has a chance to fill.

There is at least one other possibility why the commissioner reacted strongly at the AEI meeting: the question hit an exposed nerve. He senses that Woodcock will be challenged by FDA’s critics as a lame-duck appointment who will not have a significant impact.

And that view of FDA exists among knowledgeable people watching the agency. Former FDA Commissioner David Kessler was also at the AEI meeting. He sat silently, and unacknowledged, at the back of the room during the first day when von Eschenbach spoke. But on the second day, he quite pointedly spoke out from the dais about the state of leadership at the agency.

“I am interested in who is responsible for the leadership” on policy issues at FDA, Kessler declared. From practical experience, he suggested that the line operating heads at the agency cannot take time to deal with overall policy. “The center divisions have a lot on their plates,” he noted.

That leaves the challenge for guiding policy directly on the shoulders of the commissioner and his top staff. When does the commissioner's office get involved, Kessler asked. “Who is in charge on these broader policy questions? They are complex, they need to be driven. It is not just the day-to-day that you are dealing with.”

Maybe that is why von Eschenbach dropped his calm exterior for a moment. He knows that he is viewed as letting the agency float through a critical period. He is trying to assemble the right team for another FDA commissioner in the future, to try to influence a period even less under his control. That is a tricky and thankless task–one where a little anger is understandable.

Sunday, March 16, 2008

While You Were Seeding the Bracket

The economy may be going down the tubes (More rate cuts! JPMorgan is buying Bear Stearns for $2/share!) but it least we've got the brackets to take our minds off the misery (The Cornell Big Red drew the Stanford Cardinal in the first round). There's also the will-they-won't-they drama of Pfizer/Shire, and, of course, a big week of conferencing in the offing: up first is BIO-Windhover, followed by Pharmaceutical Strategic Outlook. We'll try to keep you posted from the Grand Hyatt in NYC. What else happened this weekend?
  • GSK's mepolizumab (Bosatria) proved effective in a Phase III study by allowing patients to cut down their dose of corticosteroids for treatment of the rare blood disorder hypereosiniphilic syndrome (HES). Results of the 85-patient study were reported at the American Academy of Allergy, Asthma and Immunology in Philadelphia and published in the NEJM on Sunday. The article is here and a companion editorial is here.

  • deCODE Genetics and Merck's Merck Research Labs teamed up to map the genetic roots of obesity. The analysis of the gene expression patterns was published sunday in Nature.

  • The price of Genzyme's Gaucher disease treatment Cerezyme means patients and docs are thinking carefully about--and often cutting--the therapeutic dose, a phenomenon explained in the New York Times.

  • Bristol-Myers is considering the sale of its Mead Johnson baby food business, the FT says, looking for bids in the $7-9 billion range. No word on whether they're making lots of airplane noises and making funny faces at potential suitors, but in our experience that works pretty well when trying to offload puréed carrots.