Friday, July 11, 2008

DotW: Changin' Times

A quick review of the week's news suggests change is afoot. The Dow dropped below 11,000; the second coming of the Jesus phone occurs today (not that Apple needs press from us); and three pharma companies have teamed up to form a for-profit biotech called Enlight Biosciences to develop drug discovery enabling technologies. What next?

For starters, the FDA seems determined to play nice, admitting this week that although epilepsy drug come with the potential for suicide, that isn't enough to warrant a so-called black box warning. Is this the same safety conscious FDA we've come to know and love? Yes, apparently concerned that a warning label might cause doctors and patients to abandon treatment, an advisory committee voted 14-4 against adding the dreaded black box. (Almost certainly, they hadn't overdosed on Chantix.)

In another sign of its new openness, our august regulatory body has also decided to do away with the oxymoron, "approvable letter," which far as we can tell means the exact opposite. The FDA's new stamp of non-approval will be a “complete response” letter that “will describe specific deficiencies and, when possible, will outline recommended actions the applicant might take to get the application ready for approval,” the agency said in a statement. (We are waiting for the "incomplete response letter", but maybe that can't be tied to a PDUFA date.)

And there are shifts on the follow-on biologics front, as Insmed announced results of a study showing bioequivalence between its INS-19 compound and Amgen's blockbuster Neupogen. That could trigger renewed discussion of biogenerics legislation on the Hill. Neupogen, after all, rang up $1 billion in sales in 2007 alone.

Finally, BNet's David Hamilton believes that big changes are afoot at Pfizer, which continues to struggle with the new math of this century's blockbusters. According to Hamilton, "Pfizer is starting to restructure itself into into a marketing-centric, research-light drug company that will most likely be looking for acquisitions in order to restock its depleted drug pipeline." We can but hope. And who knows, perhaps generics--or at least the word diversification--will be part of is mantra. For more on Pfizer's strategy, check out Roger Longman's recent IN VIVO feature. (Coincidentally, Merck KGaA's CEO Karl-Ludwig Kley told the German newspaper Handelsblatt that his company's chemicals division, which makes liquid crystals and specialty chemicals, is 'part of our DNA,' indicating he rules out a sale of the business.)

If true, perhaps Pfizer can dodge Dylan's prophecy: "As the present now will later be past, the order is rapidly fadin'. And the first one now, will later be last. The times they are a changin'" Come gather round people, wherever you roam, it's time for...

Fresenius/APP and Fresenius/Galenica: The German health care products and services company Fresenius gets fearless investor of the week honors for wading into the heparin controversy via a $4.6 billion (at least) buyout of APP, and for following up by acquiring rights to Galenica’s injectable iron product Injectafer—currently “not approvable” at FDA following an advisory committee review that concluded that the drug has a mortality disadvantage compared to oral iron. Of course, there’s a nicer way of spinning things. The APP acquisition gives Fresenius Kabi, a “cornerstone” to build a hospital products pharma presence in the US—and does it at a time when APP is generating explosive profit growth since finding itself as the sole supplier of heparin in the US. Fresenius will be able to ride that wave—though it will also pay more for APP if profits are higher than projected. (You can read the deal terms here.) So far, APP has looked like the hero in the heparin story. The company has also jacked up the price of its product now that is the sole supplier in the US—as much as tripling the price—which could be a risky move given the political attention to the heparin market after Baxter’s catastrophe. (APP defends the price increase in part by noting that its product is still significantly cheaper than any possible alternatives like low molecular weight heparin or Angiomax.) The acquisition, though, may make it less obvious how big a windfall APP reaps from heparin, since its numbers will now be consolidated into the new parent. That could limit its political exposure.

The Galenica deal involves a different division of Fresenius, the dialysis services company Fresenius Medical Care. And the immediate focus is on Galenica’s two marketed injectable iron brands (Venofer and Ferinect). The two companies are creating a joint venture focused specifically on the dialysis market; and in North America a second agreement with Galenica’s partner Luitpold secures the same split responsibilities. Venofer alone is about a $250 million product in the US. And Fresenius will have rights to Injectefer if and when it reaches the market. Despite the regulatory setback, Fresenius says Injectefer “is expected to enhance the treatment of anemia in the dialysis patient population through the application of innovative drug administration techniques.”

Novartis/Speedel: A series of insider stock sales by executives of the Swiss biotech Speedel will add up to the acquisition of the company by its main partner Novartis. On July 10th Speedel said officers of the company, including founder and CEO Alice Huxley, sold their stakes—totaling 51.7% of the outstanding shares—to Novartis at CHF 130 per share. Add to that Novartis’ existing 9.7% stake and the Big Pharma was obliged to make a mandatory public offer to buy the rest of the company’s shares. The acquisition—which values Speedel at about $880 million—is neither unexpected nor particularly expensive, especially in the light of Speedel’s recent stock market decline and the companies’ symbiotic relationship. Speedel in 1999 in-licensed its lead renin inhibitor aliskiren (Tekturna/Rasilez) from Novartis, and Novartis clawed back the drug in 2002 (a 2004 discussion of Speedel’s business model is here). Though successfully approved, the drug has underperformed, putting pressure on Speedel’s stock and disappointing Novartis. That said, the drug remains Novartis’ best post-Diovan strategy (that antihypertensive goes off patent in 2012) and even at $880 million analysts point out that the Big Pharma is essentially tapping the rest of Speedel’s renin-heavy pipeline for free.

Solvay/Innogenetics: We have a winner. Solvay trumped Gen-Probe's hostile bid for Innogenetics with a higher bid of its own, and Gen-Probe has no desire to counter the counter-offer. Analysts widely expected Solvay to up its original April bid for Innogenetics, which was only 5.75 euros a share, when Gen-Probe offered 6.10 euros-a-share in an effort to transform itself into the world's largest stand-alone moelcular diagnostics company. On Wednesday, Solvay announced it would pay 6.50 euros-a-share for the Belgian company--about $361 million--and Gen-Probe decided to take its ball and go home. For Gen-Probe, winning Innogenetics was always a long-shot. The San Diego company, which had 2007 revenue of $403 million and a market valuation of more than $2.83 billion, hasn't done an acquisition since 2003 when it bought Molecular Light Technology for $11 million. Solvay, meanwhile, is a much larger outfit with revenues of roughly $15 billion, and has the economic advantage of making a friendly offer in a stronger currency than the rapidly sliding dollar.

Thermage/Reliant: For aesthetic device companies, where sales and marketing account for the biggest costs and a number of the newer one-product companies find themselves bumping into each other at the physicians’ office, consolidation is the order of the day. Several weeks ago, Medicis purchased Liposonix. Now skin tightening firm Thermage has snapped up skin surfacing company Reliant for $95 million, paid in a combination of stock and cash. Together, these two companies, which offer complementary aesthetic technologies, had $137 million in revenues for the fiscal year that ended in March 2008, according to the press release announcing the deal. The tie-up solves a key problem for Reliant; it was running out of money, having failed to execute the IPO it filed in 2007, perhaps because of its steep post-money valuation, which was north of $200 million. Reliant will also benefit from Thermage’s unique sales model of deploying two separate sales forces, one selling capital equipment, and the other, the disposable tips its devices require. Almost certainly, Thermage’s disposables sales force can help push Reliant’s creams and skin care products.

Lilly/SGX: Lilly receives this week's award for opportunistic acquirer. On Tuesday, the pharma announced a $64 million takeout of its research partner, SGX Pharmaceuticals. Like many other biotechs, SGX has been in a pickle: As of Tuesday July 8, it was trading at a discount to its existing cash reserves--meaning investors believed the company was worth less than the number on its own bank balance. This wasn't always the case, but the company took a hit when its lead project SGX523, a MET inhibitor in Phase I, showed dose-limiting toxicities earlier than expected, and investors fled the stock. With a dwindling bank account and no hope of tapping the public market, SGX had little choice but to sell when Lilly came courting. For more check out this post from earlier in the week.

(A big thanks to fellow Windhover writers Michael McCaughan, Chris Morrison, and Mary Stuart for contributions to this post.)

1 comment:

Anonymous said...

According to Hamilton, "Pfizer is starting to restructure itself into into a marketing-centric, research-light drug company that will most likely be looking for acquisitions in order to restock its depleted drug pipeline." We can but hope. And who knows, perhaps generics--or at least the word diversification--will be part of is mantra.

I follow your Pfizer commentary closely and must compliment you on the quality of it.

These comments above, I consider to be right on the money.

Have you considered the prospects of PFE buying up and partnering the Australian immunology sector for R&D and pipeline?