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Friday, October 17, 2008

DotW: Batten Down The Hatches

After the capital infusions of banks around the globe by their respective governments failed to restore investor confidence and reduce Wall Street's volatility, the m.o. at many companies is "batten down the hatches, mate. It's gonna be a rough ride."

And the industry is already starting to see the fall-out. Perhaps not surprisingly, hardest hit are the smaller biotech and specialty-focused companies who don't have the luxury of stock piles of cash. On the heels of AtheroGenics' decision last week to declare bankruptcy, come restructuring announcements from DeCode Genetics and Par Pharma.

But these days, even a healthy cash position won't prevent the need to explore "strategic alternatives." Case in point: Cell Genesys, which had roughly $150 million in the bank as of Sept. 30. On Thursday the company announced it was terminating the late-stage VITAL-1 trial of its risky GVAX prostate cancer vaccine--yes, the one it partnered to Takeda for $5o million up-front earlier this year--due to lack of efficacy. As we noted in an earlier post, this is the second major clinical set-back for the company this year--over the summer it suspended its other GVAX immunotherapy trial, VITAL-2, for similar reasons. As the biotech weighs options that include sale or liquidation of assets, it's doing its best to conserve what is now likely seen as its most valuable resource--its war chest--slashing the work force by 75%.

And its not just the smaller players that are suffering. Companies such as WuXi PharmaTech, which posted strong earnings growth for the third quarter, cautioned that the financial crisis sweeping the globe would cut into its 2008 profits, while renewed doubts about the completion of the Daiichi/Ranbaxy deal have surfaced. (Reuters notes today that Daiichi has managed to purchase a 20% stake in the generics maker thus far.) And the WSJ reports that privately-held Actavis Group, one of the world's biggest generic-drug makers, could also be up for sale. The reason? The firm is 80%-owned by private-equity firm Novator, the investment vehicle of Icelandic billionaire Thor Bjorgolfsson, who lost a big chunk of change in the Icelandic banking collapse.

If Big Pharma is relatively insulated (we have more on the impact of the credit crunch in the October IN VIVO), it's by no means smooth sailing for these companies either. Sure, most still have strong cash positions--but a new report issued this week by Moody's shows that a significant portion of that capital is trapped in off-shore accounts. And, at least for now, companies aren't willing to take the tax hit required to repatriate those earnings. As a result, they're taking on debt to bolster sagging pipelines despite the risk--and rising costs--associated with borrowing. But as Lechleiter, CEO of Lilly, told the Indy Star earlier this week, the bigger risk is to do nothing and watch as the patents on blockbusters like Zyprexa and Cymbalta expire--or wait for an approval of Effient.

Meantime ports in this market storm seem to be the companies whose pipelines are diversified beyond traditional pharmaceutical products. In its quarterly earnings call on Monday, for instance, J&J posted positive news, mostly on the strength of its consumer biz and the sales of allergy medicine Zyrtec. That push to diversify is one reason Pfizer created an established products business unit--we used to just call them generics--as part of its recent sweeping reorganization.

Feeling queasy? We don't blame you. We prescribe some chamomile tea and...(Definitely NOT a Red Sox game; though perhaps last night's result is a sign that miracles do happen.)

GSK/BMS: On Wednesday, GSK announced it will acquire Bristol's Egyptian mature products business for $210 million. The deal means GSK will become the leading pharmaceutical company in Egypt, with a market share of 9%. In addition, GSK will acquire 20 branded products including the antiobiotic Duricef and the ACE inhibitors Capozide and Capoten. In addition, GSK will take ownership of BMS's high quality manufacturing facility outside Cairo. The move isn't too surprising given the operational strategies now apparent at both companies. Since taking over as CEO earlier this year, Andrew Witty has signaled his belief in the need to diversify GSK's business beyond branded drugs, including luring Abbas Hussein away from Lilly to head the pharma's newly created emerging markets group. In July, the company licensed rights to South African Aspen Pharmacare JV Onco Therapies' portfolio in 95 emerging markets (excluding India and sub-Saharan Africa). BMS, meanwhile, continues to take a contrarian view, selling off what it considers non-core businesses in an effort to build its cash position for future in-licensing efforts. Since last December the mid-size pharma has reaped more than $4.6 billion by selling off both its medical imaging unit and its wound/ostomy company, ConvaTec. (The company also plans to spin-off 10% -20% of its nutritionals business, Mead Johnson. An S-1 has been filed, but who knows when the offering will occur given the current business climate.) As recently as FDC-Windhover's annual PSA confab, Jeremy Levin, SVP of external science, technology, and licensing, signaled that BMS's strategy won't shift, even given the market turmoil. "We are going to stick to our knitting. We will face the problems head on and continue to do what we are good at," he said.

Alcon/GSK & Alcon/Origenis: Alcon brokered two deals this week to expand its future drug portfolio, out-licensing from GSK its troubled PFE-IV inhibitor Ariflo, which has struggled for years to gain approval, and expanding its existing research collaboration with Origenis. Financial terms of neither deal were disclosed, but, in the case of Ariflo, do include an up-front payment and developmental milestones. (Translation: Alcon probably got a pretty good deal on the product.) The two deals appear to be a targeted attempt on Alcon's part to add both early and late stage products. Of Ariflow, Sabri Markabi, MD, SVP of R&D and Alcon's CMO, noted: "We believe the cilomilast compound has potential for treating dry eye as well as other ophthalmic conditions." Apparently GSK did not. With the recent appointment of Ellen Strahlman, MD, an ophthalmologist by training, as their CMO one would assume GSK would have developed the drug for the indication if they felt comfortable with its therapeutic profile. But it could also be a sign of GSK's attempt at more rationale development program--one that attempts to monetize under-performing assets and off-load the development risk, while retaining future rights should the product actually pan out. In this case, GSK has the option to co-promote the product with Alcon, and it also retains rights to Ariflow for non-ophthalmic conditions. The Alcon/Origenis deal is a bit more vanilla: Alcon's rights to products discovered through the partnership are for ophthalmic and nasal applications, while Origenis retains certain rights to all other uses. For its work, Origenis will receive research payments based on developmental milestones and royalties based on sales of any future products coming out of the partnership. Alcon has a similar early stage research agreement with Kalypsys.

Sanofi/TB Alliance: In certain circles, doing well by doing good is becoming de rigueur. Last week saw news of a tie-up between Summit and the Lilly TB Initiative. This week Sanofi-Aventis makes news of its own in the TB arena. The pharma has teamed up with the Global Alliance for TB Drug Development, a not-for-profit focused on this bacterial scourge, to accelerate the discovery, development and clinical use of drugs against TB. Under the terms of the agreement, the two organizations will share information on their respective projects and exchange insights on developments in TB drug research; they will also consult with each other on relevant regulatory strategies related to developing countries. "This collaboration with Sanofi-Aventis underscores the commitment of the TB Alliance to partner with leaders in science and business to achieve our goal of making faster, better and affordable TB drug regimens available as soon as possible," said Dr. Jerome Premmereur, President and Chief Executive of the TB Alliance. Sanofi is no stranger to developing TB drugs--it discovered rifampicin in the early 1960s and markets several other anti-infectives targeted at the microbe. But don't think this collaboration just benefits the not-for-profit TB Alliance. Thanks to legislation concerning priority review vouchers, a new incentive program created by the FDA Amendments Act of 2007 that rewards sponsors of drugs that treat "neglected tropical diseases" by giving them the right to receive a priority designation on any future new drug application, it's also likely that Sanofi will reap some kind of reward. And that suggests the voucher system may be working exactly as intended.

Ono/Progenics: Oh yes, Progenics has licensed Japanese rights to develop and commercialize the subcutaneous version of its methylnaltrexone (Relistor) opioid-induced constipation drug to Ono Pharmaceutical. The Japanese pharma will pay Progenics $15 million up-front and up to $20 million in potential development milestones. Should the drug get Japanese approval Ono will pay additional milestones on sales and an undisclosed royalty. In addition, Ono has the option to acquire rights to other future formulations of the product (including IV and oral versions). Progenics licensed worldwide rights to Relistor to Wyeth in 2005, and Wyeth later gave back the Japanese rights (and the onus to pay $7.5mm in milestones on the subq formulation in Japan). So far Wyeth has paid Progenics $60mm in up-front payments and $39 million in milestones related to methylnaltrexone; Progenics also receives a royalty on sales. Relistor has enjoyed somewhat of a resurgence this year. Widely written off as non-approvable, it's one of the few new molecular entities to squeak through FDA without additional trial mandates or a risk management plan.

(Photo courtesy of Flickr user rdaniel through a creative commons license.)

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