Sunday, January 31, 2010

While You Were Taking a Homeopathic Overdose

In Britain, hundreds of protesters gathered outside branches of the drug store Boots to endulge in a little comedy 'overdose' of homeopathic pills. The sugar rush must've been amazing.

Meanwhile, in Washington, here comes the budget. And it ain't pretty ...

While you were watching a pretend football game ...

  • GSK plans to cut about 4,000 more jobs in the US and Europe, reports the Sunday Times. The official word is expected on Thursday when the Big Pharma reports its 2009 financials.

  • Harvard and Imperial College scientists have elucidated the structure of a key HIV enzyme, integrase, reports Reuters. The findings should aid drug discovery and resistance-prevention efforts.

  • Merck Serono: no timeline yet on FDA resubmission of MS drug oral cladribine.

  • FDA isn't happy about one oft-quoted dermatologist's premature enthusiasm for Dysport in 2007, which hadn't yet been approved. The forum? The women's magazine Allure.
  • UPDATE: Cephalon is buying the Merkle-owned Swiss generics company Mepha for $590 million. The deal doubles the size of Cephalon's overseas business, which until now mainly comprised the assets of former European specialty play Medeus.

image from flickr user shellac used under a creative commons license

Saturday, January 30, 2010

DotW: State of the Union

In case you missed it, President Obama peeled back the layers of the onion this week, causing U.S. generals, Supreme Court Justices, and the Republican minority to week. The prez reaffirmed his belief in the necessity of health care reform but offered no concrete specifics about what it would take to actually get a bill signed.

Meanwhile the state of the biopharma union is decidedly mixed. Johnson & Johnson announced the first drop in sales since the Great Depression; Lilly’s earnings were less than stellar thanks to a lagging Effient launch; and AstraZeneca announced additional job cuts across its far-flung organization. (In case you are wondering, R&D will be hit again, as the company seeks to reduce its internal R&D footprint.)

Shareholder activism continues to be the rage in our industry, prompting WWCID moves from Genzyme. The Big Biotech announced it was changing executive compensation, backing away from salaries and bonuses only tied to operating income, and also strengthened the role of its independent director this week. Will such moves appease Icahn and other major institutional investors? It’s hard to say but you can bet Genzyme is paying close attention to events happening at its nearby neighbor Biogen, given Icahn is aiming to put another three members on that company’s board.

The state of biopharma dealmaking was decidedly light this week. Perhaps the flow of information related to the poorly named iPad distracted. Whatever the reason, IN VIVO Blog, in an effort to provide for the common defense and promote the general welfare, brings you another edition of Deals of the Week. (Domestic Tranquility is not, however, insured.)

Flexion/AstraZeneca/Merck Serono/Unnamed Big Pharma: Flexion Therapeutics raised its profile on Jan. 29, announcing it has licensed in four clinical-stage compounds from a trio of drug makers: AstraZeneca, Merc Serono, and an undisclosed drug maker. It topped off its $33 millions Series A with another $9 million from Pfizer Venture Investments. (Oh, corporate venture, how we love you.) According to CEO Mike Clayman, the various deals came together over recent months but the company decided to announce them all at once. Flexion's original model supposed that pharma companies would be more eager to part with their shelved compounds if they held "clawback" rights, but Clayman said only one of its four programs has such a provision. He was unable to disclose which of the candidates it was or any of the financial terms of the various deals. (Want more? Check out this January 2010 IN VIVO feature.) Founded in November 2007 with $3 million in seed funding, Flexion seeks to take advantage of large pharma's excess discovery capabilities by licensing potential high-value specialty compounds and developing them through proof-of-concept and beyond. It's no coincidence that the company's business plan resembles that of Eli Lilly's Chorus unit - Flexion principals Clayman and Neil Bodick founded Chorus before striking out on their own. The company is focused on specialty products so that it won't have to partner them to advance to market, Clayman added.—Joseph Haas

UCB/Sanofi-Aventis/Teva: UCB has slowly but surely been paring down its primary care activities in favor of specialty products, even garnering an IN VIVO Blog Deal of the Year nomination for its emerging markets deal with GSK. Today, the company announced it would accelerate that process by offloading US rights to its soon-to-be-off-patent allergy drug Xyzal to Sanofi-aventis and end its co-promotion around Teva’s albuterol ProAir. The future of UCB now rests largely on the emerged-market performance of its immunology and neurology franchises, dominated by Cimzia, Vimpat and Neupro. It will hang on to Tussionex, its cough remedy, but will cease using a sales force to promote the drug. UCB didn’t mention the terms of either the Sanofi agreement or the Teva deal cancelation, nor how many jobs would be affected by the move. It did note that these moves, along with previously announced restructuring in Europe, would result in a €70 million post tax charge that will lower 2009 earnings accordingly.—Chris Morrison

GlaxoSmithKline/Amgen: Split indications are a potentially messy reality for biologics with potential wide-ranging utility. Amgen knows that all too well given the fracas that ensued over Epogen. But the company seems willing to tread in those churning waters--as long as the partner is Glaxo. In in its second indication-specific deal with the Big Pharma in less than a year (Prolia for PMO was the first), Amgen this week announced a co-promote agreement with GSK's derm division, Stiefel, around its flagship tumor necrosis factor drug Enbrel. The agreement--a defensive move on the part of Amgen designed to help the company maintain its leadership position despite an increasingly competitive and crowded field--has Glaxo's sales reps promoting the drug to U.S. dermatologists. Terms of the deal weren't disclosed. Importantly, the marketing relationship extends only to dermatologists and has no impact on Amgen's existing promotional agreements with Pfizer, which co-markets the TNF-alpha inhibitor with the biotech in the US and has sole marketing rights to the drug in other parts of the world. In the psoriasis market, Enbrel is now the elder statesman, facing stiff competition from other anti-TNFs such as Abbott's Humira as well as more novel agents, including J&J's recently launched Stelara, a first-in-class interleukin-12 and 23 blocker. It's not clear whether the move will be enough to bolster Enbrel's long-term market share, however. While Enbrel remains "the first-choice biologic" for now, Decision Resources analyst Irene Koulinska told "The Pink Sheet" DAILY that she "expect[s] Humira to continue to steal patient share.--Jessica Merrill

Bristol-Myers Squibb/Eli Lilly: Who says earnings calls can't be a source of deal news? (A pox on such cynicism.) In their same day earnings calls on Jan. 28, Bristol and Lilly revealed they'd reached a détente regarding ownership rights to necitumumab, a fully humanized version of the epithelial growth factor blocker Erbitux that has shown encouraging results in Phase II studies in lung and colorectal cancer. Specific details of the co-development/co-promotion agreement weren’t disclosed on the call, “The Pink Sheet” DAILY reports BMS will pay 55% of the costs associated with U.S. clinical studies and 27.5% of the price tag for global trials. Assuming necitumumab actually makes it to the market, BMS will book sales of the drug in the U.S. and Canada and keep 55% of the profits, with marketing costs split evenly between the two firms. In Japan, the two pharmas will split commercialization costs and profits equally as well. Necitumumab became a bone of contention back in 2008 when Lilly won bragging rights as the ultimate acquirer of ImClone Systems for $6.5 billion. Just how important will necitumumab be to Bristol, which is aiming to be a major oncology power house? Bristol didn't offer any guidance on the earnings call, but at least one analyst is predicting peak annual sales of $300 million by 2015. That's hardly a blockbuster.--JH

Sanofi-Aventis/Minsheng Pharmaceutical: Sanofi likey consumer health and emerging markets. And boy, when you can use those two phrases in the same sentence, it’s guaranteed to be a deal. On Jan. 29, the French pharma announced an agreement with Minsheng Pharmaceutical to create a new consumer health care joint venture in China focused on vitamins and mineral supplements. Financial terms of the deal, which has apparently been in the offing since Oct. 2009, weren’t disclosed but Sanofi will own a majority share in the J/V. Minsheng currently produces the most popular supplements in China, including the 21-Super Vita multivitamin-mineral tablets. But the Hangzhou-based firm is struggling to maintain its preeminent sales position, facing growing competition from foreign supplement brands, especially Amway’s Nutrilite and Pfizer/Wyeth’s Centrum. Sanofi’s rationale for the deal is pretty easy to understand: access to one of the fastest growing OTC markets in the world. Analysts estimate the Chinese OTC market, which is dominated by vitamin and mineral products, generated just over $10 billion in 2008. In addition, it is forecast to grow by double-digit percentages over the next 5 years. (That’s a whole lot of gingko biloba.) Moreover, Sanofi has clearly shown its commitment to the consumer sector as a way to diversify away from the development risks associated with its branded pharmaceuticals and the potential vagaries of health care reform. In December the company spent $1.8 billion to buy the OTC and personal care product specialist Chattem to gain a coveted toe-hold in the U.S. consumer space. Beyond Chattem, the company has also in recent months scooped up Medley Pharmaceuticals, Symbion CP Holdings, Laboratoire Oneobiol, Kernpharma, and Laboratorios Gramon in attempt to double its consumer product offerings via bolt-on acquisitions.—Ellen Licking

Friday, January 29, 2010

FOTF Has More Celtics than a Boston Garden Reunion

Boy that Celtic private equity outfit did a lot of deals over the past few weeks. Kolltan, Inspiration, Cantab, Polytherics ... But of course there’s not one, not two, but three Celtic private equity funds. Yes, OK: FOTF will break it down for you.

Once upon a time (around 2004) Stephen Evans-Freke and John Mayo started a private equity group called Celtic Pharma Management (the fund was Celtic Pharma I Holdings). They planned to raise $1 billion to pursue an asset-focused acquisition model (but did acquire companies as well). The fund aspirations were later downsized to $500 million, then again to $250 million. The final fund was $250 million but split into equity/debt.

Evans-Freke and Mayo later went their separate ways, but not before CPM/CPIH (we’ll call it “Pharma One”) made some asset/company investments and acquisitions: Inspiration, Xenova, Idea, etc. Pharma One is the source of some of the recent deal activity (more below).

Evans-Freke (and others) then formed Celtic Therapeutics Management in 2007. We'll call them Therapeutics; that fund has a similar model to Pharma One in that it wants to focus on acquiring assets and then selling them on. How big is this fund? Their web site says it’s a successor to the previous fund with the same strategy but “on a larger scale,” so probably bigger than $250 million. These guys attracted some ex-Pharma hitters like Pfizer’s Peter Corr (now the other General Partner with Evans-Freke).

Meanwhile Mayo (and others) formed Celtic Pharma II Holdings (we’ll call that one “Pharma Two”). Pharma Two has a different strategy, and that is to acquire full or majority ownership in companies. It’s important to note that Pharma One and Pharma Two have completely different ownership structures. Pharma Two is actually owned by a fund-of-funds outfit called Beehive Capital, which holds funds in different sectors (life sci, art, cleantech, communications). We understand the fund is smaller than Pharma One but hasn’t necessarily stopped fundraising.

To make things complicated: Pharma One has a web site that suggests it might still be investing (it isn’t); Pharma Two and Therapeutics use the same logo/font/style (but are not really related); and Pharma One and Pharma Two have the same web site (but have different management and different ownerships—the latter isn’t particularly unusual as any investor’s subsequent funds may have different LPs). See, not so difficult!

On to the deals: Pharma One got the exit from Inspiration, when Ipsen stepped in with its creative deal. Therapeutics was the investor in Kolltan (see below—Therapeutics was also the recipient of the investment from PPD last fall). Pharma Two was the investor/acquirer of Cantab, announced this week (see below). But here there’s an extra-special wrinkle: Pharma One got the exit from Cantab, in a round-about way.

All of which brings us to …

Cantab Biopharmaceuticals: Now there’s a name we hadn’t heard in a while. That Cantab? No, not the Cambridge, Mass. bar where Little Joe Cook and the Thrillers used to entertain with favorites like “Sexy Lady from the Beauty Shop.” We’re talking about the Cambridge, UK biotech that after a rocky dozen years or so was acquired by Xenova in 2001. In 2005, Celtic (Pharma One version) bought Xenova, mainly to access that company’s nicotine vaccine. Pharma One held the ex-Cantab assets, largely around biologics manufacturing processes and IP, but apparently didn’t do much with them (they only wanted the pipeline) and it evolved into a small service business. But Celtic Pharma Two saw some potential, and instead of shutting the operation down, bought Cantab from Pharma One. Earlier this week, Pharma Two announced it was effectively relaunching Cantab as a company, and would fund it with roughly £5 million over the next three years to pursue a strategy it calls “biosuperiors” (we might call them bio-betters or even FOBs, but we admit their term has a certain zing). The next day, Pharma Two said it did a deal with a biotech called PolyTherics to access the latter’s site-specific pegylation technology, which Celtic partner Stephen Parker tells us will be applied to create a long-acting Factor VII.--CM

Kolltan Pharmaceuticals: In a transaction reuniting principals previously involved in Sugen and the development of oncology drug Sutent, Kolltan Pharmaceuticals closed a $10 million Series B on Jan. 20. Celtic *Therapeutics* led the round and Tichenor Ventures also pitched in (See our coverage from “The Pink Sheet” DAILY). The deal is structured as $8.5 million in Series B convertible preferred stock plus a $1.5 million product development option that can be converted into additional Series B stock. Notably the financing doesn’t involve any of Kolltan’s Series A backers. It also appears to represent a shift in strategy away from Celtic Therapeutics asset funding mandate. But Stephen Evans-Freke, managing general partner at Celtic, former biopharma banker and former Sugen founder says the deal isn’t much of a strategic departure. “If you look at our track record, going back to Celtic Pharma, we actually often do a bit of equity as part of or to pave the way for a product development transaction,” he told us. “This is a little earlier-stage than most of them, but that’s because we’re acutely familiar with the technology platform, the science area and the relatively low risks associated with what Kolltan is doing.” And given that familiarity and the past relationships, the transaction begins to look a little less like a departure for Kolltan, a biotech devoted to inhibiting receptor tyrosine kinases (RTK). The company said going into its Series A (backed by private entities like Purdue Pharma and the Pritzker/Vlock families and honored on this year’s Start-Up “A-List”) that it wanted to be in business with family institutions or institutions that are like family.—Joseph Haas

Amag Pharmaceuticals: Although the offering had not closed as Financings of the Fortnight “went to press,” Amag is expected to raise $174 million or more through a follow-on public offering announced Jan. 19. Initially planning to sell 3 million shares, the Lexington, Mass.-based biotech increased its offering to 3.6 million shares at a price of $48.25 per share. The company, which announced better than expected fourth-quarter 2009 sales of its chronic kidney disease drug Feraheme at the J.P. Morgan Healthcare Conference earlier this month, also is granting the underwriters an over-allotment option of 540,000 shares. According to an 8-K filed Jan. 20, underwriters will be able to purchase shares at a discounted price of $46.08 per share. Presumably, Amag will use the funds to further its marketing efforts for its intravenous iron drug in the CKD non-dialysis patient space. The company also is targeting small and mid-sized dialysis centers but does not expect to win a competition against older, lower-priced rivals like Forest’s Ferllecit and Luitpold’s Venofer among the larger providers, like Fresenius and DaVita, because forthcoming CMS bundling reimbursement rules for dialysis will encourage providers to use the cheapest therapeutic option.--JH

Elevation Pharmaceuticals: In 2009, only three companies working in the pulmonary drug delivery space raised venture funding--a total of $25 million out of the $768 million pulled in by all types of drug delivery players, according to Elsevier’s Strategic Transactions database. But 2010 has gotten off to a promising start with Elevation Pharmaceuticals’ $30 million tranched Series A financing, completed on January 21. Canaan Partners, TPG Growth, Care Capital (each of which contributes a new board member), and Mesa Verde Venture Partners were part of the investor syndicate. Elevation says the money will support lead candidate EP101--a long-acting, reformulated bronchodilator delivered via Pari Pharma’s eFlow nebulizer--through mid-stage trials. The drug delivery start-up was founded in 2008 by three individuals who hail from biotech companies—all within the respiratory realm—that have more or less achieved a validating deal or some kind of exit. Chairman Cam Garner, a veteran in both the pharma and device world (and not a stranger to reformulations of existing drugs via other recently established companies like Meritage Pharma and Evoke Pharma), headed up Dura Pharmaceuticals, which was sold to Elan in 2000 for $1.7 billion; president and CEO Bill Gerhart held the same positions at Mpex Pharmaceuticals (which is developing inhaled antibiotics and has a Big Pharma partner in GSK); and SVP/CMO Ahmet Tutuncu, MD, PhD, came from Verus (also co-founded by Garner), a company that divested its assets and now only seems to exist via its relationship with AstraZeneca, which paid $30 million up front and has promised $280 million in earn-outs related to Verus’ pediatric asthma business (though there is the small matter of a lawsuit there).—Amanda Micklus

Thursday, January 28, 2010

Health Care Reform: Words, Words, Words

We said we had a sense of deja vu going into the State of the Union, but this is ridiculous.

Last night, President Barack Obama devoted 516 words to his call to finish work on health care reform, about five minutes of the talk. That is about 7.2% of the total 7, 127 State of the Union address he delivered. Remarkably, it is exactly the same portion of the speech that he devoted to health care in his first address to Congress 11 months ago (427 out of 5,923 words, if you are keeping score.)

And its about half the percentage that health care represents of the economy.

Stirring though the words may have been, their relative dearth suggests health care is hardly a make-or-break issue for 2010.

All of which means, Big Pharma has to think seriously about the consequences if Obamacare goes away.

Yes, it has reached the point where the US brandname pharmaceutical industry is hoping against hope that it can get someone to take $80 billion.

The famous deal between the Pharmaceutical Research & Manufacturers of America and the White House, which we dubbed "dollars for donuts," is up in the air, just like everything else related to health care reform.

AstraZeneca CEO and PhRMA board Chairman David Brennan made that clear at a press conference today tied to the company's year-end financial report. To Brennan's credit, he has said all along that the prospects for reform are uncertain, and today he underscored that things are more uncertain than ever.

And, in case there is any doubt, the collapse of health care reform would be a bad thing for Big Pharma. It is not just what won't happen--no bolus of newly insured customers, no filling in of the donut hole, no reduction in cost-sharing for existing insured, no new IP protection for biological therapies.

It is also what will happen. It is not like Pharma will just get to keep its $80 billion.

To us, the most important words for industry in the entire address weren't in the health care section at all, but earlier--when Obama called on Congress to tax overseas earnings. A year ago, Obama wanted to use that idea as a way to pay for health care reform, and that--maybe more than anything else--explains the deal PhRMA struck with the Administration. Industry came to the table, and the tax deferral on overseas earnings was taken off of it.

Not any more.

"To encourage these and other businesses to stay within our borders," Obama said last night, "it's time to finally slash the tax breaks for companies that ship our jobs overseas and give those tax breaks to companies that create jobs in the United States of America."

It took just 42 words to express that thought. But those are the words that could really count.

Tuesday, January 26, 2010

Victoza Gets Past FDA, But....

There are a few caveats. First, a black box warning for the once-daily GLP-1 analog which includes a potential increased risk of thyroid cancer (despite Novo Nordisk's repeated claims that this applies only to rodents, not monkeys or humans). Second, no first-line usage allowed. Third, significant post-approval requirements, including a CV safety study, a 5-year epidemiological study to evaluate thyroid cancer risks, a 15-year cancer registry to monitor thyroid cancer cases, and a REMS.

As such, "it's a worst case label for the product," concluded Sam Fazeli, an analyst at Piper Jaffray in London. "Bittersweet" was how Jefferies' Jeffrey Holford put it, while Citigroup simply cut to the chase with "Commercial success far from certain."

Things could have been still bleaker, though. At least the US approval has finally happened (the drug was filed in May 2008). It might have been pushed out significantly further, given the regulators' apparent problem with the thyroid cancer risk. And on the up-side, there's no need for calcitonin monitoring during Victoza therapy (calcitonin is the marker used in humans for thyroid cancer) and there are no broad contra-indications for the drug. Only patients with a family history of medullary thyroid cancer, or multiple endocrine neoplasia syndrome, aren't allowed Victoza--and both those indications are very rare.

As such, Novo's management was upbeat during the analyst call announcing the news. The REMS is very remiscent of that recently imposed on Lilly/Amylin's twice-daily GLP-1 analog Byetta, said EVP & CSO Mads Thomsen, and certainly manageable. He added that many diabetes drugs (metformin, the sulphonylureas) have black box warnings, and most new products aren't awarded first-line treatment at their first pass at FDA. Thus, "we're perfectly happy with our monotherapy label," he said. (The product was denied approval as a monotherapy in Europe).

There a big 'but', though--and it's Byetta. That product has not only a five-year head start, but also hasn't got a black box, hasn't got a thyroid cancer risk warning, can be used as an initial therapy, and thus remains "first choice" treatment in this class, according to Fazeli, despite its more frequent administration.

This explains the generally (although not exclusively) down-beat analyst reaction to the news; "we see more room for disappointment than surprise on Victoza," writes Citigroup's Mark Dainty. Never mind the fact that Victoza outperformed Byetta in blood sugar lowering in a recent Phase III head-to-head trial.

Novo's management still thinks it can surprise, however. (They're a confident lot.) They re-iterated their forecasts that Victoza will reach sales of over $1 billion by 2015 (Byetta's currently at about $700 million and it has been on the US market since 2005).

Much will depend on whether follow-on GLP-1 analogs including long-acting Byetta (EQW) and Roche/Ipsen's taspoglutide are stamped with the same thyroid cancer warnings as Victoza. (Amylin's epidemiological study of Byetta is due March 31). Novo's Thomsen is adamant that the thyroid cancer signal seen among rodents is a class-effect among the long-acting GLP-1 analogs, and points to a forthcoming peer-reviewed scientific paper outlining what he claims is a similar pre-clinical effect on thyroid c-cells for Victoza, long-acting Byetta and taspoglutide. "We'll have to live with the notion that long-acting GLP-1 analogs cause c-cell proliferation in rodents," he told The In Vivo Blog. "But there's no reason to believe that these findings have any relevance to higher species," he added.

Whether or not the other long-acting GLP-1s get the same treatment, FDA is unlikely to remove Victoza's black box for several years at least, likely until the 5-year follow-up cancer study data is available.

Meanwhile, though, with its already-expanded US sales force and pricing in line with Byetta at about $8/day for the 1.2mg dose, Novo will be pushing Victoza with all its might and leveraging its wider diabetes franchise where possible. And let's not forget the fundamentals: Victoza is once-daily, can be taken anytime, prompts some weight loss, isn't associated with hypoglycemia or significant nausea, and is relatively easy to titrate.

Those elements may yet trump the worries about cancer in rats.

The State of the Union: The More Things Change…

It is a funny thing: it feels like everything has changed in health care reform, and yet we can’t help but have this crazy sense of déjà vu on the eve of President Obama’s State of the Union Address.

The questions about health care reform today aren’t so different than they were eleven months ago, when President Obama made his first address to a joint session of Congress last February 24. (That address was not, technically, a State of the Union address, but—with apologies to constitutional scholars—that is a distinction without a difference).

A year ago, the big question was: how aggressively would Obama pitch health care reform on his agenda? Where would it fall amid other priorities, most pressingly job creation and the reeling economy? And would he say enough to bring Congress with him for the heavy lifting reform would entail?

That pretty much sounds like what we will be listening for tomorrow night.

Yeah, the circumstances look very different. Then, Obama was the newly elected President riding high on an unprecedented wave of hope if not hype. Today, he is still personally popular, but his policy agenda is bloody and bruised.

On health care, sweeping legislation passed both the House and the Senate, but the election of Republican Scott Brown as the new Massachusetts Senator makes final enactment seem like an insurmountable challenge.

But things really aren’t so different than they were a year ago. In 2009, Obama addressed Congress without a filibuster-proof majority. At the time, in fact, the Democratic caucus had only 58 members: it wasn’t until Arlen Specter switched parties and Al Franken was finally certified as the winner in Minnesota that the Dems had 60.

And Obama was fresh off an embarrassing setback then too: the withdrawal of Tom Daschle from consideration as HHS Secretary and health care reform czar.

A year ago, the question was how far and how fast should Obama push for reform? Would it be comprehensive reform or bust? Or would there be a more measured, scaled down plan, with jobs, energy and other priorities defining the agenda?

Those are the same questions Democrats and health care reform advocates are asking today.

And it is interesting to remember the answer a year ago. Then, Obama announced a “down payment” on health care reform, but declined to define comprehensive reform as the priority—instead saying that a robust, sustainable economic recovery depended on reforming health care, clean energy and education reform.

We will see tomorrow night if maybe Obama decides he was right all along…

Friday, January 22, 2010

DotW: Extraordinary Measures

The biopharma industry got glamorous this week with the debut of Extraordinary Measures, a ripped-from-the-headlines biopic based on John Crowley, now CEO of Amicus Therapeutics, and his attempts to develop a life-saving medicine for his two children suffering from the rare, inheritable enzyme deficiency called Pompe disease. New York Times film critic A.O. Scott didn't pan the flick, noting it rises above some of its made-for-TV trappings. (He wasn't quite so kind for the other science-focused pic of the week, Creation, about the life and times of Charles Darwin.)

Genzyme, which developed a FAQ sheet related to its ties to Extraordinary Measures and its "Special Medicine," got a little sliver of spotlight, and not the kind that comes with PDUFA dates, Form-483s, and its aging Allston Landing manufacturing plant. Also basking a bit were the biotech execs who mingled with celebs at the film's January 21 red carpet premiere, according to back-and-forth reports from some of our favorite Twitterati.

Speaking of extraordinary measures, Alcon's minority shareholders seem ready to go the distance, even in a protracted legal battle, to wrest a better deal from Novartis. We're certain Merck and Inspire Pharmaceuticals both suffered extraordinary disappointment after the Phase III failures of their respective HIV and dry eye disease drugs. Meanwhile, Pfizer and Teva are rumored to be duking it out for ownership of RatioPharm.

Most extraordinary of all, though, was the crash-and-burn of health care reform. In an amazing turnabout, Democratic hopeful Martha Coakley lost the race for the late Ted Kennedy's Massachusetts Senate seat to Republican Scott Brown. The result: as our own Mike McCaughan notes, in a surreal twist that proves truth really is stranger than fiction, the unthinkable status quo -- leaving our health care system as-is -- suddenly became a very possible reality.

As we ponder who gets to play the movie versions of Brown (how about this guy from The Wire?) and Coakley (Susan Sarandon?), it's time to wrap up the news in another edition of...

Ipsen/Inspiration Biopharmaceuticals: Ipsen's decision to align itself with hemophilia player Inspiration Biopharmaceuticals was an interesting--if not also inspired--choice. It's the latest twist in the big sibling/little sibling concept dealmaking, only here we see concretely the value to the bigger party. Ipsen has agreed to pay $85 million for a 20% stake in Inspiration and gets an option tied to development milestones to acquire another 47% for $174 million. In exchange, Ipsen receives $50 million in convertible notes and offloads development of OBI-1, a recombinant porcine factor VIII compound currently in late Phase II trials that the French pharma in-licensed from long-term partner Octagon in 2008. (Ipsen also gets a 27.5% share of future OBI-1 sales--if it doesn't swallow up Inspiration first.) Ipsen is deviating from the strategy its management professed in 2008, where unlocking OBI-1's full value was clearly tied to the French group's "direct commercialization" of the medicine. Now Ipsen seems to think that marketing of OBI-1 is best left to a company with in-house hemophilia expertise and a portfolio of products. Many from Inspire's management team hail from Baxter, and the biotech has three other hemophilia programs built on recombinant protein manufacturing technology. But Ipsen's decision also parallels a tack it took in 2006 when it scooped up a partial stake in Tercica as part of a plan to become a global endocrinology player. Two years later Ipsen bought out its partner for an additional $400 million to deepen its footprint in the U.S. and Canada. One other interesting twist to the deal: project financier Celtic Pharma also won big in the process, garnering its first exit. Recall Celtic had an equity stake in Inspiration and a direct interest in that firm's lead compound, IB1001, a novel recombinant Factor IX drug. -- Carlene Olsen and EFL

Novartis/GenVec: Novartis's small deal with gene therapy developer GenVec in the hearing loss space is another example of its desire to diversify into areas of unmet medical need, says "The Pink Sheet" DAILY. The Swiss drugmaker pays a modest $5 million up-front and buys $2 million in GenVec common stock for the biotech's preclinical, gene-based "atonal therapy" program, which is designed to restore hearing loss and balance function by stimulating the regeneration of sensory hair cells in the ear. In addition to the up-front and the validation of a deal, GenVec stands to gain $214 million in milestone and royalty payments if products are commercialized. Novartis also picks up full development control--and cost--of the gene therapy program, and will manage the collaboration via its New Indications Discovery Unit, a group charged with exploring opportunities in diseases outside the drugmaker's current R&D strategy. Drugs aimed at stopping or reversing hearing loss certainly fit that description. Devices currently dominate the hearing loss/balance market and IN VIVO Blog is aware of only a few other companies attempting to play in this space: Quark Biotech, Auris Medical, and Otonomy. On a much smaller scale, one might see Novartis' move as reminiscent of its decision to take over specialty ophthalmic player Alcon, especially if Novartis follows its toe-dipping GenVec deal by taking a more significant stake in another player with consumer or device offerings. -- Emily Hayes

Alcon/Sirion Therapeutics: While Alcon's minority shareholders gear up for the Novartis fight, the specialty eye company is trying to show that it's business as usual, at least when it comes to alliances. This week Alcon purchased U.S. rights for two FDA-approved topical eye-care products, the corticosteroid Durezol and the antiviral Zirgan. In addition, Alcon purchased global rights, excluding Latin America, for Zyclorin, a Phase III 0.1% cyclosporine solution for dry eye and other ocular surface disease. Terms of the transaction were undisclosed. The news emphasizes again the premier position Alcon--and now Novartis thanks to its at least 77% ownership stake in the company--plays in ophthalmology. Alcon has been among the most active deal makers in the ophtho space in recent months, despite claims from big drug makers that this specialist market is of primary interest. Among Alcon's notable deals: its take-out of device marker Optonol, its earn-out heavy purchase of EsbaTech, and its licensing/option-to-buy agreement with Potentia Pharmaceuticals. The Sirion deal adds to Alcon's bucket of late stage/marketed assets, while shifting the VC-backed biotech's focus to its much earlier stage clinical assets, especially the Phase II fenretinide, an oral vitamin A-binding protein antagonist being developed to treat the dry form of age-related macular degeneration. For more on Sirion, which raised $27.7 million from a syndicate of 17 investors in October 2009, check out this story from the July '09 issue of START-UP.--EFL

Axxam/Juvenile Diabetes Research Foundation/National Multiple Sclerosis Society: It seems to be the first collaboration of its kind. Two nonprofits--the JDRF and the National MS Society's venture philanthropy group Fast Forward--have teamed up with the Bayer spin-out Axxam of Milan, Italy, to hunt for drugs targeting a specific ion channel, Kv1.3, whose misregulation in certain immune cells has been implicated in both diabetes and multiple sclerosis. Financial terms of the agreement weren't disclosed, but Fast Forward's president Timothy Coetzee told "The Pink Sheet" DAILY that the two patient advocacy groups will invest equally in the project, with Axxam also kicking in funding. Under the agreement, Axxam will use its high-throughput screening technology to analyze its chemical library in search of compounds that modulate Kv1.3 ion channels in T cells. Apparently Axxam first reached out to JDRF and proposed the two groups review the Italian firm's compound library for diabetes candidates. JDRF then took the proposal to Fast Forward and suggested pooling resources since the work would be around a target implicated in both diseases. -- Joseph Haas

Alcon Outrage at Novartis' Bullying

Far from achieving "clarity" in its Alcon takeover by bidding for the minority shareholders' 23% stake as well as buying up Nestlé's majority ownership, Novartis has apparently whipped up a storm of anger among Alcon's independent directors and shareholders. That may turn into a legal battle unless the Swiss group ups its offer.

Earlier this week Alcon's Independent Directors' Committee launched a new website dedicated to explaining why, in their view, Novartis' offer of about $150/share for their stake is "grossly inadequate". (Don't forget they paid about $180/share in cash to Nestlé for the latest, 52% tranche of the food-group's stake.) Not only that, but the Swiss Big Pharma's "coercive" tactics, they go on to declare angrily, are "offensive".

The bit we liked best on the IDC call Wednesday was Chairman Thomas Plaskett's likening Novartis to "a playground bully who takes half your lunch money then splits it with his best buddy."

This is more than lunch money, mind. Even at the current offer level, Novartis will be forking out an additional $11.2 billion for the minority stake in Alcon, on top of the $38.5 billion it's already paying Nestlé. Creating a global eye-care leader is pricey, notwithstanding the strategic benefits of this white hot specialist space.

But Alcon's worth more still--"dramatically" more, cry the minority shareholders. They declare Novartis' valuation of the business as "fundamentally flawed", dismissing the Big Pharma's $137 estimate of Alcon's 'unaffected' share price (had there not been months of deal-related speculation). (Read the minority's financial analysis here.)

What hasn't helped relations is that Novartis' management claim they can simply force the shareholders to accept their offer, according to Swiss merger law (that's the playground bully bit). "We will have 77% of shares on closing the deal with Nestlé, which gives us a majority on the board, so we can vote in favor of our further proposal," argued Chairman and CEO Dan Vasella on a Jan 4 conference call announcing the deal. The only recourse open to minority shareholders would be an appeal to a Swiss court post-completion, he later clarified.

Not so, say the shareholders, and we'll direct you to that highly informative website for the legal small print.

So, posturing aside, how much are these shareholders after? Plaskett wouldn't give a number during the call (he doesn't want to scupper their negotiating position). But your blogger persuaded another shareholder to stick his neck out. "Between $175 and $180 is probably the lowest I'd be willing to accept."

That's probably optimistic; don't forget the blended per-share price Nestlé's getting is $168 (taking into account both price of the original 25% stake plus that of the more recent 52% stake). But the message it sends is clear: come up with a better offer, or we'll drag this out as long as we can, through the law courts.

Novartis may be the Goliath in this story, but it's got lots to lose from a protracted legal battle, whatever the final outcome. Many of Alcon's minority shareholders are its employees, which Novartis won't want to lose (it's probably already annoyed a fair few of them). Indeed, the idea is to have Alcon's management run a new, larger ophthalmology company comprising Alcon and Novartis' eye-related assets. Nor will a long court-room fight help Novartis extract its estimated (some say under-estimated) $300 million in cost-synergies or provide the focus that such an integration will require.

Novartis wouldn't comment yesterday on the IDC's reaction to its offer. But we reckon there's a better-than-average chance that they'll try to resolve this in a friendly, non-bullying fashion. Or at least an average chance (given that Novartis has doubtless tied up the best law firms).

We'll certainly be listening with interest to Jan 26's results call; you never know.

image by flikrer trixOr used under a creative commons license

Thursday, January 21, 2010

Health Care Reform: Suddenly The Status Quo IS An Option

Remember when this round of health care reform began? There was just one thing everyone agreed on: the status quo is no longer an option.

Remember when Pharmaceutical Research & Manufacturers of America CEO Billy Tauzin stood side-by-side with Families USA head Ron Pollack to declare that, past differences between the two groups notwithstanding, they would join forces to urge the Obama Administration to press on with health care reform?

Or America’s Health Insurance Plans CEO Karen Ignagni standing up during the White House health care summit, being called on personally by the president, to say that insurer’s would not repeat their role in blocking reform this time around?

Time and time again, we heard the same theme: in 1993-94, everyone supporting health care reform viewed the status quo as their preference if they couldn’t have reform just their way. This time it was different. The status quo was no longer an acceptable fallback.

The status quo is suddenly very much on the table.

Such is the impact of the unbelievable, unthinkable victory by Republican Scott Brown in the race for the Massachusetts Senate Seat formerly held by the late Ted Kennedy.

Sure, there are plenty of non-healthcare explanations for that outcome. Plenty of folks blame the Democratic candidate, Martha Coakley, for a less than stellar performance. And special elections are always unpredictable. (We drew a comparison before between this race and the kind-of-the-same-but –exactly-the-opposite election of Harris Wofford in Pennsylvania almost 20 years ago.) And Massachusetts already has universal coverage--or as close to it as any federal health care legislation would deliver.

But this is politics and symbols matter. Ted Kennedy passed the mantle to Barack Obama and made health care his legacy issue. There can be no more potent symbol of repudiation for the current reform path than the election of an avowed health care reform opponent from the opposition party to fill his seat.

That silence you hear is the stunned contemplation of all parties to the health care reform debate that the status quo might just be what they end up with after all. All those lobbyists. All those hours. All those hearings, and mark-ups, and legislative drafts, and drafts of drafts. All for nothing?

Now, as President Obama likes to say, let me be clear. As of today, less than 48 hours after it really happened, no one can say for sure what the strategy on health care reform will be. Or, indeed, whether there will even be a strategy—since it is entirely possible that the Obama Administration, House Democrats and Senate Democrats will end up pursuing different ones.

And, as we point out in “The Pink Sheet” DAILY today, there are viable options to move forward, once the dust settles—many of which still seem attractive for biopharma companies.

But whatever happens next, we expect a key element will hinge on whether the stakeholders in the debate really meant what they said a year ago. Is the status quo really not a good outcome?

Because it is suddenly very much an option.

Wednesday, January 20, 2010

Notes From JP Morgan: Put On Your Happy Face?

For those trawling the halls of the Westin St. Francis and other nearby hotels at last week's JP Morgan confab, the buoyant outlook by most attendees resulted in an industry-wide sigh of relief.

But is the optimism justified? Or have we collectively morphed into ostriches, believing that if we squawk loud enough, our assertion that investors are returning to public biotech will make it so? To completely mash-up our animal metaphors, perhaps the positive outlook is really just due to the "dead cat bounce."

In truth the reality is nuanced. A pool of lucky "haves" add to their cash positions while the unlucky and far more numerous "have nots," which now includes smaller biotechs and VC firms, will continue to struggle.

Let's start with the good news. As we note in this January IN VIVO feature, publicly traded biotechs raised more than $6 billion in follow-on public offerings in 2009, compared with just $2.1 billion in 2008. Last year was the best year on record since 2000, when the torrid market and a NASDAQ pushing 5000 allowed biotech to raise more than $11 billion.

The strong boost in FOPOs has bankers and other Wall Street types believing that a thaw in the IPO market can't be far behind. But take heed: the $6 billion in FOPOs that's causing so many smiles was primarily the domain of more established industry brethren, including Vertex, Human Genome Sciences, and Dendreon, which all have late-stage assets facing regulatory decisions in coming months.

Indeed, those three companies alone pulled in more than $2.2 billion in 2009, one third of the FOPO largesse, according to Elsevier's Strategic Transactions database. (And FYI, according to the database, the largest single public offering in '09 went to the diagnostic and instrument maker Qiagen.)

Certainly the IPO stats posted for 2009 -- 12 health care companies pulled in nearly $3 billion --were a vast improvement on the 2008 climate, when just two companies debuted raising a paltry $92 million. But do IPOs such as Johnson & Johnson spin-out Movetis's €98 million coming-out party really translate into investor appetite for considerably riskier offerings in the queue? A J&J spinout with a Phase III asset is one thing; the regenerative play Tengion, antibiotic developer Trius Therapeutics, or anti-VEGF developer Aveo Pharmaceuticals are a different kettle. Will these start-ups suffer Omeros's fate? Will they even get out?

In that vein, we have to hand it to Ironwood. In a "grab the bull market by the horns" kind of move, on Jan. 20, the company filed plans with the SEC for a debut that could bring in nearly $270 million. Recall Ironwood first filed in November with a $173 million target. That price alone would be the most lucrative drug-related offer since mid-2007 -- not counting Talecris, the plasma producer and Bayer HealthCare spinout that raked in nearly $1 billion last fall. But Ironwood has decided to shoot even higher and sell 16.7 million shares at $14 to $16 per share.

Meanwhile there are other questions to ponder. Given the desperate straits of many VCs (more on this in a minute), is there a danger fledgling start-ups will be pushed from their financial nests prematurely, as their backers aim to demonstrate their exit prowess? And what happens if several of these IPOs go south? If Ironwood falls short of its $267 million goal, will the IPO window slam shut faster than you can say eye-pea-oh?

Maybe, but VCs seem willing to take the risk given their own financial constraints. "We need the stalking horse of a robust IPO market for deal prices to increase," one VC told IN VIVO Blog at last week's JP Morgan meeting.

Just how bad are things in VC land? On Tuesday Jan. 19, Atlas Venture, which invests in both tech and biotech, announced plans to consolidate operations, bringing its US and European teams together under one roof in Boston. Only the happy family won't necessarily be bigger -- in the process, Atlas is reducing headcount.

That news probably would have been unthinkable a year ago. Atlas actually raised money in '08, one of the lucky few to pull in money even as the economy was souring. (It closed its $283 million Fund VIII in January of 2009.) But it's hard not to raise questions about VC viability after last week's revelation that the total amount of money raised by venture firms from their limited partners fell sharply in 2009 to $15 billion, nearly half of 2008's total and the lowest since 2003.

"Our industry is going to contract in size," Mark Heesen, president of the National Venture Capital Association, said last month. Almost certainly, healthcare VCs won't be exempt.

That's troubling news for private biotechs looking for funding, especially if they aren't exactly newbies and need significant dry powder to advance a product to proof-of-concept. (Fourth-quarter VC financing stats are due out January 22, fyi.) And it means corporate venture groups like SR One, the Novartis Option Fund, and Johnson & Johnson Development Corp. will again play a critical role in new company creation. (It also means big pharma can use its cash to make VCs irrelevant.)

Either way, no one we've talked to recently predicts that earn-out heavy deals will fall by the wayside. On the rise of structured acquisitions, one VC told us unequivocally last week, "We love them." That's probably because such deals AREN'T alliances.

So what do you think, dear reader? The nascent optimism at JP Morgan last week seems rooted in the fact that 2009 ended so much better than it began. But how much does that really say?

(Image courtesy of flickrer BenSpark via a creative commons license.)

Glaxo's Witty Tries To Fix An Industry Problem

For the second time in a year, Andrew Witty has succeeded in getting in front of a contentious issue that plagues the pharmaceutical industry – finding ways to provide greater access to medicines to poor countries. Last year, the GlaxoSmithKline ceo trumpted plans to create a patent pool for tropical diseases; reinvest 20 percent of profits from meds sold in the Least Developed Countries, and reduce prices there by 75 percent.

The February 2009 effort (see the pronouncements here) won him kudos for addressing topics that his peers had mostly confronted in fits and starts. Generally pleased with the reaction, Witty this week embarked on what amounted to a 24-hour media blitz – including a widely telegraphed speech this morning before the Council on Foreign Relations in New York – to announce his next steps.

His latest moves read like a laundry list of NGO initiatives: creating an ‘open lab’ with $8 million in seed money and space at a Glaxo facility in Spain so that up to 60 scientists from erstwhile locales can research neglected tropical diseases. Glaxo is also contributing 13,500 compounds – including chemical structures and assay data – that will be available on web sites for developing new malaria treatments. There’s more: BIO Ventures for Global Health will run the ‘knowledge’ pool announced last year and collaborations were inked with the Emory Institute for Drug Discovery and South Africa’s iThemba Pharmaceuticals. Finally, in a related development, he promised to limit profits on a malaria vaccine, which is in Phase III testing, to 5 percent and contribute the proceeds to Glaxo’s R&D budget for vaccines to combat neglected tropical diseases (see more in The Pink Sheet).

“The speech I made this morning really tries to build on what I started a year ago,” Witty told a handful of bloggers (including yours truly) at the majestic New York Academy of Sciences offices in lower Manhattan following his morning speech. “We’re really trying to identify a more pluralistic approach to solve very difficult problems rather than constantly use the same approach…and be much more open-minded and be prepared to try new things.”

Certainly, Witty deserves some credit for taking these steps. For years, drug makers have been skewered for failing to do more to make their meds widely available in various countries. Over the past year, the Glaxo ceo has managed to alter many perceptions by conveying a willingness to listen and act. Compare that to the running battles between drug makers and governments that, sometimes, led to brinksmanship over compulsory licensing. Of course, those disputes were generally over very profitable treatments for heart disease, cancer or AIDS. By comparison, malaria treatments are the equivalent of low-hanging fruit, not best sellers that command top dollar in developed countries.

When questioned about the intellectual property and commercialization rights to the 13,500 compounds donated for malaria research, Witty was quite firm in saying that Glaxo wouldn’t benefit from any malaria treatment that may be discovered and developed, unless a company later approached his team for a deal of some sort. “But a cardiovascular medicine,” he added, “that’s a different consideration.”

And he tried hard not to appear defensive when asked about an idea being pushed by Medicines Sans Frontieres and Unitaid, the international drug-purchasing agency based in Geneva, to create a patent pool for HIV medications. Recent reports mention several drug makers that have held talks, but Glaxo wasn’t among those listed. By contrast, Glaxo’s interest in AIDS drugs did make headlines last year, but largely in connection with a joint venture formed with Pfizer, called ViiV. Nonetheless, Witty insisted that Glaxo is, in fact, willing to explore the possibility.

“We actually have eight voluntary licenses for a variety of HIV drugs and each one covers 44 countries…That’s a huge portfolio of openness. These are licensed to both African and Indian manufacturers and they are royalty-free. And we gave permission to generic companies to create combination products. As a result, last year they supplied more than four times the volume than what GSK supplied,” he argued. “So we’re already doing what you’d envision what the pool would generate.

“Where are we with the (Unitaid) pool? Not surprisingly, we’re very aligned with the goal. And we’re engaged in conversation to try to work with them, as are others, in ways that are practical. The ViiV team met (with them) just yesterday or the day before…The meetings are constructive and cordial, and we’re engaged in the spirit of trying to get details hammered out…But the decision lies with the management board of ViiV. As the biggest shareholder, we’re pretty close to knowing what’s going on there. But we’re very aligned with their goals…The devil is in the details and we need to get the details to work.”

Ironically, Witty acknowledged a wee bit of disappointment, but not much surprise, that other large drug makers have yet to embrace the patent pool for neglected tropical diseases he would like to develop. To date, only Alnylam Pharmaceuticals has agreed to join. In explaining the paucity of cooperation, Witty put on a brave face while also trying hard not to deliver a spanking:

“I do hope other companies will join,” he lamented. “…I can completely understand why they take their time. For those other companies, it came a little out of the blue. They’ve had to assess their response after the impact of (the announcement last year). There’s a fair degree of interest among some. But not to overstate, I think there are some (companies) that will never come into it…I hope they will join…But a year’s not a long time…Maybe it is in the blogosphere, but not in the pharmaceutical industry.”

Prodded by another question, Witty then conceded that his idea for a patent pool may one day expand to include prospects to treat other conditions beyond tropical diseases. For now, though, he pointed to the fact that there is little “market stimulation” for discovering meds to treat tropical diseases, unlike so many other illnesses. “But if it works, engages people and inspires people,” he said, “then, absolutely.”

Not everyone is enamored of his efforts, however. Health Action International, an advocacy group that pushes for greater access to medicines, says it’s still waiting for Witty to respond to questions posed last spring about Glaxo’s initiative to lower prices in countries in which this has taken hold. For his part, Witty yesterday preached patience.
“If we sit back as a group and constantly look to design the perfect model to fit the situation, to see what’s working, we’ll never do anything. So let’s see what opportunity we can create and move to the next problem,” he offered. “…This is a step on a journey and journeys have multiple steps.”

Monday, January 18, 2010

Musings on Commando Teva: Besting Big Pharma?

In recent investor forums, Teva executives have sounded like Big Pharma of the old days-- strong and bullish--while Big Pharma execs now sound more like old-time generics companies-- vulnerable and rather defensive.

The contrast was glaring when top Teva execs at their annual investor meeting earlier this month formed a wall of unremitting optimism, embracing both the vast opportunities before them and extolling what they see as their company’s equally vibrant ability to exploit them. The commandos appeared uncharacteristically giddy – using words like "unbelievable," "fantastic," and "flawless" to describe their numbers.

Only the day before, Pfizer CEO Jeff Kindler had spent his time at a Goldman Sachs analyst forum soberly doing a mea culpa on Pfizer's previous inability to control itself (spending) and emphasizing how they – Kindler, his CFO Frank D'Amelio and the rest of the Pfizer team – have learned from their past mistakes. We promise, people, that it won't happen again because Pfizer is taking steps to change (Are mea culpas a business fashion?).

Certainly Teva does have a track record of meeting its long-term targets – even if that means aggressive M&A, heavy-hitting patent challenges in the US, and even tougher at-risk launches and pull backs. All of these the executives mentioned only in passing, however, by-and-large avoiding any discussion of the messy details of their day-to-day work in the generics trenches. Pfizer and its brethren, in contrast, can't avoid mention of their troubled realities and steps they're taking to respond.

To take these observations a step further, in an exercise done perhaps largely for our own amusement--and admittedly crude given the vast differences in business models--we compared Teva's key financial ratios to those of Big Pharma to see ultimately if Teva's hybrid approach warrants such high-minded arrogance. Obviously, top-line growth rates are driving the executives' attitudes—Teva's is jumping, while Big Pharma is generally stagnating.

In general, the fundamental ratios of Teva and Big Pharma diverge significantly, especially for key figures like gross margins, SG&A and R&D to sales – hardly a surprise. Teva's gross margins hover in the high 50s percentile (forecasts have them climbing, however), while Big Pharmas are in the 70s and low 80s. R&D obviously isn't comparable – Big Pharma's R&D-to-sales ratio tends to be more than double that of Teva's, which its executives say should stay in the mid-single-digits.

Some of Teva's other ratios, however, are converging with Big Pharmas'. Its operating margins hover between 25 percent and 30 percent—within the lower range of normal for Big Pharma. And that range has been trending up, even as analysts expect most Big Pharmas' generally to stay flat (Glaxo, Pfizer) or decline (Sanofi, Lilly, AstraZeneca, and it's a toss-up for Bristol-Myers).

Teva's net margins, however, currently exceed those of Bristol and Roche and are comparable with Lilly (although they trail Pfizer and Merck), points out Standard & Poor's healthcare analyst Herman Saftlas. But Saftlas projects Teva's adjusted net margin should expand from the 22 percent range it falls into today to close to 30 percent over the next few years, powered by its top-line growth, cost cutting efforts, and M&A. That would put its net margins smack in line with Big Pharma's, and way above the rest of the generics industry, giving it more room to maneuver.

Despite all the challenges facing Big Pharma, its business model still has tremendous advantages over most generics companies—higher gross margins, stronger cash flow, and stronger balance sheets, as Moody's pharma analyst Michael Levesque points out. But he notes, Teva is indeed in a unique position, given its success in both generics and branded businesses, which generate lots of cash flows and profits, its leading market share, and its product and geographic diversity. So maybe diversity can pay off – if other parts of the equation, like Teva's military-like discipline at integrating new acquisitions and careful deployment of resources, are aligned. That's a message Big Pharma should take note of as it tries out its own new playbook.

image by flikrer Thorsten Becker used under a creative commons license

Friday, January 15, 2010

DotW: Climbing Halfway to the Stars

We say adieu to another frantic JPMorgan conference, punctuated by the ring-ding-ding of cable cars, the buzzing of blackberries, the exchanging of business cards, and the shouts of protestors railing about unethical drug pricing. Unlike Tony Bennett, DotW's bloggers didn't leave their hearts in San Francisco.

Nor, thankfully, did we leave our trusted digital recorders, jam-packed with interviews and presentations that will soon bear much fruit, hopefully of a quality and heft reminiscent of the vintages that were in abundance at the evening soirees this past week.

Compared to previous years, however, the week-of-conference deal flow seemed rather quiet even if the mood was decidedly more upbeat than last year. No doubt the thousands of investors, executives, and business development-types dashing from presentation to cafe to hotel suite were trying their best to pump up the volume, which we'll await in the weeks to come.

Meanwhile, take a post-JPMorgan chill pill and wash it down with a glass our own expressive--and admittedly opinionated (but never overbearing)--vintage, laden with supple notes of snark and absurdity.--Alex Lash

Sanofi-Aventis/KaloBios: Privately-held KaloBios announced a deal with Sanofi-Pasteur, the French pharma's vaccine division, worth $35 million upfront for the biotech's Phase 1 product, KB001. The monoclonal antibody is aimed at treatment or prevention of Pseudomonas aeruginosa infections in the hospital setting, especially prevention of pneumonias in mechanically ventilated patients. KaloBios stands to earn another $255 million based on development, regulatory, and commercial milestones, plus royalties. KaloBios kept back rights to the product in cystic fibrosis and bronchiectasis, but Sanofi has the ability to opt back in after Phase 2b studies in those indications are published. The deal is further validation for KaloBios, which has raised about $80 million in venture backing and has a non-exclusive partnership around its technology with Novartis. For Sanofi, one of the world's biggest vaccine makers, it's the firm's second deal in as many months for a therapeutic vaccine that addresses infections. Last month, Sanofi reached an exclusive, worldwide agreement with Syntiron to develop and commercialize its prophylactic vaccine against Staphylococcus. -- Ed Silverman

Roche/Galapagos: Belgian biotech Galapagos seems intent on signing one deal for each of the species of brown finch found on its namesake archipelago. (That’s 13, according to the Galapagos Conservation Trust.) Yes, we are kidding. But the option deal it announced with Roche on Monday is at least its sixth Big Pharma alliance in just over two years, so we’re not exaggerating too much. Roche and Galapagos are teaming up to discover and develop large and small molecules to treat COPD. The biotech gets €6 million upfront and is eligible for a slew of milestone payments spread across discovery, development, regulatory and sales hurdles, plus eventual royalties. Roche gets an option to license molecules at either clinical candidate selection or completion of Phase I, after which it funds all remaining development. The deal is relatively representative of its other pharma alliances, if a little more valuable than past deals. Roche joins recent Galapagos partners Merck (two deals), Janssen, GSK, and Eli Lilly. This morning Galapagos said it had received milestones in each of its two Merck deals, totaling €3.6 million. -- Chris Morrison

Quidel/Diagnostic Hybrids: Long known as a pure play in low-cost, rapid diagnostics for triaging patients for infectious diseases, Quidel is acquiring Diagnostic Hybrids, which sells antibody-based direct fluorescent in vitro assays to hospitals and reference labs. The deal, for approximately $130 million, opens a new market to Quidel and addresses a recurring problem for the company: sales of its main flu-test products are seasonal and can fluctuate dramatically year-to-year. The company felt this variation keenly: due to the mild winter flu season of 2008-2009, flu-test sales were off 90% compared to the prior year. Moreover, the unpredictability of disease incidence exposed flaws in Quidel's strategy to ship tests in bulk to distributors at the start of the flu season.These problems led to a restructuring in the spring of 2009 as well as the creation of an on-demand distribution system. Acquiring Diagnostic Hybrids should help steady the course. One third of the combined companies’ products will be seasonal, down from one half. Diagnostics Hybrids' products include antibody-based kits for identification of respiratory viruses, herpes, bacterial viruses, and thyroid stimulation immunoglobulin. -- Mark Ratner

Novartis/Proteus: Novartis is obviously keen to diversify not just with generics but with devices and consumer products. To wit: Alcon. Still, the Swiss behemoth's deal this week with Proteus Biomedical is an interesting twist, replete with convergent themes of devices, monitoring, and outcomes-driven healthcare delivery. The privately-held Proteus is teaming up with Novartis for an exclusive worldwide license to use the biotech's sensing technology to improve medication adherence post organ transplantation. The deal is worth $24 million in upfront cash and equity to Proteus, which has raised more than $70 million over four venture rounds since its 2004 founding. As part of the deal, Novartis also has option rights related to oncology and cardiovascular applications, and rights to use the technology in its clinical drug development. This is the second alliance between the two companies. In September, Novartis and Proteus teamed up to conduct a 20-patient study to monitor patients' compliance taking theblood pressure med, Diovan. Researchers measured adherence using Proteus's sophisticated "chip in the pill" technology, which reports when Diovan is ingested via a sensor on the patient's shoulder. According to Novartis, Proteus' whiz-bang approach worked far better than spousal nagging or a sticky note on the bathroom mirror: compliance increased from 30% to 80%. -- Ellen Licking

Amgen/Biovail/MedGenesis: Since its annus horribilis in 2007, Amgen has been more willing to share and Sharer alike. Bad puns aside, the once-voracious acquirer is now often an out-licenser, and this week it sent exclusive global rights to glial cell line-derived neurotrophic factor (GDNF) in central nervous system indications to Canadian firms MedGenesis Therapeutix and Biovail. Terms weren't disclosed other than Amgen taking what the firms described as a "small equity stake" in MedGenesis. Near-term, the three-sided deal allows Biovail and MedGenesis to team up and develop GDNF for Parkinson's disease using MedGenesis delivery technology. MedGenesis said it also has taken rights to GDNF for non-CNS indications and could collaborate with other partners. The Vancouver firm is applying its platform of convection enhanced delivery, which uses pressurized infusion to deliver drugs locally to the brain, to treat epilepsy and glioblastoma multiforme. -- Alex Lash