Monday, March 29, 2010

While You Were Time Traveling

OK we haven't seen it yet but on the combined strength of AO Scott's NYT review and the commercials we've seen, we'll go ahead and call next year's best picture winner for "Hot Tub Time Machine". And if you think that isn't a device designed to tie together a few of the weekend's industry happenings, well, you're not paying attention to In Vivo Blog.

While you were finding plutonium for your flux capacitor ...

  • One person in the know called it "the worst kept secret in Washington": President Obama will nominate Donald Berwick to head up CMS. We suggested that might happen way back in February 2009. People, either this has taken a very long time, or we have bent space and time. Your call.
  • Novartis would probably like to have a spin in the HTTM today, to go back and prevent its younger self from plunking down more than a few million for rights to Antisoma's ASA404 cancer compound. Sadly that drug didn't show a survival benefit in a Phase III lung cancer study, the companies said today. We covered their deal--the second around that compound after original partner Roche handed back rights--back in April 2007. Man, the In Vivo Blog is getting old.
  • Predicting benefit from drugs before treatment? How futuristic. Bloomberg reports on the Nature paper that describes a test that may predict response to beta interferons in MS patients.

Friday, March 26, 2010

Deals of the Week: Health Care Reformation

Behold the health care reformation. Clearly the biggest deal of the week -- or in the words of our excitable veep Joe Biden, a big f***ing deal -- was passage of the US health care reform bill.

It was certainly an historic moment, a piece of legislation that its backers hope will become as transformational as the 95 Theses of Contention Martin Luther nailed to the door of the Schlosskirche in 1517. At 2,700 pages, quite the doorstop, the bill certainly is heavier than Martin Luther's masterwork. Like ML, however, its authors also had to fight against indulgences, what with the Republicans offering 40 amendments designed to derail the bill, including a comical proposal to restrict sex offenders' access to erectile dysfunction drugs like Viagra.

As we noted earlier in the week, drug makers played their cards wisely, securing market expansions and intellectual property protections beyond what many thought possible, while simultaneously resuscitating their public image. (For now the insurance industry is wearing the bright-red bull's eye.) Even with the challenges of a risk-adverse FDA and lagging R&D productivity, there's plenty of reason for pharma to celebrate.

But we're also guessing certain factions -- the tea partiers and Republicans, for starters -- have not yet begun to fight. Will the November elections be Obama's Diet of Worms? (A sure-fire weight-loss scheme, by the way, but is it reimbursable?) Does Glenn Beck get to be Pope Leo?

Obama already has his game face on. Telling Republicans to "go for it" at an Iowa rally, he warned of an uphill battle for repeal come November as voters begin to feel the benefits of near-universal coverage. Like Luther, who famously uttered before the Holy Roman Emperor "I can and will not retract, for it is neither safe nore wise to do anything against conscience," call it the prez's "Here I stand" moment.

We also say bring it on. Mining the twists and turns of the bill, and all the future amendments sure to spring forth, will keep journos like us occupied -- if not gainfully employed -- for years to come. In the meantime, there's always that little weekly round-up we like to call...

Pfizer/GSK/Global Alliance for Vaccines and Immunisation: On March 23, Pfizer and GlaxoSmithKline signed what other media outlets termed "a landmark 10-year deal" to supply hundreds of millions of pneumococcal vaccine doses to developing nations at reduced prices. It's the latest example of big pharma's desire to do well by doing good. It's also the first deal to debut under a new Advanced Market Commitment scheme that helps poor nations secure vaccines, while guaranteeing a market for the drug companies, by setting a maximum price for the preventive shots. Over the next decade GSK will supply up to 300 million doses of its Synflorix vaccine to GAVI, while Pfizer plans to donate an unspecified number of Prevnar 13 shots. According to the AMC, the companies will charge $7 a dose for the first 20% of supplied vaccine, and then just $3.50 a dose for the remaining 80%. That's far less than the $54 to $108 per-shot fee GSK and Pfizer charge in developed countries. Canada, Italy, Norway, Russia, the United Kingdom and the Bill & Melinda Gates Foundation have collectively offered $1.5 billion to fund this first AMC. (The US isn't participating, but the FDA's priority review voucher is designed to expedite development of medicines for neglected diseases.) If it goes as planned, it will likely be the first of many such tiered pricing arrangements. Pfizer and GSK have both expressed interest in future AMCs. Rotavirus vaccines and a still-experimental treatment for malaria are good candidates for future GAVI tie-ups.

Ipsen/GTx: In need of non-dilutive financing after its selective androgen receptor modulator deal with Merck came to an end three weeks ago, GTx this week revised an existing collaboration with Ipsen. It calls for Ipsen to pay GTx $58 million pegged to Phase III trial milestones for toremifene, which is being tested to reduce fractures in prostate cancer patients receiving androgen deprivation therapy. The money will certainly come in handy, but GTx is paying a heavy price. The Memphis firm will forgo some longer-term payments that Ipsen would have owed had toremifene suceeded, as well as right of first negotiation to the Phase II prostate cancer drug, GTx-758. In an interview with 'The Pink Sheet' DAILY, Rodman and Renshaw analyst Simos Simeonidis said GTx "doesn't have a lot of wiggle room right now." That's because toremifene in November garnered a complete response letter from FDA that requested a second Phase III trial to demonstrate efficacy. With just $49 million in the bank and no more money coming from Merck, GTx calculated near-term cash was more important than downstream financial rewards. It's yet another example of the new math being practiced by cash-strapped biotechs.

AstraZeneca/Xenome: On March 23, Australian biotech Xenome announced AstraZeneca's MedImmune exercised its option, originally inked in 2009, to license four peptides designed to hit an undisclosed target involved in a key pain pathway. Financial terms remain confidential, which probably means they're not very lucrative for the privately-held Xenome, which most recently raised money ($6 million) in 2008. To develop its library of 2000 peptides, Xenome turned to Mother Nature for a little help. Its potentially innovative molecules are derived from cone snail venom. Should any of the recently optioned molecules succeed in the clinic, it wouldn't be the first time gastropod poison has yielded fruit -- er, success. Elan already markets Prialt, a drug for managing chronic pain based on the same venom. It's worth noting the deal comes a few weeks after MedImmune's mothership AZ pared its internal R&D efforts in certain CNS areas such as depression and schizophrenia.

Biovail/Cortex Pharmaceuticals: If there's a prize for revamping one's business via dealmaking, we nominate Biovail. On Friday, March 26th, the company announced its eighth transaction since its 2008 decision to become a CNS specialty pharma. Recent examples include the January deal with Amgen around GDNF rights and the tie-up with Alexza for the NDA-filed candidate, AZ004, for agitation associated with schizophrenia or bipolar disorder. Biovail is paying Cortex $9 million upfront for CX717, in Phase II studies as a treatment for respiratory depression, a brain-mediated breathing disorder. The deal also gives Biovail IP and rights to preclinical ampakine compounds. Biovail will likely pay a $1 million near-term milestone and perhaps $15 million more in milestones tied to clinical success and product approval. With AZ004, the Cortex program could add another product to the detail bags of Biovail hospital specialty-focused sales force.

Senate Decides Health Reform Isn't The Time To Have The Viagra Talk

Senate Republicans this week made a vigorous, though as expected unsuccessful, last ditch bid to stall the health care reform package, offering a slew of amendments of the final budget reconciliation piece of the package.

But amidst all the sweeping soliloquies about how health reform will inflict significant damage to the health care system, rest assured that one man, Sen. Tom Coburn, is keeping watch as well on some of the most arcane details.

The Oklahoma Republican offered an amendment March 25 that would restrict sex offenders' access to erectile dysfunction drugs like Viagra. It was one of 40-plus amendments were crafted specifically to make it difficult for Democrats to vote "No."

IN VIVO Blog readers may recall this is not the first time that Coburn has lobbed up an amendment to ward off misspending of health care dollars. When the Senate Health Committee was debate health reform last June, he unveiled a proposal to prevent HHS from using federal funds to sponsor fashion shows intended to raise awareness of health issues.

Now his fiscal conservatism has gone a little more hard core. Coburn's "No Erectile Dysfunction Drugs To Sex Offenders" (Amendment 3556) would prohibit federal payment for Pfizer's Viagra and other ED medications like Lilly's Cialis and Bayer's Levitra for convicted child molesters, rapists, and sex offenders. It also would prohibit coverage of abortion drugs and enact Government Accountability Office recommendations to prevent fraud via insurance claims for prescriptions written by providers who are actually dead or provided to dead patients.

It's hard to argue that sex offenders or dead people need access to ED drugs, but Finance Committee Chairman Max Baucus, D-Mont., called the amendment a "crass political stunt aimed at making 30-second commercials." Health reform "is a serious bill," Baucus said. "This is a serious debate. The amendment offered by the senator from Oklahoma makes a mockery of the Senate, the debate and the American people." The amendment was defeated 57-42.

ED drugs recurringly draw the ire of legislators, who have often prodded the Centers for Medicare & Medicaid Services to limit federal payments for such products. Since 2007, for example, CMS has instructed that such drugs are not covered by Medicare Part D for the treatment of sexual or erectile dysfunction (Pfizer markets Viagra's active ingredient sildenafil under the trade name Revatio for pulmonary arterial hypertension; that type of use is covered).
Part of the problem may be that legislators don't like ED advertisements and often try to curb them. (Alas, no fond memories of Bob Dole's time in office?) Last year, for example, House Democrat Jim Moran introduced legislation that directs the Federal Communications Commission to consider any advertisement for ED treatment or male enhancement as indecent for purposes of broadcasting between 6 a.m. and 10 p.m. Pfizer's current TV ads ask "Isn't it time you had the Viagra talk?

Despite such diversions, the Senate cleared the reconciliation bill later the same day. (For a recap of key pharma provisions, see last week's issue of "The Pink Sheet".) A couple minor education-related provisions were deleted, so the measure will need one final House vote. Meanwhile, we are eager to see what sizzling issues Coburn may similarly detect in upcoming legislative initiatives like financial reform.

- By Lauren Smith

Thursday, March 25, 2010

Financings of the Fortnight Gets Slightly Ahead of the Curve

The year is nearly one-fourth done. Is it just In Vivo Blog, or is life speeding up? For those with small children and caffeine addictions, the answer is always yes. For makers of innovative biologics, the answer is no -- take your sweet, sweet time. No rush. No pressure. The Congress's gift of 12 years of market exclusivity is the legislative equivalent of a late-night shoulder rub. Or a first date with Scott Brown in pink leather shorts.

Well, no, not with the new senator's aversion to all things HCR. (But we had to sneak that reference in somehow.)

For those raising cash in the biopharma world, life is almost certainly bound to speed up, though our most recent spin through the Elsevier Strategic Transactions Database reminded us not to get too frothy. We don't have official first-quarter data, but here's a sneak preview: as of a few days ago, year-to-date venture funding, follow-on offerings, and PIPEs for biotechs were all tracking behind last year's numbers, despite general signs of economic recovery. Nearly at the one-quarter mark, venture was at 20% of 2009's total, follow-ons were 18%, and PIPEs were 18.5%. Only IPOs were projecting north of last year's numbers, with $350 million already raised, compared to $831 million all of 2009.

What do these data mean? A lively final week of March--March Madness--could put us on pace to match 2009. But in the aggregate, there's no great case yet to make that 2010 is going to be much better than 2009, and for those who barely survived last year, that's cold comfort indeed.

Funny, then, how 2009 on the surface wasn't that bad. Twelve billion dollars of IPO, PIPE, FOPO and venture is higher than the totals raised in 2001, 2002, 2003, 2005 and 2008. Some of that $12 billion is deceptive -- as we've noted, a third of the follow-on cash last year was sucked up by three big issues, Human Genome Sciences, Vertex and Dendreon. And some of 2010's numbers aren't quite what they seem. For example, despite a few IPOs including Aveo Pharmaceuticals, which we'll describe below, no biopharma has filed to go public this year except for BG Medicine, which freshened up an old registration in January. (We hoped for a moment that recent S-1 registrant Eyeblaster was some sort of radical ophthalmology therapy, but alas, it's a digital advertising firm.) In other words, the $350 million raised so far looks nice compared to last year, but there's almost nothing in the pipeline. The S-1 storm at the end of 2009 quickly fizzled.

Perhaps passage of health-care reform will remove enough uncertainty to encourage more filings, but we haven't seen the signs yet. That means IPO financing, which has started the year ahead of the curve, could quickly fall behind the curve.

Which reminds us: Time for more coffee. We're falling behind the caffeine curve. Pull up a chair and we'll pour you a fresh cup of...

Lexicon Pharmaceuticals: Amid a flock of recent follow-on offerings, Lexicon's stood out for both its size--nearly 162 million new shares at $1.15 a share for $181 million raised--and its arrangement. Once again Lexicon, of The Woodlands, Tex., turned to its largest shareholder, Invus Group. Invus, an evergreen fund that avoids club deals, bought a private placement of 65 million shares. Lexicon simultaneously floated a public offering of 96.5 million shares (including the over-allotment) run by Morgan Stanley and JP Morgan Securities. It's an old formula for Lexicon. Last October, it raised $55 million, selling nearly 23 million units to underwriters and 15.4 million to Invus at a price of $1.50. In 2007, Invus pumped $205 million into Lexicon in a warrant-heavy arrangement and took the right to buy up to $345 million more in Lexicon stock. Lexicon, which has four homegrown small-molecule candidates in Phase II, also has a joint-venture-like structure with another private-equity investor, Symphony Capital. For the Mar. 19 issue, $1.15 per-share provided a discount to the $1.54-to-$1.80 range in the weeks prior to the offering. After the offering, the stock fell to $1.20, but shares recovered a bit to close at $1.44 on March 24. -- Joseph Haas

Merck KGaA: As if to underscore German Chancellor Angela Merkel's constant harangue of Greece during the European debt crisis, Germany's Merck KGaA -- the world's oldest drug company -- went out and raised the largest European bond offering this year. Merck issued €3.2 billion ($4.9 billion) in bonds on March 17 to help fund its $7.2 billion acquisition of R&D equipment maker Millipore, announced in February. Bank of America Merrill Lynch, BNP Paribas and Commerzbank led the issue, which was heavily oversubscribed and included 2-, 5- and 10-year notes. The Millipore acquisition was initially funded by cash and a term loan from the three banks, and Merck said at the time it would sell bonds to repay the loan. The bond float reportedly benefited from receding worries about Greece reneging on its sovereign debt and the return of investors’ appetite for riskier corporate debt. But even in the darkest hours of the financial crisis, drug companies have been able to issue debt for strategic financing. Pfizer and the American Merck both sold bonds to fund multibillion dollar takeovers of Wyeth and Schering-Plough. Early in 2009, Amgen and Novartis also raised several billion dollars under reasonable terms. -- John Davis

Rhythm Pharmaceuticals: There were larger venture rounds to choose from, but we're intrigued by Rhythm for a couple reasons. First, it was essentially carved out of the flank of Ipsen, taking its lead candidates, formulation technology, and an equity investment from the French firm. Second, it was incubated in the Boston offices of MPM Capital, which is one of the many VCs in active fund-raising mode. MPM co-led the anticipated $21 million Series A round with New Enterprise Associates. The first tranche of $10 million will go to develop preclinical candidates in-licensed from Ipsen in a deal announced days prior to the Series A. Rhythm has pledged up to $80 million in milestones plus royalties for exclusive global rights to melanocortin and ghrelin analog agonists for metabolic diseases, an area Ipsen says is no longer part of its focus. Rhythm can also use Ipsen’s formulation technology to deliver the peptide therapeutics. Included are BIM28131, with potential in postoperative ileus, diabetic gastroparesis, and cachexia, and BIM22493 for obesity and diabetes. Ipsen also took a 17% stake in Rhythm. The financing is MPM’s third recent investment in metabolic-focused biotechs, showing that not all VCs are eschewing riskier primary care companies despite changing FDA guidelines. In January, the VC led the $35 million B round for Alnara Pharmaceuticals; last year MPM, through its MPM/Novartis venture fund, led Elixir Pharmaceuticals'$12 million Series E round. That particular financing occurred with Novartis' decision to secure an exclusive option to buy the Elixir outright. -- Amanda Micklus

Aveo Pharmaceuticals: The Cambridge, Mass.-based Aveo debuted March 11 after selling 9 million shares at $9 each, as it tried to ride the momentum of lead candidate tivozanib, a small-molecule triple VEGF inhibitor that Aveo licensed in 2007 from Japanese firm Kyowa-Kirin. Tivozanib recently started Phase III trials for renal cell carcinoma. The going-out price was lower than the $13 to $15 range the company first targeted, and it had to sell 2 million more shares. The issue was delayed one day while its bankers scrambled to assemble the book, not surprising in the current environment. The 36% discount was the second-largest among 2010 IPOs, according to Renaissance Capital. The largest was also a biotech, Anthera Pharmaceuticals. Right on Aveo's heels, tissue-repair firm Tengion on Mar. 17 set a target of 4.4 million at $8 to $10 per-share. If Tengion prices, it will be the eighth biopharma to go public since the window re-opened last fall. Given investors' appetite for risk is still tepid, the pricing of Tengion's IPO is a must-watch event. -- Alex Lash

Photo courtesy of flickr user The Wolf.

Termeer Under Pressure, But Consent Decree Could Lift Cloud From Genzyme

It’s been nearly nine months since viral contamination in a bioreactor caused a temporary shutdown of Genzyme’s Allston Landing, Mass., manufacturing plant. And repeatedly, Genzyme’s executives, especially CEO Henri Termeer, have asserted that the company’s problems were fast receding into the rearview window. (Those little bits of rubber from the fill process were just a speed bump.)

But on Tuesday, March 23, the FDA said “not so fast,” informing Genzyme it would take an enforcement action—likely a consent decree—to ensure products made at Allston Landing comply with good manufacturing practices.

Looks like a full stop—at least temporarily--for Genzyme and Henri Termeer, in what has already been a long and winding journey to regain the good graces of investors. Activist shareholder Carl Icahn has been beating the drum of managerial change and in recent months has boosted his ownership of Genzyme stock and advocated that he, Alex Denner, and two other people be nominated to the biotech’s board of directors.

In the wake of this most recent announcement, investors may begin to come round to Icahn’s view point. On March 24th, the day the news broke, investors sold off shares at record pace. Genzyme’s share price slid roughly 6% with more than 14 million shares trading hands. Icahn has until May 20—the date for the biotech’s annual shareholder meeting--to make his pitch and he certainly has a shot at placing his recruits on the board. Unlike Biogen, which has also occupied Icahn lately, all 9 of Genzyme’s board members are up for election annually.

Will Termeer stay or go? Much likely depends on the exact nature of the enforcement action, including the time span of the consent decree and the size of the accompanying financial penalty. In recent months Termeer has taken important steps forward to right Genzyme’s woes, including outsourcing manufacturing to a third party, Hospira, and hiring an experienced quality of control manager, Ron Branning, from Gilead Sciences.

But these steps were clearly not enough to satisfy FDA. In an effort to put the news in the best possible light to investors, Termeer stressed in a conference call that the parameters of the consent decree will be negotiated between the biotech and FDA in the coming weeks and that the agency’s action would pertain only to Allston Landing and the products—Cerezyme, Fabrazyme, and Myozyme--manufactured and/or filled and finished there.

“This is something that always was one of the possibilities -- not something that we were hoping for. And we worked very hard indeed to get beyond this, to be something to expect. It did come, but we are very well prepared,” said Termeer.

But as our sister publication “The Pink Sheet” DAILY points out, pharma companies subject to consent decrees—a group that has included Abbott, Baxter, Lilly, GlaxoSmithKline, and Teva--rarely extricate themselves from oversight quickly. Indeed, according Raghuram Selvaraju, an analyst with Hapoalim Securities, in the past decade, only one company—Vintage—has met all the requirements of a decree to where it has been formally lifted. “Many of the others are still forced to abide by their agreements in totality,” Selvaraju wrote in a same-day note to investors.

And beyond the additional hassle required by third party oversight, there could be significant financial costs associated with the consent decree. Recall in 2002 FDA fined Schering-Plough, now part of Merck, $500 million as part of the consent decree for failing to comply with good manufacturing practices related to the production of its albuterol inhaler products. Beyond that, the agreement specified that FDA could assess royalties up to 24.6% on US net sales on products for which re-validation did not occur within the timelines specified under the decree.

Imagine if a similar agreement were imposed on Cerezyme precisely at a time when the medicine is under pressure from competing products from Shire and Pfizer.

Not everyone agrees the FDA will be so punitive. In a note to investors, Leerink analyst Joshua Schimmer wrote that while Genzyme's "failure to maintain its facility for a prolonged period of time may result in a punitive fine to set a precedent for other biologic manufacturers, we doubt the penalty would be nearly as sizeable" as Schering Plough's. But in what may a telling point for both Termeer and Genzyme, Schimmer went on to write, “That said, this is an area where visibility is poor.” Talk about damning with faint praise.

Paradoxically, the consent decree may actually be a good thing for Genzyme. The company has historically misread cues from regulators, repeatedly reassuring investors that its fixes were more than sufficient to take care of the problems at hand. But with consistent oversight from an unbiased third party, investors can finally have faith in the products manufactured at Allston. As analysts like to say, that ought to reduce the overhang from the stock price.

Will the consent decree lift those same clouds for Termeer? Well, that’s another question entirely.
--Ellen Licking
image from flickr user Grant Palmer Photography used under a creative commons license

Wednesday, March 24, 2010

New Pfizer BD Chief Peck Talks Consumer Health

Checking in from the Burrill Consumer Digital Health conference near San Francisco this week: Pfizer's new head of worldwide business development Kristin Peck (pictured) was on a panel Monday, which piqued our curiosity: Is this a signal from Pfizer (also a sponsor of the show) that it doesn't want to be left off the Pharma 3.0 map?

You might remember that at our PSO conference in February, Ernst & Young's Carolyn Buck-Luce talked up her firm's vision of Pharma 3.0, complete with a Sims-ish schema of a happy, busy neighborhood of interlinked businesses and organizations. Or, as we're all called these days, "stakeholders."

Microsoft was there. Patient organizations, hospitals, doctors, and insurance companies were there. Drug companies were not there.

Which, perhaps, is why Peck was there, on stage in a hotel under the SFO flight path, before the forever-pink-shirted Steve Burrill, talking about the so-called Pharma 3.0 world and Pfizer's place in it. Through a spokeswoman, Peck declined an interview, so we had to gather our first impressions of her from the fifth row of the ballroom.

Here's one: If Pfizer does deals as fast as Peck talks, there will be little rest for those who write about them. Peck also had a bushelful to say on every topic of the panel, which thankfully was structured as a conversation, not a series of PowerPoint talks. A few of her points:

* The health care reform bill wasn't comprehensive. It was just a step to improve Americans' access to health care, but it doesn't address how to reorganize care or reduce costs.

* Reform was only one step, but adding 30-million-plus Americans to the ranks of the insured might be enough of a shock to the system to prod innovation. The big question: Will the millions of new customers force doctors to embrace innovative changes? Doctors are "a large part of the problem" if they're not driving the change, she said. When a top pharma exec accuses another group of being slow to change, you can't help but raise an eyebrow and jot in the notebook "pot-kettle-black." That said, Peck isn't a pharma lifer. She joined Pfizer in 2004 after a consulting career -- and not just on pharma issues. She has real estate and financial services on her resume, too. In other words, a big change from her predecessor, Bill Ringo, who was at Pfizer only a couple years after nearly three decades at Eli Lilly.

* When fellow panelist and Wellpoint chief technology officer Carl Dumont mentioned an online tool available to Wellpoint customers to help them make health-care decisions, Peck said that if patients can't get access to the tool at the point-of-care -- when doctors are advising (or telling) them what kind of procedures they need -- what good will it do?

* Concentric rings of "community" will drive a lot of consumer adoption of health-related technology. When a person receives a disease diagnosis, for example, which community will he or she share it with? Family? Friends? Bosses and workmates? Other health care providers? How about yoga teachers, acupuncturists, and therapists?

We're watching Pfizer keenly post-Wyeth absorption to see how much of its business development shifts from traditional M&A and licensing to the network of providers, tech firms, patient advocates, and others making patient (or, if you prefer, "consumer") connections. One such deal Pfizer recently struck was with Keas, a provider of online care-plan templates.

No doubt we'll continue to have our hands full with Pfizer's takeovers, buyouts, and Phase II license deals ornamented with upfronts and milestones, but Peck's presence at today's conference could mean we'll soon see a lot more diversity among its BD targets.

Tuesday, March 23, 2010

The Beginning, Not The End

History in the making. That about sums up the signing ceremony today, when Barack Obama put his name on the health care reform bill—now officially the health care reform law—passed by the House this weekend.

Historic, for sure. But also sure to mean much more lawmaking—and many more bill signings—for Obama and his successors in the years to come.

We are not just talking about the reconciliation “sidecar” bill that Obama will sign shortly (assuming, of course, that the wheels don’t fall off this sidecar in the Senate).

Rather, we mean the legislative tinkering in health care in the years ahead, bills that will tweak, build-on, rethink, fix, undercut or over-engineer the new health care law.

Consider Medicare, the only reasonable model for the current legislative initiative. The law was enacted in 1965, signed by Lyndon Johnson…and amended by every single one of his successors, up to and including Obama, today at the signing ceremony.

Here is the “official” history of Medicare, as recorded by the Centers for Medicare & Medicaid Services. By our count, there are at least 14 pieces of legislation highlighted on the list, or about one every three years (since the "history" ends in 2003 with the Medicare Modernization Act--since amended twice...).

And CMS' list doesn’t include minor changes tacked into little bills each year—nor bigger ideas that generate considerable legislative energy but fail to make it to the President for signature.

That is probably a reasonable marker for how health care reform will continue in the years ahead, with some changes to the new program sure to happen every couple of years or so.

The new law truly is history in the making: it will keep on being made for many decades to come.

The Secret To Keeping Genentech Alive Is In The Ties

The suits at Roche were clearly doing their best to channel Genentech's biotech vibe during a recent R&D update for investors, the first since the big pharma acquired Genentech outright last year. From the venue (the splashy New York City restaurant Cipriani instead of a hum drum midtown hotel) to the menu (calmari! braised fennel! meringue cake!), Roche took every opportunity to remind investors of the excitement surrounding the annual R&D meetings Genentech used to host back when it was still independent.

Genentech's R&D previews were highly regarded, hotly anticipated meetings, the equivalent to the drug industry of what a Marc Jacobs runway show is to Fashion Week.

And speaking of fashion, perhaps most notably missing from the day (Art Levinson aside) was ties. Not one of the nine presenting senior managers wore one, though only long-time Genentech researcher Richard Scheller was brazen enough to forgo the jacket too. (And yes, the entire cast was male).

We suspect the story behind the missing ties is actually quite straightforward (not to mention sitting in a memo in Severn Schwan's inbox). But we suspect the story goes something along the lines of that ties bring to mind highly-paid, smooth talkers and savvy marketers, not endearing researchers toiling day and night at the lab bench. Another even more obvious theory is that parading Genentech executives on stage in ties would have been more uncomfortably conspicuous than having Roche executives take them off.

In that regard, Scheller was probably being somewhat honest when he offered up his own answer to the pressing question: "I don't own one, so people didn't want me to look out of place."

Whether Roche's presentation March 18 will turn out to be style over substance remains to be seen. The company certainly has a pipeline of interesting opportunities, from a first-in-class BRaf inhibitor for metastatic melanoma to a high-risk/high-reward cholesterol drug. You can read all about Roche's mid- to late-stage pipeline in "The Pink Sheet." But Roche didn't unveil any surprises March 18 either, and of the 16 new molecular entities Roche is planning to file in the next five years, most are planned for the later end of the timeframe. This year is shaping up to be a quiet one for Roche in terms of new drug launches.

There's a lot riding on future pipeline successes; Roche invested close to CHF 10 billion in R&D in 2009, and is expecting to invest only slightly lower levels this year. Just as importantly, Roche folded in one of the industry's most lauded R&D engines when it acquired Genentech in a hostile fashion, and the company needs to prove it can keep Genentech running even within the confines of well-oiled big pharma machine.

If Roche can deliver on its promises, then maybe we won't have time or interest in debating fashion when we hear about the pipeline next year. Or they could always add a woman to the senior management lineup – that alone would up the fashion ante, and be nice for plenty of other reasons.

Jessica Merrill

Monday, March 22, 2010

Health Care Reform A Done Deal: Pharma Bets On The Right Horse

One of the surest signs that comprehensive health care reform was near death was the surprising resignation in February of Billy Tauzin as head of the Pharmaceutical Research & Manufacturers of America.

Tauzin, the classic political door-opener in Congress, along with a select group of pharma CEOs bet early and bet heavy on working with a Democratically controlled Congress and the Obama Administration to pass “universal” insurance coverage and comprehensive health care reform.

In essence, Tauzin, who himself switched parties during his time in Congress, switched PhRMA’s allegiance from the Republican Party to Democrats.

So when Tauzin resigned his position at PhRMA, it appeared to signal that the drug industry had bet incorrectly on health reform and it was time for a realignment.

Fast forward to March 21, and it’s clear that the drug industry’s risky wager on supporting Democrats and health care reform will pay off. The House voted 219-212 to pass the Senate health care legislation and 220-211 to pass a health care reconciliation bill aimed at fixing inconsistencies between the House and Senate bills (to read our analysis of the full Senate bill, click here to read The RPM Report).

Taking the big picture view, we’ve outlined three ways to think about the impact of health reform on the biopharma sector: the potential new market, how many scripts drug manufacturers need to add from the previously uninsured to make up its $80 bil. “front-end” contribution, and the impact of health reform on biopharma business development.

Under one slicing of the numbers, for example, the new legislation could directly result in $115 bil. in new business over 10 years (click here to read the story in The RPM Report). The figure is based on a percentage of business that was used to calculate the pharma industry fee in the Senate bill.

Using a separate analysis, biopharma would have to add roughly four extra monthly scripts (at an average price of $120) per newly insured individual over seven years to come out even in health reform. That doesn’t even take into consideration the large, already insured population. Elements like copay reform, elimination of lifetime caps, and enhanced coverage of preventative services could easily generate an even bigger boost in prescription utilization than will come from the newly insured (click here to read the story in The RPM Report).

From a business development perspective, comprehensive health care reform offers a number of opportunities such as favorable treatment for orphan drugs, better coverage of specialty products, and further incentive for Big Pharma to diversify in the US (click here to read the story in The RPM Report).

PhRMA issued a statement in support of the legislation after the House votes:

We continue to believe that comprehensive health care reform will benefit patients nd the future of America. That’s why we have been involved in this important public policy debate for more than a year and why we support action by the House to approve the Senate-passed bill along with the amendments found in the reconciliation legislation. The existing barriers to quality health care simply are not acceptable. Today’s important and historic vote in the House will help to expand health care coverage and services to tens of millions of Americans who are uninsured and often forced to forego needed medical treatments.”

The House passage of the Senate bill plus the sidecar reconciliation bill represents a best-case scenario for the pharmaceutical industry—even better than the Senate bill alone, which was viewed as a good bill for pharma.

Pharma/biotech manufacturers didn’t get something for nothing, but the industry stands to gain significantly more benefits over time relative to the immediate investment companies had to make to help fund health reform efforts.

Here’s what they gained:

Huge New Market: It’s easy to get wrapped up in a “devil is in the details” argument over what pharma’s new market will look like and just how valuable it will be over time. Avoid the trap. The bottom line is no strategic business decision, merger/acquisition, or single piece of legislation or even series of incremental bills could ever deliver 32 million brand new customers to a single industry in one fell swoop. Comprehensive health care reform did just that.

Major Anti-Industry Measures Left Out: Just as important to pharma as what’s in the bill is what’s out of the bill. The list is long: Medicare Part D dual-eligible rebates, government authority to negotiate prescription drug prices across the entire Part D program, drug discount extenders to special hospitals (see below), elimination of pay-for-delay brand-generic drug settlements, and drug reimportation just to name a few. There’s no guarantee these won’t come up again—in fact, one can guarantee that they will at some point in the future—but they didn’t make it into law this time around, and the result is a major victory for drug makers.

Biologics Protections: Arguably the most important piece of legislation housed within the larger bill. The 12 years of “bullet-proof” market exclusivity for innovator biotech drugs would be “legislation of the decade” for biopharmaceutical manufacturers on its own. After the drug industry failed to get 12 years of exclusivity into PDUFA IV/FDAAA in 2007, the chances of getting anything better than 10 years seemed close to zero with a Democratically controlled Congress and the possibility of a Democrat in the White House. Prior to the Massachusetts special election to fill the seat of the late Ted Kennedy, the White House was twisting arms in negotiations to ratchet down the period of exclusivity from 12 years to 4-6 years.

Therefore, if the comprehensive reform legislation had failed to pass, it was highly unlikely drug manufacturers would ever get another realistic chance at 12 years as a stand-alone bill or as part of the next prescription drug reauthorization cycle in 2012.

However, in the end, the drug industry was able to hold onto the crown jewel of health reform legislation because the House was never going to insert any controversial provisions onto the reconciliation “fix-it” bill for fear that it could halt its momentum.

340B and Inpatient Drug Discounts: Pharma companies will get important restrictions and limits on discounts to 340B hospitals and facilities. Under the Senate bill, manufacturers faced the potential of an extension of the steep 340B discounts to inpatients at all qualifying facilities. The expansion was dropped in the House reconciliation bill.

Pharma will also get limitations on the discounts: 1) the floor for the 340B price will be the average manufacturer’s price less the average Medicaid rebate on the product; and 2) the discounts will not apply to orphan drugs sold to children’s hospitals, cancer hospitals, sole community hospitals, critical access hospitals or rural referral centers.

House staffers and pharma lobbyists say 340B is a big program for them and too important. Therefore, the House was willing to stick the 340B limits in reconciliation in exchange for an uptick in industry fees over time.

Closing the Donut Hole: Closing the donut hole has been one of pharma’s top priorities from health care reform since the start of the legislative process. The coverage gap often can cause Medicare beneficiaries to discontinue their medications or switch from a brand to a generic. Manufacturers viewed it as a long-term negative for brand drugs.

This is the one area of the “Pharma Deal” where drug manufacturers had to truly give something up, and the contribution in the form of discounts and revenue raisers represents real upfront money.

There were a number of ways the House could have closed the donut hole. In the original bill passed in November, it was achieved through Medicaid-level rebates for Medicare Part D beneficiaries who are dually eligible for both programs.

By passing the Senate bill as is, Part D rebates were left out of the legislation. Through the House reconciliation bill, legislators chose an incremental increase in industry fees because it was better for pharma company budgeting and it scored better for House Democrats, according to those familiar with negotiations.

Here’s how the fees work: The applicable amount is $2.5 billion for calendar year 2011, $2.8 billion for calendar years 2012 and 2013, $3 billion for calendar years 2014 through 2016, $4 billion for calendar year 2017, $4.1 billion for calendar year 2018, and $2.8 billion for calendar year 2019 and thereafter. “The aggregate fee is apportioned among the covered entities each year based on such entity’s relative share of branded prescription drug sales taken into account during the previous calendar year,” according to the Joint Committee on Taxation. The Secretary of the Treasury will establish an annual payment date that will be no later than September 30 of each calendar year and the fees are credited to the Medicare Part B trust fund.

In the future, it may be easier for the industry to fight expansions of industry fees than to try to deconstruct an institutionalized rebate program.

Here’s how the donut hole gets closed over time. First, a one-time $250 payment for all seniors that hit the donut hole in 2010. Then a mandatory 50% discount from pharma for all brand name drugs beginning in 2011, and in perpetuity. Then, between 2011 and 2020, the donut hole slowly shrinks down to just 25% of what it would be under current law, with federal money filling in the difference between that amount and the pharma discount (including the full amount for generics).

In other words, by 2020, pharma pays 50%, plans pay 25%, and beneficiaries pay 25%.

Moreover, the House reconciliation bill reduces the growth rate of the out-of-pocket threshold between 2016-2019 to consumer price index plus 2% to provide “more help to seniors.”

While the end result may not have been exactly how they drew it up, the outcome for pharma couldn’t have been much better. It’s true, the Medicare Modernization Act of 2003 created a large new market currently growing significantly faster than the overall prescription drug sector without any upfront cost to the industry.

But health care reform is another level of magnitude greater than Medicare Part D and the drug industry was never going to get something for nothing.

Instead, the industry played their cards wisely, secured market expansions and intellectual property protections beyond what many thought possible while simultaneously resuscitating their public image as the insurance industry becomes the long-term target of the Obama Administration.

With the mid-term elections coming in November the possibility that both the House and Senate could switch party control, pharma/biotech, and its representative trade group, PhRMA, will have to decide whether a true realignment is in order or whether it’s time to proactively change course.

But it’s hard to argue that drug manufacturers failed to improve their position after health care reform compared to before.

While You Were Reforming

Eventually those totals you see on the screencap above hit 219 -- 212, followed by a second vote, 220 -- 211, to adopt the tweaks to the Senate bill that were necessary to get the 219 on the first vote.

A couple Obama signatures later and the US has the comprehensive health care reform legislation that has dominated the agenda for months. And now for the hard part: selling the reform bill and coming out the other end politically alive.

Check out our family of pubs-- especially "The Pink Sheet" and The RPM Report -- for various takes on the consequences of the House vote and the implications for industry. Pharma, with its 32 million new customers, is a big winner (as we've been saying all along).

While you were staying up late to watch C-SPAN ...

image from flicker user paulbettner used under a creative commons license.

Friday, March 19, 2010

Deals of the Week Takes the Rock to the Rack

It’s mid-March, which means there is nuttiness and squeaky sneakers afoot. It’s the time of year when grown men and women burn megajoules of brain power filling out NCAA tourney brackets to win a few hundred bucks and bragging rights in the office pool. We can only shake our heads at the effort expended; everyone knows it’s the person least knowledgeable about the game who always ends up winning the pot. DoTW is rather partial to powder blue... hmm... should we go with North Carolina or UCLA? What do you mean, neither team made the tournament? We have to root for another color? In the immortal words of Lear, “that way madness lies.”

It also lies in China. A front-page article in the Wall Street Journal suggests that despite the hype about boundless opportunity, there’s a growing realization that for foreign entities China's a tough place to do business. In the biopharma world, for example, compulsory licensing provisions hamstring multinationals trying to compete with state-owned drug companies. How can foreign firms really afford R&D in China if, as one law stipulates, they must pay Chinese employees at least 2% of the profit derived from their inventions -- unless the workers waive their rights?

Interesting, then, how AstraZeneca highlighted Poland and Mexico at its emerging markets confab on March 16, which followed on the heels of AZ's March 11 deal with Indian drug maker Torrent to develop 18 branded generics.

Lest we congratulate ourselves too much for being a first-world capitalist paradise, note how easily sophisticated thieves in recent months have targeted trucks and warehouses of several drug companies. Last weekend they reportedly rappeled down ropes from holes cut in the ceiling of an Eli Lilly facility in Connecticut and made off with $75 million in product. We're guessing that company execs and their supply-chain managers aren't humming this exciting tune, but perhaps they can take comfort that the strong arm of the FDA -- its office of criminal investigations -- is on the case. Sound the trumpets! Hamburg, Sharfstein, and now... Friday. Just the indications on the label, ma'am. How do you spell it again? Z-Y-P-R....

Speaking of Friday, it’s time for us to wear out some shoe leather and get on the case. All you have to do is embrace the madness associated with another edition of...

Teva/ratiopharm: When it comes to fighting for generics businesses, you don’t want Teva in your bracket. On March 18, Pfizer and the PE-backed Icelandic Actavis officially lost out to the world’s largest generic maker in the months-long war for the German firm ratiopharm, which apparently could no longer afford capital letters for its name. With this purchase, Teva catapults from nearly nothing to #2 generics player in the coveted German market. Analysts generally regarded Teva's offer of nearly $5 billion (€3.6 billion), including the assumption of $820 million (€600 million) in debt, as fair but exceeding their predictions. The acquisition is in keeping with Teva’s business development strategy; in less than a decade the Israeli giant has become the world’s largest generics market primarily through M&A, followed by rapid integration of acquired assets. (Remember Barr?) But Teva will have to execute flawlessly this time around, say analysts, given drug pricing in the German market is likely grow more uncertain in the coming year. And there’s already plenty of uncertainty thanks to the country’s new Minister of Health, Philipp Roesler, who recently announced a proposal to introduce a mandatory rebate on drugs ('The Pink Sheet' DAILY, March 10, 2010). Teva made no secret of its interest in ratiopharm from the get-go, but competitive bids from Pfizer and Actavis prompted all sorts of whispers from media and investors. Speculation only grew after Pfizer CEO Jeff Kindler was spotted in Germany at the beginning of March, much too early to be Oktoberfest-related. In its quest to become the General Electric of pharma, Pfizer is looking to diversify, especially in emerging markets, through the bolt-on acquisitions of generics players. In the hours after Pfizer’s loss to Teva became official, investors were already linking the New York drug maker to another German generics titan: Stada. -- Wendy Diller

Eli Lilly/Acrux: To bolster late-stage product offerings, Lilly this week pulled out its battle axe. Actually, it’s Axiron. On March 16, Lilly announced a global licensing deal with Acrux to commercialize an experimental underarm testosterone solution currently being reviewed by the FDA for treatment of low testosterone levels, aka hypogonadism. If approved, this would become the first testosterone as handy to use as deodorant. (Does that mean the commercial launch will be a roll-out or a roll-on? We only hope it doesn’t leave a white powdery residue. Talk about killing the mood. If it does, perhaps Lilly can bundle the product with a couple of these.) Here's the nitty-gritty: Acrux gets an upfront payment of $50 million, plus $3 million once manufacturing assets are transferred. If the FDA approves the cream, Acrux gets another $87 million and up to $195 million more in potential commercialization milestones and undisclosed sales royalties. (It’s all about the milestones.) We all know improving men’s sex lives has been a big business opportunity. Even with spiraling health care costs and increased payer scrutiny, Lilly is betting that sex will continue to sell. In explaining its decision to invest in Axiron, Lilly cited IMS data indication global sales of testosterone therapies now exceed $1 billion. -- Ed Silverman

Pfizer/Tekmira: Fresh from their own almost-March madness, Vancouverites probably weren't celebrating quite as hard this week when local firm Tekmira Pharmaceuticals teamed up with Pfizer in an RNA interference deal. (Though we're always tickled by a sighting of the RNAi beast in the biopharma wild these days.) No financial terms were discussed, but it's easy to imagine Pfizer’s CSOs and research heads being wowed by the biotech’s stable nucleic acid-lipid particle technology, which promises to solve the pesky RNAi delivery problem in a snap (or should we say SNALP). Announced March 16, the deal is the first between the two companies. But Tekmira has license agreements or collaborations with seven other biopharmas, including Merck, Roche, and Alnylam. (The latter two companies also hold equity stakes in the biotech.) Tekmira bolstered its delivery technology IP in a 2008 merger with privately-held Protiva Biotherapeutics in what was a family affair; both Canadian biotechs were spin-offs of the now defunct liposomal drug delivery firm Inex Pharmaceuticals. Of course, as Exelixis showed last week, it’s tough to create value with early stage discovery deals; you’ve also got to have a product. To that end, Tekmira is advancing two of its own: a next-generation ApoB SNALP for hypercholesterolemia that will enter Phase I trials later this year, and a preclinical anti-tumor biologic called PLK-SNALP. -- Ellen Foster Licking

AstraZeneca/University of Pennsylvania: Another week, another corporate/academic tie-up. This week the collaborators are AstraZeneca and the University of Pennsylvania, coming together to develop tau-targeted therapies for Alzheimer’s disease. As usual with these kinds of deals, financial details were light, but the arrangement includes potential royalties and milestones linked to successful clinical development. As we wrote in this November 2009 START-UP feature, academic-industry partnerships are one of the many ingredients in the R&D secret sauce as big pharmas seek to hedge their development risk and look for more externally sourced programs. AZ already has collaborations with Columbia University Medical Center in two therapeutics areas: obesity and mood/cognitive disorders. It also has a partnership with Virginia Polytechnic Institute & State University (Virginia Tech) and the Mayo Clinic College of Medicine to develop novel compounds for treatment-resistant depression. In many ways it makes sense for AZ to seek an academic partner to get access to novel AD compounds. As notable late-stage failures such as Pfizer/Medivation’s Dimebon show, there’s still considerable uncertainty in this therapeutic area. Even as companies have pursued drugs designed to disrupt the amyloid plaques that are the hallmark of AD, there’s also considerable effort to understand how neurofibrillary tangles comprised primarily of misfolded tau protein contribute to the destruction of brain nerve cells. -- EFL

Astellas/OSI: As expected, OSI officially responded to Astellas’ unsolicited $3.5 billion offer this week with a firm “nai keiyaku." (Because the last thing the biotech wanted was for its answer to get lost in translation.) Arguing that Astellas’ bid ignores the value of OSI’s cash and pipeline, the biotech instructed its bankers to look for a better deal. Apparently OSI believes the Astellas bid discounts the biotech’s financial asset portfolio, which includes cash, securities, and tax-friendly losses estimated (by OSI) to be worth $1.3 billion. Astellas gave no quarter, responding in a statement that it continues to believe in its proposed transaction and will press on with a tender offer of $52-a-share to OSI shareholders. Astellas also made good on its previous threat to nominate its own slate of independent directors at OSI’s next annual meeting. The Japanese drugmaker’s nominees include some well known biotech execs, such as Aptuit founder Michael Griffith and Alpharma board member Jill Kanin-Lovers. Investors seem confident that a white knight bid -- or a sweeter offer from Astellas -- could be in the offing. OSI’s share price quickly shot up above the initial tender price and has remained there. Assuming no other bidder emerges, Astellas will have to wait until the end of March to discover if it’s won the OSI betting pool. The tender offer expires March 31. -- Alex Lash

Basketball photo courtesy of flickr user Erik Charlton.

Badge image courtesy of the Food and Drug Administration.

PhRMA Annual Meeting: Things Really Have Changed

The crowds were remarkable during the Pharmaceutical Research and Manufacturers of America annual meeting March 18 just outside of Washington DC: the standing room only crowd inside the meeting, a too-crowded agenda that quickly fell far behind schedule--and the complete absence of crowds outside.

Taken together, all three observations add up to the same thing: PhRMA's support for health care reform really has transformed the trade association's position in Washington.

First, the crowd inside. It was a packed room only for the morning session. Now granted that it was a small ballroom, that fact is still remarkable, given the consolidation among PhRMA's biggest members and the deep cuts across the industry.

The SRO crowd reflects the event's timing: days before what will be the crucial vote on health care reform (the key issue for PhRMA for the past 12 monhts), Washington is the place to be.

It also reflects PhRMA's efforts to bring in a broader base of stakeholders, both smaller company members but also outside groups and allies that it worked so hard to cultivate in the reform debate. There aren't enough Big Pharma CEOs to fill a big room anymore, but PhRMA has adjusted.

And then there was a bursting-at-the-seams agenda. In addition to the perennials--speeches from the incoming and outgoing association chairs, departing CEO Billy Tauzin, and various advocates and boosters of R&D, PhRMA landed one Democratic member of Congress (Deputy Whip G.K. Butterfield of North Carolina), a Democratic governor (West Virginia's Joe Manchin, who incidentally, is the incoming chair of the National Governor's Association) and four key figures from the Obama Administration: Commerce Secretary Gary Locke, HHS Assistant Secretary for Preparedness and Response Nicole Lurie, National Institutes of Health Director Francis Collins, and FDA Commissioner Margaret Hamburg.

To think, PhRMA used to go years without a Democratic pol on the agenda--and sometimes had thin representation even from GOP Administration figures afraid of being painted as too close to industry.

Then there were the crowds outside, or lack thereof.

That contrasts with the health insurance industry association AHIP, whose meeting earlier this month, made headlines with a pro-health care reform march outside--and a pointed toungue lashing from the podium inside by HHS Secretary Kathleen Sebelius.
PhRMA, on the other hand, pulled off a protest free meeting during the most heated days yet in the reform debate. Given the association's strong support for reform, that's not too surprising, except perhaps insofar as there were no Tea Party members chanting outside.

There was one discordant note inside: House Republican Whip Eric Cantor--in a very civil, understated and brief speech--expressed his deep disappointment with PhRMA's position on reform. He outlined his views that the bill runs counter to free market principles and will ultimately damage industry severely.

While suggesting that the trade association's initial support for the bill was perhaps understandable last year when Obama was so popular and reform looked inevitable, he found it "perplexing" that PhRMA is continuing to push for reform when it could (and in Cantor's view will) be defeated.

Cantor quoted an old Ronald Reagan axiom: "It is a mistake to the feed the crocodile in the hopes that it eats you last."

One wonders how many members of the audience agree with Cantor's free market philosophy and reservations about the future of the US health care system--while still hoping he proves wrong about the ultimate vote count.

Thursday, March 18, 2010

SR One's Revolving Door

The times are apparently changing--again--for the granddaddy of biopharma corporate venture, GlaxoSmithKline's SR One. Two independent sources confirmed to our sister publication "The Pink Sheet" DAILY that Russell Greig, a 30-year veteran of the drug maker and most recently managing partner and president of SR One, has quietly moved on. Details about both the timing and reason for Greig's departure remain unknown.

It's been a revolving door for SR One's leadership since 1999, when the group's original founder, Peter Sears departed. (If you are keeping tabs, Brenda Gavin (now with Quaker Bioventures), Barbara Dalton (now with Pfizer Investment Group), and Joyce Lonergan have all held top honors at the firm over the years.)

Still the news of the lastest decampment is a surprise, coming barely two years after Greig stepped into the top job and orchestrated an ambitious retooling, launching what seemed at the time to be SR One 2.0. For starters, Greig cleaned house, rebuilding--and bolstering--the investment team to create a 10-person powerhouse that could actively syndicate with traditional and strategic investors alike. In addition, Greig, with the apparent blessing of GSK's CEO Andrew Witty, launched a $500 million venture fund with the two-fold mission of making external investments while simultaneously spinning out start-ups and incubators founded around intellectual property from GSK itself.

Indeed, it's the close ties between Witty and Greig that cause one to wonder at the sudden change in SR One's leadership, especially given the current starring role corporate venture is playing in biopharma financing. (If ever there was a time to be the top dog at one of the preeminent strategic venture groups, now, when traditional VCs are mired in their own financial troubles, is the time.)

The 2008 shake-up, which pulled SR One out of the drug maker’s R&D organization, had Greig reporting directly to Witty, a move that at the time seemed to indicated both greater prominence for the corporate venture group as well as increased latitude regarding investment decisions. In a 2009 interview with START-UP, Greig emphasized “the investment committee is a two-man team: Andrew [Witty] and myself.” In addition, Greig and Witty removed certain investment restrictions that had made it tough to be an equal player in venture syndicates, including stipulations that the group could put no more than $5 million in any single investment round or a total of $50 million into a company during its lifetime. All of which was done to ensure SR One could “participate at the same speed or faster than our [traditional] VC brethren, Greig told START-UP at the time.

And for much of the last year, SR One has certainly be doing that. According to Elsevier's Strategic Transactions database, the group invested in seven privately-held companies last year, including the anti-infective developer Rib-X Pharmaceuticals's $25 million Series D, the novel vaccine play Genocea Biosciences’s $23 million Series A, and cancer/inflammation drug developer Aileron Therapeutics’s $40 million million Series D.

Greig is currently listed as an active board member of both Genocea and Rib-X. It’s not certain at this time who from SR One will replace him on those boards. Whether or not SR One will finally take a larger role in outlicensing home-grown technology is also a mystery.

We are certain that Greig will be missed--even if his departure has no lasting impact on SR One's investment philosophy or ability to do deals. Greig is well regarded in the clubby world of VC for his intellect and his financial acumen. Moreover, SR One, like its strategic counterparts Johnson & Johnson Development Corp., the Roche Venture Fund, the myriad Novartis Venture funds, and Pfizer Investment Group (among others), has played an invaluable role in the past year in financing early stage companies at a time when traditional VCs have been strapped for cash and the IPO market remains moribund.

Image courtesy of flickrerThomas Hawk used with permission via a creative commons license.

Tuesday, March 16, 2010

An Undearm Fix For A Low Sex Drive

Does your sex drive need a boost? We're not talking about the kind of pick-me-up that you can get from Viagra or Cialis. How about hypogonadism? You know, low testosterone levels. If you relate, just raise your hand - or instead, raise your arm and rub on some testosterone cream.

That's right. Lilly just signed a global licensing deal with Acrux to commercialize an experimental underarm testosterone solution to be called Axiron, which is being reviewed by the FDA. If approved, this would become the first testosterone product that would be as handy to use as deodorant (just make sure you reach for the correct item in the medicine cabinet. You wouldn't want to start the day overstimulated now, would you?).

Here's the nitty gritty - Acrux gets an upfront payment of $50 million, plus $3 million once manufacturing assets are transferred. If the FDA approves the cream, Acrux gets another $87 million and up to $195 million more in potential commercialization milestones and undisclosed sales royalties.

Improving sex lives is, we know, a big opportunity. In explaining its decision to invest in Axiron, Lilly cites a study suggesting that up to 39 percent of men who are 45 years old or more may have lower-than-normal testosterone levels. Yet most apparently go undiagnosed (please don't suggest they're bored with their partners).

Nonetheless, someone is using this sort of stuff - Lilly also cites IMS data indicating global sales of testosterone therapies now exceed $1 billion, with the US contributing some $700 million to that total. And Acrux, which developed its product using proprietary technology, brags that market research shows 87 percent of physicians said they would offer Axiron to existing patients.

So no matter what the problem down below, Lilly hopes to have an arsenal of medicines that can lift one's... spirits.

Monday, March 15, 2010

While You Were Selecting

It was all ACC and NCAA this weekend, so lets get to the heart of it (thanks we'll be here all week). Actually, no, we have to get something off our chests: The Cornell Big Red deserved better than a 12 seed! Seriously, committee, that's harsh. And pitting Cornell against Temple? Way to make it all about the ex-Penn coaching matchup. Pffft.

Anyway, while you were Springing forward ...

  • ACC: Navigator leads Novartis down the wrong path. Studies of Diovan and Starlix in high-risk patients don't pay off for the Big Pharma (Bloomberg).

  • ACC: Tricor trips up Abbott. (At least they've got heart valve clips to pick up the slack.) The drug, when added to simvastatin, didn't result in better outcomes than simvastin alone in the five-year ACCORD study conducted by the NHLBI. "The Pink Sheet"'s report is here. Is it the end of Tricor? Is it the beginning (or the middle) of the end for drugs without outcomes data? Did I leave the iron on?

  • The NYT muses on the impact of the health reform outcome on the Obama presidency. For the twenty thousandth time.

  • Remember that other March madness game of interest? Astellas' unsolicted--hey, we don't want to color your thinking with the word "hostile"--bid for OSI? OSI officially urged shareholders to reject the latest offer this morning. The tender wraps up March 31.

  • It was bad news/good news for the Byetta LAR triumvirate Lilly/Amylin/Alkermes. The FDA dinged the drug with a complete response asking for a REMs and clarification about manufacturing processes, but apparently no additional lengthy clinical trials are needed.

  • Privately-held Bausch & Lomb announces two ex-Schering execs totop spots. Fred Hassan takes over as chairman and Brent Saunders, who previously served as president of Schering-Plough's consumer healthcare unit under Hassan, will be Bausch's CEO. Does this mean B&L will be more actively eyeing optho Rx and consumer deals?

  • What's in YOUR bracket? IVB is curious ... maybe we'll set up a tourney pool this year if we can think of a suitable prize.
image from flickr user mr lynch used under a creative commons license

Friday, March 12, 2010

DoTW: The Valukas Report

Let's all take a step back this week and salute Anton Valukas, chairman of the Chicago law firm Jenner & Block. His work as the court-appointed examiner of the Lehman Bros. bankruptcy case is likely to make all financial and deal-making types stand up and take notice.

You probably know that Valukas this week released his account of the collapse, in which he accuses Lehman executives of hiding massive debt and bad investments in the run-up to its 2008 collapse that brought the financial system to a halt. Valukas writes that Lehman executives' "conduct ranged from serious but non‐culpable errors of business judgment to actionable balance sheet manipulation." He also blames the "investment bank business model, which rewarded excessive risk taking and leverage; and Government agencies, who by their own admission might better have anticipated or mitigated the outcome."

Twenty-one years ago the New York Times profiled Valukas, whom some then called "the Rudy Giuliani of the Midwest." (Link tip from LawShucks.)

What does this have to do with our little corner of the world? Nothing specifically -- at least not yet -- but it's a reminder of a few things. First, drug companies aren't immune to off-balance sheet creativity. Second, fascinating and complex deal structures -- which we admit we love to discuss over a snifter of brandy in front of a warm fire -- aren't necessarily good for patients or investors. When confronted by new math, it's worth asking what was wrong with the old math, anyway?

Finally, it's worth noting that some of biotech's historic deals went through Lehman's corridors, thanks to its former vice chairman Fred Frank. For example, Frank engineered the 1995 and 1999 extensions of the epic Roche-Genentech relationship. His ties to Genentech were so strong that, despite Lehman's descent into bankruptcy, he was pitching his services in 2008 to Genentech's special committee handling Roche's takeover bid. Frank reportedly wanted Genentech to push for something other than a full acquisition. Goldman Sachs eventually won the advisory job. (If you're curious, DOTW searched all nine volumes of the Valukas report and Frank, despite his lofty title of vice chairman, appears only once, in very passing fashion.)

Frank is now #2 at Peter J. Solomon's advisory firm, where he co-runs the firm's life-science practice. He was at CV Therapeutics' side when it fended off a hostile bid from Astellas Pharma and sold itself to Gilead Sciences for $1.4 billion.

We could dedicate several posts to Frank's work alone -- he was at Lehman for nearly 40 years -- but that wouldn't be fair to those in the trenches, cranking out the deals that we love much to dissect. We need to get back to the hot, steamy Valukas report, so without further ado we leave you with...

GlaxoSmithKline/Cellzome: Privately-held Cellzome this week announced a discovery tie-up with GlaxoSmithKline in inflammatory disease, its second collaboration with the Big Pharma in this area. The companies will use Cellzome's proprietary epigenetics-focused technology to identify small-molecule drug candidates in immuno-inflammatory disease. They'll work together until drug candidates are identified, at which point GSK will take over pre-clinical and later development and commercialization. The Big Pharma is forking out €33 million in upfront cash and equity (Cellzome's CEO Tim Edwards wouldn't provide a breakdown) and promises milestones worth over €475 million, of which 80 or 90% is pre-commercial, according to Edwards. Edwards told IN VIVO Blog that this latest deal isn’t option-based, but is instead a “full collaboration," albeit a very early-stage one. Cellzome has had a separate, option-based deal with GSK's Immuno-Inflammation Center of Excellence for Drug Discovery since 2008, however, around seven kinase inhibitors. To GSK's undoubted delight, Edwards describes collaborating with this small-unit CEDD -- which is once again the biotech’s partner -- as "like working with a far smaller company." GSK hasn't yet exercised options related to the earlier deal but has made four milestone payments. According to Edwards, GSK is about to consider whether to opt-in at the earlier of two entry points. -- Melanie Senior

AstraZeneca/Torrent: To extend its reach in emerging markets, AstraZeneca on March 11 signed an agreement with Torrent Pharmaceuticals for the rights to sell 18 undisclosed generic drugs in nine territories. Financial details of the agreement were not disclosed. Torrent, a top Indian generics maker, will supply the medicines to AZ, which will re-brand and market them alongside its existing portfolio. The companies, which have collaborated before on hypertension medicines, left open the door to expand the agreement into additional drugs or territories. The cardio- and CNS-focused Torrent boasts roughly $250 million in annual sales, of which 70% came from its domestic market. But it has been gradually building an overseas presence. The AZ hook-up should further support that effort. Generics currently comprise about two thirds of AZ's $4.3 billion emerging-markets business, but until now these have been AZ's own branded drugs that have lost patent protection -- so-called branded originals. The Torrent deal marks AZ's first foray into branded generics, an area competitors have long-since identified as an important space in territories the branded pharma industry used to lump together as "Rest of World." As one of an increasingly small handful of large pharmaceutical companies that would rather focus exclusively on high-margin, high-risk innovative biopharmaceutical products, AZ has some catching up to do if it wants to compete with the likes of GlaxoSmithKline and Sanofi-Aventis. Each of those companies has pursued an aggressive emerging markets business development strategy that includes a significant generics component. -- Christopher Morrison

Abbott Labs/Facet: Abbott Laboratories has agreed to pay $27-a-share, or about $722 million, for Facet Biotech, less than three months after the biotech thwarted a much stingier hostile offer from its development partner Biogen Idec by cutting a deal with two major shareholders. ( For a review of Facet/Biogen soap opera, take a look at our earlier coverage in Pink.) Announced late on March 9, the proposed buyout would cost Abbott $450 million net of Facet's generous cash position and give Abbott partial ownership of daclizumab, a promising anti-CD25 humanized antibody for multiple sclerosis, and volociximab, under development to treat solid tumors. Facet and Biogen Idec are taking daclizumab into two Phase III trials, the second of which will trigger a $30 million payment from Biogen. Facet also has two cancer treatments in Phase I, one partnered with Bristol-Myers Squibb, the other unpartnered. The boards of both companies have approved the deal; the next step requires Abbott to take the offer directly to Facet’s shareholders. The deal rewards Facet for showing patience in the face of Biogen's pursuit last fall. The big biotech, which originally struck a high-profile licensing deal with Facet's predecessor in 2005, had made an offer behind the scenes during the summer. But it went hostile in September, offering just $14.50-a-share. Facet shareholders dismissed Biogen's foray, even after it upped the offer to $17.50-a-share. -- Alex Lash

Sanofi-Aventis/Merck: Just how serious is Sanofi-Aventis about diversification? Serious enough to join former partner Merck in the area of animal health. Recall that last year, Sanofi announced an agreement to acquire Merck’s 50% interest in the companies’ animal health J/V, Merial, for $4 billion. The deal also included an option to form a new J/V that combines Merial with Schering-Plough’s Intervet, post the finalization of Merck’s "reverse merger" with that company. This week Sanofi said it would exercise its option, spending another $1 billion, to create an equally split J/V that is officially the top dog in the animal sector, a $19 billion market that’s estimated to grow an annual 5 percent until 2014. The deal could close by the end of 2010, but antitrust clearance will be a major hurdle. On a conference call, Sanofi and Merck execs declined to get specific about antitrust challenges or potential cost savings of the deal, with Sanofi CEO Chris Viehbacher citing only poultry vaccines as an example of overlap. Plenty of buyers might snap up vet assets if regulators require divestitures, including Eli Lilly's Elanco, Europe's Virbac, and the animal health units of Bayer and Novartis. The move continues Sanofi's aggressive diversification out of branded pharmaceuticals. In 2009, it purchased not only Merial, but also generics firms Medley Pharmaceuticals and Laboratorios Kendrick and the US OTC powerhouse Chattem Pharmaceuticals.--Ellen Foster Licking

Photo courtesy of Jenner & Block.