Friday, April 30, 2010

DotW: Earn, Baby, Earn

What, you thought we’d go all Sarah Palin on you? We're guessing the phrase “Drill, baby, drill!” is about as popular as that oil slick inexorably spreading toward the Gulf Coast right now. Anyone out there scrambling to remove a certain bumper sticker?

In case you were partying with the Dendreon crowd or locked up in a dark room practicing the pronunciation of what used to be an obscure Iceland volcano -- for the record, it’s ay-uh-fyat-luh-yoe-kuutl -- you must have tweaked that it was another heavy earnings week in biopharma land.

And yes, the handwringing over costs tied to healthcare reform continues, at least if you are BMS, which reported one of the most significant hits on its first quarter earnings call this week. Meanwhile, the EU-based pharmas seem a bit blasé about the issue, or at least they're good at hiding their concern. Execs on GSK’s, Sanofi’s, and AstraZeneca’s earnings calls all sounded the same theme: forecasts already bake in the impact of US healthcare reform.

Of course, the U.S. was a problem territory for many of the multinationals long before health care reform, which is why companies like GSK and Sanofi have been on such a tear in the emerging markets. As the week ended, Pfizer looked to pull a page from Sanofi’s playbook: the world’s biggest pharma is rumoured to be sniffing around the Brazilian generics maker Teuto. Perhaps nabbing Teuto will make up being on the losing end of the RatioPharm deal. (Or maybe Pfizer CEO Jeff Kindler just needs an excuse to visit Brazil.)

Here at IVB, we do our best to earn our keep with a regularly occurring column loaded with insight and levied with snark that we like to call….

Charles River/WuXi AppTec: As top pharmas look to China to outsource more and more of their early stage R&D, the contract research organization, Charles River Labs, deepened its presence in the country this week with its proposed purchase of WuXi for $1.6 billion. The proposed tie-up would create a CRO with end-to-end capabilities, marrying WuXi’s chemistry expertise with Charles River's in vivo biology business. At a 28% premium to WuXi’s closing stock price on April 23, the deal has the blessing of both companies’ boards. To become a reality, however, it must also win approval from shareholders and China’s Ministry of Commerce. Ge Li, WuXi’s founder, and a rock star in the Chinese biopharmaceutical community, will continue to play a key role in the combined company post-merger as an EVP and president of global discovery and China services. As our sister publication PharmAsia News points out, Charles River/WuXi, if approved, represents the third major acquisition of Chinese CRO in recent month following PPD’s buy-outs of smaller players BioDuro and ExcelPharma Studies. Analysts generally hailed the deal but cautioned that even as the combined company provides one-stop shopping, it could face increased price competition from Chinese CROs capable of greater pricing flexibility. -- Kevin Holden and EFL

Aton Pharma/Bristol-Myers Squibb: Advancing its strategy of acquiring underappreciated mature products, Aton paid an undisclosed upfront to BMS April 26 for the US commercialization rights to the off-patent Parkinson’s disease drug Lodosyn. “Our strategy is [to] assume ownership of a product that does not have great awareness within the marketplace,” Aton’s CEO Michael Wells said in an interview with “The Pink Sheet” DAILY. This tactic isn’t exactly new, and it isn’t without risks. ViroPharma employed exactly the same logic when it in-licensed Vancocin from Eli Lilly in 2004 and quickly grew sales of the product. But once it demonstrated a demand for the C. difficile drug, generic competitors quickly piled in, putting pricing pressure on the medicine. For Aton, this deal represents another step in its evolution from oncology-focused biotech to specialty firm. Purchased by Merck in 2004 due to its work in HDAC inhibitors, Aton was bought out by Wells in 2006 (backed by Cerberus Capital Management and his own Princeton Pharma Holdings). Until the Bristol deal, Aton’s entire suite of products, including the Timoptic line of glaucoma drugs in-licensed last year, were originally Merck products. -- Joseph Haas

Merck/Nycomed: Days after Nycomed's Daxas, a potential first-in-class phosphodiesterase 4 enzyme inhibitor for COPD, got a positive nod from the European Medicines Agency, the drug landed a new commercial partner. On April 26, Merck and Nycomed announced a co-promotion agreement for the medicine in Canada, and certain European countries, including France and Germany. (Merck gets exclusive commercialization rights to Daxas in the UK.) The financial terms of the deal were not disclosed, but Nycomed will receive an undisclosed upfront and is eligible for regulatory and commercial milestones. Daxas already has a U.S. commercial partner in Forest Labs, which acquired rights to the drug for $100 million upfront in August 2009. At this juncture it looks like Merck, in the near-term, may have gotten the better deal. Daxas’s regulatory path to approval in the US is far less certain; earlier this month, FDA’s Pulmonary-Allergy Drugs Advisory Committee recommended against approving the medicine due to the drug's apparent modest efficacy and serious side effects. It’s possible FDA still could approve the drug, which has a May 20 PDUFA date. -- Jessica Merrill

Therabel/BioAlliance Pharma: BioAlliance Pharma of Paris announced Monday that privately-held European specialty pharma Therabel is taking an undisclosed equity stake in the company. The ownership stake isn’t unexpected. Therabel and BioAlliance announced an alliance April 6 around the European commercialization of the biotech’s Loramyc, an antifungal drug for use in immunocompromised patients, and Setofilm, an anti-nausea medication for the prevention and treatment of chemotherapy, radiotherapy, and post operative-induced vomiting. The deal includes a €6.5 million upfront and up to €48.5 million in milestone driven payments, and at the time BioAlliance hinted an equity stake worth €3 million was on the table. It's worth noting the April 6 deal holds one of the first examples of a trend we’ve long been predicting would materialize: milestones tied not to a drug’s sales but to its reimbursement. The press release clearly states, “additionally €3 million will be linked to Loramyc reimbursement in three EU countries.” The prospect of a reimbursement driven milestone was a subject of much debate at our recent Pharmaceutical Strategic Outlook meeting, where some dealmakers argued that the hedge was already included in sales milestones. What do you think, IVB reader? Are more reimbursement milestones on the way? -- EFL

Image courtesy of flickrer TW Collins through a creative commons license.

Thursday, April 29, 2010

GSK Notes: We Have More Sales Reps in Emerging Markets than in West

GlaxoSmithKline's earnings call on April 28 was pretty routine, with no big surprises – nice growth, health care reform and all that, but executives did an interesting albeit somewhat shallow, dive on emerging markets.

GSK is one of the few, if not the only, Big Pharma to break down its emerging markets operating margins, which is laudable considering interest in the region (Even as pharma emerging markets sales skyrocket--and they were up 45% for the quarter at GSK--profitability isn't transparent).

Tim Anderson of Sanford Bernstein picked up on this topic, one of his favorite themes, on the earnings call: GSK's operating margins in emerging markets, at 36%, for example, is only slightly more than half of its margins in established markets. "Where do you think operating margins and emerging markets can realistically go from here over the next three to five years given what is likely to be a continual pricing disparity?" Anderson asked.

That led CFO Julian Heslop to respond: "Difficult to predict the future"…but 36% operating profit margin in any business is "excellent." And emerging markets don't require the heavy R&D investment that Western markets demand, so cost of goods sold is lower. If pharma R&D costs tend to run about 16% of sales overall, the products emanating from the labs account for only a third of emerging market sales, Heslop said. So a thumbnail calculation could charge a third of R&D costs to emerging markets.

After all, R&D priorities are driven by Western demands, chimed in CEO Andrew Witty. His further point: GSK's definition of emerging markets does not include Southeast Asia, Australia, or Japan, which GSK breaks down separately Clarification: Its emerging markets group consists of 10 countries, and does include India and China. That's important because GSK's Indian business is huge –Witty couldn't help pointing out that it is in the top three manufacturers of all types in India (GSK doesn't break down sales that far, though).

Overtime, GSK should be able to better leverage its growing infrastructure investment in emerging markets as it expands its sales capacity (not only for its own home-grown products; it has an aggressive in-licensing program specifically focused on bringing in late-stage products to sell in emerging markets, with its most visible success to date its alliance with Amgen to sell Prolia). And growing it is, both organically and through bolt-on acquisitions. Of the 11 bolt ons it did in the past year, most were in emerging markets, Witty said.

"For the first time over the last 3, 4, 5 months, we actually have now more sales personnel in the emerging markets than we do in America and Europe combined," he added, "…a pretty big shift." After all, he reminded investors, "This is one of those moments where we are seeing fundamental economic shifts go on in the world economy."

Moreover, Witty noted--and here's a comment to wake you up: "every dollar spent on SG&A in emerging markets in the past two years has been paid for by a dollar taken from Western budgets."

Wednesday, April 28, 2010

MermaiHD Madness: NeuroSearch's Statistically Significant Snafu

Call it the Curse of the Little Mermaid.

In February, NeuroSearch trumpeted statistically significant Phase III results from its MermaiHD trial lead project Huntexil in Huntington's disease. The positive data sent the company's shares soaring. The Danish biotech's value nearly tripled, and analysts suggested that the data supported launch of the drug in 2011. The company spent the past few months topping up the good news: additional data presented at conferences, new information supporting disease modifying properties of the drug, etc.

Neurosearch was riding high -- a company that has had difficulty over the past decade securing positive Phase III results after promising proof of concept data finally got over the hump.

And then, last week, Denmark's famous Little Mermaid statue was removed from Copenhagen Harbor and sent to Shangai, where it will take pride of place at the Danish Pavillion during the 2010 World Expo.

Mermaid gone (a replica in Tivoli Gardens just ain't the same, we guess), and MermaiHD is all of the sudden showing cracks.

This morning NeuroSearch put out a release to clarify the MermaiHD results. That missive shaved 40% off the company's value almost immediately, though the share price has slowly recovered a bit as the day wears on and executives have had the chance to explain themselves. The upshot? It turns out that MermaiHD's positive results around the primary endpoint of modified Motor Score (mMS) weren't statistically significant, after all.

That's right. "Additional data assessment" turns out to skew the Phase III results just slightly, but enough to upend the statistical significance of MermaiHD's primary endpoint. "Further assessment of data from the study shows that the significance value for the primary study endpoint, the modified Motor Score (mMS) of p= 0.042 did not meet the pre-specified level of p [less than] 0.025," says the company's release.

Wait, can you say that in a much longer, more detailed way?

The conclusion regarding the primary endpoint, the mMS with a significance level of p [less than] 0.02, which was communicated as part of the top-line results, was based on a clinically relevant baseline covariate adjustment for differences in patients' genetic disposition, i.e. the length of CAG repeats (CAGn) in the diseased gene sequence. This adjustment is judged to be clinically important and appropriate in ensuring a more meaningful representation of the data set. Based on this assessment, the primary endpoint for the MermaiHD study was concluded to be met (p [less than] 0.025). The adjustment for individual differences in patients' CAGn x treatment was pre-specified in the study protocol as a sensitivity analysis but not as part of the main effects model for the primary analysis. In view of this, the statistical results have been re-assessed, demonstrating a formal p-value of 0.042 for the primary endpoint, the mMS, and consequently indicating that the study did not rearch the p [less than] 0.025 significance level (Bonferroni adjustment) as pre-defined in the study protocol.
Get it, statheads? But what does it all mean? NeuroSearch maintains that its regulatory strategy won't change and that the new data "doesn't change the overall picture" for the drug. Analysts who were able to wrap their heads around the implications for Huntexil during the company's results call this morning seem to agree that this isn't the end of the line for the Huntington's drug -- thought it may complicate the regulatory process a bit. Results from a second Huntexil Phase III, the so-called HART study, are expected in Q3.

Let's hope for NeuroSearch's sake, the Little Mermaid is back from China by then.

image from flickr user celesteh used under a creative commons license

Summing Up the Biotech Way: Beyond Borders 2010

One scorecard from 2009 is in: Ernst & Young's annual report on the global biotech industry, Beyond Borders. This Summing Up –which this fanciful blogger envisions as an annual, exhaustive biotech version of Somerset Maughan's eclectic memoir—is published annually just as the industry gears up for BIO, as a mix of sweeping generalizations, trend-spotting, and interesting statistics on financing.

Much of the 2010 report isn't news, especially to followers of IN VIVO Blog—how hard is it to figure out, after all, that biotech is an industry of 'haves' and 'have-nots?' or that the venture investment model is under pressure, resulting in new financing and R&D models (asset-based financing, options-based deals, FIPNets), and pharma companies are divesting assets? More importantly though, the report contains interesting datapoints, piecing them together to obtain a coherent picture of the industry at a given point in time, and providing fodder for BIO networking.

So what are some chatable points? Biotechs took their lumps last year but, overall, they fared better than E&Y or others had predicted. They've been aggressive about paring costs, cutting back on R&D, staff, and shelving non-core assets. They've been creative about finding new ways to finance operations as they slog through the long R&D tunnel. The number of public companies fell by only 11% in 2009 to 662 from 700 a year earlier, E&Y calculates--not healthy, surely, but far short of what E&Y last year predicted would be a 25% drop.

Industry global revenues fell by 9% from $86.8 billion to $79.1 billion in 2009, true, but that includes the impact of Roche's acquisition of Genentech. Without this acquisition, biotech revenues would have grown by 8% (An 8% rise is better than a 9% decline, but it still isn't up to growth rates of years past, EY points out). Tighter regulatory safety requirements have slowed new drug approvals, not only in the US but in Europe as well.

Other tidbits: Biotech companies raised $23.2 billion last year, up 42% from 2008, and while venture capital totals were flat globally, the US had its second-best venture funding year since 2000, while Europe had its worst. That said, about half of US venture capital raised went to only 45 companies, with Clovis Oncology the big winner. And companies with early-stage technology need more money than ever to carry their products through clinical development.

More to the point, industry R&D spending fell 21%, after years of double digit growth. It's hard to say if this is a self-correction or a true stab at improving R&D efficiency, but that drop helped biotechs in aggregate to post a net profit for the first time of $3.7 billion; in 2008, the industry lost $1.8 billion. Other reasons included a change in accounting rules, fewer public companies, since most of the acquired companies were losing money anyway, and other cost reductions. Asset sales, royalty and milestone payments also played a role, but even E&Y couldn't say by how much.

Another weight hanging over the biotech head: reimbursement: E&Y notes that companies, which traditionally viewed marketing approval as the finish line for deal-making, now must cross additional hurdles related to reimbursement. Nothing new for IV Blog followers here: Now, we've been tracking this still esoteric but increasingly talked about trend of setting special reimbursement milestones for deals and its counter argument: that traditional sales milestones cover reimbursement risk--an evolution we find fascinating.

The takeaway:

Life is getting tougher: Gaining an FDA approval alone is no longer an event worthy of popping the champagne, unless payers can be convinced of a product's value. This means, the earlier biotechs and big pharmas alike invest in pharmacoeconomic analysis, the better. As E&Y puts it – there needs to be a thought process of: "If you build it, will they pay?"

Easier said then done, in the eyes of some. E&Y however, notes the industry was built by entrepreneurs, who will find creative responses to pricing pressures. Just what will these look like? Even E&Y can't say right now.

image from flickr user nim used under a creative commons license

Tuesday, April 27, 2010

Asclera: A REMS By Any Other Name…

Quick quiz. There’s a new molecular entity pending at FDA, intended for a cosmetic use. There is a clear signal of a risk of anaphylactic reactions, most likely associated with off-label use at high doses. The review team is in agreement: there needs to be some form of communication plan and special monitoring to assure that physicians don’t casually use higher doses.

Will the product have a Risk Evaluation & Mitigation Strategy as a condition of approval?

We don’t know about you, but our guess would certainly have been yes. After all, FDA seems to be using REMS more and more, right?

Well, not this time.

Here is how Cardio-Renal Drug Products Division Director Norman Stockbridge explained the decision, in the summary review of the March 30 approval of BioForm Medical’s varicose vein treatment Asclera (polidocanol):

“All team members concur on approvability.

An issue to be resolved is how to address the risk of anaphylaxis. There are no such cases in the controlled experience, but there are other allergic reactions—urticaria, hives, sneezing, and what sounds like angioedema. Similar cases to these appear in post-marketing use [overseas]. Post-marketing, there appears to be one reasonably clear anaphylaxis case following low-volume administration to treat a leg varicosity….

Overall, the team has the impression that the risk of anaphylaxis may increase with dose, and that seems plausible. A goal of labeling and any additional post-marketing safety-related activities ought to be discourage off-label use for larger varicosities where the volume of drug necessary will be much higher than it is for the indicated uses.

Dr. Southworth recommends a bolded warning, similar to the one sotradecol has. I concur with this. She recommends a communications plan for healthcare providers for the first few years, and annual review of hypersensitivity reactions. (These can be done outside of a REMS.) I concur with these, too.

She is equivocal on a medication guide, citing the closely monitored setting of administration. I do not favor a medication guide; there is ample opportunity for the patient and physician to discuss treatment options, and practitioners are generally familiar with the risks from use of sotradecol. While I agree with Dr. Southworth that the cosmetic use creates a low threshold for taking conservative measures, I do not think the bar should be quite this low.”
Final decision: approval with no REMS.

So is this a sign that REMS mania has crested? Should sponsors celebrate the return of a standard where REMS are the exception rather than the rule?

Well, not so fast.

First, Stockbridge has already voiced his displeasure with some of the accoutrements of the “Safety First” era, declaring in his memo on Effient that “no one associated with this review should feel good about this.” He meant the endless deliberations about the potential safety issues with Lilly/Daichii’s clot-dissolving drug. Stockbridge was clearly ready to approve the drug long before he wrote those words in April 2009. But Effient itself wasn’t approved for another three months after.

In other words, Stockbridge can’t change anything on his own, and its clear that other FDA review managers have different levels of enthusiasm for the new safety tools. For example, FDA’s Endocrine & Metabolic Drugs Division management, for example, seems to have a very different view of the value of REMS tools. (We’ll have more on that in an upcoming issue of The RPM Report.)

And, while Stockbridge’s rejection of a REMS did avoid a last minute delay for Asclera, it didn’t exactly make this a lightning fast approval. Asclera was first submitted in 1999, and got a “complete response” in 2004. Meanwhile, it continued to be marketed overseas, building the safety database that helped reassure FDA that the risk of anaphylaxis is very rare. That puts Asclera in a venerable class of NMEs that always have an easier time at FDA: those with long marketing histories overseas.

More importantly, while there isn’t technically a REMS on Asclera, there might as well be. FDA and the sponsor agreed to a Dear Doctor letter at launch outlining the risk of anaphylaxis. It isn’t required, so it isn’t a REMS—but it was agreed to prior to approval, and we bet the sponsor doesn’t see much difference there.

And then there is a mandatory post-marketing study—a pretty unusual one at that:
The sponsor will provide “a yearly report (containing both interval-based and comprehensive data) analyzing spontaneous adverse event reports received that describes anaphylaxis or death.” Reports are due annually until 2016.

So BioForm doesn’t have to comply with a REMS. But it does have to send a “Dear Doctor” letter warning of a very rare potential adverse event with off-label use, and submit annual analyses of post-marketing reports.

A REMS by any other name still smells as sweet…

Monday, April 26, 2010

While You Were Turning Three

It's IVB's birthday, so have a cupcake. As always, thanks for reading and commenting. And remember, IVB is just the appetizer -- check out the rest of what we have to offer.

On to your weekend news. While you were grounded ...

image from flickr user clevercupcakes used under a creative commons license

Friday, April 23, 2010

DotW: High(er) Hurdles

It's no secret the hurdles to drug development are getting higher. But the commercial bar has been raised, too. Those with doubts need only look at Novo Nordisk's efforts to pressure-test its Type 2 diabetes medicine Victoza, not just in head-to-head trials against its major competitor, Byetta, but also against orals like Merck DPP-IV inhibitor Januvia.

Much of Novo's future success rests on Victoza's acceptance in the marketplace. Despite regulatory delays, prescription trends show the drug is one of the few successful launches in the past year, especially when compared to the dismal adoption of either Johnson & Johnson's Simponi or Lilly/Daiichi's Effient.

But Novo is taking no chances. Its head-to-head trial with Januvia published Thursday in The Lancet proves that. In an interview with Reuters, Mads Krogsgaard Thomsen, Novo's chief scientific officer, made no bones about competing in a world where comparative effectiveness is the modus operandi: "The fact that Novo Nordisk has now done most, if not all, of the major comparator studies against different classes of oral and injectable anti-diabetic drugs really shows our commitment to showing comparative efficacy in a serious way," he said.

Comparative effectiveness is also holding sway over deal-making. We haven't yet seen deals with milestones tied to reimbursement, but we've seen plenty of deals terminated because the product's potential for commercial success was limited. The latest example is Forest Laboratories pulling the plug on its partnership with Phenomix to develop dutogliptin, the biotech's Type 2 diabetes medicine. Forest announced the move on its earnings call this week.

Analysts have never been that hot on dutogliptin, yet another DPP-IV inhibitor in a crowded space. And while Merck's Januvia has done well, with sales topping $3 billion, the same cannot be said for Onglyza, which AstraZeneca and Bristol Myers Squibb have brought late to the DPP-IV party.

Forest is new to the diabetes space and might have gotten cold feet in the wake of Onglyza's disappointing sales. Of course, the changes to FDA's diabetes guidelines, which are sending the cost of clinical development sky high, also might have chilled Forest's ardor. Forest isn't saying much beyond "business reasons" to explain the deal's demise.

Phenomix is trying to put the best spin possible on the news. The same day Forest axed the program, the biotech reported positive data from a Phase III six-month study comparing dutogliptin to placebo. Phenomix' drug appears to have similar efficacy but better safety and tolerability than other DPP-IVs, noted CEO Laura Shawver in an interview with "The Pink Sheet" DAILY. The company has four Phase III programs underway and plans to run a fifth cardiovascular study to meet FDA's new diabetes guidelines. The pressure is on for Phenomix to find a new partner and more cash.

It's yet another way biotech is like a singles bar: you're one of many in a crowded field, you need a new partner, and the drinks are more expensive than you realized. Sometimes it's better to go home, put on your flannel PJs, and curl up with another edition of...

Novartis/Oriel: With the acquisition this week of privately-held Oriel Therapeutics for an undisclosed sum, Novartis' Sandoz unit gains a portfolio of drug candidates and related technologies for asthma and chronic obstructive pulmonary disease, a key therapeutic area for the generic drug maker. With GlaxoSmithKline's Advair, AstraZeneca's Symbicort, and Pfizer/Boehringer Ingelheim's Spiriva losing patent protection by 2016, Novartis's Sandoz hopes to capture a big chunk of the inhalable respiratory generic market. It can be quite lucrative because the complex delivery systems are a barrier to entry that potentially limits competition. Sandoz has already put $60 million toward the development of a new facility in Rudolstadt, Germany with manufacturing capacity for dry-powder inhalers and metered-dose inhalers. The acquisition of Oriel, meanwhile, provides Sandoz with three development projects targeting leading medicines and a novel delivery technology, FreePath. Sandoz's work in generic respiratory meds complements Novartis's innovator products; the pharma has a long-acting beta 2 antagonist, indacaterol, in development for COPD in the US and marketed in Europe as the Onbrez Breezhaler. -- Jessica Merrill

Clovis/Ventana: Less than a year after securing $145 million in start-up financing from a cadre of blue-chip investors in the largest A round ever for a biotech, in-licenser Clovis Oncology has mapped out a development and approval track for its first drug, which under a deal announced this week, will include a companion diagnostic to be developed and sold by Ventana Medical Systems. In November, Clovis acquired rights to Clavis Pharma’s lipid-conjugated formulation of gemcitabine based on information showing the drug, renamed CO-101, could outperform gemcitabine in pancreatic cancer patients with low levels of a specific transporter protein, hENT1. (This population is estimated to be 50% of the total number with the disease.) Clovis also believes CO-101 will work as well as gemcitabine, the current standard of care for pancreatic cancer, in patients with high levels of hENT1. Its 250-patient trial will capture data on the performance of CO-101 head-to-head against gemcitabine in both the hENT1-low and -high populations, and could be sufficient for registration filings in the US and Europe, said CEO Pat Mahaffy. When ready, the Ventana diagnostic will sort patients into low- or high-level populations using tissue biopsies collected at the start of the study. The program reflects Clovis’s intention to develop drugs with a clear path to approval, incorporating a companion diagnostic. “We are strong believers that technology and the regulatory environment are driving toward exactly this approach,” said Mahaffy. -- Mark Ratner

Novartis/Array: Boulder, CO-based Array BioPharma has an array of options now that it has partnered its small molecule MEK inhibitor program to Novartis in a deal worth $45 million in upfront and near-term milestone payments, and downstream milestones totalling another $422 million. It's anecdotal evidence of a factoid we discussed at Pharmaceutical Strategic Outlook: early-stage deal values, especially for Phase I products, are on the rise. Analysts and investors found a lot to like in the deal, Array's second high-value collaboration in four months, and sent the firm's stock price soaring more than 30% in after-hours trading following the announcement. Novartis gains exclusive rights to ARRY-162, currently in Phase I trials for biliary tract cancer, plus a back-up compound ARRY-300 and earlier compounds. Array has the option to co-develop '162 in one or more indications and co-promote it in the US. (That seems to be another de facto condition of oncology deal making these days.) One reason the product might have attracted such a healthy sum is that its safety profile is largely derisked from its Phase II trials in rheumatoid arthritis. There were no safety problems, but the trials were a big disappointment, with the drug doing no better than placebo at thwarting the disease. -- EFL

Boehringer Ingelheim/Biota: BI terminated its 2006 agreement with the Australian pharma Biota Holdings for nucleoside analogs to treat hepatitis C, largely because it could not identify a suitable pre-clinical candidate to advance forward, the companies announced April 20. Rights now revert to Biota, which develops anti-infectives and originated the flu drug Relenza (zanamivir). Biota could have earned up to $102 million from Boehringer if a compound reached the market. At least it has a steady flow of Relenza cash. It reported $AU32.6 million in royalties from GlaxoSmithKline for Relenza for the quarter ended Dec. 31, 2009, with expected royalties of AU$56.7 million for the first half of 2010. Under the 2006 deal, Biota licensed to Boehringer global rights to develop and sell its tricyclic group of nucleoside analog drug candidates for HCV infection and possibly additional indications. In turn, Boehringer agreed to an up-front technology payment, preclinical, clinical, regulatory, and sales milestones, plus R&D funding totaling $102 million. The companies worked jointly on the HCV research program from the time they signed the agreement until last November, when Boehringer-Ingelheim took over R&D activities. -- Carlene Olsen

Image courtesy of flickrer Robert Voors via a creative commons license.

Thursday, April 22, 2010

Financings of the Fortnight Can't Get Excited About The IPO Party

Sure, Alimera Sciences just debuted, the sixth biopharma to do so in 2010 and the 10th to go public since the window re-opened last year. But like so many other biopharma IPOs of late, the issue was replete with caveats (see below). Optimists will say, hey, public is public. Just get us liquid to access more capital, and give our investors an exit. But public demand is so weak, some stocks are about as liquid as toothpaste. (Would that make an IPO a colloidal event?)

And if optimism abounds, why aren't more biotechs filing S-1s? Strike that. Why aren't any biotechs filing S-1s? This isn't the first time we've noted the curious lack of fresh meat in the IPO pipeline. But now that AVEO, Tengion, Alimera, not to mention French firm Neovacs, have all flown out the door in the past fortnight or two -- and all with rather alarming haircuts that range from 30% to 50% -- the registration nest is practically empty.

Plenty of companies could file papers and make it official, and you can bet your sweet patoot the bankers are pushing hard. But a lot of investors are pushing back. Take Alta Partners' Alison Kiley, who said at the BayBio conference two weeks ago that her firm was in no rush to get its late-stage biotechs to the public prom. Or the opinion of another prominent VC, who told The IN VIVO Blog this week that the current IPO scene is "a sham."

Cooley Godward Kronish's life-science chair Barbara Kosacz would agree. In a recent interview she told IVB, "I don't think of there being any window open. It strikes me as a horrible time. Some companies are going out, so I guess you could, but most boards are adamant about not going near it."

Until we see the S-1s, that giant sucking sound you hear is the biotech IPO pipeline washing out to the vast public sea. Here we're tempted to extend the metaphor -- "only to be eaten by sharks," or "fated to drift into a dead zone of investment detritus" -- but we allow a few are bobbing along nicely in the aftermarket (AVEO is up 7%, Ironwood Pharmaceuticals 27%).

We'd be remiss not to mention the Q1 venture numbers that came out last weekend. DowJones VentureOne reported $619 million in U.S. biopharma funding, the lowest quarterly figure in at least five years and down 20% from the first quarter of 2009. Chalk it up to the health reform fight, which dragged on through March, or perhaps to the traditional lag in dealmaking coming back from the holidays, or to VCs hanging on to what they've got so they can see their current portfolio through.

Then the calendar turned to April, and it suddenly felt like 1999 or 2000 again with a bloom of generous rounds for early-stage biotechs. This week we profile two big B rounds, Biocartis and AiCuris, but there were plenty to choose from: $40 million for Catabasis Technologies' A round, Sagent Pharmaceuticals' $40 million B round, and Foundation Medicine's $25 million Series A. Foundation's lead investor is early-stage firm Third Rock, which recently filed its Form D -- as in "daring"? "Daunting"? -- to kick off its second fund with a target of $400 million.

How about "doable"? The money is out there. One year ago early-stage investor 5AM Ventures reported a goal of $120 million for its third fund. It closed in December with $200 million. And in February Orbimed closed a $550 million fund, Caduceus IV, with 80% of the backing coming from repeat investors.

We have a feeling the Q2 numbers will not be nearly as grim. Until then, turn up the volume and party on with...

Alimera Sciences: Like we said up top, haircuts for biotech IPOs are so in style. Regenerative medicine player Tengion priced an ugly 44% below its target on April 8, and now the latest fashion victim is Alimera. The ophthalmology company grossed $72.1 million, but it was forced to slash its per-share price to $11, 31% below the $15 to $17 range it touted in early April. Alimera also bumped the number of shares from 6 million to 6.6 million, but 1.8 million of them were bought by existing venture backers, including Domain Associates, Intersouth Partners, and Polaris Venture Partners, which have put about $94 million into Alimera since it was founded in 2003. Most of Alimera’s IPO proceeds will go towards lead candidate Iluvien (formerly Medidur), an intravitreal implant containing the corticosteroid fluocinolone acetonide in Phase III for diabetic macular edema. An NDA is expected this quarter and if approved, it would be the first drug/device combo ever available for DME. pSivida developed the implant and licensed it to Alimera in 2005. In fact, pSivida will make out better than Alimera -- or its backers -- in terms of the IPO proceeds. Alimera must pay back $15 million of debt pSivida is holding, plus an additional $175k in accrued interest. And if Iluvien is approved, pSivida collects a $25 million milestone payment. -- Amanda Micklus

Biocartis: The Swiss diagnostics firm announced April 8 a €30 million ($41.3 million) Series B round, with two corporate investors, Swiss neighbor Debiopharm Group and Johnson & Johnson Development Corp., taking stakes. Debiopharm isn't just an investor; it will also partner with Biocartis to make companion diagnostics for its cancer and infectious disease treatments, with the Debio-025 Hepatitis C drug first in line. Biocartis plucked the diagnostic platform from Dutch conglomerate Royal Philips earlier this year for an undisclosed amount. Existing investors from a pan-European syndicate including Aescap Venture, Biovest CVA, Advent Venture Partners, and the Benaruca investment vehicle of Biocartis founder Dr. Rudi Pauwels' family underwrote the new round as well. Pauwels has worked with J&J before. The health-care giant bought two of his startups, Tibotec and Virco, in 2002. The financing is one of the largest for a molecular diagnostics startup since the downturn began. Nodality of Redwood City, Calif. announced a $15.5 million round in March that was led by yet another corporate funder, Pfizer Ventures. Hmm. Starting to see a trend? -- Paul Bonanos

AiCuris: ...and if you thought Biocartis's Series B was big, make way for Germany’s AiCuris, which raised €55 million ($75 million) in its Series B on April 14. The lead investor was Santo Holding, an investment company run by the Strüngmann family (also former owners of Hexal, now a Novartis division). Founded in 2006 as a spin-off of Bayer HealthCare’s anti-infectives cast-offs, AiCuris is led by Helga Rübsamen-Schaeff, PhD, former SVP of anti-infectives research at Bayer, and is developing treatments for viral and bacterial infections. Late last year, its lead candidate, AIC246 for human cytomegalovirus (HCMV), was shown to be well tolerated in transplant recipients and had comparable efficacy with valganciclovir. AiCuris has expressed interest in licensing the HCMV inhibitor -- as well as others candidate HCMV molecules -- to Big Pharma. So far, the company has forged one collaboration, an early-stage drug discovery deal signed in 2008 with fellow German/medicinal chemistry specialist 4SC AG. AiCuris is the fourth German biotech to raise venture capital this year, bringing the venture total for German biotechs just north of $100 million, according to Elsevier’s Strategic Transactions database. -- A.M.

NPS Pharmaceuticals: We highlight this Bedminster, NJ specialty pharma for its double duty: It has raised more than $90 million in a pair of transactions over the past two months. The most recent is a follow-on public offering of 10.35 million shares that closed April 21. The FOPO, which sold at $5.50 a share and included a fully subscribed overallotment of 1.35 million shares to the underwriters, netted NPS $53 million. Focused on rare gastrointestinal and endocrine disorders, NPS will use the money to continue registrational clinical trial programs for a pair of lead candidates: Gattex (teduglutide) to treat intestinal failure related to short bowel syndrome and NPSP558, a hormone replacement therapy for hypoparathyroidism. In its earnings statement last month, the company said top-line data from its Phase III STEPS trial for teduglutide are expected in late 2010 or early 2011. Also last month, NPS sold royalty rights to the hyperparathryroidism drug cinacalcet to DRI Capital for $38.4 million. Under the deal, DRI’s proceeds from the deal are capped at $96 million, or 2.5 times the upfront purchase price. -- Joseph Haas

Photo courtesy of flickr user Katie@!.

Lilly's $1 Billion Investment in Health Care Reform (Part 2): Remember the Upside

In part one we did our best to explain the relatively huge cost Lilly put on the impact of health care reform in 2010 and 2011, pointing out that the company is in effect a victim of its own success in defending Zyprexa from pricing pressure in the past.

But we also think Lilly's estimates about the cost of reform don't tell the whole story

Take the company’s forecast for 2011, with revenue guidance cut by $600 million to $700 million. There, in addition to the ongoing impact of the Medicaid rebates (so about $400 million or so), Lilly sees another $200-$300 million impact from the new market share fee in the US and from the start of the donut-hole discount program.

Now there is no escaping the fee, though as Lilly noted the exact amount is still tough to calculate. However, we figure Lilly’s share will be in the $100-$130 million range. That’s a real hit.

The donut hole discount, however, is another matter. There is no doubt that the 50% discount will show up in Lilly’s reports as a deduction from revenue (along with Medicaid rebates, chargebacks, etc.). It is just that the discount is also likely to induce wider use of brands in the lucrative Part D population.

But Lilly is not baking in any benefit from behavioral change in response to the donut hole discount. The company did say it is counting the potential benefit for products like Forteo where there is a relatively high percentage of patients who stop therapy in the donut hole, but noted that is a small amount.

It is very hard to predict whether prescribers and patients will start to use more brands knowing that the cost of the donut hole will be lower. Lilly's initial read is that a 50% discount won't be enough. Maybe they are right--but they may be wrong too.

The Congressional Budget Office certainly saw things differently: CBO estimated that the net impact of the donut hole discount in 2011 would be to increase federal spending on pharmaceuticals by something on the order of $1.0 billion. (The exact amounts are difficult to break out of the CBO score).

Could there be another Part D surprise upside in 2011? We will see.

And Lilly definitely didn't even attempt to quantify the intangible benefits of the law. For instance, the new 12 year data exclusivity granted to biologic products. That immediately makes Lilly’s pipeline more valuable, at a time when the company notes that “biotech molecules represent half of our late-stage Phase II and Phase III assets and over a third of our overall clinical portfolio.”

That’s not top-line revenue or bottom line earnings, but it is real.

And then there is that backloaded stuff in the bill. You know, the part where the federal government kicks in a share of the donut hole, basically paying back the market share fee in the form of coverage for Medicare Part D. And the 32 million new lives expected to gain insurance.

Thanks to reform, the federal government will be spending a lot more subsidizing health care in the years to come. ($934 billion more, according to CBO.)

Some of that money will pay for pharmaceuticals. Ten percent, say? That is a lot of dough. So Lilly will spend $1 billion over the next two years in hopes of big payoff in the middle of the decade.

Say, isn't that exactly what Lilly does? $1 billion is just one quarter's worth of R&D for Lilly, and we'd wager this billion is much more certain to deliver an attractive RoI than the average incremental billion spent by Lilly on R&D the past decade.
This is an industry used to making large investments over several years in hopes of an uncertain payoff. Health care reform requires similar patience—but with a more certain payoff.

flickr image by amy_b used under a creative commons license

Lilly's $1 Billion Investment in Health Care Reform (Part One): It's All About Zyprexa

With our unerring sense of timing, we just published an analysis of the health care reform bill explaining our view that the biopharmaceutical industry did really well under this law, even better, in fact, than we thought they would do when reform was all but done in January.

Then Lilly announces some rather astonishingly large cuts in its 2010 and 2011 revenue guidance--due to health care reform. This year, Lilly says, revenues will be down $350-400 million, and next year the hit will be bigger, $600-700 million. (You can read more in “The Pink Sheet” DAILY.)

Altogether that makes a $1 billion hit from reform. This is good news?

Ah, but it is. Really.

And we figured we should explain our thinking one more time, in the context of Lilly’s announcement (and the wave of follow-up guidance adjustments from biopharma companies big and small).

First off, it bears repeating that the reform bill is, by design, front-loaded on pain and back-loaded on gain.

Medicaid rebates increase this year and market share fees begin next year. Expanded insurance coverage doesn't really kick in until 2014. Industry knew what it was getting into when it decided to support health care reform: there would be a price paid up-front in order to see the new business from insurance expansion later on.

In other words, it isn’t so much a hit from health care reform, as it is an investment in a bigger US market. And we think the math works out wonderfully.

Now, bear in mind that Lilly is probably the company most affected by the front-loaded pain of reform, thanks almost entirely to its extraordinary Zyprexa franchise. The company, in effect, is a victim of its own success in holding the line on prices for its biggest brand.

Zyprexa was at one time almost exclusively covered by Medicaid (estimates were at least 70% of US sales). That profile meant that Lilly had no reason to engage in deep discounting in the commercial market, which would have meant deeper rebates to Medicaid under the “best price” rebate formula. So Lilly presumably paid the minimum rebate (15.1%).

The health care law sets a new minimum rebate amount (23.1%), which in effect increases the size of Lilly’s base rebate payments by about 50%. That probably explains most of the $350-$400 million impact in 2010. (The new law also applies rebates to the Medicaid managed care market; while that isn’t as big an impact it is still pretty big—in essence an increase from zero rebate to 23% or more for the Medicaid managed care sector.)

Other manufacturers probably aren’t as exposed to the change in the minimum rebate amount. Pfizer, for example, is about 50% bigger than Lilly in the US, but its product line is not as heavily covered by Medicaid in the first place, and its biggest product—Lipitor—is discounted in the commercial market and so probably already generates a rebate payment at or above the new minimum. (There will still be an impact on Pfizer, of course, but we won’t know how much until it reports in May.)

Don’t feel too bad for Lilly, though.

The relatively big impact on Zyprexa is primarily a function of the company’s success in staving off earlier efforts to extract deeper discounts on the brand. As Zyprexa’s impact on Medicaid grew early in the 2000s, many states tried to impose supplemental rebates on the brand. Those fights were starting to become more difficult when the Medicare Part D legislation came along, and as of Jan. 1, 2006, at least half of the Medicaid population switched to the new Part D coverage.

That meant an end to the push for supplemental rebates. It also meant a de facto one-time price increase on the brand, since Medicaid rebates also capture an inflationary price adjustment. In fact, Lilly and Zyprexa were probably the biggest beneficiaries from the launch of Part D in 2006. (See “Lilly Makes Part D Pay,” The RPM Report, January 2006.)

All of which underscores another point to remember when considering the estimates of the cost of health care reform: the alternative to the upfront hit from reform would almost certainly be a different sort of hit. So, for Lilly, the higher Medicaid rebate at least helped stave off the push to reclaim the Medicaid rebates on the Part D population.

There is no way to know for sure as an outsider, but we believe the hit from dual eligible rebates would have been bigger for Lilly than the hit it is taking now. All the more so if the dual eligible rebate were enacted solely as a revenue measure, not as part of comprehensive health care reform.

And it is possible to put a little context around the number. $1 billion is less than one-quarter's worth of Zyprexa revenues, and it is also less than the $1.4 billion Lilly paid to settle marketing investigations related to the product in 2009.

Then there is the matter of timing. Lilly sees a huge revenue hit in 2010 and 2011 from health care reform, but of course the bigger hit will come from the patent expiration for Zyprexa itself at the end of 2011. That could be a $2.5 billion drop in revenue in 2012.

Though on the bright side Medicaid rebates will go down...

Okay, we don't seriously expect Lilly to celebrate the loss of Zyprexa. But it does provide a useful reminder of what the company has to look forward to after 2011 as health care reform picks up steam. We'll explore that theme in Part Two.

image by flickr user ansik used under a creative commons license

Wednesday, April 21, 2010

Christoph Westphal's Two VC Hats

Christoph Westphal is getting a new business card. In an email sent to friends and some well placed bloggers on April 21, Westphal disclosed that his time as CEO at Sirtris Pharmaceuticals has come to an end.

Noting that Sirtris has a "strong team in place under the leadership of George Vlasuk who is now taking on the role of CEO of Sirtris," Westphal confirmed recent speculation: his departure from Sirtris goes hand-in-hand with his decision to jump back into the venture world. In February, SEC filings disclosed that Westphal, alongside Michelle Dipp and Rich Aldrich, was founding the early-stage focused Longwood Founders Fund with about $51 million.

But Westphal dropped another bombshell in his note Wednesday, and it landed in a decidedly off-hand fashion. Via Longwood, he wrote that he aims to "found, build, and run important new medical companies, as we have been doing for the last decade. In addition, I will be overseeing GSK's midstage venture fund, SR1."

Talk about burying the headline.

It's been a revolving door at SR One, with news surfacing in March that Russell Greig was leaving the storied group not even two years after taking the reins. Westphal isn't talking publicly yet. 'Wait until May' was basically the reply this blogger received when she contacted him.

As Steve Dickman of CBT Advisors pointed out April 21 on his subscription-only blog, this isn't the first time Westphal, well known for his indefatigable drive, has held two jobs at once. But it's one thing to wear CEO and VC hats at the same time. It's a different matter to be a financial VC and a corporate VC. There are plenty of synergies, but as Dickman notes there's also the potential for conflict.

Corporate VCs will tell you they are well aligned with their traditional brethren, with financial return the primary driver behind their investments. But corporate funds also bear a critical strategic function: to identify key assets or technologies that lead to tomorrow's innovative products. That mission is only likely to grow in importance with the pullback in the traditional VC community, which is more focused on low-cost innovation that generates returns in three to five years and satisfies antsy LPs.

We're guessing GSK, a backer in Longwood, must be okay with potential conflicts that could arise, including what might happen if Longwood makes a seed investment in start-up X, and SR One wants to back the same company in a later round. Do Westphal's ties to both funds preclude Longwood and SR One from both having board seats? Does SR One get similar equity terms to Longwood? How will this duality play with other traditional or corporate VCs who might be in a syndicate with Westphal/Longwood/SR One?

Perhaps more thorny, how does Westphal manage the conflicts that crop up when he chooses to pass on a certain investment? Is he making the decision as a Longwood investor or an SR One investor? Where does the continuum between SR One's investment philosophy end and Longwood's begin?

It's all very nebulous, as is what's happening at SR One (or GSK Ventures for that matter -- remember them?). Dickman and others speculate the move will rejuvenate the storied venture fund. Funny, we thought Greig was brought in for that, and his efforts seemed to be working. SR One was among the most active corporate investors in the last year, investing in seven firms in 2009, including Aileron Therapeutics, Genocea Biosciences, and Alios Biopharma.

Perhaps Westphal will find more creative ways to ink deals, moving GSK firmly into the realm of option-based venturing. Maybe he'll provide yet another bridge between the corporate and traditional VC realms. Or maybe his close ties to GSK show how difficult it is to be a traditional VC today and just how intertwined venture and pharma truly have become.

Image courtesy of flickrer lokidude99 used with permission through a creative commons license.

Monday, April 19, 2010

Are Your Travel Plans Up in Smoke?

Ah, Eyjafjallajökull. Your name would live in infamy, a curse upon so many lips, if anyone outside of Iceland could pronounce it. Then again, thousands of stranded travelers have plenty of down time. Why not brush up on your islensku?

Three executives at Colorado biotech GlobeImmune including CEO Tim Rodell might need a refresher course in Spanish to get home. Rodell & Co. were in Vienna for the European Association for the Study of the Liver conference, with a piece of lost luggage already stranded at Heathrow because of the shut-down. Planning their escape from the Continent, they found a rental car for 1,200 Euros offered by someone who wasn't even an employee of the rental shop. (Psst, buddy! Yeah, you! How's about a Renault Twingo?) They spent two days driving to Madrid, where as of a few hours ago according to a company rep they're waiting for a red-eye flight to Ecuador and having a glass of wine, most befitting after a liver conference and a two-day, 2500-km car trip. From Ecuador, the trio goes to Miami then their separate ways to Colorado and New Jersey.

That's the best volcanus-interruptus story we've heard so far, though this fellow has amusing tales of schnitzel and laundromats. We've also seen a Credit Suisse analyst note from EASL that tried -- or should we say "strained mightily" -- to liken the stranded attendees to the HCV landscape: "There are many major pharma and biotech companies racing to find a better cure, but we expect the dust to settle soon and few winners to emerge."

There have been disruptions stateside, too. At the AACR meeting in Washington, as of late Saturday about 5% of speakers couldn't attend, but organizers said about half were presenting remotely or had a colleague ready to stand in. No word yet on problems at the World Vaccine Congress, which kicks off today, but we do have a couple preemptive meeting cancellations to report:

* The European Generic Association has ix-nayed the 8th EGA Annual International Symposium on Biosimilar Medicines in London later this week.

* Au revoir, Translational Neuroscience Symposium 2010.

* The European Plant Science Organisation won't be meeting in Lapland. (Link tip from The Scientist.)

Got crazy travel stories? Were you forced to get home to Boston via McMurdo Station?

Let the IN VIVO Blog know.

Photo courtesy of flickr user NASA Goddard Photo and Video.

The PhRMA Search

So, we just finished telling you (see below) that the search for a new head of the Pharmaceutical Research & Manufacturers of America is just getting going, and that it is way too early to know who the candidates really are to take over for CEO Billy Tauzin when he leaves at the end of June.

Naturally, we won't let that stop us from telling you who we think the candidates are, might be--or maybe should be. But let's be clear: we are still betting the job goes to someone no one is talking about yet.

Let's start with the names we’ve heard that we expected to hear.

Tom Daschle: Okay, when we included him on our first list, we thought we were kidding. At the time Tauzin resigned, it seemed like the last thing PhRMA would want is to double-down its bet on health care reform. Well, things have changed. Plus, we were there when PhRMA's new chairman, Pfizer CEO Jeff Kindler, introduced Daschle during the PhRMA annual meeting, with warm, glowing praise. Then Daschle returned the favor by praising Kindler for a “visionary address,” and telling PhRMA “you could not be in better hands with the leadership you are going to have from this Chairman.” So maybe there is something to it. One thing: if PhRMA wants Daschle and Daschle wants PhRMA, there is no need to wait. We don't think it will happen.

Christopher Dodd: The retiring Connecticut Democratic Senator is a logical fit—after all, Pfizer is one big constituent. But he has to get through a potentially bruising fight over regulatory reform in the financial sector before he steps down at the end of the year. We be he ends up doing something else next.

Evan Bayh: The Indiana Democrat’s resignation at the peak of the health care reform debate immediately put him on the PhRMA long list. A former board member of Eli Lilly, he may have broader appeal to the PhRMA membership than Dodd. And—while he voted for health care reform—he wasn’t one of the key architects and so may be better positioned to push for improvements than Dodd. If he wants the job, he has a good chance to get it.

Then there are the names we heard but didn’t expect:

Ginger Graham: The former Amylin CEO (and ex-Lilly exec) would make an interesting choice—the first female head of PhRMA and an ex-CEO leading CEOs. Her experience guiding Amylin from start-up phase to commercial entity could help PhRMA continue to reach out to emerging commercial businesses to expand its membership base. But will a bunch of Big Pharma CEOs really choose a little pharma CEO as their leader?

Mark McClellan: The only man to run both FDA and CMS seems to come up as an ideal candidate for almost any job you can think of. Heck, we suggested him as a candidate to run Pfizer’s R&D operation a couple years ago. But plenty of folks would love to have him running PhRMA. The thing is, he sure seems happy doing what he’s doing (running the Engelberg Center for Health Care Reform at Brookings).

Then there are plenty of names we haven’t heard but are worth thinking about:

Arlen Specter: The Pennsylvania Democrat who used to be a Republican plans to be back in the Senate next year. But what if he goes down to defeat? As the man who gave the Democrats their (temporary) 60-vote majority in the Senate, Specter played a key role in making health care reform possible. Would PhRMA reward him—or someone else whose health care reform vote costs them re-election—with a “retirement” job as CEO? It may be far-fetched, but having a figurehead who reminds the Administration of their loyalty to the reform cause wouldn’t be a bad thing during the implementation process in 2011-12. And you can also make a change after the Presidential Election.

Howard Dean: The former Vermont Governor worked with the Biotechnology Industry Organization on health care reform and so frankly is more likely to be the next head of BIO than PhRMA--and he isn't likely to be the next head of BIO. But Dean's best known as a long-shot presidential candidate anyway, so why not? More importantly, we promised to tell you more about what he said at the DTC National conference in DC earlier this year. In a nutshell, he explained that pharmaceuticals have reduced health care costs over the past 30 years and (in our words, not his) are part of the solution, not the problem, in the health care system.

Any GOP Politician: Fresh off the reform victory, no one is thinking about a big name Republican—but that will change faster than you can say “Contract With America” if the Republicans sweep the Congressional elections in November.

Linda Suydam: When Tauzin resigned, we flagged AHIP’s Karen Ignagni as an interesting possible successor, bringing association management experience and the glow of victory in the health care reform debate. Oops on that last part. Ignagni is now the loser in reform, we suppose—but the Consumer Health Product Association’s Suydam is available. Okay, she plans to return to the Southwest when she retires at the end of the year, but maybe she would reconsider. In addition to her association management experience, she also is a former FDA official—useful bona fides for PhRMA as it heads into the critical PDUFA reauthorization cycle.

Tony Principi: The head of government affairs for Pfizer was described by his boss, Jeff Kindler, as "one of the smartest guys" in Washington during the PhRMA annual meeting. But we put him on the list because of his past experience in military and veterans' issues. You see, the one thing about the final health care reform law that PhRMA doesn't like is the independent board to recommend spending cuts in Medicare (IPAB). The board is modeled on base closing commissions--and it so happens that Prinicipi was the chair of the last base closing commission before joining Pfizer.

And last but not least:

Chip Davis: Okay, so we already explained why he is purely a temporary head of the association. But no one expected Bud Selig to be anything more than temporary commissioner of baseball. If the search for a permanent successor drags on and Davis is able to keep the association staff focused on day-to-day execution, maybe he ends up as the CEO after all. PhRMA could do worse.

Who Will Run PhRMA? AZ’s Chip Davis, For Now

The Pharmaceutical Research & Manufacturers of America is buying some time to find a replacement for departing CEO Billy Tauzin. The trade association has named AstraZeneca VP-Corporate & External Relations Chip Davis to serve as “senior operating officer” and—we suspect—as interim CEO in waiting.

Davis is taking a leave of absence from AstraZeneca to join PhRMA “to help with the association’s leadership transition.” For now, that means he will be reporting to Tauzin, who is stepping down as CEO June 30. In other words, Davis’ first job will be to step in for PhRMA’s number two executive, EVP Mimi Simoneaux Kneuer, who will be leaving the trade association in May.

But we expect Davis is really there to buy some time for PhRMA to find a replacement for Tauzin. PhRMA says Davis will stay on “until a replacement for Tauzin is named,” and—since we understand the search for a new CEO is really just beginning—that probably means a period as interim CEO.

Davis is a perfect choice for the job. He has been AZ’s liaison to PhRMA and played a key role in guiding the association’s work on health care reform during the chairmanship of AZ CEO David Brennan. With Davis at the helm, PhRMA should be able to maintain and develop some of the critical alliances that helped the association do so well in the reform debate, particularly its partnerships with organized labor.

Brennan’s term ended in March, but he is chairing the search committee for Tauzin’s replacement.

At the same time, because Davis is so close to Brennan, he is sure to be temporary. Pfizer CEO Jeff Kindler isn't likely to let the past chair--in effect--run the association for his term.

Why the delay in replacing Tauzin permanently?

Well, for one thing, circumstances have changed radically since Tauzin announced his resignation in February, at a time when the prospects for health care reform looked dim. Now, the health care bill is law—and, as we note in The RPM Report—the final bill is essentially a complete tactical victory for PhRMA. In other words, what looked like a potentially crushing setback has become an amazing victory.

There are also strategic reasons for PhRMA to wait a bit on naming a replacement, if only to broaden the pool of candidates. After the flap caused by the negotiations to hire Tauzin while he was still in Congress, for instance, it would be best if PhRMA waits before talking seriously to any sitting members of Congress.

More to the point, it behooves PhRMA to wait and see how the elections go this fall. Best to read the tea leaves (or maybe the Tea Party?) before making the next CEO choice.

One other reason for PhRMA to take its time: the search might take longer than you think. After all, CEO of PhRMA may not exactly be a dream job.

Imagine PhRMA came to you with this offer: "We just scored an across-the-board victory on the biggest piece of domestic policy legislation in a generation, so naturally we didn't want our old CEO to stay. We're sure you can do better. Oh, and by the way, we are going to be slashing our budget pretty radically now that all that health reform stuff is over. And, on top of that, figure on our top 10 members merging into our top 5 in the years to come. When can you start?"

So clearly it is far too early to talk about who will take over PhRMA permanently. There is no short list. But never fear: we won't let that stop us from speculating. Look for our list of names in the next post...

While You Were Stranded

Volcano 1 -- IN VIVO blogger, 0.

Yours truly was supposed to fly to the US on Saturday for a few days of work at EBI HQ Monday-Wednesday. (OK, there were tickets to Sunday's Phillies and Flyers games involved too.)

We've heard from industry friends stranded in Vienna after EASL (looking for your liver doc? He/She's probably still listening to Mozart, drinking strong coffee and eating tiny cakes right about now). There are more serious issues, to be sure. Students stranded. Unattended state funerals. Canceled meetings and conferences. Jobs and families to return to.

The news is full of the result of the ash-cloud disruption. On Sunday the airline industry -- reportedly losing $200 million per day -- started to grumble that imposed flight restrictions were over-zealous or just plain unnecessary. How big is the impact? Well, as of this writing the popularity of the underappreciated 1990 film "Joe vs the Volcano" (as measured by IMDb) is up 70% this week.

Today, we are all Joe. Or perhaps we're all another Tom Hanks character, Viktor Navorski, the unlucky man-without-a-state who gets stuck for ages in an airport Terminal.
Stuck somewhere awful? Somewhere not-so-awful? How did the volcanic ash affect your business plans? (A question we never anticipated asking if there ever was one.) Let us know in the comments.

Meanwhile, while you were living out of a suitcase ...
  • Avandia: The WSJ reported on Sunday that FDA is considering putting the brakes on GSK's Avandia v Actos (from Takeda) safety study. Quoth the Journal: "Dr. Hamburg's principal deputy, Joshua Sharfstein, said the decision on the trial "cannot be de-linked from the agency's view of Avandia," suggesting that if the trial must be halted, the agency would also consider asking Glaxo to halt sales of the drug."
  • Sandoz: Novartis' generic drug unit is acquiring Oriel Therapeutics, a respiratory-focused biotech backed by New Leaf Venture Partners, Thomas, McNerney & Partners, HealthCare Ventures and CHL Medical Partners. Terms weren't disclosed.
  • Elan: the Irish biopharma is exploring a spin-off of its Elan Drug Technologies business, a move that would create two publicly listed companies. Getting deja vu? The company reportedly tried to sell EDT back in 2008.
  • H Lundbeck: The H is for 'how do you like them apples?' The Danish CNS company wins a round in court and generic versions of escitalopram will be pulled from its home market.
  • AACR: At the conference in Washington, Amgen presented the results of a biomarker analysis of the Phase III pivotal trial for Vectibix. The company explored whether nine particular genetic mutations affected response to the drug. Patients with wild-type KRAS and NRAS genes had significantly improved progression-free survival compared to patients with mutant versions of those genes.
  • M&A: Astellas says it isn't going to raise its bid for OSI Pharmaceuticals based on expanded approval for Tarceva, though due diligence is ongoing.
  • NHL Playoffs. The game we missed turned out to be a solid effort from the Flyers, who might have won 8-2 were it not for the acrobatics of the NHL's finest-ever goalie, Martin Brodeur. Philly up 2-1 in the series.

Friday, April 16, 2010

Deals of the Week: Show Me The Money!

It's been a week of monetary navel gazing, as laggards stateside booted up TurboTax and calculated their contributions to dear Old Uncle Sam and tea partiers condemned America's "gangster government," shouting their own version of "Show me the money." (Got health care with that?)

Apparently Michelle Bachmann and Co. forgot to read the current tax code before villifying it; according to the the Tax Policy Center of the Urban Institute and Brookings Institution, only 53% of U.S. households paid income taxes on their 2009 earnings, with federal taxes for the year dropping by about $173 billion. Who was it who said "A billion here, a billion there, and pretty soon you're talking about real money?" (No, that's not a bio-bucks reference.)

Who else was feeling taxed this week? Besides air traffic control, residents of Iceland and Wisconsin, how about OSI shareholders? Analysts expect Astellas' hostile-turned-friendly negotiations with the biotech will result in an offer closer to $60-a-share even if no white knight emerges. Certainly it doesn't look like a majority of OSI shareholders will tender their shares without a little extra kwan.

Fabry and Gaucher disease patients seem ready to yell "Show me the drug!" The New York Times reports anger among Genzyme's most faithful constituency at the continued shortfall in Cerezyme and Fabrazyme supply. Carl Icahn's blood pressure may be rising as well, given the arrangement Genzyme brokered with that other activist outfit, Relational Investors.

Let's not forget Novartis employees. David Epstein, head of global pharma for Novartis gave his "help me help you" spiel in a letter, announcing the second major reorganization of the US group in less than a year. (We doubt it was an up-at-dawn, pride-swallowing siege, however.)

It's always "show me the money" for biotechs on the prowl for deals and venture firms in fundraising mode. Early-stagers Third Rock Ventures of Boston joins the ranks of VCs on the money trail; SEC documents this week reveal the firm wants to raise $400 million for its second fund. Meanwhile, the NVCA released its first-quarter venture numbers that support what IVB told you last week: it's still a tough go for private biotechs looking for money.

We hope we had you at hello, but even if we didn't, know that IVB will not rest until we have you holding a Coke, wearing your own shoe, playing a Sega game, or until we've bored you to death with '90s movies references. Excuse us while we call our agent, it's time to negotiate another edition of...

Celgene/Agios: Agios won't be uttering the phrase "show me the money" for some time. Rather than tapping its VC backers -- ARCH Venture Parters, Third Rock, and Flagship -- for a Series B or C, the company hitched its fate to Celgene in a deal reminscent of Sanofi's amended tie-up in November 2009 with Regeneron. In exchange for $130 million, which includes what Agios execs called a "modest" equity investment, Celgene has an exclusive option at the end of Phase I to develop any drugs resulting from Agios' cancer metabolism research platform. Celgene can extend the undisclosed exclusivity period if Agios agrees, but it will have to provide additional funding for the privilege. Agios will lead discovery and early translational development for all cancer metabolism programs, while Celgene controls and funds global development and commercialization of any licensed drugs. On each program, Agios could receive up to $120 million in milestones as well as sales royalties. The deal is noteworthy for two reasons: First, it's the largest known alliance value so far this year, and all of the molecules are still preclinical. Second, it's unusual for a private company to ally itself so closely to one partner so early in its life-cycle. Agios' near-term financial future is secure, but now that it's tied to the hip of Celgene, its exit options are far narrower. In other words, if the IPO window doesn't re-open, who will show Agios' investors the money? -- Jessica Merrill and EFL

Teva/Mersana: Teva's new slogan ought to be "We're not just about generics anymore." Further proof of the Israeli giant's expansion into branded drugs comes this week with the firm's April 13 alliance with Mersana, a privately-held biotech developing a novel analog of fumagillin, XMT-1107, for a variety of oncology indications. Bio-bucks for the deal total $334 million, including development, regulatory, and commerical milestones, but the parties did not disclose the upfront for the Phase I-ready compound. Teva gains rights to '1107 in all indications worldwide except for Japan and will take over development costs. Fumagillins, which inhibit angiogenesis by a pathway distinct from VEGF, are a well-studied class of potential cancer molecules that also come with safety concerns (Takeda and Abbott abandoned their programs in the mid-'90s.) Mersana believes its flexible biopolymer conjugate technology solves the toxicity issues. A Phase I trial in all-comers with refractory solid tumors is due to begin later this year. -- Joseph Haas

Roche/Mendingo: Kaching. It's good to be a diabetes device player, especially when pharma companies are on the prowl. Just weeks after Sanofi made a run at becoming an end-to-end diabetes provider, purchasing blood glucose monitor developer Agamatrix, Roche paid $160 million upfront plus $40 million in performance-based earn-outs to take out Mendingo, maker of the Solo micro insulin patch pump. Mendingo already has 510(k) clearance for Solo, but the system is not expected to launch until 2012 because of manufacturing capacity limitations. The device will dovetail with Roche's Accu-Chek blood glucose meter and insulin pump offerings for diabetes management. As David Kliff of Diabetic Investor has noted, pharma companies see an opportunity to provide integrated solutions to the rapidly expanding diabetic population. One segment poised for growth is the patch pump market, which could jump more than 30% in the coming year, especially if the products are approved in Europe. In the US, Solo's main competition comes from Insulet, maker of the Omnipod patch pump. -- Brooke McManus

Hospira/Javelin: When Hospira showed Javelin $141 million this week, Javelin ditched its potential acquirer Myriad Pharmaceuticals in favor of what Javelin management called "a superior proposal." Javelin, which submitted its pain drug Dyloject to the U.S. Food and Drug Administration in December and has an Oct. 3 PDUFA date, has been viewed as an increasingly attractive acquisition target especially since Myriad's bid, also launched in December, was viewed by the Street as "underwhelming." The original deal called for Myriad to acquire Cambridge, MA-based Javelin with stock, and it would end with Javelin stockholders owning 41% of the combined company. Hospira, however, offered $2.20 a share in cash, and it will pay more than $12 million in fees related to the break-up. Myriad has until Friday midnight to respond with a superior offer, but analysts at Leerink viewed its noncomittal response as an indication that a sweeter deal won't be in the offing. For Hospira, the acquisition seems to make strategic sense, further building out its pipeline of specialty injectables. -- EFL