The IN VIVO Blog

Germany Gets Creative with Pharmaco-Payer Contracts

c.morrison@elsevier.com (Chris Morrison) — Wed, 15 Jul 2009 07:15:00 -0700

Rebate contracts between German health insurance funds (sick funds) and generic firms have become widespread since such contracts were permitted in 2007. But sick funds may also negotiate deals directly on patented drugs, with innovative drug firms. And that, increasingly, is where the action is in Europe’s largest market.

In the case of generics, payers like AOK, Germany’s largest (covering 45% of the country’s insured) go out to tender and secure time-limited contracts based purely on price and supply capacity. The losers are effectively locked out of that segment of the market for the contract’s duration (two years, for AOK deals) since pharmacists must prescribe a rebated drug to any of that insurer’s customers (they’re penalized even if they prescribe a parallel import).

It’s slightly different for patented drugs: there’s no tender process, for one, since such products are theoretically unique. And even after a deal’s signed, sick funds can’t force doctors to prescribe that drug (and thus can’t control whether a pharmacist dispenses it).

But they can—and do—incent the docs to, with financial rewards and other support structures. Indeed, Germany’s sick funds are signing deals with doctors’ associations almost as fast as they are with pharmacos; examples include AOK’s July 2008 minimum five-year tie-up (read the German update here) with two independent doc groups. The result: stronger payer influence on prescribing decisions, and heftier payer clout in negotiations with pharmacos.

Most of those drug firms are dragging their feet when it comes to rebate deals around patented drugs, however—unsurprisingly, since Germany is a reference price market for many other European countries. (Thus even if they do sign discount deals, the details are, by necessity, opaque.) But in some circumstances, such as for mature drugs at the end of their patent life, products that are struggling to gain market share and/or are poorly differentiated, several companies, including Sanofi Aventis, Novartis, Merck & Co. and Novo Nordisk, have been willing to play ball, according to consulting firm Booz & Co.

These and others are also testing out more creative deal flavors, in their quest to avoid straight price cuts but ensure their drug is prescribed. Wyeth for example has a compliance support scheme around its pricey RA drug Enbrel with several sick funds, where it funds homecare visits to patients and a telephone support scheme. According to Booz, the drug’s showing a ‘generally positive’ sales trend within these sick funds as a result.

Meanwhile, Novartis has agreed with two payers to refund the costs of its osteoporosis drug Aclasta if it doesn’t work (if the patient gets a fracture within one year of infusion, for instance), as it seeks to claw market share off competitor Actonel.

For AMD drug Lucentis, beset by bad publicity over its high price and around illegal off-label usage of cancer product Avastin, which contains a similar active ingredient, the company set an overall cost-per-year cap for the treatment at €350 million. The gamble paid off: sales trebled from a low base of just €20 million or so, and most of the bad noise stopped, according to Booz.

You can read more about such deals, and their implications, in the July/August edition of IN VIVO. They’re not unique to Germany—similar examples are arising in the UK, in the Netherlands and Italy; Australia is at the forefront of financial risk-sharing schemes.

But Germany’s fragmented insurance market means there’s a wide variety of deals under trial, as both payers and pharmacos seek a competitive edge. As such, any winner or loser structures that emerge—it’s too early to tell which is which, for now—may well influence company strategies in other markets, not least the US.

Here, the equally fragmented nature of managed care organizations may limit their influence over prescribing for now, but experts such as ZS Associates expect this to change, and for payers like Medicare and Medicaid to increasingly influence prescription decisions.

Germany’s worth watching, in other words.

image by flickrer litandmore used under a creative commons license

Romance, Drama, Pharma: Pharmedy Tonight

c.morrison@elsevier.com (Chris Morrison) — Tue, 14 Jul 2009 11:00:00 -0700

Romance can even happen in the clinical, all-business world of drug development.

Sometimes it can turn sordid, like the secretary-swapping club that cleared out one generation of rising execs at a major pharma company about a decade ago.

But, mostly we hope it is the stuff of the happy-ending variety.

At least that’s the way we hope our former colleague, Kate Fodor, sees the interplay of testing healing medicines and forming healing relationships.

Fodor, who spent about three years on the FDC Reports staff in the 1990’s, is an up-and-coming playwright. She’s been anointed as one of the “Eight to Watch” by The New York Times. Her last play, 100 Saints You Should Know (see short video clip) had a short run off-Broadway in the autumn of 2007 and continues to be performed in repertories. Fodor describes that work as an examination of a variety of “longings”: religious, sexual, artistic, emotional.

Enter pharma: Fodor has a new play, Rx, that apparently deals with the longings and healing of love in the setting of clinical trials.

Rx is headed into the trial run phase at a new play workshop this month in the arts and humanities summer community at Chautauqua, NY.

The advance blurb for the play describes it as a “big-pharma-office-dramedy” that examines the relationship between an “erstwhile poet” who enters a clinical trial to treat “workplace depression” and the doctor running the trial. The relationship leads “them both down a twisty path in pursuit of a true prescription for happiness.”

We have to believe that some of Fodor’s interest in the pharma industry as a setting for her new play comes from her experience looking at the industry while in the offices of "The Pink Sheet." We certainly hope that any untoward portraits of the workplace do not stem from those offices themselves. That’s always the risk of working with aspiring dramatists. More likely, the play will be an interesting and clever take on healing at several levels.

And, with the current vogue for office-based drama and Fodor’s clear talent as a writer, you can expect to see a prominent Rx emerging on theater marquees in the future.

Stuck at NICE? Flash your Innovation Pass

c.morrison@elsevier.com (Chris Morrison) — Tue, 14 Jul 2009 07:58:00 -0700

Well, you will be able to soon, anyway. The Innovation Pass was a top action item within the UK government’s new Life Sciences Blueprint, unveiled at Imperial College Business Center in London today.

The Blueprint’s lofty goals include turning the UK into a more attractive location for life sciences companies (not least through tax incentives and measures to facilitate clinical trials), improving the country’s currently dire financing situation for small companies, encouraging industry-academia collaboration and—here it is—improving access to innovative new medicines. (Read the whole thing here.)

Enter the Innovation Pass, administered by the National Institute of Clinical Excellence, which, from next year, will make “selected innovative medicines” available on the National Health Service for three years. The idea is that highly novel drugs treating very small patient populations, where a lack of clinical data would make a regular NICE assessment unfeasible, thereby reach patients, and allow real-life data to be collected to inform the standard NICE process later on. (These days, typically, any novel drug that hasn’t been through NICE is more or less ignored.)

Who chooses which drugs will be selected? NICE will, noted deputy CEO Gillian Leng during the Blueprint launch. “We will decide on the criteria for granting an innovation Pass”, she said, following consultation with stakeholders at the end of this year. With a budget of just £25 million for the 2010/2011 pilot year for the initiative, we’re not talking hundreds of drugs here. More like ten.

Which helps explain why a Genzyme executive thoughtfully thrust his proposal for the “kind of drug that we think might be included in the scheme” under this blogger’s nose during coffee. It’s ataluren (there, I’ve done the favor)—an oral compound, previously known as PTC124, which targets a nonsense genetic mutation believed to cause Duchenne and Becker muscular dystrophy in boys. The compound’s in a 165-patient Phase IIb trial in collaboration with PTC Therapeutics, its originator.

Drugs like this for rare diseases might well benefit from an Innovation Pass, but Lord Drayson, Minister for Science & Innovation, in the Q&A session following the announcement chose as his example of qualifying drugs treatment for late-stage cancers—raising at least in this blogger’s mind the question of how this new process will sit alongside another recent NICE loophole (if we may call it that): the end of life medicines guidance issued late last year. (This, if you’ve forgotten, was a relaxing of the normal NICE cost-effectiveness criteria specifically for treatments used to extend life for terminal patients; several drugs, including Celgene’s Revlimid, have had a green light from NICE as a result.)

The Innovation Pass will sit on top of all this, according to Lord Drayson (a co-founder in 1993 of PowderJect, sold to Chiron—now Novartis—ten years later for £542 million). “It’s time-limited, budget-limited, and highly complementary to the normal NICE process,” he said. Indeed, once sufficient data is collected on a drug with an Innovation Pass, that treatment will go through the regular NICE appraisal system—and may be rejected, Drayson confirmed. (Sparks will fly among patient groups and the public if so, but NICE is used to that.)

Still, it’s reforms to the normal, broader NICE process that larger companies--those like Pfizer less likely to churn out Innovation Pass winners--are more interested in. Those ongoing reforms include increased dialog between industry and NICE’s assessment teams--in particular, the opportunity for companies to attend NICE appraisal committee meetings and respond to questions “on matters of factual accuracy”--and manufacturer debriefing meetings with NICE at the end of a drug appraisal.

On the red-hot question of how NICE assesses value, and whether its methodologies take into account a sufficiently wide range of factors to keep the industry happy, we must wait a little longer for the publication, on July 22, of Sir Ian Kennedy’s report. (Read this for background, and watch this space next week.)

image by flikrer Chris Fleming used under a creative commons license

Follow-On Blackjack: Place Your Exclusivity Bets

c.morrison@elsevier.com (Chris Morrison) — Mon, 13 Jul 2009 23:20:00 -0700

What will be the length of the brand exclusivity provided as part of a possible follow-on biologics pathway? At the moment, it looks like the generic camp is holding the low cards, but pharmaceutical firms should always watch their chips when Henry Waxman's at the table.

This week will see a lot of cards being shown; the Senate HELP committee mark-up that seemed like it would never end actually just voted on follow-on biologics and endorsed the 12 years of brand exclusivity offered by Sen. Orrin Hatch, R-Utah. Hatch apparently had a better hand than Sen. Ted Kennedy, D-Mass., who had endorsed 12 years last year but recently offered language starting with only nine, building up to 13.5 in exchange for additional studies, and Sen. Barbara Mikulski, D-Md., who had offered slightly lower numbers. They both ended up voting for Hatch's amendment.

On the other side of the Capitol, it feels like the Commerce Committee markup might never start. Brand firms feel that Chairman Waxman, D-Calif., who offers only a total of six years of exclusivity, is dealing from the bottom of the deck. Meanwhile, Rep. Anna Eshoo, D-Calif., is offering the brand jackpot of 14.5. President Obama, for his part, prefers lucky number seven.

It's enough to challenge even a seasoned card counter, so we thought we'd open the prognosticating up to you. Tell up how long you think the reward for innovation will end up being. If a health reform bill with FOBs does pass, we'll pick one of the winning entries at random to receive a framed, signed copy of this blog post. (Note: To receive the prize, winner will need to print this post, buy a frame, and forge the IVB signature.)

What Will The Total Length Of Brand Biologic Exclusivity Be?(poll)

Email Subscribers: if you can't see the IVB Poll, click here to visit the post on-line.
image from flickr user waffler used under a creative commons license

The End of Generics as We Know 'Em

c.morrison@elsevier.com (Chris Morrison) — Mon, 13 Jul 2009 06:50:00 -0700

Generics is a dying industry, according to Claudio Albrecht, ex-CEO of generics group Ratiopharm. Never mind the wave of patent expiries causing so much sweat at Big Pharma, or the cost pressures leading governments and payers everywhere to promote generic usage. The sector, as traditionally conceived, must change or be no longer.

Albrecht’s talking about oral, small molecule generics. He’s talking about pills like simvastatin, which cost just pennies and are now commodities, soon to be dominated by high-volume price-dumpers. The future, Albrecht declared at a recent London conference organized by investment bank Bryan Garnier, is in hard-to-make generics and biosimilars, as branded drugs increase in complexity—and as branded players get smarter with their lifecycle protection strategies.

“Innovative products are the future of generics,” he hailed, somewhat contradictorily. But if you think about it, the top selling patented drugs, after the forthcoming round of expiries, will be biologics. So the traditional small molecule generics companies need to learn, fast, how to develop and sell them. Otherwise, in 5-7 years, “the generic industry won’t have an answer.”

By then generics will be a device business, too—more and more drugs will be injectable, and/or require some kind of delivery system. Look at insulin—it’s all about pens, that’s really how Novo and others have protected their franchise and will continue to do so, most likely, despite no substance IP. The increase in product complexity will ultimately lead to targeted therapies—and probably no generics at all as a result.

Big Pharma, struggling to find and fund ‘new’ drugs as traditionally defined, are cottoning onto this changing universe. Hence some are making moves (in some cases back) into generics, mostly hard-to-make injectable generics (look at Sandoz’s €925 million cash acquisition of Ebewe in May) or biosimilars and follow-on-biologics (remember Merck/Insmed) further blurring the boundaries between the innovative and generic sectors as a result.

Where does that leave the traditional generics guys, though? It’s not so easy for them to jump into R&D—most spend far too little to even hope to compete in the new world of complex generics with their likely lower substitutability and higher margins. Ratiopharm and Actavis are up for sale. Most of the others that spend less than $200 million a year (compared to over $650 million for Teva or Sandoz) will have to re-invent themselves, too.

Meanwhile if the challenge of increasing product complexity’s not enough, health care reform in Europe’s largest market ,Germany, has already radically changed the game for generics firms. This was a comfy branded generics market where high prices allowed firms to fund doc-focused sales forces. No longer. Payers now rule the roost and determine, through highly competitive price-based tendering, whose generic version will be dispensed in pharmacies for the following two years, shutting out the losers entirely. (See our forthcoming IN VIVO feature for more on how such contracts are spreading to patented drugs, too.)

Small wonder that Betapharm, and others, have fired all their doc-focused sales forces. Generic prices have fallen 30% since 2005 in Germany, a slide that will continue.

So who will be the winners in the new generic world-order? Not necessarily the small molecule lot that have honed their first-to-file skills. Teva and Sandoz, having invested in biologics and manufacturing, are well-placed.

But, less obviously, so are smaller players like UK respiratory-focused Vectura, formulation experts, sitting slap bang in the middle of these converging innovator and generics spaces: the company has two deals on value-added generics with Sandoz, as well as a tie-up with Novartis around a proprietary drug formulation, and a device deal with Boehringer Ingelheim.

While You Were Summering

c.morrison@elsevier.com (Chris Morrison) — Mon, 13 Jul 2009 02:00:00 -0700

The International Conference on Alzheimer's disease kicked off this weekend, so we've got some Alzheimer's news (and really little else) in your weekend wrap below. ICAD's becoming more prominent on the calendar ... maybe IN VIVO Blog should go next year. What's that? It's in Hawaii next year? Oh you don't say.

Meanwhile we continue to digest the Effient approval (your # of f's may vary), the Phillies wrapped up a 9-1 homestand to cruise into the all-star break, and a few of your IVBers are mere days from taking some much-needed vacation time (things may be quiet around here for a few weeks, though surely not dormant).

While you were enjoying the sunshine ...

Does Bayer have an Alzheimer's disease diagnostic on its hands? Phase II data reported on Sunday look promising, reports Reuters.
Bloomberg reports on company-funded study: GSK's Avandia not going to make a dent in Alzheimer's.
Massachusetts experts, funded by stimulus cash, playing a big role in rollout of electronic medical records, says Boston Globe (h/t Michael_Gilman)
Fish oil pills. Study suggests you're going to have to keep enjoying them just for the taste.
Another $1 billion in US cash going toward buying swine flu vaccine, HHS Sec. Sebelius said on Sunday. Meanwhile, why should the vaccine makers have all the fun? You too can cash in on swine flu, with a, er, ~~viral~~ catchy Youtube video: $2,500 for the best flu PSA!
Meanwhile plans are being drawn up to vaccinate the entire UK population, reports ITN.
Early this morning Genentech and OSI said that further analysis of a Phase III study suggested Tarceva improved overall survival in advanced NSCLC.
If you're running the NYC half-marathon August 16th, or would like to, the Fresh Air Fund is looking for racer/fundraisers.

image from flickr user pictalogue used under a creative commons license

DotW: Singing in the Rain

c.morrison@elsevier.com (Chris Morrison) — Fri, 10 Jul 2009 14:00:00 -0700

It's raining cash! Hallelujah, it's raining cash!

Forgive us our exclamatory punctuation, but we had a Gene Kelly moment given the number of financings announced this week. From planned follow-on public offerings by Arena and Xenoport to Jazz's private placement to additional fundraises by start-ups Viamet, Taiwan Liposome, Intellikine, and Zosano, it did seem as if the financial heavens opened, raining manna upon the starving in our industry.

Vertex managed to get in on the action, too announcing this morning its intention to sell the future milestone payments associated with the filing, approval and launch of its first-in-class protease inhibitor telaprevir in Europe? (We're still a bit bemused by the pre-deal press release, but admit to being easily confused.)

In any event, this is the kind of rainy weather designed to put smiles on the faces of biotech CEOs. (A far cry from the kind that had some in the Northeast signing up for DIY ark building classes at the local Home Depot.)

It's also raining positive data--at least for Amgen and Rigel. Amgen's stock tipped up on news that the key to its future, denosumab, appears to be superior to Novartis’ Zometa in a Phase III head-to-head study in breast cancer-linked bone complications. And Rigel is positioning itself for a future edition of DOTW after reports that its oral rheumatoid arthritis drug showed positive results in mid-stage trials. (Amylin also annouced positive trial results for its mid-stage obesity drug, but investors didn't swoon on the news primarily because of the delivery challenges associated with a twice-daily injectable.)

This just in: it's raining approvals too. Regulators approved Lilly/Daiichi's anti-clotting drug prasugrel, which will be marketed (effectively we assume) under the name Effient.

Meantime Big Pharma and Big Biotech must be pleased with the innovator friendly proposal by Ted Kennedy this week for a follow-on biologics pathway that includes 13.5 years of exclusivity (What happened to Piven and 10 years?), while believers in personalized medicine see the positives of Francis Collins as the leader of the National Institutes of Health.

What else happened this week? Just a little write-up we like to call

Merck/Portola: Portola is another company soaking up the cash this week, thanks to its deal with Merck for the Phase II Factor Xa inhibitor betrixaban. According to the terms of the deal, announced July 9, Merck will pay $50 million upfront for betrixaban, plus another $420 million in milestone payments and double-digit royalties. It’s the second major collaboration this year for the privately-held Portola. In February, Novartis paid $75 million upfront for rights to the biotech’s anti-thrombotic elinogrel. As news of the Merck deal and it biobucks surfaced, one of the central questions was whether Merck had gotten a relative steal. Recall that Pfizer paid BMS $250 million upfront for a 50% share of the competing molecule apixaban back in 2007. In fairness to Portola, its molecule is at a much earlier stage of development compared to apixiban. Also Merck is picking up 100% of the development costs of the program (Pfizer is paying 60% of apixaban’s R&D costs, while the two pharmas jointly split profits/losses and worldwide commercialization costs.) That’s a real boon for the biotech, given that Phase III trial costs could easily run to $350 million or more. Portola has an estimated $175 million on its balance sheet after the Merck deal and won’t need to hunt for additional capital anytime soon. But if financing risks are off the table, the company’s venture backers, which include Frazier Healthcare Ventures, Alta Partners, and MPM Capital (among others), are still in the hole and waiting for their exit. (The company has raised an estimated $200 million in venture money and another $20 million in debt since its 2003 founding.) And with the company’s two major programs partnered, the pool of potential acquirers has effectively shrunk to Novartis and Merck, who are now waiting to see how elinogrel and betrixaban pan out in later stage trials. With "two, multi-billion dollar products," Portola could be well-received, but for the foreseeable future, the market is "amazingly challenging," Frazier Healthcare Ventures’s Alan Frazier said in an interview with “The Pink Sheet” DAILY.--Ellen Foster Licking and Emily Hayes

MedImmune/Catalyst: Privately held Catalyst Biosciences remains in the news , announcing its second discovery and preclinical development deal in as many weeks. Hot on the heels of Catalyst’s June 30 tie-up with Wyeth to develop Factor VIIa therapeutics for hemophilia, Catalyst and AstraZeneca's MedImmune are working together on an undisclosed target in the autoimmune and inflammatory disease space, with MedImmune holding an option to expand the work to a second target any time during the deal’s three-year term. Financial terms were not broken out, but Catalyst says it could realize $195 million in upfront licensing fees and milestones during the life of the deal. In addition, MedImmune will fund an undisclosed number of full-time research personnel at Catalyst and will pay royalties to the biotech for any product arising from collaboration that reaches the market. As is typical in these kinds of arrangements, Catalyst will be responsible for discovery and early-stage research, and then turn the molecules over to MedImmune for further development. The deal illustrates AstraZeneca/MedImmune’s desire to expand biologics efforts beyond antibodies. Catalyst, after all, has developed a next generation protein engineering platform to create souped-up proteases called Alterases that are designed to degrade or modulate proteins involved in hemophilia and inflammatory disease. With these two recent tie-ups, Catalyst is likely to remain off the Deals of the Week page for some months to come, unless a significant opportunity arises. "We won't do any small deals at this time because we're full-up, plus we have our own internal programs," Usman said in an interview with "The Pink Sheet" DAILY.--Joseph Haas

iZumi/Pierian: It's also raining stem cell news due to this week’s International Society for Stem Cell Research meeting in Barcelona. An early announcement came from iZumi Bio, which has merged with a still-mostly-conceptual outfit out of Harvard called Pierian to create iPierian. As part of the merger—terms were mostly undisclosed—Pierian backers MPM Capital and FinTech Capital Partners are investing $11.5 million in the new company, Pierian’s founders (Harvard faculty members George Daley, Doug Melton, and Lee Rubin) are joining the company’s SAB along with three other Harvard stem cell scientists, and Corey Goodman (Pfizer’s former BBC chief) will become the combined groups’ chairman. MPM’s Ashley Dombkowski will join the company’s board. The company aims to apply its cellular reprogramming technology to create in vitro models of disease that can be used, as a first step, to discover small molecule treatments for neurodegenerative diseases like spinal muscular atrophy and amyotrophic lateral sclerosis. We’ll have more to say about iPierian’s induced pluripotent stem (iPS) cell technology in the next issue of Start-Up. For now, suffice it to say that between these guys and Fate Therapeutics we might have a new Alnylam/Sirna thing going on in the iPS cell space. --Chris Morrison

Shionogi-Sciele/Victory Pharma: Ugly. In mid-May Shionogi’s Sciele announced it was purchasing the privately-held pain specialist Victory Pharma for $150 million. But on July 10, in a tersely worded press release that was short on details but long on mystery, the two companies announced they were terminating the proposed tie-up. The news is a blow to Victory’s backers—Ampersand and Essex Woodlands—who had committed $45 million to the company back in March. (Essex's cash-on-cash return likely wasn't what it wanted, but as we noted in a previous edition of DOTW, the internal rate of return (3x in just a few months) would have been most impressive. What scuppered the deal isn't clear -- “an unforeseen development that occurred after the agreement was signed,” says the press release. So we'll speculate a bit and hypothesize that changing views at the FDA about the potential dangers of acetaminophen and NSAIDs had something to with the deal's collapse. Victory markets Naprelan, the only branded, once-daily sustained release formulation of the NSAID naproxen. And it's in the final stages of securing approval for a new tablet strength version of Naprelan, with an anti-nausea medicine in pivotal trials. In addition to Naprelan, Victory also markets Fexmid and two acetaminophen containing products, Dolgic for tension headaches and Xodol, a combination hydrocodone/acetaminophen product for pain. On June 30, an FDA advisory committee narrowly ruled to recommend the removal of acetaminophen from combination prescription and OTC products. Both Dolgic and Xodol would appear to be affected by the new recommendations, but the fall-out in terms of market potential is likely worse for Xodol since the potential for abuse of the hydrocodone-only containing drug means it will be subject to stricter prescribing limits and potentially a REMS under the new guidelines. And the rug might be pulled out from under Naprelan as well. FDA continues to refer to the "hazards of NSAID products" and recently started requiring REMS for new brands of diclofenac products.--EFL

AstraZeneca/MAP Pharmaceuticals: Poor Map Pharmaceuticals. Shares of the biotech fell 16% and then rebounded Thursday July 9, after partner AstraZeneca announced it was pulling out of their collaboration on the planned development of the pediatric asthma drug budesonide. Recall that AZ and MAP are still newlyweds. Thinking the MAP drug could extend its own budesonide franchise, Pulmicort Respules, the Big Pharma ponied up $40 million upfront and promised biobucks in the $750 million range in late December 2008. The end of the deal isn’t all that surprising: in February, MAP revealed the drug had failed to meet the main goals of a late-stage trial in children with mild asthma. But the obits for the drug—if not for MAP—were swift. “The drug is essentially dead,” Wedbush Morgan Securities analyst Liana Moussatos told Reuters. Analysts like Moussatos expect the news won’t permanently cripple Map, mostly because of promising results associated with the biotech’s orally inhaled migraine drug Levadex, which is in late stage clinical trials. That medicine is still unpartnered and the company has been careful not to speak publicly about any potential future deal other than to say there has been “strong interest from people in the migraine area.” But with an estimated $67 million in cash and a quarterly burn rate of around $16 million, there is pressure on Map to ink a deal for the migraine product sooner rather than later.--EFL

What's a Biodollar Worth? Let's Ask Vertex

c.morrison@elsevier.com (Chris Morrison) — Fri, 10 Jul 2009 05:20:00 -0700

Vertex announced this morning that it intended to sell (to an unnamed buyer) its future milestone payments associated with the filing, approval and launch of telaprevir in Europe.

Those milestones would be paid out by J&J, which licensed European rights to the HCV protease inhibitor from Vertex in 2006, and could total $250 million: $100 million for filing and approval of the molecule, $150 million for launch. (It's not clear how these break down--launch in heterogeneous Europe is obviously different than launch in the US, for example.)

But what are they worth right now? Vertex isn't saying yet, but sooner or later we'll get another datapoint to help us determine the elusive dollar-to-biodollar exchange rate.

Of course telaprevir isn't an early stage molecule; it's in Phase III trials and predicted to be the first HCV protease inhibitor on the market. So the value of biodollars associated with telaprevir is going to be much different than the value of those associated with earlier-stage alliances. But there remains an element of risk, to be sure. Even promising Phase III drugs implode from time to time.

Vertex has demonstrated a flexible financing strategy over the past couple years. Last year the company netted $160 million from the sale of its royalty stream on the HIV therapies it co-discovered with GSK. And in between the royalty sale and today's announcement Vertex raised some $540 million through equity offerings; clearly the company doesn't have trouble bringing in cash through more traditional means.

So why monetize the JNJ milestones now? Because drug development is damn expensive, and even for a company like Vertex, cash is king.

At the end of the first quarter the company had about $870 million in cash and nearly $300 million in debt (about half of which it has since converted to common stock). But it also burns through cash pretty quickly, and by our back-of-the-envelop calculation that's lately to the tune of about than $125 million in the average quarter, and that's without expenses related to the acquisition of ViroChem or any other deal Vertex wants to pursue. So until telaprevir sales start coming in, even a net cash position of more than $600 million won't last the company very long.

The math isn't our strong suit and we'll update if and when we hear back from Vertex.

UPDATE: No official word from Vertex but we think our rough calculation is in the right ballpark. We should also note that this isn't a done deal, and when it does close we'll be able to see for ourselves the current value of these future milestones.

Forbes' Matt Herper brings up an interesting point on his twitter feed, and we think he's only half facetious: Will, he asks, the Vertex deal lead to hot trading in biobucks derivatives?

We think though it's certainly possible this isn't the last milestone monetization deal we'll see (and probably isn't the first either, though can't think of any off the top of our heads) it's hard to imagine that the royalty and synthetic royalty buyers--who would be the logical buyers here too--would allow the mission creep into the earlier and riskier development stages that would make any serious market possible. Those guys get edgy buying future royalties for registration-staged projects, much less Phase III or even earlier. That risk would mean seriously low prices paid for most milestone packages. Sure we may see a few more telaprevir-style deals, but that's probably it.

We could be wrong. What do you think?

image from flickr user tadson used under a creative commons license.

D-mab Trumps Zometa With Top-Line Cancer Results

c.morrison@elsevier.com (Chris Morrison) — Wed, 08 Jul 2009 02:24:00 -0700

Amgen last night released top-line results from a Phase III head to head study pitting its most important future drug, denosumab, against Novartis’ Zometa in breast cancer-linked bone complications.

The results look good—better than most expected. Denosumab appears to be not simply non-inferior to Zometa (the primary endpoint of the study) but superior to Novartis’ incumbent drug—itself pretty potent--in terms of delaying the time to first and subsequent skeletal-related events.

Deutsche Bank’s Mark Schoenebaum describes these efficacy results as a “best-case outcome”, having himself put the odds of the drug’s showing superiority at just 40%. (Overall survival and time-to-progression were the same for the two drugs.)

All this matters much to Amgen. The Big Biotech’s relying more heavily than is comfortable on this single late-stage compound to secure its future growth and independence. (Remember, its EPO- and cancer-focused base business is in steady, irreversible decline.) And although the drug is widely expected to be approved for post-menopausal osteoporosis first, likely in October this year, the cancer indication could be worth just as much—about $1.5 billion in peak sales--according to some analysts.

And cancer’s what Amgen knows about—it already sells Neupogen, Neulasta and Aranesp. The Big Biotech has absolutely no experience in PMO, a complicated, busy market dominated by cheap oral generic bisphosphonates. There’s widespread skepticism about the drug’s commercial potential in this indication as a result; DB reckons the drug could capture 10-20% of the market at peak (it’s a big market, mind you: $8 billion).

Schoenebaum in May described the outcome of this Phase III cancer trial as biotech’s “biggest data event” for 2009. (The d-mab PMO data released last year—also better than expected—may well have been 2008’s “biggest event”, too, mind you) Full efficacy and safety data from this breast cancer trial will be presented at a meeting later this year, and results from a second Phase III study in advanced solid tumor/multiple myeloma patients (there are four in total) are also due before year-end.

The probability of superiority in this second trial, plus another in prostate cancer due to report in 2010 has now risen, according to analysts at Leerink Swann. And when it comes to potential oncology indications, Amgen’s not leaving any stone un-turned: it recruited 11,000 patients for its d-mab cancer trials, out of a total of 19,000.

Look out Novartis, then. The Swiss group has enjoyed dominance of the SRE market since Zometa’s approval in 2001, with almost $1.4 billion in worldwide 2008 sales. It quickly displaced (Novartis’ own) Aredia, another IV bisphosphonate, thanks to a shorter infusion time, but d-mab’s subcutaneous delivery will likely trump that.

And it doesn’t look as if Novartis will have much safety ground to stand on, either. Indeed, the drug’s growth has recently stalled in part, says Schoenebaum, because of concerns over osteo-necrosis of the jaw (ONJ), kidney toxicity and efficacy beyond two years. The d-mab data suggests, according to Amgen's PR, “no statistically significant” difference between the rate of ONJ in the two treatment arms, equally “balanced” rates of infectious adverse events (an initial concern with d-mab) and an overall incidence of events “consistent with what had previously been reported for the two agents.”

All the same, since Zometa goes generic in 2013, and there are already some filings, Amgen will have to move fast to translate this apparently starry trial data into equally sparkling sales growth. Payor pressure means even a ‘superior’ drug may struggle if generic IV bisphosphonates get cheap enough. (Leerink Swann expects Amgen to price d-mab higher than the $12,000-p/a Zometa.)

image by flikrer robinbyles used under a creative commons license

Lobbying and Health Reform: Reading Between the Lines

c.morrison@elsevier.com (Chris Morrison) — Tue, 07 Jul 2009 14:58:00 -0700

Part of the fun in reading the national news section of The Washington Post has always been the deciphering – trying to figure out who an unnamed source might really be or trying to find hidden meaning in a certain quote.

By that standard, the Post’s July 6 front-page article on the significant presence of Capitol Hill insiders among the multitudes lobbying Congress on health care reform was a veritable goldmine, especially for followers of the pharma/biotech industry.

One portion of the article details the number of former aides to Sens. Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa), respectively the chairman and ranking minority member of the Senate Finance Committee, who have been lobbying that committee and others in Congress on various facets of health care reform. No fewer than seven of Baucus’ and five of Grassley’s former aides are among the hundreds of health care industry lobbyists currently trying to shape health care reform.

Particularly wielding the influence, it appears, is the bipartisan lobbying shop Mehlman Vogel Castagnetti, which includes both Baucus’ former chief of staff David Castagnetti and Grassley’s former health policy adviser Colette Desmarais. According to a nifty full-color chart offered by the Post, both Castagnetti and Desmarais represent 10 clients in the health care reform battle, among them six pharmaceutical or health care products companies, two HMOs and two hospital/nursing home associations.

Not to be outdone, there is Barrett Thornhill, listed as a former health policy legislative assistant to Finance Committee member Sen. Michael Crapo (R-Idaho). Thornhill, a lobbyist with Foley Hoag, represents 13 different pharmaceutical and health care products companies in his work. (Though we wonder whether Thornhill's client list doesn't reflect his most recent job at the Biotechnology Industry Orgranization, rather than his past connection to a minority member of the Finance Committee.)

Eager to prevent any sense that Baucus, Grassley and co. might be influenced by this phalanx of former aides in crafting their version of health care reform legislation, Baucus spokesman Scott Mulhauser helpfully told the Post that Baucus and staff meet daily with people representing the full spectrum of stakeholders in the health care reform effort. “The senator and his staff … are proud that all interests are treated equally and that no one receives special treatment of any kind,” Mulhauser is quoted as saying. “As a result, the Finance Committee has been praised by members of Congress and by the media for its uniquely inclusive and transparent health-care reform process.”

No, we wern't aware either that the Post now is reprinting press releases.

In fairness to Baucus and Grassley, they have been very open in releasing white papers and options drafts outlining possible directions for reform. Its just that it sure seems like some stuff is going on behind close doors, like hammering out $80 billion in savings from the pharmaceutical industry to help fund the cost of reform.

Which leads us to our favorite part of the article, a priceless quote by PhRMA head Billy Tauzin, responding to critics of his decision to join the trade group shortly after helping shepherd the 2003 Medicare Modernization Act, which created the Part D drug benefit, through Congress.
“Is it a distortion of baseball to hire coaches who have played baseball? Is it a distortion of universities to hire from academia,” Tauzin asked rhetorically in the Post piece. “The bottom line is that people work in fields in which they have experience. Somehow there are people who think that’s unusual for politics, but I think it’s pretty normal.”

Well, as the Post likes to say in its advertising, “if you don’t get it, you don’t get it.”

— Joseph Haas

While You Were Pursuing Happiness

c.morrison@elsevier.com (Chris Morrison) — Mon, 06 Jul 2009 01:10:00 -0700

To the tripartite inalienable rights of life, liberty and the pursuit of happiness that are enshrined in the US Declaration of Independence let us add a few as you re-enter the working world after a long holiday weekend. We hope your BBQs were delicious, your weather warm, and your blackberries silent.

While you were exercising the right ...

To Boast: Ipsen tells Bloomberg: we have too many drugs to develop. Oh, poor Ipsen.
To Post: Not everyone took a long weekend: IN VIVO Blog posted Deals of the Week and our take on the EU approval of Novo's Victoza/liraglutide on Friday.
To Defend: Sanofi's latest long-term Lantus safety news: the drug is no worse than insulin when it comes to causing retinopathy (reuters).
To Argue: The NYT reports on the state of the health care debate in Maine, where two moderate republican senators are besieged by pro- and anti- public plan camps.
To Make Fun of Quackery: Homeopathy hilarity from Mitchell & Webb (h/t Pharmagossip)
To Embroider: We were pulling for Roddick in the Wimbledon final and would have been very happy had he won. Not that we were anti-Federer. No, we didn't become anti-Federer til he whipped out that jacket with "15" on the back.
To Sweep: The Phils took three off the Mets to hopefully put the past few weeks of poor play behind them.

image by flickrer myoldpostcards used under a creative commons license.

Novo Hopes Victoza’s EU Clearance Bodes Well for US

c.morrison@elsevier.com (Chris Morrison) — Fri, 03 Jul 2009 05:00:00 -0700

As the European Commission today gave its final green light to Novo’s much-anticipated GLP-1 inhibitor liraglutide (Victoza) (no surprise, given the CHMP’s positive recommendation back in April), the company’s still bullish on the drug’s prospects in the US—anticipating not only approval but a none-too-severe risk-management plan as well.

“Our expectation is that the whole post-marketing system that we’ll agree and adhere to in the US will not be of a severity that will be commercially destructive to the product, not prohibitive for easy daily use in the doctor’s surgery,” Novo’s CMO Mads Thomsen told us (but enough, one assumes, to give practitioners comfort and get a leg in versus Byetta…).

Thomsen’s taking heart, perhaps, from the squeaky clean EU approval, which came with no usage restrictions and no contra-indications—despite an earlier split vote from an FDA advisory committee in April over whether Victoza should be approved in the US at all, due to increased cases of thyroid tumors seen among rodents.

The European authorities apparently liked the sound of Novo’s commitment to undertake a global, 9000-patient, five-year post-approval cardiovascular outcomes trial, including not just the classical MACE analyses of CV risk, but also various thyroid-related parameters, according to Thomsen. “The plan is to have the study protocol negotiated with the FDA as well [as the Europeans] by year-end,” he told The IN VIVO Blog—and to start recruiting a couple of months later.

So does that mean US approval’s likely before year-end? Not all analysts are that bullish, given the challenges of monitoring any potential thyroid risk in humans (though the worst-case scenario for some, a black-box warning, doesn't necessarily kill sales--just look at Actos). But as far as Thomsen’s concerned, yes, “we’re assuming that either we have US approval by then, or that we’re so far down the regulatory process that the CV study design will be part of the discussions,” he continues.

Novo’s in a hurry because liraglutide is already late (speed-to-market hasn’t always been Novo’s strength, as we reported in more detail here, although product quality has more often than not made up for this). Lilly/Amylin’s long-acting Byetta (taken once-weekly vs once-daily for liraglutide) is close on Novo’s heels, and these companies, unlike Novo, have an existing GLP-1 platform to build on.

Still, Novo’s going to do its damnedest to leverage its own insulin sales force to get liraglutide out as quickly as possible to a broad prescriber base, says Thomson. Not unusually, the UK and Germany, two of Europe’s largest markets where up-front pricing is free, will be the starting points. “We’ll make some minor adjustments to sales force size in Europe,” he says, “but we’re only talking an additional 100 or so.” Thomson says that a “sizable” part of the insulin sales force will be re-allocated to liraglutide, at least during the launch phase, as the company tries to capture what it hopes will be “positive perception of innovation” at Novo among diabetes drug prescribers.

It won’t just be the specialists, though: since liraglutide is easier to use than insulin (it doesn’t require blood sugar monitoring or dose titration), “we anticipate a broader prescription base [than insulin] and moving into the GP market within several months,” says Thomsen.

Liraglutide will be positioned as “the natural second-line therapy after metformin failure,” explains Thomsen, given its “superior clinical profile, effect on body weight and lack of hypoglycemia.” In this regard, Novo’s racing not just against Byetta and family, but against the (oral, and thus highly convenient, and cheaper) DPP-IV inhibitors, too—like Merck’s Januvia and, shortly, AstraZeneca’s saxagliptin (Onglyza), which last week received a positive EU opinion. Indeed, “the question is whether second-line therapy is liraglutide, or another oral therapy,” summarizes Thomson.

Novo’s leading position in the insulin market means it isn’t about to admit that liraglutide’s success will eat into its core franchise. But even if it does delay progression to insulin somewhat, Novo’s hoping the drug allows to it capture patients earlier on in the course of their disease. The idea is that pre-insulin diabetics become loyal Novo followers, “using our services and devices, and…that later on, when they go onto insulin, they’ll add [Novo’s basal insulin] Levemir”—and not Sanofi-Aventis’ competing Lantus—on top of liraglutide, explains Thomsen.

That argument might well be boosted by recent data—albeit still controversial—linking Lantus to an increased cancer risk, a link Novo is trying hard to ring-fence as a Lantus-specific problem, not one that affects all basal insulins.

For the next chapter in Victoza’s US story, we’ll have to wait until August 6th and Novo’s half-year results. The company in early June met FDA to talk risk-management and to discuss Victoza’s victorious performance in a gutsy two-year head-to-head trial versus Byetta. FDA "didn’t have access to this material prior to the [April] advisory committee meeting,” clarifies Thomsen.

In this trial, liraglutide also showed itself as “drug squeaky clean with regard to calcitonin levels compared to comparator drugs…” hence “the [US] regulators will also believe, like us, that the benefit-risk profile of performing invasive procedures to monitor patients’ calcitonin levels is negative,” asserts Thomsen.

Are you listening, FDA?

DOTW: Fireworks

c.morrison@elsevier.com (Chris Morrison) — Fri, 03 Jul 2009 01:00:00 -0700

Perhaps in honor of our nation’s birthday, the biopharma industry’s dealmakers got an early start on the festivities, announcing a steady stream of alliances that culminated in a show-stopping finale: Johnson & Johnson’s extremely interesting but complicated pact with Elan Pharmaceuticals.

That deal certainly provides Elan with some much needed capital and may quiet dissenting shareholders who have been advocating for change at the top of the Irish drug maker. In one fell swoop, it also makes Johnson & Johnson a player in a hot therapeutic area given its $1 billion u/f for ¼ of a potential blockbuster/potential bust. (See our previous blog post and coverage in this week's "The Pink Sheet" for more.)

The dollar value of the J&J/Elan tie-up certainly dwarfs other deals announced this week, but that doesn’t make the individual agreements any less interesting. Read on for more analysis.

Wyeth/Catalyst: It’s dealmaking as usual for Wyeth, certainly as far as biotherapeutics are concerned. This week’s tie-up with Catalyst for Factor VIIa hemophilia hopeful CB813—the partners’ second collaboration—pits the Big (soon to become Very Big) Pharma up against Novo Nordisk’s market leader in the space, NovoSeven. The Catalyst compound could be more potent and longer-acting than NovoSeven, which sold $341 million in the first quarter of this year. Compelled by the promise of this still-preclinical asset, Wyeth paid $21 million up front and may fork out more than $500 million in research funding and milestones—plus double-digit royalties. It will also fund 12 Catalyst FTEs. Three things to note: 1) Not all deals, even pre-clinical deals, are option-deals. Even GlaxoSmithKline, optioners-de-rigueur, admitted as much on a panel at this week’s Euro Biotech Forum in Barcelona. For all we know, Wyeth may have wanted an option structure, but with four interested parties (according to Catalyst) it probably didn’t have much choice. In this case, Wyeth takes over the program once it reaches the clinic. 2) The new Pfizer-Wyeth, committed as it is to biologics will present serious competition, both at the dealmaking table and commercially, in this large molecule space. Sure, NovoSeven is a minor part of Novo’s otherwise insulin-focused business. And Wyeth’s existing three-drug hemophilia franchise sells less, combined, than NovoSeven. But Wyeth/Pfizer will have serious commercial muscle—and international reach. 3) Let’s hope the change-of-control clauses are solid: Novartis Venture Fund has backed the biotech since 2004, and Johnson & Johnson’s VC arm, JJDC, invested in 2008 via Centocor. As for Wyeth’s own pending change of control: no issues, says Catalyst, because Wyeth’s R&D head Mikael Dolsten is taking the biologics reins at Pfizer.--Melanie Senior and Joseph Haas

Astellas/Maxygen: After pursuing strategic discussions with various parties since October 2008, Redwood City-based Maxygen has finally inked a deal. And it’s likely the outcome—a joint venture with Astellas focused on discovery, research, and development of multiple protein-based drug programs—isn’t exactly what the biotech’s senior management had in mind. Ever since September 2008, when Astellas signed a small deal with Maxygen for its CTLA4-Ig program—called MAXY-4—the Japanese drugmaker has been on a short-list of the biotech’s potential acquirers. But even though Astellas clearly likes Maxygen’s proprietary protein shuffling technology enough to want to deepen the relationship, it wasn’t so enamored with the platform that it felt compelled to buy the company outright. As part of the latest arrangement, Maxygen will contribute $10 million in cash and substantially all of its programs and technology assets to the JV in exchange for an 83% ownership stake in the newco. Astellas will also invest $10 million in the venture in exchange for the remaining 17% ownership stake. In addition, the big drug maker has a three-year option to buy out Maxygen's share of the venture at a predefined price that starts at $53 million and could go as high as $123 million, and will contribute up to $30 million of funding during that time period. The arrangement leaves Maxygen as essentially a holding company of financial assets including: 1) roughly $200 million in cash; 2) a 22% stake in privately-held biofuel specialist Codexis rumoured to mulling an IPO; 3) MAXY-G34, being developed for chemotherapy-induced neutropenia and Maxygen's most advanced clinical compound outside MAXY-4. —Ellen Foster Licking

Mylan/Biocon: Strong growth prospects for the global generic biologics space over the next decade are bringing together the world's third-largest generic drug maker Mylan and India's Biocon. The two signed a comprehensive deal June 29 that gives Mylan exclusive commercialization rights in the world’s major markets—including US and Europe—with Biocon sharing in the upside via a profit-sharing arrangement. Further financial details of the deal were scarce, as was color on the actual therapeutic targets. But Mylan confirmed the collaboration's primary focus would be in "monoclonal antibodies and complex biologics." This deal marks Mylan’s efforts to play catch-up in the ongoing biogenerics fray. Both Teva and Novartis, via its Sandoz division, are significantly further ahead when it comes to the creation of biogeneric drugs. Early this year, Teva significantly increased its biologics manufacturing capacity through a collaboration with Switzerland's Lonza group; meanwhile Sandoz continues to hold the lead in biogenerics launches, selling generic versions of epoetin alfa and human growth hormone. In a June 29 note on the transaction, Goldman Sachs analyst Randall Stanicky, said the collaboration positions Mylan ahead of an anticipated U.S. regulatory pathway, but predicted that bio-generics would not "contribute meaningfully until 2013" to the firm's bottom line. The deal also illustrates the growing profile of Biocon, which previously inked a collaboration with Abraxis for development and commercialization of a generic version of GCSF in addition to building a pipeline of novel therapeutic targets via in-house R&D and inlicensing.—Joseph Haas and Vikas Dandekar

Biogen/Acorda: On July 1, Biogen Idec agreed to develop and market Acorda Therapeutics’ multiple sclerosis candidate Fampridine-SR outside the U.S. in a licensing deal worth $110 million upfront and additional milestones totalling up to $400 million. In addition, Biogen will pay Acorda tiered double-digit royalties on ex-US sales of the product. If approved, Fampridine-SR could be the first oral drug that improves ambulation in MS patients; its likely to receive 10 years of exclusivity in Europe based on early conversations between Acorda and the EMEA. Biogen already has a strong franchise in MS courtesy of its flagship products, Avonex and Tysabri,which together generated $2.8 billion in sales for the company in 2008. Because Fampridine can be used alongside current treatments, the oral medicine “fits nicely” with its current portfolio of MS treatments, Biogen’s head of neurology Al Sandrock told “The Pink Sheet” DAILY. The deal also takes some of the sting out of recent events at Biogen, where in June dissent shareholder Carl Icahn, who is eager to break up the company, gained two seats on the board of directors after a year-long struggle. Prompted in part by the uncertainty surrounding Biogen's future, Acorda crafted a careful 'change of control' clause in the deal to protect its rights to Fampridine. Sources close to the negotiations note two specific events will have to occur to trigger the change-of-control: first, Biogen has to be acquired; and second, there must be a clear signal that its sales efforts on Fampridine are decreasing as a result of its acquisition. For instance, if Biogen’s new owner cuts the sales force support for Fampridine, Acorda has the right to negotiate a buy back of the product at a fair value.—Carlene Olsen

CombinatoRx/Neuromed: Nasdaq-traded CombinatoRx is merging with privately held Neuromed in an all-stock deal that, for now, gives each company’s investors a 50% piece of the action. But as Neuromed’s Exalgo hydromorphone candidate winds its way through the regulatory process, that balance may change. Exalgo was licensed to Covidien’s Malinckrodt subsidiary only a couple weeks ago and has a November 2009 PDUFA date. Neuromed is therefore hoping to see an approval milestone later this year and is eligible for royalties on the drug’s sales. This isn’t just an earn-out (or CVR, whatever you’d like to call it) for Neuromed; perversely CombinatoRx shareholders may benefit from a delay in the approval process. Neuromed’s backers will get 70% of the combined entity should Exalgo receive FDA approval by the end of this year. If the drug gets approved between January and September 2010, Neuromed’s backers will hold 60%. Approval between October and December 2010 means CombinatoRx shareholders remain in the majority with 60% of the shares, and no approval or approval after December 2010 means CombinatoRx’s backers get 70%. The combination will sport management from both companies and Neuromed’s current president and CEO Chris Gallen, MD, PhD, will hold those titles at the new incarnation of CombinatoRx. CombinatoRx shed the majority of its value last October after the failure of its lead osteoarthritis candidate, and then restructured in November. Since then it has essentially traded below the value of its cash on hand, making it a prime candidate for a reverse merger.—Chris Morrison

General Electric/Geron: There's no financial information associated with this deal, but we admit to being intrigued by the notion that GE and Geron are teaming up in the area of stem cells-based diagnostics. It's a triumph for Geron, which has struggled to turn this promising source of biological material into something monetarily more concrete, partly because of the politically charged atmosphere associated with stem cells, but also because the science is just so damned difficult. In addition to this most recent tie-up, 2009 has been a good year for Geron: it recently received FDA approval to begin the first human studies of an embryonic stem cell-based therapy for the treatment of spinal cord injuries. Phase I studies are scheduled to begin this summer. The GE deal also shows the continued interest by big industry players in these most changeable of cells. Drug makers with collaborations include Pfizer(Wisconsin Alumni Research Foundation (WARF), University College London), GlaxoSmithKline (Harvard Stem Cell Institute), Novartis (Epistem), and Novo Nordisk (Cellartis). Just as one of the first uses for genomic information was the use of biomarkers to enable drug discovery, its not too surprising to see tools players looking at the cells as a potential source for developing tests that help predict a particular drug's toxicity. Indeed, GE may be playing catch up with Invitrogen, which formed a stem cells business unit last year, and has a deal with WARF to use hES to develop new research tools.-EFL

(Image courtesy of flickr user Mr Magoo ICU used with permission via a creative commons license.)

J&J Buys Elan Out of a Jam

c.morrison@elsevier.com (Chris Morrison) — Thu, 02 Jul 2009 09:05:00 -0700

Elan sent up a signal flare five or six months ago and now Johnson & Johnson has come to its rescue, with a $1 billion stock buy and an innovative asset purchase agreement around Elan's most advanced Alzheimer's disease programs.

The result: this very interesting deal plus Pfizer's takeover of Wyeth creates a bizarre situation that we haven't seen before: one of the biopharmaceutical industry's most hotly anticipated and potentially valuable late-stage assets (if not THE most hotly anticipated and potentially valuable late-stage asset) and the broader program that created it will now have two brand new owners, which happen to be two of the biggest (if not THE biggest) pharma/health care companies in the industry.

Oh, and as of yet, there is absolutely no commercial agreement in place for what happens when and if the drugs that emerge from this collaboration get approved.

We'll have all the fun and juicy details and analysis later in 'The Pink Sheet' DAILY but allow us to sketch it out briefly here. Elan was between a rock (a bunch of debt it was going to have some trouble paying off, a recurring theme in the company's history) and a hard place (it needs to spend serious cash on its bapineuzumab Alzheimer's program with Wyeth--not to mention all its other R&D--if the company to be successful).

So it began a strategic review earlier this year and once a week rumors surfaced that so-and-so was going to buy the company, or a piece of the company, or its delivery/formulation business, etc. Now enter J&J, who gets $1 billion in Elan stock at about a 1/3 premium (an 18.4% stake in the biotech) in exchange for all the rights and obligations associated with its Alzheimer's immunotherapy program (AIP, which includes bapineuzumab). J&J will also get an Elan board seat.

J&J will ensconce those assets in a J&J Newco in which Elan will have a 49.9% stake. Importantly for Elan, the first $500 million in AIP expenses will be paid for by J&J: given Wyeth/Pfizer funds half of AIP's R&D cost that means $1 billion in expenses are racked up before Elan needs to spend another penny on bapi & co. After that, Elan and J&J split their half of the programs' costs and profits per the 51.1/49.9% structure in the J&J Newco (for which Elan will have two seats on a seven-seat board). The terms of the deal prohibit J&J from buying more Elan shares for five years.

Elan will pay off the lion's share of its debt (about 70% of it) and keep all its other programs, including its non-AIP Alzheimer's work. Elan CEO Kelly Martin emphasized on a call today announcing the deal that Elan would continue to invest heavily in R&D--in fact it would increase investment in certain situations.

Analysts on the Elan call were uniform in praising the deal. The market (so far) likes it too, with Elan shares up about 21% in early trading. Why not: J&J quickly and emphatically gets into an area where it had a stated significant interest (though at not an insignificant cost) and Elan gets out of a jam and keeps what could still be incredible upside, with a major hedge against ongoing risk. Though extremely promising, bapineuzumab has stumbled a little bit and is no sure-thing.

The deal's most intriguing wrinkle though is not what has been sorted out, but what hasn't. Elan and Wyeth's original April 2000 deal did not include specific provisions for a commercial strategy, details that the companies were scheduled to iron out in the second half of this year.

That responsibility will now fall to Pfizer and Johnson & Johnson, once their respective deals close later this year. Now there's a negotiation we bet will be very interesting.

image from flickr user andi used under a creative commons license

The IN VIVO Blog Podcast: An Inside View of Biotech Deals

c.morrison@elsevier.com (Chris Morrison) — Thu, 02 Jul 2009 02:30:00 -0700

Another week, another podcast full of interesting commentary. This week IN VIVO Blog had a chance to visit with Barbara Kosacz, national head of the law firm Cooley Godward Kronish's Life Sciences Practice, at her sunny Palo Alto, CA office.

Kosacz is one of those lawyers you want to know. She's funny, down-to-earth, and incredibly smart. (And that's not pandering designed to get her to call us back when we have to report on tricky change-of-control clauses and other legal mumbo jumbo.) Indeed, Kosacz has spent the last several decades counseling a range of biotech clients and has had a birds' eye view on a number of interesting transactions, from Medivation's tie-up with Pfizer for the worldwide development and collaboration of the Alzheimer's drug dimebon to Amgen's acquisition of Ilypsa and the subsequent spin-out of Ilypsa 2.0, Relypsa. You get the picture.When it comes to deal-making, what Kosacz doesn't already know probably isn't worth knowing.

So take a few minutes and glean some wisdom from a master. You think deal prices are falling? Not true, says Kosacz, who is of the opinion that top-quality assets are still capturing top quality deal prices.

That's not to say Big Pharma wants to do M&A (unless its with other Big Pharma) says Kosacz. In fact Big Pharma/Big Biotech's love affair with partnerships is causing some consternation in the VC community, where a licensing deal could scupper future M&A at a time when there is no IPO market in sight.

Want even more dealmaking insights? (You should have been at EuroBiotech.) Then keep an eye out for our next edition of deals of the week. We know, it ain't Barbara. And don't forget, you can access the podcast via iTunes also.

Lighting A Fire Over FDA

c.morrison@elsevier.com (Chris Morrison) — Mon, 29 Jun 2009 07:41:00 -0700

FDA has sometimes been portrayed as an agency full of cautious bureaucrats who would rather dicker with sponsors about esoteric statistical issues than approve products that patients need. But events we witnessed Friday underscore that the agency is full of hard working professionals well aware of the life or death implications of their jobs. Around seven p.m., a thunderstorm rolled through the Washington area, pretty typical for a summer evening. But after the deluge, there was another ripple of noise: sirens were blaring as emergency personnel raced towards FDA's Parklawn building, the massive structure in Rockville, Md., that had served as the agency's flagship office before the birth of the White Oak campus.

Fire trucks from Wheaton, Sliver Spring, and the National Institutes of Health – who knew? – converged on Parklawn, and a stretcher was wheeled towards the entrance.

Outside, evacuees clustered in three groups – security guards, cleaning staff, and a looser amalgam of desk workers. Everybody's consensus was that lighting had struck the building. The lights had flickered out and the emergency ones had come on, along with the fire alarms and an automated voice telling everyone to leave. But even the folks who wanted to go home after that were stuck; the fire trucks had blocked the entrance to the parking lot.

It seems that nothing too serious had happened. The evacuation order was a preliminary communication about an emerging safety issue, if you will. Eventually the fire trucks drove off and the employees drifted back in. And as night fell, there were still lights burning in Parklawn.

–M. Nielsen Hobbs

VC Financing: Enter Comparative Trials and REMS Post-market Plans

c.morrison@elsevier.com (Chris Morrison) — Mon, 29 Jun 2009 02:03:00 -0700

In Washington, the policymakers and legislators are arguing over how to build comparative effectiveness research into the health reform bill.

Eleven miles away in the Maryland suburbs at the Food & Drug Administration’s new White Oak campus, the regulators are figuring out on a case-by-case basis how to apply their new authority to order post-approval education, distribution and testing programs for new drug approvals. under the Risk Evaluation & Mitigation Strategies authority.

But in the private capital markets removed from the political capital, these two issues are already moving from the conceptual, formative stages into real world requirements. Drug and biological entrepreneurs are learning that they better have answers to questions about both requirements when they go into venture capital firms for development funds.

VCs now expect companies seeking funding to bring in plans for comparative research during drug development and to recognize early what level of post-marketing controls FDA will require.

That’s what MPM Capital’s Gary Patou (in the picture above) told a session on successful drug development plans at the recent annual meeting of the Drug Information Association in San Diego. Clear plans for comparative effectiveness testing and post-marketing controls are becoming de rigeur parts of solicitations for funding from VCs, he says. (For a longer examination of the new de facto requirements for drug development plans from venture capital firms, see this story from The RPM Report.)

That means that the funding spigot from private capital will help enforce and establish the new government additions to drug development. Policy is made in DC, but practice is enforced by VCs.

While You Were Oh So Close

c.morrison@elsevier.com (Chris Morrison) — Sun, 28 Jun 2009 14:20:00 -0700

Chalk it up as a learning experience for US Soccer, but damn that was a tough loss on Sunday in the Confederations Cup final. At least the trip to the finals should bode well for next year's world cup. OK we're off to our Euro-Biotech Forum meeting early in the morning on Monday (a 6am bus to the airport! so glamorous.) so we're letting this WYW fly early (we'll try to update early Monday morning ET).

Hope to see some of you in Barcelona. While you were brushing up on your Catalan ...

The New York Times' Forty Years War series about cancer research asks whether the NCI's grant system--which tends to award cash for projects likely to lead toward only incremental advances, according to the article--is an impediment to more fundamental advances that are typically based on riskier research.
This week's rumored buyer of Elan is Novartis. The Sunday Times (via Reuters) is reporting a well placed sources confirmed the talks. Meh.
Novo Nordisk tries to capitalize on Sanofi's Lantus woes, points out its Levemir insulin hasn't seen the same cancer signal that has knocked Lantus.
Is fibromuscular dysplasia an underdiagnosed condition or an extremely rare disease? The WSJ reviews the evidence.
The NYT's Well blog asks (and kind of answers) the question, Can you get fit in six minutes a week? Check out the post; we'd tell you ourselves but the premise got us to thinking about the 'six minute abs' scene in "There's Something About Mary" and we surfed over to youtube to find it. Yes, it's still hilarious.
Lidge saves. No kidding!

DotW: Dollars To Donuts

c.morrison@elsevier.com (Chris Morrison) — Fri, 26 Jun 2009 12:20:00 -0700

It was a busy week but not necessarily in terms of deal-making activity. Instead, all eyes were on Washington DC, where the discussion on healthcare reform continued to dominate--from the spacious halls of Congress to the tight confines of taxi cabs. As you muse over how many dollars it will take to close the donut hole (are these the Dunkin' variety or Krispy Kremes?) and ponder emerging news about the exclusivity period for biologics, we bring you...

GlaxoSmithKline/Chroma: We confess we've had entirely too much fun writing about this deal this week. We could use this post to delve into the industry's mysterious desire to inflate a deal's price by including stratospheric but highly improbable bio-bucks figures. But where is the fun in that? So let's focus on the actual deal. Here's what we know: GSK and Chroma teamed up June 23 in an option-based drug discovery and development deal. In conjunction with the deal, Chroma announced its $24.5 million Series D financing, which GSK also took part in, although it hasn't become a major shareholder overall. According to Chroma's CEO Ian Nicholson, GSK's stake is "well below 10 percent." Further terms weren't disclosed beyond the $1 billion 'biodollars' figure Chroma cited in a press release, but the helpful folks at EP Vantage provided some additional color on the tie-up: "we found out that GSK paid £5m upfront and contributed £5m of the £15m Series D, giving GSK a 5% equity stake in Chroma. So a total upfront consideration of £10m," EPV commented on our earlier post.

Every little bit counts, as they say. In exchange for the cash and equity, Chroma will use its macrophage-targeting technology to identify four small molecules, mainly for inflammatory and auto-immune disease indications, although the deal covers other indications as well, according to Nicholson. The biotech will take these compounds through proof of concept, at which point Glaxo can exercise its option to take an exclusive worldwide license. As an option-based deal, the tie-up illustrates yet again that this kind of risk-sharing approach to partnerships is GSK's modus operandi. (When it comes to actually exercising the option--well, that's another story.) Earlier this month the Big Pharma signed a similar deal with Concert Pharmaceuticals around three preclinical candidates in which it paid $18.3 million up front in cash and took a $16.7 million equity stake.

From Chroma's standpoint the equity stake was likely just as important as the option portion of the deal. At a time when every small company is a seller, and Big Pharma is barraged with pitches screaming "Buy me!" (or at least "Buy a piece of me!"), engaging the larger company is the real sticking point for smaller biotechs. With skin in the game, GSK is far likelier to pay closer attention to the ongoing work at Chroma, which likely stands to benefit the company as its programs move through development. Indeed, the need to engage Big Pharma is one reason traditional VCs are going out of their way to include corporate venture investors in their syndicates (the fact that CVCs still have money to commit is just a minor detail).

Biovail/Cambridge: Okay, we admit it: we’re obsessed with Xenazine, a drug for Hungington’s chorea that was approved by FDA last year. But we have our reasons. We see Xenazine as exactly the type of narrow-market product that the new regulatory and reimbursement climate favors. And, as the flurry of deal-making triggered by its approval indicates, it demonstrates that these types of products can be very lucrative, albeit not at the level of the primary care blockbusters Big Pharma is built on. (You can read much more “The Billion Dollar REMS,” from The RPM Report.)

Biovail certainly agrees with us: the company paid $200 million to buy-out Xenazine developer Prestwick Pharmaceuticals. That deal was complex, since Ovation (now Lundbeck Inc.) simultaneously acquired US marketing rights for the drug for $50 million, so Biovail really acquired Canadian marketing rights and a US royalty stream. Now Biovail is upping its piece of the Xenazine pie by acquiring global commercial rights from Cambridge Labs. Biovail paid $200 million when the deal closed June 22—an indication of the value the company sees in the product. The company will pay an additional $30 million over the next two years.

In one sense, Biovail is simply buying out a large royalty obligation: Cambridge collected 50% of US revenues. With almost 2,000 patients already on therapy at an average annual cost of $30,000 to $50,000 each, that is already a significant amount. Biovail won't save all that money; the company will continue to pay a royalty to an undisclosed third-party who manufacturers the product for global markets.

Still, Biovail says the transaction will be immediately accretive to revenues and margins, and will add $23 million to $26 million to Biovail’s cash flow in 2010. (Those figures include the contribution from international sales from European marketers of the drug as well as the impact from canceling out the royalty obligation.) It is also a pipeline play, giving Biovail full rights to a controlled-release formulation of the drug and a single isomer version of the active ingredient. Those line extensions may be key to expanding the market beyond Huntington’s; the extended release form is in development for Tourette Syndrome.

But the deal has one more wrinkle, in keeping with the unique profile of Xenazine: It takes out a layer between Biovail and international marketers of the drug, and this is a case where cutting out a middleman can pay off for reasons that aren't strictly economic. Xenazine is basically a generic drug around the world, raising a high potential for diversion into the US to capitalize on the premium price. Biovail told its investors during its second quarter call in May that Cambridge was keeping appropriate track of the supply in Europe, and the company says preventing diversion is not a factor in this deal. But we’re still betting that this transaction buys Biovail some peace of mind.—Michael McCaughan

MediciNova/Avigen: It ain't over till it's over, but for Avigen--and major shareholder Biotechnology Value Fund--the future grows clearer every day. Late on Thursday came news that MediciNova and Avigen had reached an "understanding of certain key terms", paving the way for MediciNova's acquisition of the troubled biotech. Should it come to fruition, the deal would combine the two companies' development programs based on the novel glial activation inhibitor ibudlast. (Avigen's AV-411 is stalled in Phase I studies for neuropathic pain; while MediciNova's MN-166 has advanced to Phase II for multiple sclerosis.) Interestingly, the buy-out by MediciNova recalls the plan Biotechnology Value Fund proposed several months ago.

Avigen has been reeling ever since last fall when its multiple sclerosis spasticity drug, AV-650, failed to meet its primary endpoint in a Phase IIb study. Shortly afterwards, Avigen reduced headcount and suspended its other clinical programs but BVF, loudly and publicly, called upon the biotech to suspend operations and return its remaining cash to its shareholders. Meanwhile, BVF offered to buy the company's outstanding shares with a tender offer of $1.20 per share, with the intention of merging Avigen with MediciNova. But to effect this latter proposal, BVF needed to win control of the board, a change that could only happen with the support of two-thirds of Avigen's shareholders. In late March, BVF came close--its proposal swayed 58% of Avigen's investors--but that wasn't good enough. At the time Avigen's acting CEO, Andrew Sauter, promised the biotech would sell off the remaining assets and roll-up the company. In an interview with "The Pink Sheet" DAILY, Sauter made it clear that Avigen would consider a bid by MediciNova as long as it offered fair return to Avigen shareholders.

And it looks like both sides have come to an agreement on the definition of "fair". Under the terms of the merger, Avigen shareholders will receive a consideration approximating Avigen's net cash liquidation value plus $3 million. Avigen shareholders would be able to elect to receive this consideration in cash or as MediciNova stock. At the end of 18 months, any unexercised convertible securities would be paid out at their cash value. "We believe that the proposed merger presents clear advantages for the shareholders of both companies," said Yuichi Iwaki, MediciNova's President and Chief Executive Officer, in a press release.

Astellas/NeurogesX: This week's deal with Astellas to market and distribute the neuropathic pain patch Qutenza in Europe bolsters NeurogesX’s cash position, giving the company some breathing room to prepare for regulatory approval and a 2010 launch in the U.S. market. Qutenza was approved for neuropathic pain in non-diabetic patients by the European Medicines Agency in May and it is pending review at the FDA, with an Aug. 16 user fee date. A European launch is expected by the first half of 2010. NeurogesX is set to get €30 million ($42 million) upfront for Qutenza commercialization rights from Astellas' European subsidiary. In addition to 27 countries in the European Union, the deal covers Iceland, Switzerland, and some countries in the Middle East and Africa. This isn't exactly the deal Astellas watchers have been expecting ever since it tried--and failed--to bring CV Therapeutics in-house. But in a small way, rights to Qutenza help the Japanese pharma achieve another ambition: bolstering its European presence with an additional product it can market alongside its specialist-focused medicines in dermatology, urology, transplantation, and infectious disease. The dermal patch Qutenza packs a high concentration form of synthetic capsaicin (also called trans-capsaicin) that stimulates transient vanilloid 1 receptors in the skin to subdue overactive pain receptors. As part of this week's agreement, Astellas will also pay €5 million upfront ($7 million) for a co-development and commercialization option on NGX-1998, a Phase I liquid formulation of the NeurogesX product.

The deal is definitely a balm to NeurogesX's uncertain cash position: the company had about $19 million in cash and marketable securities at the close of the first quarter, enough to carry it through 2009, but insufficient to give the company much comfort in making plans for breaking into the U.S. market. During a June 22 investors’ call, Chief Financial Officer Stephen Giglieri declined to provide runway guidance, but added: “Obviously, putting $49 million into the bank is going to extend our runway fairly significantly.” (It's all about the runway, people.) NeurogesX is also eligible for roughly $100 million in sales-based milestone payments and additional option payments for the liquid formulation. (Not billion dollar bio-bucks territory, but nothing to sneeze at either.)--Emily Hayes

LabCorp/Monogram Biosciences: Molecular diagnostics specialist Monogram Biosciences will become part of LabCorp under a tender offer announced this week. The deal, for $4.55 per share of Monogram’s stock is worth $155 million including the net indebtedness LabCorp picks up. (According to the press release announcing the news that gives Monogram an implied equity value of $106.7 million.) For the cash, LabCorp gets two of the more innovative marketed commercial tests in the molecular diagnostics space: Trofile, developed in collaboration with Pfizer, identifies patients who are eligible for the CCR5 class of HIV drugs and is a companion diagnostic for Pfizer’s first-in-class drug Selzentry; HERmark, the first commercially available functional Her2 assay, is one of a new wave of Her2 tests for breast cancer patients. Monogram is also applying the technology that led to HERmark, called VeraTag, to other cancer markers in the EGFR pathway. But it’s been struggling to come up with the resources to do that--or, as we wrote earlier this year in our coverage of the new generation of Her2 tests--to validate its Her2 assay in a prospective trial. Moreover, Monogram has been building disease management capabilities in two distinct therapy areas – HIV and oncology – also a difficult challenge for a small company with limited capital. The cash reserves at LabCorp, which has been eying the esoteric testing market for some time, should solve those problems.--Mark Ratner

(image by flickr user Pink Sherbet Photography used with permission via a creative commons license.)<

Piven on Biologics Exclusivity: Ten Years!

c.morrison@elsevier.com (Chris Morrison) — Fri, 26 Jun 2009 00:44:00 -0700

By now you've heard that the White House thinks seven years exclusivity for biologics is the right way to go. The branded firms were shooting for 12 or 14. Here's the Pink Sheet Daily coverage and the White House letter from Nancy Ann De Parle and Peter Orszag.

Breaking news: PhRMA and BIO have hired a new agent, who responds, uh, point blank:

Hmmm. The ball's in your court, Waxman. Happy Friday.

Taxicab Confessions: Harvey's Health Reform Plan

c.morrison@elsevier.com (Chris Morrison) — Thu, 25 Jun 2009 14:04:00 -0700

President Obama, Peter Orszag, Doug Elmendorf, Senators Kennedy, Baucus, Dodd, and Grassley, HHS Secretary Sebelius, and Rep. Waxman, I hope you're listening.

You all should know, that at the very least, the health care reform debate is having a strong impact on the average citizen. They are following the debate closely and developing opinions on possible solutions. How much so? We at the In Vivo Blog and The RPM Report recently experienced it firsthand.

After a lovely rooftop event for health care watchers sponsored by Hill & Knowlton, we hopped in a cab at a respectable hour on our merry way home. Our cabbie, Harvey, somehow deciphered that we write a lot about health care. I believe what tipped Harvey off was us calculating exactly how PhRMA's $80 bil. deal would be scored by CBO, our love of the epic Senate HELP markup, and the lively debate over exactly what the final health reform bill will look like.

Harvey wanted to know more and more about our thoughts on where everything is headed. We explained as best we could in lay terms about the various pieces of legislation and where the different sides stood on the debate.

Here's the thing: Harvey knew a heck of a lot about health care policy. For example, we pointed out that a major issue in health care is payment reform and incentivizing doctors and hospitals to get paid for quality outcomes rather than volume of services.

"Exactly!" Harvey shouted. "The problem with the health care system today is that it has moved away from being about the patient. Health care reform must re-focus on the patient and the quality of care. It's not about volume of services."

As we reached our final destination after a long day of Congressional activities, Harvey said: "Do you mind if I pull over? I want to finish this conversation about health reform."

Um...sure...we'd love to talk more about it.

He then asked us whether there were any innovative projects out there that were focused on quality. We named a few: Geisinger, Billings, Intermountain Healthcare and the Medicare Physician Group Practice project.

"Wait, wait," Harvey interupted. "Let me get a pen." He got his pen and pad out. "How do you spell Geisinger?"

"G-E-I-S-I-N-G-E-R."

"And where is Geisinger?" Harvey asked us.

"Pennsylvania."

"And what do they do that's different from other hospital systems?"

We then explained Geisinger's system where they essentially hold to a tried-and-true quality system that has an important compliance component and if they make a mistake, they take on th extra costs.

"You know," Harvey began after our conversation about Geisinger and specifics about Intermountain and Medicare, "I think I have come up with the solution to reforming the health care system in this country."

Hmmm. I think Harvey could tell we were skeptical.

Harvey's proposal (slightly paraphrased):

"You create a number of "free" hospitals in each state. The number and location of hospitals would be dependent on the size and population distribution of a given state. The doctors who work at each hospital are paid a flat salary. Care at these hospitals would be completely free. The only pre-requisite is that patients would be completely restricted from suing. There would be no liability."

Twenty minutes after we had pulled over, he concluded: "That's the only answer I can see to the problem."

Sure, there aren't a lot of details to Harvey's plan but there's a larger lesson: Everybody appears to be engaged in the health care reform debate, so much so, that even our trusty cabdriver Harvey is coming up with innovative approaches to care.

While we don't expect to see the Harvey Provision in the Kennedy, Baucus, or Waxman bill, it's telling that the debate is trickling down to those who don't have a direct interest in health care policy and demonstrates that there is public momentum behind reform at the moment. Of course, things change quickly.

So President Obama and Chief of Staff Emanuel, Harvey is ready to brief you on his health reform plan if things stall in Congress. But you may want to leave the afternoon free for it.

Quick Takes from Obama Press Conference

c.morrison@elsevier.com (Chris Morrison) — Tue, 23 Jun 2009 13:02:00 -0700

Here's our quick takes from the Obama press conference earlier today on health reform:

1) Health care reform represented the anchor leg of Obama's prepared comments at his press briefing, following his comments first on the situation with the protests of the Iranian election and then the importance of an environment bill. We believe that's meaningful and that the White House is very serious about passing sweeping health care reform legislation, much more so than an environment bill.

2) Obama made it as clear as he ever has before: the bill must be deficit neutral or better over a decade. He will not sign a bill that isn't. What does that mean? The final bill will have to be scored at $1 trillion over 10 years. In other words, if a bill is scored as costing $1 trillion over 10 years and covers 75%-80% of the uninsured, we believe that's a bill that gets signed with a Rose Garden ceremony. The administration, or the next one, can work incrementally to cover the remaining 20%-25% of the uninsured.

3) If the only thing that stands between a health care reform bill and no health care reform bill is a public plan option, the President will sign a bill without a public plan. That was our read of his comments: "Ultimately, I may have a strong opinion but it's too early," to make a decision on the plan, Obama said.

4) Obama demonstrated a real and deep understanding of complex health care issues during the Q&A and we believe that is a positive for health care providers. Why? Because when it's time to make extremely tough decisions on reform, Obama will know exactly how deep the cuts that doctors, hospitals, insurers, and drug/medical product makers are sacrificing for reform and how policy decisions will be impacting the overall system.

5) Obama also showed real teeth when it came to the public plan debate. When asked a tough question about the potential for employers to drop their coverage and send people to a cheaper public plan and the inability of private insurers to compete with a government option, he put all of the onus on the private insurers. He essentially said that any private plan worth its salt should be able to compete ably with a public plan assuming 1) the rules are the same and 2) the public plan is not continually subsidized by taxpayer dollars--it has to be premiums paid by enrollees.

If you're interested in health care reform, you can follow our twitter feeds at http://twitter.com/Ramsey_Baghdadi and http://twitter.com/RPMReportMike.

When Is A Billion Dollars Not a Billion Dollars?

c.morrison@elsevier.com (Chris Morrison) — Tue, 23 Jun 2009 01:33:00 -0700

When you read about it in a press release. And today's award for most egregious use of a biodollar deal total goes to Chroma Therapeutics.

Don't get us wrong. Chroma no doubt signed an interesting, solid option-alliance with the King of All Option Alliances, GSK. The deal is in an exciting area of inflammatory disease research, using Chroma's esterase-sensitive motif (ESM) technology to create compounds targeting macrophages. Macrophages are central to inflammatory cascades that give rise to a variety of conditions. The undisclosed upfront and some early milestones will likely--if they're akin to payments in other GSK option-alliances--allow Chroma to fund the disco-development programs through POC.

Fantastic!

But there is zero clarity in Chroma's press release on the financial details. There's only one figure: $1 billion dollars. That's what Chroma gets "in milestone and option payments in the event that all four programs are successful." Cue "$1 billion dollar deal!" headlines. [UPDATE: here's one from Reuters!]

Is it impossible for Chroma to get $1 billion of GSK's cash-money? No. Is it highly friggin' improbable they get anywhere close? Yes.

Of course the improbable happens on occasion. For instance (if you'll allow us to go off on a tangent): on Sunday night the US men's national soccer team was up against Egypt in FIFA's Confederations Cup, in the last match of the group stage. For USA to advance to the semi-final, they needed to win BIG against a highly favored Egypt. In fact their margin of victory combined with Brasil's margin of victory over Italy (thanks to the tournament's goal differential rule to break ties in the standings) had to be six goals. And they weren't exactly playing very well going into the game.

What happened? Brazil beat Italy 3-0. Improbable, but not overwhelmingly so. And USA beat Egypt 3-0. Very improbable. USA advances to play Spain tomorrow. Taken all together? Extremely improbable!

The stars do align, sometimes. We were cheering for USA from our couch on Sunday night and we wish Chroma the best too. But lets see what has to happen for Chroma to reach that ten-digit number.

Chroma's macrophage-targeting compounds don't exist yet. The company "will undertake four discovery and development programs" to identify the small molecules. OK, so that has to work out. They need to identify lead compounds, optimize, start preclinical development programs, the whole nine yards.

Those four compounds need to make it to the clinic. Then those four compounds need to be successful up through Phase II proof of concept studies (after they've been deemed safe in Phase I). Then GSK will have to like each one of them enough to pull the trigger on its option.

Now keep in mind that success in the clinic doesn't necessarily translate into an option getting exercised (nor is that necessarily bad for Chroma). See, for example, GSK's deal with Exelixis, where GSK decided not to option Exelixis' Phase III XL184. Bad news for Exelixis? Hardly--BMS came in and paid top-dollar for the program only weeks later.

OK so say the programs are all successful through POC, and GSK options all of 'em. Well then each compound needs to be successful in large Phase III clinical studies, and eventually all four need to get approval. Probably (the release doesn't say) in multiple markets like the EU, the US, Japan, maybe even some developing countries like the BRIC markets? And then we're probably talking sales milestones as well. Do all four drugs need to become blockbusters? Do they need to avoid generic competition for a set amount of time? This is no six-goal differential. It's a sixty goal differential.

We don't think Chroma management is deluding itself. Maybe the up-front is better than some other GSK option-alliances and they'd rather not piss off current partners by having Chroma shout their windfall from the rooftops. But inflationary biodollar figures like $1 billion for a discovery alliance are just, well, silly.

image from flickr user peat bakke used under a CC license

Wacky World of Generics: REMS Edition

c.morrison@elsevier.com (Chris Morrison) — Mon, 22 Jun 2009 10:00:00 -0700

Here's a "Catch-22": If the Food & Drug Administration prohibits sale of a drug outside of a tightly controlled restricted distribution program, how on earth is a generic company supposed to obtain supplies of the product to use as a comparator in bioequivalence trials?

If you are Dr. Reddy's, hoping to be first to challenge the patents on the anti-cancer agent Revlimid, you ask nicely. And if you are Celgene, apparently, you answer "no way." That, at least, is how Dr. Reddy's describes the situation in a citizen petition filed with the Food & Drug Administration earlier this month. (We have the full story in "The Pink Sheet" DAILY.)

This petition has all the markings of a test case. The goal is not so much to accelerate a generic challenge to Revlimid (the earliest a generic launch could possibly come is three years from now) but rather to define a process to assure that the new Risk Evaluation & Mitigation Strategies authority given to FDA in 2007 doesn't become a perpetual exclusivity award for sponsors.

The law (known as FDAAA) states unequivocally that restricted distribution programs are not to be used to block or delay generic competition. It's just that, well, it's one thing to say that, another thing to make it so.

Certainly, George Horner--the former CEO of Prestwick Pharmaceuticals--doesn't see any realistic way for generics to compete against products covered by REMS. He told us that in a story on the fascinating development program--and flurry of business development activity--for the Huntington's chorea therapy Xenazine. (You can read all about it in The RPM Report.)

In the petition, Dr. Reddy's is proposing a process that would essentially allow generic manufactures to obtain an authorization from FDA for studies, and then compel manufacturers to provide samples (at market prices) for use in bioequivalence trials. That certainly seems reasonable enough--and we bet (after much regulatory machination) FDA ends up setting a policy along those lines to eliminate the Catch-22 facing Dr. Reddy's.

But that still doesn't address the bigger issue: While it is presumably simple enough to create a bioequivalent version of the active ingredient in Revlimid, is it really possible to create a generic equivalent to the restricted distribution program for the drug? Celgene would argue no. In fact, the company has argued no in the context of the predecessor product--the notorious thalidomide. (Read more about that case here.)

Put another way: does FDA really want to make it simple for dozens of sponsors to launch versions of drugs like thalidomide, when the agency has already determined that the risks of inappropriate use are high enough to merit costly, burdensome post-marketing restrictions? Our hunch: products covered by restricted distribution programs will end up looking more like biotech therapies facing follow-on competition than they will like conventional generic drugs.

And, for now, there isn't even a clear-cut way for generics to begin the process of proving bioequivalence.

Rangel-ing Over Drug Promotional Expenses: A Tussle That Might Not Scare Pharma Too Much

c.morrison@elsevier.com (Chris Morrison) — Mon, 22 Jun 2009 07:00:00 -0700

The advertising, broadcast and medical publishing sectors were thrown into a tizzy on June 16 when reports from Capitol Hill said that removing the tax deductibility of drug promotional expenses remains a live issue in the funding discussions around health care reform.

They should have been ready. There have been reverberations for over a year that pharma’s critics on Capitol Hill might try to raise some money for health care reform from the drug industry’s marketing budgets. White House Chief of Staff Rahm Emanuel has previously talked about giving manufacturers a choice between deducting R&D expenses or promotional expenses.

So it shouldn’t have come as such a shock when House Ways & Means Chairman Charles Rangel (D-NY) said on June 16 that his committee was looking seriously at removing the deductibility for drug promotional spending. But the thought of losing such a lucrative and solid stream of funding has a way of focusing the attention of the sectors that count on pharma promotional budgets: think of the nightly news programs on TV. Their ad sales staff must be in a panic.

The $37 billion price tag that Rangel casually attached to the possible change quantified the challenge and gave it a magnitude that made it more threatening.

The $37 billion figure is presumably calculated as a ten-year revenue estimate, the format that dominates government projections. It does not, however, appear to relate directly to any discreet part of promotional spending like DTC, which is generally estimated at about $4 billion per year.

Eliminating ten years of DTC expenditures would add up to a figure in the ballpark range to Rangel’s number, but that does not mean the government would collect that amount of money. The government revenues would come from the reduced taxes on the expenditures, not from the reduced expenditures. The total expenditures do not translate directly into new tax revenues.

To achieve $37 billion in new tax revenues at the current corporate tax rate would require removing the drug industry business deductions on somewhere around $106 billion in expenditures over the next ten years.

We’ll have to wait a while to find out where the calculation comes from. Removing the tax deductibility of promotional spending was not included in the June 19 draft of the House Democratic health reform proposal.

There is one quick hint in the bill about what promotional expenses being considered for losing deductibility. The June 19 draft contains a penalty provision for companies that do not live up to new sunshine disclosure provisions for gifts to doctors. If companies get caught failing to report gifts or misreporting gifts, then they would lose the ability to deduct “any expenditure relating to the advertising, promoting, or marketing (in any medium)” of a drug or device during the year of the violation.

That can’t be a penalty if elsewhere the bill would take away the deductibility of all promotional spending. Therefore, the Democrats do not appear to have in mind a full-out assault on the deductibility of promotional spending. Which means if you are a business that relies on promotional spending from pharma, now is the time to get to the Hill to draw the line between the dollars that support your efforts versus the dollars that support other forms of promotion. The definition could have a big impact.

Did Critics Force Pharma To Cut Back Spending Too Early?

Maybe Rangel and company hoped to get some of the saving from the lavish pharma entertaining budgets. But in what may now appear in hindsight as a strategic miscalculation, the industry critics have already forced pharma to stop some of that entertaining voluntarily – getting rid of what could have been a nice source of health care funds.

Pharma’s voluntary cutbacks over the past five years in the most unseemly marketing practices, in fact, gives a hint why Rangel’s comments may not scare the industry so deeply.

Forcing pharma companies to think more carefully about their marketing expenditures (as tax disadvantaged expenditures will be more painful) may provide the cover that some industry execs want to trim back marketing and sales budgets. This is similar to arguments by pharma execs for decades that they did not like having to fund expensive sampling/giveaway programs but were afraid to stop until their competitors stopped.

An across-the-board rule like taxing ad expenditures would force all the industry companies to reassess promotional budgets and force an assessment of new ways to build customer loyalty and interest in their products.

In Vivo Blog and its affiliate The RPM Report have been touting the new post-market control programs (the REMS of the 2007 FDAAA Act) that are being required more frequently by the Food & Drug Administration as an alternative to fill the gap for discredited promotional activities. There are other, less costly ways that the current detail forces and TV ads for pharma to build its ties to the medical community and patients. Rangel and his tax approach may just be hastening the era of those changes.

That may be why we are hearing that some influential strategists within pharma are not putting a fight with Rangel at the top of the 2009 health care reform fight. Privately, they say there are much more important fights and issues in health care reform to waste too much time and effort fighting the deductibility of promotional expenses. This may be a legislative argument that pharma is not afraid to lose. They won’t say that openly, but don’t expect much effort and money directly from the drug companies to be devoted to the promotion fight.

Of course, if pharma reacts in a prudent way to higher promotional costs and cuts back those expenditures effectively, then the government will not have promotional tax dollars as one of its sources of revenues for health care reform. That would mean that the government would under-estimate the sources of funding for a new health care program. Would that be the first time?