BioShield Giveth, BioShield Taketh Away

Yesterday the Dept. of Health and Human Services notified Vaxgen that since the biotech was in default of its $877 million contract to provide the government with 75 million doses of anthrax vaccine for missing a milestone, HHS was canceling the order. The New York Times has the story here.

The grant--the largest chunk of the government's $5.6 billion Project Bioshield program--wasn't payable until Vaxgen started delivering vaccine. As such, the company is pretty much out of luck, although it can appeal HHS' decision. Making matters worse for the California biotech, HHS reserves the right to hold the company financially liable for costs associated with finding a replacement, noting that "Vaxgen's failure to perform is not excusable," according to a HHS letter sent to the company. Happy Holidays!

BioShield hasn't turned out as hoped. Most of the cash is earmarked for products only once they've neared or received approval, but deep-pocketed firms have been reluctant to assume the R&D risk for at-best uncertain financial gain. And the Vaxgen debacle illustrates some of the problems that those willing but much smaller firms with few resources can run into.

Congress may attempt to remedy the situation by throwing more money at it--as announced in mid-November. The proposed additional $1 billion could support research and early development at biotech companies. Critics suggest the boost is unlikely to fix BioShield, and regardless, whether HHS has any luck playing VC remains to be seen.

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Move Over Erbitux

Genmab's fully human antibody HuMax-CD20 just took the title for the biggest single-product biopharma collaboration: up to $2.1 billion in biobucks with an impressive $1o2 million in cash and $357 million in equity (at a 50% premium to Genmab's previous 20-day average) up-front. The price tag underscores the rabid demand among pharma companies for new projects and the relative lack of available late-stage compounds.

While new partner GSK suddenly finds itself out a few hundred million bucks, it has landed global rights to one of--if not the--most promising unlicensed projects available. If Genmab had a list of conditions for a potential deal, it's fair to say they probably ticked all the boxes on that list. You can check out the details here.

HuMax-CD20 is being developed in chronic lymphocytic leukemia (B-CLL), follicular non-Hodgkin's lymphoma (NHL), and rheumatoid arthritis (RA). Expect expanded development--Genentech and Biogen Idec's anti-CD20 mab Rituxan, which boasted nearly $2 billion in US sales last year--is thought to be effective in a variety of oncology and autoimmune indications.

In October Genmab CEO Lisa Drakeman, PhD, told analysts that a deal was imminent. "I don't want to overpromise [on the timing]," she said at the company's R&D day in London. "We don't need more data, it's about finding the best possible fit." That same day she also noted that since Genmab had so far invested approximately $100 million in HuMax-CD20, any potential deal's upfront payment should reflect that expense. Job done.

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Torcetrapfffffff: Pfizer's Big Bust

Pfizer's decision to discontinue the development of it's HDL-boosting torcetrapib candidate/savior over the weekend leaves the Big Pharma with little choice but to 1. accelerate its restructuring plans and 2. start eyeing up some of its pharmaceutical competitors for a 2007 snack.

It is unknown right now whether torcetrapib's fatal flaw--it raises systolic blood pressure along with HDL which led to more, instead of fewer, deaths and an increase in a raft of cardiovascular problems like angina--spells the end of the entire CETP (cholesterol ester transfer protein) class. Roche will have to decide whether to send the Phase II R1658, another CETP inhibitor, into pivotal trials next year. R1658 as well as Pfizer's early-stage torcetrapib backups allegedly do not raise systolic BP, but then again we didn't know about torcetrapib's problems until Pfizer's $800 million, 15,000-patient Phase III was well underway.

While it's been a disappointing couple of years for Pfizer shareholders torcetrapib was always the light at the end of the tunnel. Can they persevere in its absence? The company has, though belatedly at times, attempted to press all the right buttons: back in April 2005 it suggested it was open to change and that it would save $4 billion by 2008; this past summer an overdue management shake-up saw the elevation of Jeffrey Kindler, a relative outsider, to CEO; its R&D show had analysts in a forgiving mood, enjoying the newfound "transparency and accountability" from Pfizer management even while at the same time acknowledging the company had significant business development goals to accomplish if it were to return to growth after a flat 2007-8.

But despite all the upbeat prognosticating at that meeting ("we are first in class, we are best in class," etc.) torceptrapib tanked. A week before that, Pfizer bailed on asenapine, the Phase III antipsychotic it put a $100 million downpayment on in 2003 via a deal with Akzo Nobel, when that drug disappointed in pivotal trials.

The cuts to Pfizer's vaunted sales force announced in November will now likely be augmented with further restructuring. And in-licensing and M&A will be ramped up--but how? It's hard to see how continuing its string of interesting but relatively small acquisitions--Rinat, PowderMed, Vicuron, Idun, Angiosyn, even stretching back to Esperion in 2003--can fill the massive hole created by the genericization of atorvastatin (Lipitor) in 2011.

Torcetrapib was supposed to be by Pfizer's own estimation the most important new cardiovascular medication in years. What a difference a day makes.

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Pfizer UK Gets “Closer to Customers”

“Increased patient safety” drove Pfizer’s recent deal with UK wholesaler Alliance UniChem, according to the partners. But no one’s buying the story.

Following a tender process allegedly involving all UK wholesalers, Pfizer earlier this Fall chose UniChem as its sole distribution partner in the UK. The move, says Pfizer, will reduce the number of counterfeit drugs getting into the system—including those from parallel trade—and ensure ease of supply and simplified logistics.

Critics claim that patient access is put at risk by reliance on a single supplier for such a wide portfolio of drugs. Perhaps. But that’s not the biggest concern—Alliance is one of the biggest distributors, and it’s not likely to mess around where its largest and most lucrative customer is concerned. Which brings us to the next problem: the deal smells highly anti-competitive. Alliance promises to “maintain excellent service all around,” but the Office of Fair Trading isn’t convinced. Nor are 33 Members of Parliament who have signed a motion opposing the deal.

Pfizer has gotten into deeper political waters than it might have liked. The Big Pharma's UK division has written to MPs defending the deal.

Trouble is, this tie-up is more than about two partners getting extra-friendly. It introduces an entirely new model to UK drug distribution—a model that is clearly about price and market share. From March 2007, Pfizer will deal directly with customers—pharmacists—on cash discounts for its products, with UniChem acting only as a “logistics service provider” (its own words).

So Pfizer ekes out better deals across its entire range by cutting out the middleman and leveraging the breadth of its offering to compel pharmacists to choose its products over its rivals---take our statin and we’ll discount the nasal sprays---and UniChem, in exchange for its cut on the cash discount, accesses a bunch of new customers that want—need—to keep buying Pfizer’s drugs.

It’s all about patient safety.

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You Are Feeling Very Sleepy

Today Somaxon announced more positive results for its Phase III insomnia drug low-dose doxepin (Silenor). This trial--a test of the drug in elderly patients with primary sleep maintenance insomnia (trouble staying asleep) was the third Silenor Phase III to read out and added more positive data to boost Somaxon's prospects. The results of the final Phase III for Silenor should be released in December.

Insomnia is a massive market and one that remains responsive to old-school boots-on-the-ground promotion and DTC-driven consumer awareness. Market growth has been largely fueld by Sanofi-Aventis' controlled-release zolpidem (Ambien) and to a lesser extent to Takeda's rozerem (Ramelton) and Sepracor's eszopiclone (Lunesta).

But it's also a space where Big Pharma thinks there's room for improvement--and isn't afraid to spend for a shot at the market. Pfizer bought into Neurocrine's indiplon in 2002 and the drug was widely expected to give Ambien a run for its money--but Pfizer wound up giving up on indiplon when the FDA raised questions about its higher, extended-release doses that basically sidelined the drug.

Somaxon hopes that Silenor can provide physicians and patients with the best of both worlds: GABA acting drugs like Ambien, Lunesta and indiplon are the most effective drugs on the market--but are so-called Schedule IV controlled substances according to the DEA, and thus are potentially addictive. Rozerem is not scheduled, but so far such melatonin agonists have not shown the same efficacy as GABA acting drugs.

If Silenor, an H1 receptor antagonist (and available as a generic antidepressant at higher doses), can demonstrate GABA-like efficacy and steer clear of DEA scheduling Big Pharma partners should be very receptive.

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Illumina Buys Solexa

Tool companies are popular among life-science VCs for their simplicity of exit: build a start-up around a truly novel technology, one of the existing major players will have to buy out the company before one of its competitors does. Thus, there are few worries about having to commercialize technology: far more important to develop it well.

That's essentially the story of Solexa, which sold out to Illumina for $600 million in stock. The only twist is that it sold to Illumina--one of the rare new-ish companies which has been able to make a big splash in the research market and thus provide another bidder, along with the more established companies like Applied Bio, Invitrogen, and Amersham. Look for Solexa's rival, Helicos, to go next. The Solexa deal is also very good news for both SV Life Sciences and Oxford Biosciences, representing the second recent major exit for each firm.

The news was especially welcome for Oxford, which had struggled to raise its current fund based on their equivocal track record from their more recent funds, which had -- building on Oxford's history -- focused on discovery opportunities. But when Oxford was making its investments, discovery was decidedly out of favor in the pharmaceutical industry. It seems to be coming back, however.

First Merck bought Sirna for $1.1 billion--a company with no real therapeutic proof-of-principle to its RNAi programs. And now Illumina has more than justified Oxford's investment in Solexa.

One should note as well that this is Oxford's second exit involving a public company: Solexa had reverse-merged into the failing public-company Lynx in 2004, both for its US listing and its technology. Sirna had been a failing public company, called Ribozyme, when Oxford, Venrock and several other firms invested in it.

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When a partner becomes too expensive

What do Abgenix, Icos and Tanox have in common?

Just as Eli Lilly decided it was better off buying Icos for the biotech's share of Cialis upside and Amgen acquired Abgenix to secure 100% of potential panitumumab revenue, Genentech--not exactly a serial acquirer of any kind--did the math and figured it was time to take out Tanox, with whom it has been involved in a three-way partnership (along with Novartis) for more than a decade. The biotech giant will pay $20/share in cash for Tanox, a 47% premium to the stock's previous close, or a total of $919 million.

The companies' omalizumab (Xolair) is an anti-IgE monoclonal antibody that downregulates the allergic response in patients with moderate-to-severe allergic asthma. Genentech can now breathe a bit easier--it eliminates the Tanox royalty and will now receive the cash from Tanox's royalty and profit sharing arrangement with Novartis. Tanox's pipeline is gravy.

US Xolair sales surpassed $300MM in 2005, it's second full year on the market.

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Pfizer and torcetrapib

The news that torcetrapib, Pfizer's HDL-increasing CETP drug, slightly increases blood pressure is highly problematic for the world's largest pharmaceutical company. Torcetrapib was supposed to compensate for a string of patent expirations in the next few years (Zoloft, Zyrtec, Norvasc and Aricept – and Lipitor in 2011). But it is also extremely bad news for other companies developing CETP drugs -- particularly Roche. Several questions: what are the regulatory hurdles posed today by this kind of problem? Are the traditional lipid targets overplayed--and should companies be focusing on the less obvious targets in atherosclerosis, like inflammation or vulnerable plaque?

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