The Most Important Deal of the Last 12 Months

In preparation for our Pharmaceutical Strategic Alliances meeting in September, we decided to send the same question to 35 of our smartest friends in the business: what deal signed in the last 12 months said the most about the drug industry’s current situation?

The answer (caveat: responses are still coming in) was AstraZeneca’s acquisition of MedImmune.

We suppose the choice shouldn’t have been surprising. At $15.6 billion in cash, it was arguably the biggest biotech acquisition ever. (Amgen’s 2001 buyout of Immunex looked bigger, but what was worth $17.9 billion in a combination of cash and stock at the deal’s announcement had, thanks to the dip in Amgen’s shares, dropped below AZ/MedImmune all-cash price by the time Amgen/Immunex closed in 2002.) And you can read what IN VIVO said about AZ/MedImmune at the time by clicking here and scrolling down to the sidebar (“AZ Spends Big on MedImmune”).

At the PSA meeting, we’ll interview in front of the assembly the man who engineered this remarkable deal—MedImmune’s CEO David Mott, who is now going to run AZ’s combined biotech efforts. And we’ll ask him what appetites at Big Pharma drove that astonishing price —since the auction he ran allowed him peeks at a variety of companies and their challenges.

By and large, our polltakers (a mix of heads of Big Pharma R&D and business development organizations, a few biotech CEOs, a couple of bankers, and a handful of VCs) figure the deal’s real driver was product panic.

One typical comment came from a Big Pharma R&D chief: “The deal shows the magnitude of the desperation of the pharmaceutical industry, and how badly things are going right now.” Or from a Big Pharma’s head of business development: the deal’s price “illustrates the general paucity of pipelines in many major companies. Over time I believe this is a value destruction deal and if replicated too often will lead to trouble.”

But the price also reflected, said our respondents, the capability AZ badly wants – large molecules and specifically antibodies. Relatively representative was the comment of one biotech CEO (whose company is pursuing small molecules). The price, he said, represented the fact that “biologics are likely to represent 30% of any Big Pharma’s future product portfolio and that they have to get in the game now, not via this or that product but, rather, by acquiring a soups-to-nuts biologics capability.”

Later this week, we’ll detail some of the other deals selected by our respondents -- every single one analyzed at the PSA meeting by the executive responsible for it.

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While You Were at the Beer Festival

A friend of IN VIVO Blog reads his GBBF-approved magazine

Massive beer festivals and keeping up with the weekend's news don't necessarily mix, but damnit we'll do our best.

• Glass half-full ... The Boston Globe is reporting this morning that FoldRx, a biotech specializing in molecular chaperones that can return misfolded proteins to their correct shapes, will receive a serious chunk of change from the Cystic Fibrosis Foundation. The $22 million grant will be paid out over five years, says the Globe (Our most recent feature on venture philanthropy can be found here.)
• Glass half-empty ... Cost cutting: not just for Big Pharma. Amgen isn't saying what the cuts will look like, but the big biotech said in a regulatory filing on Friday that hits to its ESA franchise will result in a fresh look at its cost structure.
• Through the Looking Glass ... we've ignored this blog-friendly story so far if only because we don't have much to add beyond "eeesh." But for a roundup of the Johnson & Johnson-sues-the-Red Cross kerfuffle, and the various guffaws and high-horsing around the web, see the never-subtle Pharma Marketing Blog.
• What's in your glass? Finally, some tasting notes from the Great British Beer Festival for any ale aficionados out there ...

As you can see from the picture above we spent some time camped out in front of the Caledonian and Sharps booths, mostly because these breweries rarely disappoint. The XPA and Deuchars IPA were outstanding as usual, and the mysterious Rebus 20 was also quite good. Sharps' Atlantic IPA was delicious and we also liked their Cornish Coaster. No surprises there.

What did surprise us a bit were the higher-than-the-pub prices for some beers at the festival (3 quid per pint was not uncommon), and the fact that we 'discovered' only a few new ales that were top-notch. (That said, we couldn't try all 450. Maybe next year.)

Can't wait to try again: Jennings Cocker Hoop from Marston's and Caledonian's XPA.

Give it a miss: A Fist Full of Hops from Falstaff and Bullmastiff South's Welsh Gold.

If you were at the festival or just have a favorite ale to tell us about, lets hear it in the comments...

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Are These Large-Molecule Twins Identical? The Biosimilars Paradox

Biosimilars may offer the promise of cheaper drugs, wider access and a panacea for over-stretched health care budgets, but they’re off to a mighty slow start.

So says Sandoz, makers of growth hormone Omnitrope, the first biosimilar drug approved in Europe and the only one available on both sides of the Atlantic. Number two epoitin alfa (equivalent to Epogen or Procrit) is expected to receive a green light from the European Commission in September and may be available by year-end.

But despite Europe's pioneering regulatory pathway for biosimilars, and reluctant grunts of acceptance from originator companies, most of which have realized that it’s pointless and counterproductive to keep resisting the biosimilar movement, the going’s tough, according to Ajaz Hussain, Sandoz’s VP and Global Head of Biopharmaceutical Development.

One might expect a drug that sells at a 20-30% discount—he did confirm this much--to fly off the shelves, given all the fuss around Amgen’s monopoly over EPO supply (and questionable bundling tactics) and the noise that most European governments and US payors are making about drug costs. But education and perception are blocking widespread uptake, as we and many others predicted they might.

“It will take time for physicians to fully understand what biosimilars are and how they fit in to the treatment options,” Hussain acknowledges. Reading between the lines: we’re not selling very much, yet (the company won’t say how much) but we reckon we will.

The slight paradox here: Sandoz reckons it needs more competition to help it drive wider acceptance and trust of biosimilars among prescribers, but not too much so as to render the economics of the game impossible. “It will take several products, and several companies to promote wider uptake of biosimilars,” he says.

But already, issues like manufacturing and the trial requirements make biosimilars a very different economic prospect to small molecules. (Genzyme’s issues with Myozyme, outlined in this WSJ piece, illustrate how even the innovators can’t always get manufacturing right.)

Biosimilars will nevertheless happen, assures Hussain (and it would be patients’ loss if they didn’t). By 2010, $18 billion’s worth of today’s biologics will be off-patent, and by then half of all products on the market will be biologicals, given the proportion of the R&D pipeline they currently account for.

Even with a few lingering perception issues, a potential $18 billion is a lot to share around among what may be just a handful of players. As for innovator’s follow-on efforts: that’s a significant competitive tool for originator firms, admits Hussain. “But the cycle will continue,” he adds. “We’ll copy them, too.”

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The Return of Lord Kesslermort

Where am I going with this, you ask? Well, he's been in hiding for years and all of a sudden there are ominous signs of him everywhere. While he doesn't literally carry the Dark Mark, he may as well from the drug industry's perspective (note: if you are not getting these Harry Potter references, my apologies, but I just finished the last book.)

I'm talking about former FDA Commissioner David Kessler, who served as head of the agency from 1990, under Bush I, to 1997, when he was succeded by Jane Henney in the twilight years of the Clinton I Administration. Kessler is arguably the most controversial commissioner in recent times for the way he took on drug companies, Big Tobacco and even orange juice producers. His pursuit of having FDA regulate tobacco products resulted in the FDA vs. Brown & Williamson Tobacco Co. case, which the agency lost.

In 1996, with the voices opposing him growing louder and louder, Kessler announced he was stepping down, and subsequently took a position as Dean of Yale Medical School in 1997. In September 2003, Kessler was appointed Dean of the University of California, San Francisco School of Medicine. Now 56, Kessler has reemerged from his quiet life as an academic and has been very vocal in the wake of criticisms against the FDA.

Kessler participated in a roundtable discussion of former FDA commissioners organized by the George Washington University School of Public Health on February 21st. Here's a few things he had to say:

On PDUFA:"We are willing to continue to support PDUFA...But if PDUFA is a negotiation with the regulated industry, I don't think that is going to be trusted," Kessler said at the GW panel discussion.

On FDA leadership stability: "You can’t have a commissioner every 18 months. You can’t run an agency if a commissioner is there for such a short period of time."

On personalized medicine: "The model that pharmaceutical development is based on is not a sustainable model. The notion that there are going to be drugs that we are going to be able to come up with and have millions and millions of people take safely—the blockbuster—that is the thing that has gotten us in this trouble."

After the GW panel, Kessler showed up a few months later at a May 7 House Oversight & Government Reform hearing on food safety. "Simply put, our food safety system is broken," Kessler testified at the hearing.

This quote, however, is what really grabbed my attention. In a great article by one of my favorite writers, Geeta Anand in the Wall Street Journal, Kessler says it's time to get novel, potentially life-saving therapies to market even faster than is currently being done. "We have to find creative ways of getting cancer drugs to patients even if we end up being wrong a few times,"Kessler said in the piece. Anand highlights the birth of the accelerated approval process under Kessler's watch. And despite his "anti-industry" reputation, he's the one that made the user-fee system work.

This seems to be an attempt by Kessler to remind the drug industry, "Hey, I'm for accelerating drug approvals." In my humble opinion, it appears that Kessler's recent high profile means he's angling for something, but what? When it comes to the FDA, it's a case of "been there, done that" for Kessler. CMS Administrator? I don't think so. In his stints at Yale and UCSF, he's worked jointly with their respective hospitals and health systems and he has an Advanced Professional Certificate in Management from New York University Graduate School of Business. But I don't think that's his cup of tea. It's more difficult to have a broad brush-stroke impact on healthcare at CMS compared to other agencies in the government.

That leaves two positions: director of the National Institutes of Health with its enormous budget or Secretary for Health & Human Services. I think Kessler would be a perfect fit for the former in a Democratic administration. He's an academic at heart and has led very large academic research institutions/budgets. But I think he wants the latter, where he could lead the public health agenda and finish off his crusade against tobacco which he started over a decade ago.

He's got ties to the Clintons, should Hillary Clinton win the election. However, she may want to distance herself from such a lightning rod as she seeks to stay in the political center. Kessler also has ties to Illinois, receiving his law degree from the University of Chicago in 1978. I'm not sure how much that would help him if Barack Obama were elected President. If a Republican takes the White House for a third consecutive term, I think it's back to the quiet of academia for Kessler.

Nevertheless, drug industry watchers should stay vigilant for anymore signs that He-Who-Must-Not-Be-Named will return.

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Another Co-Promote Bites the Dust

When Merck and partner Neuromed yesterday pulled the plug on Phase II chronic pain treatment NMED-160/MK-6721, another co-promote bit the dust, too.

More proof, then, that most co-promote options built into today’s biotech-pharma licensing deals are just window-dressing—comfort cushions for biotech investors dreaming of drug revenues and spec pharma success. Earlier this year we laid out in IN VIVO some of the reasons why fewer than 10% of co-promotes actually turn into market-place reality.

That statistic reassures the Big Pharma partner—most of which hate the thought of sharing their commercial spoils with inexperienced biotech, even if some of them say otherwise. But the main reason co-promote promises don’t often become reality is product discontinuation, as in this case, which helps no-one.

Luckily for Neuromed, the aborted program, an N-type calcium channel blocker, wasn’t its lead. Not since April 2007 anyway, when the biotech licensed US rights to a Phase III extended-release opioid analgesic OROS Hydromorphone from Johnson & Johnson’s Alza.

This deal means Neuromed may yet fulfil its dream, shared with most other biotechs, of setting up its own specialist sales force. And Neuromed may yet get to co-promote products with Merck, since the 2006 deal granted the biotech the option to co-promote to US specialists any N-type calcium channel blockers emerging from the collaboration—and the partners say they’ll keep looking for others.

But with NMED-160/MK-6721 gone, at least in pain, Neuromed will miss out on at least $202 million in milestones, and possibly more. It also paid $30 million up front for OROS. That product had better make it onto the US market (it's approved in Europe, but still not in the US, seven years after an approvable letter ). Otherwise private Neuromed may be in danger of biting the dust, too.

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FDA and Drug Safety: It Keeps Getting Worse

How bad is the drug safety climate? Just ask GlaxoSmithKline.

Sure, last Monday was a rough day—nothing like having two FDA officials tell an advisory committee that one of your biggest products ought to be pulled—but we’re not talking about Avandia today.

No, today we are talking about the product formerly known as Trexima, a fixed-dose combination of the GSK’s migraine drug sumatriptan (Imitrex) and the nonsteroidal anti-inflammatory drug naproxen. GSK is developing the combo in partnership with Pozen. On July 31, the Food & Drug Administration issued a second “approvable” letter for Trexima, saying that it is still not convinced the combination is safe enough for marketing. (FDA has already told the companies that it will not approve the Trexima brand name, but the firms are still using it until they settle on a new one.)

In particular, Pozen says, FDA is concerned about a positive genotoxicity test. The agency apparently wants the company to conduct a relatively simple human study to provide reassurance that it is a false signal. This comes after FDA previously declined to approve Trexima because of concerns about the cardiovascular safety profile of the combination.

Keep in mind that this pill combines two ingredients that have been used together countless times in the 15 years that Imitrex has been on the market. If there really is a safety problem here, FDA probably should be doing more than just sending an “approvable” letter to Pozen.

To be fair, Imitrex has well known cardiovascular risks, and naproxen’s cardiovascular safety profile became an issue in the context of the cox-2 inhibitor safety brouhaha. So you can understand why FDA asked for more data. Now, Pozen says, the agency is satisfied on that front (thanks in part to GSK’s willingness to do a post-marketing study on the blood pressure effects of the combo). But the drug is still on hold.

Welcome to the world of new drug reviews in 2007. Trexima is just the latest indication that this may be the worst time ever to try to get a new drug through FDA.

There should be good news soon. Congress is on the verge of enacting historic drug safety legislation—at least, Congress says it will after August vacation. The bill will put new burdens on manufacturers to be sure, but it will also allow Congress to declare the drug safety problem to be fixed. That may lead to increased confidence in FDA as a regulator—and maybe increased confidence within FDA itself to allow the agency to approve drugs even if they do have a safety signal.

SHAMELESS SELF-PROMOTION ALERT: The RPM Report and Ropes & Gray will host a webinar on Aug. 14 to discuss the impact of the pending FDA bill. Two experts from Ropes & Gray’s legal practice will dissect the key provisions of the legislation, and the editors of The RPM Report will tease out the business implications of the law. Registration information is available here.

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Insight + Preparation + Dumb Luck = Blockbuster

This blog has spilt plenty of bytes on the nasty consequences for GlaxoSmithKline, and for the industry, of the Avandia problem – but we haven’t said much about who’s likely to benefit. That part of the story we left to The RPM Report – and you can see that analysis here.

As Kate Rawson notes in that story, the two biggest big beneficiaries are Merck’s Januvia – the only DPP4 inhibitor on the market—and Amylin/Lilly’s Byetta. But Januvia is in many ways a more interesting business case study – and one we’ll talk about in a public fireside chat with Merck CEO Dick Clark at Windhover’s annual shindig in New York for the industry’s top business development executives, Pharmaceutical Strategic Alliances.

Clark -- pictured right -- ain't exactly the pin-up CEO. He's a manufacturing guy, from the blue-collar neighborhood of the drug industry. But he's managed a turnaround at the otherwise very white-collar Merck of impressive proportions, this being the company, that not so long ago, looked like a cartoon Gulliver hogtied by thousands of litigious Lilliputions.

And as Clark and I will discuss at the PSA meeting, much of that success is due to Januvia, the product of a nearly perfect blend of scientific insight and strategy, management skill and dumb luck.

Trailing Novartis by four years, Merck’s DPP4 team not only built a molecule that avoided one of the receptor subtypes hit by Novartis’ compound, Galvus, they managed to convince the FDA – although no one is saying so, publicly – that by doing so they’d made a safer drug. Thus Januvia never got hit with the FDA scrutiny Galvus did – and ended up with a safety label so compelling (a side-effect profile comparable to placebo) that this once-a-day pill, noted one diabetologist, has become “the first truly simple-minded therapy in diabetes.”

And probably the fastest beginning-to-end development program for any first-in-class primary-care drug in recent memory (seven years from discovery initiation to approval). Indeed, Clark and research chief Peter Kim had decided – given the company’s thin late-stage pipeline -- that Januvia was one of two drugs (the other was Gardasil, the cervical-cancer vaccine) absolutely crucial to Merck’s recovery from its disaster with Vioxx.

And so Clark created a multi-disciplinary task force around the compound, with its boss reporting directly to him. Bureaucratic hurdles fell away. And the launch was as nearly perfect as a major primary-care launch can be – five months after launch, the drug had captured a greater share of attention (nearly 40%) than nearly any of the recent successful primary-care launches. And it’s now on target for what analysts think could be $775 million in first-year sales.

(We should mention that Clark did the same thing – another multi-disciplinary task force reporting directly to him -- with Gardasil – on track for $1.5 billion in worldwide full first-year sales.)

And then there’s dumb luck. Januvia has been the extraordinary beneficiary of the misfortune of others--the Galvus approval delay, in the first place, and now Avandia. Merck therefore took 100% of the profit from the excitement Novartis helped generate around the arrival of a brand-new anti-diabetic class—but none of the negatives of Galvus’ apparent side-effects. Likewise, it’s taking the lion’s share of Avandia’s lost prescriptions.

And all of this despite the fact that Januvia ain’t that great a drug. Good as an add on. But not particularly powerful in itself. Instead, Januvia is the perfect drug for our era, when safety—particularly mixed with extreme simplicity--sells far better than efficacy alone.

The PSA conference will be a good time to question Clark on just how much a CEO matters in creating a blockbuster. We forecast his answer this way: some -- but dumb luck sure helps.

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