Why Big Pharma Should Vote Democratic

This Super Tuesday, pharmaceutical CEOs should ask themselves one question before they decide which way they will vote in 2008 if they are indeed single-issue voters:

Are you in favor of an expansion of the government subsidy to almost 50 million Americans to buy your products or would you prefer a drastic curtailing of the government subsidy under the popular Medicare Part D drug benefit?

If you’re in favor of the former, you should punch the Democratic ticket in November. If the latter is your desired outcome, then hop on the McCain Straight Talk Express.

The prospect of a Democratic administration with a Democratic-controlled House and a split Senate has a number of drug industry stakeholders nervous about the next four years. After all, the centerpieces of Senators Hillary Clinton’s (NY) and Barack Obama’s (IL) domestic policy agendas are universal health care proposals. And when Big Pharma hears “universal health care” it tends to be synonymous with national, government-run, single-payor system aka price controls.

But here’s something Big Pharma should keep in mind: neither Clinton nor Obama are proposing a single-formulary system. What they are proposing, though, is providing health care coverage for the 47 million and counting Americans without it.

In case you missed it, here was my first take on the Clinton and Obama health care proposals. Clinton has explicitly stated that buying coverage would be mandatory under her plan; Obama says he will wait to analyze affordability of a coverage proposal before mandating that individuals buy insurance.

“This should not be scary,” Clinton senior health policy advisor Chris Jennings told Wall Street investors at the Stanford Group health care conference in January. “This should be viewed as an incredible opportunity.” Obama health advisor Gregg Bloche echoed Jennings’ remarks at the meeting saying, “companies that innovate are going to thrive in the environment under the Democratic plans.”

There’s little doubt that under a universal, government-administered coverage system, there will be downward pressure on pricing, whether it’s through market competition or government “tinkering.” But Jennings and Bloche say whatever drug companies give up in margin, they’ll more than make up for in a jump in market share.

It would be hard to argue that the drug industry hasn’t reaped a windfall from providing roughly 40 million seniors with drug coverage under the Part D program. A universal coverage program would roughly double the number of Americans receiving some form of a drug benefit who previously were not.

Some senior company executives clearly see the advantages of working together with Democrats—should they win the White House—on health reforms. “It is really going to take a bipartisan view to be able to accomplish [universal health care],” Merck CEO Richard Clark said during the Morgan Stanley Pharmaceutical CEOs Unplugged conference in January. “I hope we are able to provide some recommendations, particularly around the uninsured and how that should be solved, just as we provided recommendations around Medicare” and the creation of the prescription drug benefit.

Eli Lilly SVP for corporate affairs and communications Alex Azar is urging the biopharmaceutical leadership to rally around a united position that preserves core industry business principles under more direct involvement by the government in health care. “We have to show that we’re willing to engage and to propose constructive alternatives,” the former HHS deputy secretary told attendees at The RPM Report’s FDA/CMS Summit in December. “Our industry brings some credibility to this discussion.”

For the most part, Republicans are looking at incremental improvements in health care that go hand-in-hand with the free-market principles underlying Part D ie. competitive insurance plans and allowing individuals to cross state lines to buy insurance from different providers if they don’t like the deal they’re getting locally.

Not too scary.

But under a Republican administration, the odds of a Medicare reform bill would be a near-certainty as the government looks for savings to fix the looming physician reimbursement cuts. In that climate, drug prices under Part D would be a tempting target for savings.

Moreover, the presumptive Republican nominee, Senator John McCain (AZ) does not look eager to become best friends with the pharmaceutical industry. During a New Hampshire debate before the primary in January, for example, McCain cast the industry in a not-so-flattering light while discussing why Americans can’t import drug from Canada. Former Massachusetts Governor and Presidential candidate Mitt Romney jumped in, “Don't turn the pharmaceutical companies into the big bad guys.” McCain responded: “They are.”

The drug industry is clearly reading the bi-partisan tea leaves. The pharmaceutical industry has given $4.6 million to Democrats thus far in 2008 compared to $4.5 million for Republicans, a 51-49 split, according to the Center for Responsive Politics. During the last election cycle in 2006, donations to Democrats totaled $6.1 million compared to $13.2 million, a 31% to 67% difference (independent donations make up the remaining 2%). The last Presidential election in 2004 saw the pharmaceutical industry give two-thirds of their donations to Republicans ($12 million) compared to one-third ($6.1 million) to Democrats.

You get the picture.

For all of the undecided In Vivo Blog readers, maybe the HealthCentral.com political PoliGraph will help you choose where you stand. Try it, it’s fun.

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The Wacky World of Generics: Protonix Edition

Here is a headscratcher.

Wyeth decided January 30 to launch an authorized generic version of its blockbuster proton pump inhibitor pantoprazole (Protonix). The launch comes a month after generic manufacturer Teva shocked Wyeth by launching its own version at risk. Teva quickly halted shipments under a standstill agreement with Wyeth, and the company's investors assumed (prayed?) that a settlement would follow.

Apparently not. Wyeth decided to launch its own generic under a license to Prasco (more on them later). The announcement came the day before the standstill agreement with Teva was set to expire.

Wyeth's announcement was followed by a generic launch from a third company, Sun Pharmaceuticals, which under the complex rules governing these things shares six-months of generic exclusivity with Teva. Sun had not launched previously, presumably since it feared the potential for steep damages should it eventually lose the underlying patent litigation.

However, with two prior launches (Teva's in December and Wyeth/Prasco's the day before), Sun decided to take the chance.

And then Teva announced that it has no plans to relaunch its own.

Huh?

Did Wyeth really just finish off its biggest brand in response to a non-existent threat that Teva would re-enter the market for good? And why on earth is Teva sitting back and watching one of the biggest generic opportunities in history wither away?

Welcome to the wacky world of generics.

Believe it or not, there is a way in which this bizarre series of circumstances might make sense for all the players involved.

Bernstein Research's Ronny Gal and Tim Anderson suggested one possibility in a note sent Friday. Teva's decision not to launch reflects the fact that it already has significant inventory in the trade, so it has nothing to gain from contributing to a price war that would affect the selling price it can realize on the product already in distribution. And, by waiting until after Sun enters the market this time, Teva further minimizes the potential size of any damages it might owe down the road if it loses the underlying case.

If that is the case, expect Teva to launch sometime in the next quarter or so, once trade inventories of its product are depleted and it can come in at a new, more deeply discounted price.

There is another option, the Bernstein analysts say: that Teva gambled and lost. The at-risk launch was a bad gamble by Teva, intended to extort a settlement from Wyeth in litigation the generic company believes it will lose. In that case, Wyeth is calling Teva's bluff and will ultimately prevail in court, recouping at least some of its losses on the generic.

In theory, Teva could be on the hook for treble damages. However, because Wyeth has already lost a preliminary injunction ruling in the case, it is extremely unlikely that it would be awarded any damages above the actual losses incurred to Teva's product.

Bernstein believes Wyeth is pursuing the right course in either case: it is impossible to put the genie back in the bottle now that Teva's product is in distribution, and an authorized generic launch helps Wyeth hold on to a bigger share of pantoprozole revenues for longer. If the company wins the litigation and gets a bit more money back, so much the better.

The big winners in all this, however, are not the battling companies. Instead, they are the payors who will probably reap the biggest benefit, as generic competition in the PPI class intensifies. With Protonix once a $2.5 billion brand, there is plenty of savings to be had. But the opportunity is even bigger since it is sure to increase pressure on AstraZeneca to further discount esomeprazole (Nexium).

In fact, that pressure may already be showing. AZ reported last week that Nexium experienced a net price decline of about 8% in the US last year--but that came almost entirely in the fourth quarter. The company said US sales of the brand fell 18% in the last three months of the year, despite about a 2% increase in volume. Yes, its discounts really are that deep and getting deeper.

Oh, and then there is Prasco. In case you've never heard of them, they are a relatively new start-up (formed in 2002) by former Duramed CEO Thomas Arington to focus on--you guessed it--authorized generics. Duramed, incidentally, once took on Wyeth over the course of a decade in an unsuccessful battle to market a generic version of conjugated estrogens (Premarin).

If you can't beat 'em, join 'em.

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Perlmutter: We're Not Abandoning Japan

Signing over Japanese rights to 13 development assets and selling the Japanese subsidiary doesn’t mean Amgen is abandoning Japan, insisted Roger Perlmutter, EVP R&D, in a phone interview with IN VIVO Blog a few hours after the Big Biotech announced its $300 million up-front double-deal with Takeda (see our post below). “We’re just saying that partnering is the right way for us now."

But Perlmutter acknowledged that most Western firms haven’t exactly sailed into the world’s second-largest market, where local knowledge and relationships still count for a lot. “Japan is a very special market, requiring special expertise. The process of getting into Japan [for a foreign company] takes decades, and requires a large investment.”

The money bit’s the problem: Amgen can’t afford large investments, since its annus horribilis in 2007—which may be repeated, possibly even more horribly, in 2008. Indeed, Amgen’s taking a “more strategic look” at its wider international expansion plans, according to Perlmutter. In other words, Japan might not be the only place Amgen pulls back, or partners. “Things we had anticipated we could do…we now can’t do in the same time-frame.”

But at least there are scores of willing collaborators standing by. Takeda apparently won a highly competitive bidding process for the broad alliance announced today—perhaps made more attractive since Amgen hadn’t insisted on any particular structure. “We let potential partners suggest the best way to ally” in Japan, insists Perlmutter. (Given its sellers’ advantage, Amgen would have called the shots, mind you—it has kept a co-promote option in Japan, for instance, should its fortunes change down the line.)

Worldwide rights to Phase III cancer candidate motesanib weren’t originally part of Amgen's Japan proposal--these were being advertised separately. "The compound needed more investment," clarifies Perlmutter--not least, one assumes, to help distinguish this VEGF-targeting multikinase inhibitor from its on-market competitors. Still, Takeda’s interest in that, too, helped it secure the lot: one partner’s easier than two.

Perlmutter isn’t expecting any more multi-molecule, broad ranging deals like this one anytime soon. But the party still isn’t over for those seeking biotech pipeline assets, and who have the money to pay for them. Amgen's currently partnering some of its earlier-stage molecules, too, for which it expects more valuable cash. After all, noted Perlmutter, "not a lot of folk have assets like ours."

And while not a lot of folk face quite the same near-term revenue risks, they aren’t home free, either. Big Pharma will see products with $73 billion worth of US sales lose patent protection by 2012. Which means that the kind of out-licensing and risk sharing Amgen is now doing is likely to be increasingly common among other large drug companies, too.

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Amgen Cashes out of Japan; Follows Bristol's Risk Sharing Example

It’s a sign of the times when Amgen starts licensing its drugs to mid-sized Japanese pharma.

Sure, we knew that troubled Amgen, hit by declining sales of EPO drugs and growing competition--including from forthcoming biogenerics--was looking for ways to cut costs. It had already last year declared workforce culls and its intention to partner certain R&D assets.

But this double-deal with Takeda, announced this morning, is still worth a second look. In Part I, Takeda gets Japanese rights to 12 of Amgen’s pipeline assets in exchange for $200 million up front, up to $340 million in development costs—not just for Japanese, but for worldwide development—plus up to $362 million in sales-linked milestones, and royalties. The Japanese firm will also buy Amgen’s Japanese subsidiary for an undisclosed sum.

That regional deal’s interesting enough: Amgen, while touting its wider international expansion outside of the US, is exiting Japan. It wouldn't be the first; other companies have acknowledged that this tough market is best tackled by locals, who’ll pay dearly for access to assets. Amgen's move is also about cutting infrastructure—a trend, and need, that we’ve talked about in the context of Big Pharma’s unwieldy bureaucratic machines (and Amgen, too, is increasingly compared to Big Pharma, as we noted in this IN VIVO feature.)

Part II is the most telling bit of this deal, though. For another $100 million upfront and $175 million in additional success-based milestones, Takeda takes on worldwide rights to Phase III motesanib, a small molecule angiogenesis inhibitor for cancer. It'll pay double-digit royalties on Japan sales, but will also cover 60% of ongoing development expenses outside of Japan, and share profits on a 50-50 basis.

This, in case you hadn't noticed, is Amgen doing risk- and cost-sharing, big time—like Bristol Myers Squibb did via monster deals in early 2007 with AstraZeneca and with Pfizer. Amgen's not only got itself a partner in a market that's now clearly non-core, but has also secured a good chunk of its ex-Japan costs, too, on all 13 molecules.

Amgen didn’t used to do out-licensing, at least, not until a lonely deal with InteKrin last January. Now it knows it has to: it needs the cash to help cushion some of the EPO blow (which may yet get worse following the next ODAC meeting in March) and, with commitments to cut 14% of staff, it doesn’t have the development muscle to deal with its entire pipeline in-house.

Not that motesanib is the crown jewel; far from it. It'll hardly be the first tyrosine kinase inhibitor to market, after all--hence Bear Stearns analyst Mark Schoenebaum's comment that the motesanib terms are particularly good for Amgen, since "we believe that the molecule's future is bleak."

Osteoporosis candidate denosumab is the company’s big hope—some say its only life-line—and Japanese rights to that went to Daiichi Sankyo last year, for what may now appear a rather paltry $20 million up front and $150 million contribution towards global development costs.

But Takeda’s nevertheless doing ok here. Twelve of the 13 Amgen assets are large molecules, granting the Japanese company its own foothold in biologics door, following similar moves by compatriots Astellas and Eisai Co. (along with most Western Big Pharma). Many of those were acquisition-driven, though (read more about the various strategies here).

By effectively signing a regional Japanese deal, Takeda gets to cut its teeth in biologics development alongside experts—albeit paying a price for that privilege—and will likely enjoy the comfort of ex-Japan approvals for some of the compounds before taking on the task itself at home.

And worldwide rights to motesanib—a small molecule—ticks another of the boxes on Takeda’s wish-list: international expansion. All Japanese firms (at least, all the larger ones) are desperate to expand outside their domestic market because of sluggish growth and harsh price cuts. That’s in large part what drove Eisai’s $3.3 billion cash acquisition of US spec pharma MGI Pharma in December 2007—a headline-grabbing transaction that Takeda will have badly wanted to answer to, if not, this time at least, out-do. (Read more about Eisai/MGI here.)

Photo "Pharma Spam Tower" by Flickr user shimown used under a Creative Commons license

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While You Were Eating Chili and Drinking Beer

Sometimes coming up with a headline for our weekend roundup can be difficult. This was not one of those times.

While we went with what we figured was the most universal of Super Sunday experiences, we had choices. Also considered: While You Were Watching It For the Ads, While You Were Giants, While You Were Eli-d, While You Weren't Going Undefeated, While You Were Choking, While You Were Jumping Off the Pats' Bandwagon, While You Were Participating in the Unauthorized Use of Game Footage Without the Express Written Consent of the NFL, and While You Were Praying There Would Be No Tom Petty Wardrobe Malfunction.

Some of us here at the IN VIVO Blog are Eagles fans (no, really, we probably haven't mentioned it before) and so the only suitable Superbowl outcome would have been for both teams to get disqualified somehow. But alas, at least it was a tight game.

Believe it or not there was more than Super Sunday and Super Tuesday prognosticating going on this weekend. Or so we heard.

• Amgen and Takeda inked a broad alliance to develop and commercialize 13 Amgen products in Japan. In a second and related deal, Takeda becomes Amgen's worldwide partner for the Phase II oncology candidate AMG-706 (motesanib). Amgen gets up-front payments of $200 million and $100 million respectively, and a further hundreds of millions in milestones and R&D expense sharing, plus royalties on Japan sales (and worldwide 50/50 profit sharing on motesanib). Takeda is also acquiring Amgen's Japanese subsidiary Amgen KK.
  
• From the Financial Times: a preview of GSK's forthcoming results this week with one key question--can the Big Pharma get FDA approval for Cervarix? We weighed in on this question on Friday.
  
• [Self Promotion Alert] The line-up for our Pharmaceutical Strategic Outlook conference in New York (March 18-20) keeps on getting better.

Photo from Flickr user jwinfred used under a Creative Commons license

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Cervarix: Big Step for FDA; Can GSK Make the Decision Easier?

Citi's Kevin Wilson is out with a comment on Glaxo's pending Cervarix application at FDA that seems right on point to us.

Extrapolating from some forthright comments by a senior official from FDA's vaccine review division on January 30, Wilson surmises that FDA is feeling the pressure of a big decision on the new generation of vaccine adjuvants -- especially those that may act on toll-like receptors to trigger the innate immunity system in the body.

FDA's Office of Vaccine Research & Review deputy director Florence Houn gave a presentation (of her personal views) on January 30 (see here). She noted concern that the agency does not fully understand the mechanism of action of adjuvants which enhance immune response. And she noted pointedly that the products will get used on broad populations.

The wide array of adjuvants under development for use in vaccines -- to improve the protective qualities of the products, to permit the use of lower doses of antigens, and to confer proprietary positions on the product sponsors -- represent a major step for the industry and a major risk for regulators. We have been saying that for over a year and a half (see here): adjuvants are a big opportunity, but they require a big decision from FDA.

As the new products with adjuvants approached the market, FDA tried to assuage concerns that there might be unusual regulatory burdens by saying that the current system for reviewing new products was adaptable to applications of products with adjuvants.

Now that the regulators face the prospect of having to make a decision on products that could go into wide use rapidly following commercial approval, the agency may be having second thoughts. Cervarix, after all, is headed into a big market, especially if GSK tries to compete strongly head up against Merck and Gardasil.

National Institute of Allergies and Infectious Diseases head Tony Fauci is generally an advocate for the new adjuvants. His institute has been aggressively funding work on adjuvants for the flu vaccines as well as other products. Even he, however, recognizes the pressure on FDA with the first approval of a product with an new adjuvant.

Fauci has said publicly that he understands why FDA would get cautious as the final decisions approach. He told an Institute of Medicine session on drug development at the end of 2007 that he recognized why FDA would want to examine these first applications carefully.

FDA's Houn spent a good part of her presentation pointing out that the agency is getting more interested in risk management programs for vaccines as well as drugs. She noted that the Acambis smallpox vaccine carries a full RiskMAP program--even though the product will be used primarily in the very controlled military patient population.

Reading further between the lines of Houn's speech, maybe risk management plans offer the way out for sponsors of the new adjuvant products.

Sponsors could relieve some of the pressure facing the agency by agreeing to programs to track the products broadly in the post-market arena. That is costly, but it may be one way to break what appears to be a developing log-jam over the new generation of vaccines.

This looks like a landmark decision for FDA, not an impasse. It will be interesting to see what GSK does to smooth the process.

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Deals of the Week: Deal--or No Deal

The debate over Vytorin's medical benefits and, by extension, the utility of all cholesterol meds, continues to rage. Meantime, the Zyprexa marketing scandal reared its head: new this week, the NY Times reports Lilly is in talks with federal prosecutors to settle investigations into its marketing of the antipsychotic. If an agreement is reached, it could cost the pharma $1 billion, the largest fine ever paid by a drugmaker for breaking federal laws governing a medicine's promotion.

And, it was earnings week, with fourth quarter reports from Wyeth (up, but flat forecast for '08 due to generic Protonix), AZ (down), BMS (down, and WSJ's Health Blog highlights concerns that this big pharma may be affected by the sub-prime mess), Novo Nordisk (down, but did beat analysts' expectations sending the stock up), and Merck (down, thanks to Vioxx settlements) among others.

All in all, a crazy week, but not necessarily on the deal-making front. That's prompted this IN VIVO blogger to ponder the deals that happened--and those that did not. Without further ado, the Deal or No Deal edition.

First, a look at the actual deals that got done...

Inverness/Matria: On Monday Inverness announced its third major acquisition in the health management space, buying Georgia-based Matria for $900 million and the assumption of $280 million in debt. Definitely the big money deal of the week, though Wall Street reacted negatively to the news. Inverness continues to build through acquisition: the Matria deal is its twelfth in the past 12 months. (For more on Inverness's acquisition strategy, click here.) The company's recent emphasis on health management suggests another trend we've been following: the expansion of the diagnostic business model to include services not exclusively related to in vitro tests or reagents. Such business activity has muddied the waters stretching the definition of what it means to be a diagnostic company.

Sepracor/Nycomed: A few weeks ago when Nycomed got FDA approval for its inhaled corticosteroid ciclesonide we figured Sanofi-aventis, the original partner of Altana (bought by Nycomed in '06), still had US rights to the drug--we hadn't heard otherwise, after all. So we were a little surprised on Monday when Sepracor picked up rights to the drug (Alvesco) for $150 million upfront plus various development and sales milestones. Nycomed will also receive payments for manufacturing and royalties on sales. Alvesco's route to the US market has been chock-full of speed bumps. Way back in 2002 Altana suggested the drug might be approved in 2003, but an NDA wasn't filed until December 2003. Altana and Aventis received an approvable letter in October 2004 and the drug was launched in 2005 in Europe.

Iroko Pharmaceuticals/ Merck: Specialty pharma Iroko inked a deal with Merck for non-US commercial rights to Aggrastat, a drug used alongside heparin in patients with unstable angina to prevent cardiac ischemic events. Financial terms of the deal were not disclosed. This is the third product Merck has out-licensed to Iroko and the second in the beleaguered cardiovascular space. Last spring the company acquired rights to Indocin, for rheumatoid arthritis, and Aldomet, a hypertension treatment, from the big pharma. As we reported here, the independent futures of many spec pharmas are in question, as product-poor pharmas gobble them up in hopes of fattening their pipelines. Still, primary care remains a popular space for many, especially as big pharma eschews risky products in the cardiovascular and metabolic disease space.

(Clearly someone forgot the briefcase models.)

BiogenIdec/Genmab: Perhaps we should say "No deal, yet." This week BiogenIdec was once again in the news thanks to manueuvers by Carl Icahn to install three supporters onto the company's board. Also swirling in the ether, rumors that BiogenIdec intends to buy Genmab. Certainly, such a deal would scupper any attempts by Icahn to sell the company to another entity. Adding Genmab's pipeline would go a long way to securing an independent future for the Cambridge, MA-based biotech. But such a deal won't come cheap. In part, because it seems likely that GSK might up the ante. The British pharma, after all, has three partnerships with Genmab, including a very rich co-development, co-promotion deal for the biotech's HuMax-CD20, an antibody to treat cancer and rheumatoid arthritis. Until now, GSK's had no real reason to bring Genmab in-house--it's already got rights to the antibody cow's milk, after all. But it may not be willing to stomach the risk associated with a change in Genmab ownership, deciding its worth the hefty price tag to nail down its rights to its partnered products.

Lilly/Gastrotech: Deal or No Deal? Here's an odd one for you. On Jan 28, Denmark’s Gastrotech Pharma announced it was in-licensing Lilly’s GLP-1 analog GTP 010 for IBS and functional dyspepsia. That’s a deal, not a non-deal, surely? Well, depends on how you look at it. Simply turn it over and you get….a non-opt-in by Lilly.

Lilly and Gastrotech had been collaborating on GTP 010 since 2004, when Gastrotech took over Phase II trials of this Lilly compound in IBS and dyspepsia (in part thanks to the biotech’s ownership of some use patents for GLP-1 analogs in IBS, according to chairman Hans Schambye, though no, that wasn’t mentioned in the release).

That—four years ago--was arguably the real licensing deal. And that was also when Lilly received an option to later take over development and commercialization of the compound in return for milestones and royalties.

This week's news is that Lilly didn’t take that option, which means Gastrotech gets to keep the compound, instead, paying Lilly royalties. “Sure,” Schambye acknowledged to IN VIVO Blog, “you could look at it both ways. Either party could have licensed the drug.”

See? Hmm, exactly. Now ok, we know that small biotechs need all the positive spin they can get, but we're getting pretty close to "Press Release of the Week" territory here. Perhaps Gastrotech will do something big with 010, who knows (Lilly did take an equity stake). But please, a bit of clarity and objectivity wouldn’t go amiss.

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