Deals Of The Week: The ASCO Edition

ASCO is just moving into full swing, but already the press releases are flying fast and furious. Biotechs have long looked to this meeting as a means to showcase their smarts and increase their profile with public investors. But as big pharmas have set their sights on oncology as the therapeutic area of choice -- given its high unmet medical need and, historically, generous reimbursement, there's no doubt ASCO is now a critical meeting for even the biggest players in the industry.

Like last year, the particular tumor type driving a lot of investor interest at this year's Chicago confab is melanoma. Since presenting robust Phase III data at ASCO 2010 showing a survival benefit for Yervoy, Bristol-Myers Squibb has gone on to win rapid approval for its CTLA-4 inhibitor. This year, investors and clinicians will be watching for new data measuring Yervoy efficacy in pretreated melanoma patients; they'll also be monitoring the data associated with Plexxikon/Roche's vemurafenib, which is pending FDA approval for use in patients with the BRAF V600 mutation, a specific genetic abnormality observed in about 50% of melanoma patients.

As "The Pink Sheet" Daily notes, it's not entirely clear how the melanoma market will shake out when both products are finally on the market. They may be competitors, but given their different modes of action -- Yervoy stimulates the immune system, while the Plexx/Roche drug targets only tumor cells that carry the V600 abnormality -- it's equally likely they could act synergistically. Certainly neither drug on its own works in all patients or offers a long-term cure, even if both extend median patient survival in clinical trials.

Thus, the news June 2 that Roche/Plexxikon would find a way to work with BMS to study the two drugs in combination seemed almost a fait accompli. The press releases issued (from three different companies no less) were long on breathless prose and short on detail: the parties will conduct a Phase I/II study evaluating safety and efficacy of the two drugs in combo, but did not provide more clarity on the trial's design, its timing, or its enrollment. "If appropriate, the companies may conduct further development of the combination," Bristol said in its press release.

You will notice there's also no information on the economic sharing that might come from such a clinical collaboration either. That's hardly surprising. We've yet to see much in the way of financial deets for earlier tie-ups in oncology: AstraZeneca's 2009 alliance with Merck to combine development of their respective clinical-stage MEK inhibitor and AKT inhibitor; or Sanofi's December 2010 deal with Merck Serono to marry their Phase I PI3 Kinase- and MEK-targeting molecules.

Despite the increasing complexity of the oncology market, one in which payers are taking a more active role in controlling costs, such cross-collaboration remains the exception rather than the rule. There are plenty of reasons why: issues around control, valuation, and overlap with other non-partnered products mean it can be tough for two large companies to come to agreement on how to share knowledge and find ways to work together.

That BMS and Roche have found a way to do so can only be a smart thing. The reality is organizations like US Oncology, Cardinal's P4 Healthcare, and Via Oncology are going beyond traditional treatment guidelines recommended by the likes of ASCO and the National Comprehensive Cancer Network, working with payers to provide "clinical pathways" that aim to standardize treatment for a specific disease or tumor type. Aimed for now at treating the most costly cancers, these programs, which are still in pilot mode at major players like Aetna, Blue Cross Blue Shield and Highmark, reduce the wide latitude US doctors have historically enjoyed when prescribing oncologics.

The ultimate impact of these pathways on the biopharma industry isn't yet known, but as we write in this IN VIVO feature, their advent has real consequences for how companies should approach drug development. And while it's very early days to be talking about a melanoma pathway, doing clinical trials to show the merit of your drug in conjunction with a competitor, when it's highly likely to see real-world use in such a combination, just makes sense. (We also wonder how this impacts GSK's Phase III melanoma drugs, its MEK1/2 inhibitor and its BRAF protein kinase inhibitor. Can these earlier stages medicines get traction in the current competitive marketplace? GSK certainly hopes so, and has its own combo trials ongoing.)

Will we see more cross-company clinical stage oncology pair-ups in the future? We hope so. Could such alliances be broader and extend beyond on-offs to a ViiV type arrangement? We're doubtful given the deal making complexities and nearly every pharma's desire to be tops in oncology. But as crazy as that idea sounds, it'd be a clear choice for 2011's DOTY.

In the interim, we always have ASCO (if not Paris) and...

Clovis/Pfizer: Attention biopharma trend watchers! We bring you this news flash of another sighting of that rare bird in the wild: the out-licensing. On June 2, Clovis announced it was licensing Pfizer's Phase I/II Poly (ADP-ribose) polymerase (PARP) inhibitor, PF-01367338, for an undisclosed upfront sum. Under the terms of the agreement, Clovis Oncology will take over responsibility for global product development and commercialization, and in addition to paying the u/f, will owe Pfizer additional downstream fees milestones totaling up to $255 million (pending success in the clinic and commercially, of course). Interestingly, as part of the out-licensing, Pfizer Venture Investments is taking an equity stake in the biotech. (So it's a licensing AND a financing in one blow.) Not that Clovis is hurting in the cash department. Recall Clovis, a START-UP A-lister, pulled in one of the biggest Series As EVUH in 2009. PARP inhibition is, of course, a hot topic at ASCO, and a quick search of the pipeline database Inteleos, shows there are more than a dozen drugs in development against this target, including some that are much further along, including Sanofi's iniparib (Phase III, originally developed by BiPar), AstraZeneca's olaparib, and Cephalon's CEP-9722. The press release announcing the news emphasizes '338 is a "potent" PARP inhibitor, so it's a bit curious that Pfizer would give it up unless its trying to walk the talk of jettisoning anything not first-in-class or best-in-class. (But that raises other questions, including what does Clovis see in the compound?). Separately, Clovis also announced this week plans to develop in concert with Roche an in vitro PCR-based companion diagnostic linked to EGFR mutations.--EL

Johnson & Johnson/AVEO: Months after partnering its lead asset tivozanib in a lucrative deal with Astellas, Aveo has extended its network of partners with an early stage deal with Johnson & Johnson's Centocor Ortho Biotech division. The Cambridge, Mass.-based biotech announced the licensing deal for compounds targeting the RON (Recepteur d'Origine Nantais) receptor - believed to play a role in cancer development - for $15 million upfront May 31. Under the deal, Aveo will receive half of the $15 million in an upfront payment and the rest through a separate equity investment that gives J&J a 1.25% stake in the biotech. Given the early-stage nature of the deal, it's not surprising the arrangement is back-end loaded, with Aveo eligible to receive up to $540 million in development, regulatory and commercial milestones. Aveo will also receive tiered, double-digit royalties on sales of any products stemming from the collaboration. Centocor will be responsible for clinical development, manufacturing, commercialization and costs. J&J will also fund some research to be conducted by Aveo to identify biomarkers for patients most likely to respond to treatment with RON-targeted antibodies. "It is about building out a portfolio," said Aveo Chief Business Officer Elan Ezickson of the collaboration in an interview with "The Pink Sheet" DAILY. For J&J, the deal provides access to what could be an important product in oncology, an area of critical importance to the big pharma's overall business success. -- Jessica Merrill

AstraZeneca/Heptares: (Spoiler alert. No oncology refs in this deal.) UK biotech Heptares Therapeutics signed its third Big Pharma agreement in two months this week, this time with AstraZeneca. The two companies have entered into a four-year research collaboration to discover and develop new medicines that target G-protein coupled receptors (GPCRs). AstraZeneca will have worldwide commercial rights to product candidates emerging from the collaboration, with Heptares receiving $6.25 million in unconditional upfront payments plus committed research funding and future milestones. Heptares will also receive royalties on product sales. Research teams drawn from both companies will focus on a number of GPCR targets known to be linked to CNS/pain, cardiovascular/metabolic and inflammatory disorders. The deal brings to more than $13 million the total upfront money that Heptares has received from its pharmaceutical partners this year, which together add an extra 18-20 months to the biotech's cash runway, according to CEO Malcolm Weir. It also represents further validation for the four-year-old company's technology, which helps stabilize GPCR molecules. That AstraZeneca is modality-agnostic in this deal - purporting to seek both small- and large-molecule candidates - reflects the growing importance of the Big Pharma's MedImmune biologics subsidiary within its overall R&D operations.--John Davis
Johnson & Johnson/Diamyd: J&J's Ortho-McNeil-Janssen (OMJP) signed one early stage deal this week -- and called it quits on another. It was barely a year ago when Elisabeth Lindner, then President and CEO of the Swedish diabetes outfit Diamyd, pronounced on a quarterly earnings call that "a new chapter has begun" as a result of the firm's $45 million upfront licensing agreement with OMJP. That chapter closed on June 1, when OMJP returned all rights to the Phase III GAD65, an antigen-based therapeutic vaccine designed to preserve beta cells in type 1 diabetics. A big disappointment to Diamyd and its shareholders, the news can hardly be called surprising. (We're even tempted to say the writing was on the wall.) On May 9, the two companies reported clinical trial data from a European pivotal study, showing GAD65 failed to meet the primary efficacy endpoint of preserving beta cell function in new diagnosed Type 1 diabetics after 15 months of therapy. Although the company noted "a small positive effect was seen", the data weren't good enough to keep OMJP engaged -- and, importantly, willing to shoulder any additional development costs. Recall the 2010 deal stipulated the two partners would share R&D costs until results of the first Phase III study were available, at which time OMJP had the option to assume full development of the drug candidate. It can't be an easy message to give shareholders, but Diamyd's acting president and CEO, Peter Zerhouni (who replaced Lindner after her abrupt departure in late April) did his best to spin the news positively. "With all the rights to returned to us we are free to decide on how to extract the most value from GAD65 going forward," he said. Whether Diamyd can sign a new partner near term is unclear -- a therapeutic vaccine for diabetes is scientifically risky and it's hard to see a lot of interest after the disappointing Phase III study results. (Even Diamyd doesn't seem that interested. In the wake of OMJP's decision it announced it would shelve a planned longer term follow-up of patients in the European trial.) Investors may have more clarity on GAD65's potential partnerability by end of June -- at the upcoming ADA meeting Diamyd will present data on the European trial, presumably providing greater detail about the small positive effect. There's also a Phase III ongoing in the US due to read out in 2012 and two other externally funded studies that may yet result in the vaccine's resurrection.--EL

Deals Of The Week: Outsourcing

Stop the presses! Pfizer has done the unthinkable! The Big Pharma has upended its huge R&D operation!

Reading the headlines and tweets May 26, this blogger anticipated a dramatic pronouncement from Pfizer's head of R&D Mikael Dolsten explaining exactly how the behemoth intended to strengthen its "innovative core." But we were pretty sure Pilates wasn't part of the prescription.

It was just three months ago, after all, that newly installed CEO Ian Read announced sweeping budget cuts to the R&D organization and hinted that certain business units might be ripe for spinning out. But the R&D changes announced Thursday was more ho-hum than a humdinger.

In fact, it wasn't even an R&D shake-up at all. What Pfizer has instead done is winnow its myriad clinical service providers from 17 (!) to 2, moving to a system that is less about buying clinical trials capacity than it is about buying expertise. "We think that expertise can actually help us execute trials more effectively, faster, and with better quality, which will ultimately lower costs," Pfizer's SVP of development operations John Hubbard told "The Pink Sheet" DAILY.

With the looming patent expiration of Lipitor coming in November, there's no doubt Pfizer must cut costs. But it's hardly clear how much Pfizer will actually save via its newly announced preferred provider relationships with Icon and Parexel. It's not as if the drug maker is outsourcing significantly more of its total research and development work to outside organizations after all, a move that would allow for additional job eliminations -- and cost reductions -- in the R&D organization.

According to PSD, Pfizer will increase the percentage of clinical trials work it outsources by only about 10%, with the move really designed to streamline the management of vendors, something Hubbard admits is "complex." Thus, consider this not a revamping of how R&D is done but a consolidation of already outsourced development work into the hands of just a few players. As such, the move sounds a lot like Sanofi's broad 10-year collaboration with Covance. Announced last year, that alliance also met with sweeping headlines but was in reality a more prosaic realignment designed to reduce the complexity of managing development work.

We aren't saying Pfizer's newly announced arrangement isn't noteworthy-- or smart. We're just saying its iterative rather than innovative. (And, maybe, just plain old common sense.)

What's really smart about the set-up is that Pfizer didn't pick just one preferred provider. By signing on two different CROs (can we now call them clinical repair orgs?), the drug maker has created a situation that fosters competition. Financial details of the two new partnerships, which start in June and last until 2016, haven't been disclosed, but Pfizer is apparently keeping a scorecard that benchmarks how well Icon and Parexel each execute on their assigned trials. And as Pfizer gathers data on quality, timeliness -- and perhaps most importantly cost -- that means it can pit the two service providers against each other, potentially further increasing efficiencies. Five years from now, you can imagine CROs jockeying for position to be the next preferred vendor. To merit an alliance, such outfits will be forced to guarantee they can deliver "x" by time "y", and it will only cost "z".

It's a new kind of pay-for-performance arrangement -- and it's definitely a step in the right direction.

But it's far from the sexy R&D shake-up proclaimed in the blogosphere -- and still far from what Pfizer (or any other big pharma, quite frankly) needs to do to solve its moribund R&D productivity problem.

As for the larger changes afoot in Pfizer R&D, it's anybody's guess what model (or what acronym), the drug maker will pursue. We hear CEDDs are out and TAUs and TSUs are the new fashion. (Don't forget OI -- for open innovation -- either. JNJ's promising its externally driven model will yield fruit -- and plenty of products for regulatory approval by 2015.)

Whatever. To be honest, the acronym that most excites us is B-B-Q. Before you quaff your first summer pale ale of the holiday weekend, remember to read...

Elan/Proteostasis: Elan's tie-up this week with Proteostasis replicates last year's mega Celgene/Agios tie-up on a smaller scale. The new deal, potentially worth $50 million to the privately-held Proteostasis, requires Elan to pay $20 million upfront as well as $30 million for R&D expenses over the next five years. In return, the developer of the blockbuster multiple sclerosis drug Tysabri (natalizumab) gets a 24% stake in the U.S. biotech, seats on its board of directors and scientific advisory boards, and the first right to license any neurodegenerative compounds that come out of the collaboration. Yeah, that's right. The privately-held co. has agreed to an option-style deal that gives Elan first dibs on its potentially novel disease-modifying drugs in return for the security of funding. The deal is the first industry collaboration Proteostasis has signed since its splashy debut in 2008: a $45 million Series A financing from high-profile investors, including HealthCare Ventures, Fidelity Biosciences, New Enterprise Associates, Novartis Option Fund, and Genzyme Ventures. (Hmm, wonder what happens to any Novartis options as a result?) The company has stayed under the radar in the interim, using the time and considerable financial backing to build its platform, which is designed to target the biological pathways that regulate the correct folding or placement of proteins within a cell. (For more on protein folding and disease, check out this still-relevant Start-Up feature.) Proteostasis' molecules are still preclinical but the new alliance with Elan could accelerate the biotech's clinical development plans; that's because it marries the biotech's discovery technology with Elan's proprietary animal models, biology, med-chem and clinical development capabilities. --EL

Eli Lilly/BioCritica: Attention biopharma insiders! We interrupt your regularly scheduled programming to bring you news of that rare species observed in the Rx wilderness: the spin-out. On Monday May 23 came news that Eli Lilly was spinning out US development and commercial rights to its commercially underwhelming sepsis drug Xigris to private investors Care Capital and NovaQuest Capital. The new private company, which has been christened BioCritica, will focus initially on the continued development of Xigris but the ultimate goal is to create a portfolio of critical care medicines. To bolster its pipeline, BioCritica has the option to in-license other critical care compounds in preclinical development at Lilly as well as the right to acquire ex-US rights to Xigris. In exchange, Lilly will receive royalties on US sales of the drug and an equity stake in BioCritica. The financial terms of the agreement were not disclosed.The decision to shed Xigris reflects Lilly's effort to focus development resources, according to the company. Though Xigris has been available commercially since 2001, its sales have not met Lilly's or Wall Street's expectations and Lilly has had a spate of expensive late-stage development snafus. BioCritica will continue Lilly's work on identification of the best uses of the controversial treatment, which has serious bleeding side effects and questionable efficacy in the broad sepsis patient population.--Jessica Merrill

Medco/Exagen: Can Medco do for methotrexate in rheumatoid arthritis what it's done for warfarin in the blood thinner market? An interesting alliance announced Monday May 23 between Medco's research institute and the privately-held Exagen Diagnostics shows that it is going to try. Exagen, which has raised a minimal amount of venture money since its 2002 founding, has developed proprietary software to discover and create predictive molecular tests that can aid in disease diagnosis, prognosis, or predict a likely treatment response. One of its tests, Avise PG, helps doctors and patients monitor the effectiveness of low-dose methotrexate therapy in rheumatoid arthritis patients. The oral anti-folate is, of course, decades old --it was first introduced as an oncologic in 1947 and became an important part of the RA armamentarium in the 1980s. And compared to newer TNF-alfa injectables like Humira or Remicade or Simponi the drug is definitely a cost-effective choice for treating the auto-immune disease. The problem is that establishing the right dosing regimen for patients isn't trivial, since individuals metabolize the medicine so differently. (Hmm, methotrexate's profile is starting to sound a lot like another cheap, effective, but difficult to use medicine: warfarin.) And if docs can't get the dosing right in a defined period of time, the default is to move to the costlier biologics. For payers who are increasingly concerned about the cost of specialty products -- and RA is an area of intense interest these days -- new tests that can promote the use of older, cheaper drugs are an obvious solution. But there's got to be data showing the utility. Enter Medco, whose research arm will recruit around 400 patients to participate in a pilot study (called Nimble) gauging the usefulness of Avise in RA patients beginning methotrexate therapy. Docs will send patient blood samples to Exagen's lab, which will conduct the Avise test, and report back on appropriate dosing; outcomes data will be compared to a similar cohort of patients who don't receive the Avise PG test. Why should the drug industry care? Medco's been resurrecting warfarin, conducting a series of observational studies gauging the utility of the medicine plus the genetic test versus newer, pricier drugs like Pradaxa. If the Medco/Exagen team can demonstrate the same utility for methotrexate, it's bad news for newer RA meds, creating a higher bar for adoption with payers.-- EL

Valeant/Sanitas & Watson/Specifar: Need growth? Try a branded generics firm in Central or Eastern Europe. That's the message from a duo of deals this week, both acquisitions by hitherto US-focused firms – and the first of more to come as US growth shrivels up, according to those familiar. Barely a week after Takeda finally confirmed it was forking out €9.6 billion to buy Nycomed, whose attractions also included its strength in CEE and Russia, Canadian specialty pharma Valeant announced it was paying €314 million cash for Lithuania's listed Sanitas, and Watson snapped up Greece's privately-held Specifar for €400 million, plus earn-outs linked to a tablet form of Nexium due to launch in some markets later this year. Europe's ultra-tough pricing and reimbursement environment may make it a graveyard for growth in innovative drugs, but there's plenty of upside in generics, particularly of the branded, specialist kind. The battle for Germany's ratiopharm, ultimately won in March 2010 by Teva, was one of the more high-profile asset-grabs in this field. Valeant had to pay almost four times' sales for Sanitas, a healthy multiple that reflects what was a "dynamic" auction process, according to someone close to the deal. The attraction: for starters, development prowess in dermatology, ophthalmology and hospital injectables (niche, high-margin drugs), formulation expertise, some pipeline, and a portfolio that's 80% non-reimbursed (thus circumventing the government pricing pressures). The deal furthers Valeant's stated goal of doing at least five ex-US deals this year, and follows the February 2011 acquisition of PharmaSwiss, which provided a commercial infrastructure in Eastern Europe. If Sanitas shareholders think they did well, how about Specifar's: Watson appears to have paid over five times 2010 revenues for this group, based in a country whose economy is falling apart and where generic penetration is one of the lowest in Europe. Most of Specifar's revenues come from developing and out-licensing products worldwide, and it’s highly profitable, according to a source involved in the deal. So Watson has paid for a European R&D engine to bolster the sales infrastructure and starter revenue-base it started to establish via its $1.8 billion cash and stock deal in 2009 for Western-European based Arrow. --Melanie Senior

Nestlé/Prometheus Labs: Via its newly formed Nestlé Health Science subsidiary, global food products conglomerate Nestlé SA is buying specialty pharma and diagnostics provider Prometheus Labs as part of its goal of developing personalized nutrition strategies that will help in the management and prevention of chronic health conditions, according to the company’s announcement of the deal. Prometheus, which had been looking to go public, generated revenues of $519 million in 2010 including $316.5 million from the sales of the glucosteroid Entocort EC for Crohn’s disease, which Prometheus licensed from AstraZeneca for the US market in 2004. Prometheus also began distributing Novartis’ cancer drug Proleukin in the US in February 2010, which brought in $64 million. The diagnostic services business, comprising GI tests to differentiate irritable bowel disease (IBD) and Crohn’s from other disorders and oncology services to guide the use of targeted therapies, accounted for $81.3 million for the year, according to an S-1 amendment filed in February 2011. The companies are silent on the deal price, which an analyst cited in a Bloomberg report put at somewhere north of $587 million. Nestlé has also recently added Vitaflo, a maker of nutritional products aimed at individuals with genetic disorders that affect how the body processes food, and CM&D Pharma, which produces IBD, kidney disease, and cancer-related nutritional foods. But unlike those others, the Prometheus acquisition is aimed at the physician market. Nestlé is one of several food and consumer products companies thinking about ways it can leverage its marketing and distribution capabilities to deliver medical diagnostics and personalized medicine. Unilever has engaged the VC firm Physic Ventures to explore opportunities in the area, and for years, Procter & Gamble has maintained a notable presence at personalized medicine meetings. – Mark Ratner

(Image courtesy of flickrer Scott Ingram used with permission through a creative commons license.)

Deals Of The Week: Managing Expectations

Amgen issued its first dividend ever this week, a move that may officially settle the debate over the Thousand Oaks, Calif. firm's status as biotech or pharma.

Either way, it’s ironic that as it finally gave back cash to its investors, Amgen’s share price dropped roughly 4% to close April 21 at $53.69.

Maybe investors didn’t like the idea that Amgen has officially "pharma-fied" itself. More likely, the reaction stems from unmet expectations.

Amgen has a lot of cash in its coffers, about $17 billion, and even with plans to return much of it to shareholders over the next five years, the initial pay out was smaller than hoped for and well below the threshold set by bigger drug makers. (Proof, yet again, that if you want to act like the big boys you have to play by their rules.)

Still, Amgen deserves some credit for trying to assuage investors and still maintain financial discipline. Amgen’s Prolia/Xgeva franchise has launched with mixed success, with osteoporosis sales lagging as oncology sales are off to a stronger-than-expected start. For the drug maker to meet the ambitious goals outlined by CFO Jonathan Peacock in his business day review (see here for more), the company has no choice but to continue to invest in denosumab’s commercialization--especially in the primary care setting. And it's going to take cash to deploy sales reps to educate physicians, patients and payers about the benefits of Prolia over Zometa and generic alternatives.

And with the Epogen franchise on the wane, Amgen also needs to show investors it can move beyond an all-denosumab-all-the-time strategy. Thus, it can’t afford not to invest in its pipeline, which in turn means maintaining a high R&D burn. (Not a popular sentiment in any corner of our industry these days, but especially in the eyes of Valeant’s CEO Michael Pearson.)

In doing the right thing with its new dividend, however, Amgen got slapped on the hand anyway, a useful reminder that success in this business is as much about managing investors’ expectations, when it can take years to deliver positive results. Here at IN VIVO Blog, we have no problem under-promising and over-delivering. (That’s one benefit of being a free publication.) In honor of Earth Day, chocolate rabbits, and egg rolls (not the brown and crispy but the hard boiled variety) we bring you another edition of...

Sanofi-Aventis/Stanford University: At the JP Morgan confab this winter, Sanofi CEO Chris Viehbacher promised his company would do R&D better. If this week’s tie-up between the French pharma and Stanford University’s interdisciplinary Bio-X Center doesn’t convince you that one crucial leg of Sanofi’s R&D plan is partnerships with academia, well, you haven’t been paying attention. In March, the company inked deals with Columbia University (diabetes) and the French Vision Institute (ophthalmology, bien sur), having already allied itself with institutions such as Cal Tech, Harvard, and MIT. The Stanford collaboration hews closely to the other research partnerships in its structure and ambitions, not to mention in the lack of disclosed financials. As we explained in this IN VIVO feature, Sanofi’s view of academia-industry partnerships puts heavy emphasis on aligning with the top minds in a particular field and building mutual trust via joint-steering committees. Under the terms of this most recent collaboration, a funding committee staffed by Stanford and Sanofi researchers will fund up to five programs annually. Sanofi will also host an annual research forum to bring together Sanofi and BIO-x researchers to discuss science, and may even host post-docs at the company. (Stanford also has the option to invite Sanofi scientists to be visiting scholars.) As we note in this 2009 Start-Up feature, such moves are becoming more and more common, as industry players hope to develop stronger relationships with bright scientists in their efforts to amp up the innovation in their pipelines. --EFL

Ariad Pharmaceuticals/ReGenX: Ariad has struck three new licensing deals for its Argent cell-signaling regulation technology to help further fund its internal oncology programs ponatinib, ridaforolimus and AP26113. Through the three agreements, Ariad will receive undisclosed upfront fees, as well as potential milestone and royalty payments. Privately-held, Washington, DC-based ReGenX Biosciences will use Argent as a complimentary tool to its internally developed NAV gene delivery technology, giving the smaller biotech access to technology that increases its ability to control the genetic payload being delivered. The start-up, which was founded in 2009, has proprietary technology that uses recombinant adeno-associated viral vectors to deliver genes to cells. Ariad's alliance with ReGenX also includes an equity stake, so should any of these discoveries bear out, Ariad stands to gain outside the clinical milestone payments and royalties that are standard licensing fare. Bellicum Pharmaceuticals of Houston, TX, meanwhile, is licensing Ariad's technology for its experimental cancer vaccine and cell therapies. Bellicum has used the Argent technology in Phase I/II trials of the BPX-101 DeCIDe immunotherapy and CaspaCIDe DLI. The third agreement was struck with Clontech Laboratories, a Mountain View, CA-based research reagents provider. Clontech has licensed the technology to provide it to researchers worldwide. -- Lisa LaMotta

Baxter/Prism Pharmaceuticals: Specialty pharma Baxter International entered an agreement to buy privately-held Prism Pharmaceuticals April 18, in a deal slated to include a $170 million upfront payment and up to $168 million in potential future milestones tagged to sales of Prism’s FDA-approved anti-arrhythmic drug Nexterone (amiodarone HCl). The two companies expect the transaction to close during this quarter. Prism first obtained FDA approval of Nexterone in December 2008, but waited to commercialize the drug until after gaining approval for a more convenient, intravenous pre-mixed bag formulation. That formulation was approved in November 2010. Baxter said that formulation should offer numerous conveniences to clinicians in the acute care setting. The ready-to-use product requires no admixing, which helps eliminate potential medication errors associated with compounding, and it can be stored for two years at room temperature. Having been selected as contract manufacturer for the premixed IV bags by Prism, Baxter likely brought considerable knowledge of Nexterone to the transaction. Morgan Stanley analyst David Lewis, in an April 18 note, was bullish on the deal, saying it would bolster momentum and is consistent with Baxter’s stated M&A strategy. “Prism is likely a low-risk deal that will leverage Baxter’s strong sales channel in IV injectables,’ he wrote. “We expect to see more deals in the several hundred million dollar range in coming quarters.” -- Joseph Haas

SciClone/NovaMed: On April 18, SciClone Pharmaceuticals announced it was taking out privately-held NovaMed Pharmaceuticals, a Shanghai-based specialty pharma backed by US venture groups. The deal is worth $62 million upfront, with $24.7 million coming in the form of cash, and another $37.1 million in SciClone stock. For NovaMed’s backers, which include Atlas Venture and Fidelity Asia Ventures, the upfront cash alone appears to provide an exit, though barely. Since its founding, NovaMed has raised $18.8 million via two financings, meaning the cash portion of the deal provides a step up of 1.3. (The SciClone stock is a nice sweetener, but it doesn’t provide the liquidity most VCs really want.) The deal also includes earn-outs worth up to $43 million tied to revenue and earnings targets for legacy NovaMed products. If all the milestones are met, we calculate the step up for Atlas and Fidelity increases to a healthy 5.6. The deal significantly broadens SciClone’s commercial footprint in China, increasing its current number of sales reps more than three-fold to 680. NovaMed’s CEO, Mark Lotter, will stay on to manage the commercial team, and SciClone says the group will be structured as an independent entity. In contrast to big pharmas (see below), biotechs have been slower to commercialize their products in China, but the country has been of strategic interest to SciClone for some time. The firm has been selling its flagship immunomodulator Zadaxin in China since 1996 and has two oncology products, DC Bead and Ondansetron RapidFilm, winding through China's regulatory process. -- Josh Berlin and EFL

Pfizer/Shanghai Pharmaceutical Holdings: On April 21, Pfizer and China's second-largest distributor Shanghai Pharmaceutical Holdings announced a memorandum of understanding to explore business opportunities in China, including the potential to jointly register, commercialize and distribute an undisclosed branded Pfizer product. But near-term the value of the memorandum is undoubtedly increased sales potential of Pfizer’s Prevnar 7 vaccine, which is the drug maker’s biggest revenue generator after Lipitor. For Big Pharmas looking to commercialize products in China, distribution alliances with in-country players are one way to rapidly gain market share, even as they add their own “boots on the ground” capabilities. Indeed, such strategies makes sense given China’s highly fragmented health care market and the difficulty penetrating its rural markets. Pfizer and SPH have a long working history already, with the Chinese pharma acting as the multi-national’s largest distributor in this region. Apart from joint commercialization of Pfizer's innovative products, Pfizer and SPH are also exploring a range of future potential collaborations in R&D, manufacturing and other potential areas. -- Dai Jailing

(Image courtesy of flickrer iaintait used with permission through a creative commons license.)

Down On The Pharm: Implications of the Merial/Intervet "No Deal"

Merck and Sanofi-Aventis’ joint decision March 22 to shelve the planned merger of their animal health units may have left the other big pharmas playing in the space acting a bit like … well, chickens with their heads cut off.

Some industry observers may view animal health as -- dare we say it -- small potatoes. But a quick look at 2010 sales growth rates for big pharma animal health units indicates such business is not a poultry (er, paltry) matter.

A little over a year after the two companies revealed they would combine Sanofi’s Merial division with Merck’s Intervet to create a business with over $5 billion in annual sales, the pair decided there are just too many antitrust complications to make the joint venture worthwhile. Originally hoping to complete the merger within 12 months, Sanofi and Merck earlier this year announced it would not be finalized earlier than third-quarter 2011.

Market analysts expected a set of divestitures totaling about $500 million would have been necessary to pull off the deal, with Dow Jones reporting that the combined company’s holdings in poultry vaccines likely would have attracted antitrust scrutiny.

In a joint statement, Merck and Sanofi said each company would retain its current, separate animal health assets and businesses – there is no break-up fee and each company will cover its own expenses for the past year’s due diligence. (Isn't it nice when a planned deal unwinds so easily?)

The two companies were partners in animal health previously, jointly owning Merial, but Sanofi bought out Merck’s share of that business in 2009 as part of the antitrust review that eventually okayed Merck’s merger with Schering-Plough. Intervet was among the assets Merck acquired in that transaction, meaning the New Jersey pharma essentially stepped out of and back into the animal health business simultaneously.

Seven of the 12 publicly traded big pharma companies participate in the animal health business, along with privately held Boehringer Ingelheim. On March 15, Eli Lilly made an undisclosed offer to buy out Johnson & Johnson’s relatively small, Europe-based animal health business. But will Merck and Sanofi’s abandoned deal and the relative parity within big pharma animal health lead to additional M&A or some of the players exiting the space?

Pfizer, which acquired Fort Dodge Animal Health in 2009 as part of its merger with Wyeth, has talked recently of selling off units and focusing more on core businesses under new CEO Ian Read. Might it want to sell off its animal health unit, which generated $3.58 billion in sales, overall a bit more than 5% of the entire Pfizer enterprise, last year?

If so, would Lilly, at roughly two-fifths the size of the world’s biggest pharma company, be both willing and able to absorb Fort Dodge? Likewise, could smaller animal health players Bayer HealthCare and Novartis be looking to grow their divisions?

It’s worth noting that all of the five big pharma companies that reported their animal health revenues for 2010 recorded sales growth during the year, ranging from 2.6% for Sanofi to a very healthy 29% for Pfizer. (Pfizer’s number needs to be rationalized, though, with the reality that its growth was generated partly by the acquisition of Fort Dodge, not just sales increases.) Bayer and Lilly both enjoyed animal health sales growth in the 15% range, indicating why the firms’ may be interested in expanding that portion of their businesses.

By Joseph Haas

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

Pfizer Channels Economist E.F. Schumacher

Okay so how 'bout that for an esoteric title?

Permit IN VIVO to flash back to the 1970s for a few minutes. In 1973, British economist EF Schumacher published his landmark series of essays Small Is Beautiful during the midst of an energy crisis and a raging debate about the risks of nuclear power. Among the many notable passages in the treatise is this gem:

“Even today, we are generally told that gigantic organizations are inescapably necessary; but when we look closely we can notice that as soon as great size has been created there is often a strenuous attempt to attain smallness within bigness.”

Schumacher, who worked with John Maynard Keynes and John Kenneth Galbraith, didn’t aim his book specifically at biopharma, but it’s striking how relevant the concepts proposed – especially the notion that “the fundamental task is to achieve smallness within the large organization” – are to our industry. As it faces its great R&D stagnation, Big Pharma is on the undeniable quest to manage size, creating smallness within the bigness in hopes of improving upon its innovation track record.

In their R&D strategies, GlaxoSmithKline, AstraZeneca, and Sanofi Aventis are all at different places in terms of promoting the small is the new big concept, with GSK leading the charge. Years into a radical R&D reorg, Glaxo continues to evolve its model, with the goal of integrating its biotech-like drug units with the respective downstream medicines development centers to create end-to-end business groups.

Beyond R&D, there’s also the raging “focus versus diversification” debate, which gained new significance after Bernstein Research’s Tim Anderson published a March 14 note suggesting the world’s biggest pharma was mulling the heretofore unthinkable: shrinking from its outsize $67 billion revenue base to a much more modest—and manageable—base of $35 to $40 billion. ( For those keeping score –and since March Madness has begun who isn’t?—it’s a question IN VIVO explicitly raised two years ago in “Why Doesn’t Pharma Get Smaller?”)

Say what? Didn’t Pfizer buy Wyeth after jettisoning its own consumer health program in part to lessen its exposure to high risk-- and expensive to develop--innovative therapeutics. Given Pfizer’s lack of immediate success, do we now throw the idea of the industrial pharma out the window?

Maybe not. Just days after the Bernstein note came news that Eli Lilly wanted to bulk up its own animal health division via the acquisition of J&J’s Janssen Animal Health group. And there’s no doubt GSK, Sanofi, and Novartis remain enamored with the diversified approach: each has formidable consumer health care operations and emerging markets strategies relying on selling branded generics. Novartis has of course pushed into commodity generics as well, through Sandoz, and still manages to notch innovative R&D successes: If the launch of the first-in-class oral multiple sclerosis drug Gilenya wasn’t proof enough, look at last week’s announcement that the pharma’s Phase III Janus kinase inhibitor INC424, partnered with Incyte, has wrapped a second pivotal trial and is on track for EU and US regulatory filings by Q2 2011.

Make no mistake. Pfizer’s ruminations on the spin-offs of its four non-traditional pharma businesses – as well as its Established Products Unit – seem unlikely to spark an “hey everybody, let’s get small” moment. That’s because there’s still plenty of risk in the high flying R&D model espoused by companies like BMS (and Amgen). One only has to look at new mechanisms like UnitedHealthcare’s Cancer Care pathway program, which bundles payments to doctors using evidenced-based medicine guidelines, to see how changing reimbursement practices could make new product launches tougher.

So maybe the lesson isn’t that everybody should get small, but some companies definitely ought to get smaller. If the words of one of Pfizer’s top executives, head of R&D Mikael Dolsten are any guide, the big pharma’s management is coming ‘round to this way of thinking. Speaking at Barclay’s Capital investor conference March 17, Dolsten emphasized: “We need...to understand what is the maximum value for those businesses, which of them actually have a higher value by being inside Pfizer…and which would...create more value for shareholders outside the company."

Let’s suppose Schumacher is right and “the large-scale organization is here to stay.” As he points out in Small Is Beautiful that also means “the stronger the current, the greater the need for skillful navigation.” For biopharma this entails managing size appropriately to restore R&D productivity but in such a way that it is possible to mitigate the risks associated with health care reform and payor decisions.

At the end of the day, a behemoth the size of Pfizer may just be too damn big to be flexible enough to pivot in a rapidly changing health care environment.

What Lipitor? Pfizer's Strategic Shrinking Solution

Investor pressure on Pfizer to downsize radically has been rising for several months, controversial as it is, but Sanford Bernstein analyst Tim Anderson's jarring note on Monday underscored how serious Pfizer's new CEO Ian Read is about shaking up the ship.

"If we hadn't been there ourselves to hear it firsthand, we would not have believed it, but it seems from our recent meeting with CEO Ian Read that Pfizer may be destined for a significant shake up in the form of shrinking its behemoth ~$67 billion yr. revenue base," Anderson wrote. "No final decisions have yet been made, but all options appear to be on the table and through a series of major potential moves the "new" Pfizer might end up with annual sales of ~$35 to $45 billion/yr, something Read terms the 'innovative core…'"

The timing of such talk is hardly coincidental. Read was appointed CEO Dec. 5, almost exactly a year to the date from when Pfizer's leading drug Lipitor goes generic. What better way to deflect attention from that cataclysmic event than to rip up a company that just underwent a two-year reorg?

True, Lipitor may not face the worst kind of blood bath encountered by many small molecules once they go off patent, given various global six month exclusivities and extensions and Pfizer's own mapped plan for bolstering its sales in emerging markets. But analysts are projecting that the brand will lose at least 80% of its $5 billion in U.S. sales within a year.

And, if Pfizer spins out its $10 billion Established Products Business Unit – one of the plans under consideration -- even the 20% remaining revenues may no longer belong to it but to the new entity, in whatever shape that entails. Other moves in play include spinning out non-core consumer health, nutritional and/ or animal health businesses, which together make up about 15% of the company's total sales.

Underlying the yakking is a lingering disappointment in Pfizer's 2009 acquisition of Wyeth for $68 billion, as the company clearly has struggled to meet financial targets it set when it first announced the deal. A series of late-stage R&D failures also hurt. And there's the observation that even if the pipeline pans out, in an era of targeted therapy no one drug can move Pfizer's swollen needle. The stock therefore has barely budged, even as management cut spending, closed manufacturing sites, and shaved the once-generous dividend to help pay for the Wyeth acquisition.

Given all the challenges Pharma faces, the fierce discussion underway about right-sizing pharma is appropriate. But until now, deliberately downsizing an industry leader by taking $25 billion in sales off the table wasn't considered a viable option. Recall the debate that consumed Wall Street when Pfizer originally announced its Wyeth deal and Pfizer's then CEO Jeff Kindler's adamant argument that getting bigger was the best way forward.

In part, the sentiment underlying Pfizer's options – as Anderson points out -- could be the grass is greener in my neighbor's yard kind of wishful thinking, given how well the much smaller Bristol Myers Squibb has done as a focused company, which made a killing by spinning out its Mead Johnson nutritional subsidiary in early 2010. It could also be a response to investors looking for any sort of creative strategic idea to raise Big Pharma, and Pfizer in particular, from Wall Street's dumping ground.

Or, maybe it's all part of some brilliant rational plan. Two years ago, an unnamed source spoke to IN VIVO magazine about shrinking Pfizer: "But if Pfizer had wanted to do the spin-offs, they could have," one executive close to the transaction said. The tax problems with spin-offs, he believes, are no more challenging than those Pfizer is incurring by repatriating perhaps $8 billion in off-shore profits, which will likewise increase Pfizer's tax bill. In fact, this executive and others suspect that spinoffs will be in any event the longer term result of Pfizer's acquisition [of Wyeth]: after all, if Pfizer is serious about keeping its five business units managerially independent, each responsible for its own P&L, they'll also be larger and theoretically more sustainable–and thus better candidates for spin-offs."

No matter what course Pfizer takes, none of it gets the company off the hook for the need to improve its R&D. And there's no guarantee that shrinking will help that effort; while disciplined focus is helping Bristol on pharma innovation, it certainly isn't doing Lilly wonders (note the latter's recent efforts to bulk up its non-core animal health business, albeit on an entirely different scale than Pfizer's). But once again, the story will play well on Wall Street, which is waiting for some new ideas from pharma executives. -- By Wendy Diller

A Deals Of The Week Valentine

The most anticipated deal of the week – Sanofi Aventis’ multi-billion take-out of Genzyme – has yet to come to fruition. That’s not to say the deal is a no go (wouldn't the aftermath of THAT be fun to watch). Indeed, public statements by the French pharma’s Viehbacher suggest Sanofi still desires the big biotech, but is being measured in its diligence.

The months long saga has been more “he said/he said” than SEC-leaked endearments; still for journos avidly covering the “news” the nothings have been sweet. In advance of Monday's Hallmark holiday, perhaps its time for Viehbacher to dial up the Canadian charm, and send a love letter (containing the desired contingent value rights to Campath/Lemtrada, of course) to Termeer and company. (If the deal goes through, does this makeTermeer Viehbacher's work spouse?)

IN VIVO Blog suggests borrowing a line or two from Robert Browning's famous missive to one lovely Elizabeth Barrett. You know, the one that spawned Sonnets From The Portuguese and the immortal question "How do I love thee?" Perhaps something like this..

I love your verses drugs with all my heart, dear Miss Barrett Henri, -- and this is no off-hand complimentary letter that I shall write, --whatever else, no prompt matter-of-course recognition of your genius and there a graceful and natural end of the thing: since the day last week summer when I first read your poems realized the worth of Cerezyme and Fabrazyme despite the manufacturing snafus, I quite laugh to remember how I have been turning again in my mind what I should be able to tell you of their effect upon me (especially after this recent earnings report) ... Perhaps even, as a loyal fellow-craftsman (and CEO honor-bound to return shareholder value) should, try and find fault and do you some little good to be proud of herafter!

Of course, said fault-finding comes with its own ulterior motives, but whether Sanofi's shareholders will be proud of the outcome depends on the deal's final price tag. In the spirit of reciprocity, we suggest Termeer start counting the ways he loves Sanofi, not least because of the exit package he stands to receive if the deal goes through.

In the interim, if you can't say it with contingent value rights, at least remember to say it with flowers. Oh, and make sure to read another edition of...


Cephalon/Alba Therapeutics: Hours before reporting full-year results on Feb. 10, Cephalon said it signed an option agreement for Alba's treatment of the autoimmune disorder celiac disease. Cephalon will pay $7 million upfront and extend a credit line to Alba to fund a Phase IIb trial of the drug, larazotide acetate. After completion of the study, the Frazier, Pa.-based Cephalon will review results with the option to purchase assets related to the drug for $15 million. Beyond the $22 million in upfront and option fees, Alba is eligible to receive unspecified regulatory and sales milestones should Cephalon bring the drug to market. Celiac disease, also known as sprue, is caused by an autoimmune reaction to the ingestion of gluten, found in certain grain-based products such as bread and pasta. It affects more than 2 million people in the US. Cephalon said on a conference call that is sees significant revenue opportunities for larazotide. The deal is Cephalon's first since founder and CEO Frank Baldino passed away late last year after a four-month medical leave of absence. New CEO Kevin Buchi was previously Cephalon CFO and COO and a longtime colleague of Baldino. -- Lisa LaMotta

Salix/Progenics: Progenics Pharmaceuticals this week found a new development partner in specialty player Salix Pharmaceuticals for its subcutaneous injection to treat opioid-induced constipation, Relistor, one of the casualties of the Pfizer/Wyeth deal. Recall that Wyeth, which initially licensed the compound in 2005, paid Progenics a $10 million break-up fee in 2009 to take back product rights. During an extended transition period, the world’s biggest pharma has continued to sell Relistor via a 1700-member sales force, but 2010 worldwide sales were an anemic $16 million. Thus, the entrance of new suitor Salix via a sweetheart of a deal is undeniably good news for Progenics. As part of the alliance announced February 7, Salix pays $60 million upfront plus milestones for worldwide rights (excluding Japan) to Relistor, and will assume all development, registration, and commercialization costs for the drug. Salix, which only intends to market the drug state side, will also pay Progenics 60% of the revenue earned by contractors on ex-US sales. Salix is confident its GI-focused sales force can fully monetize Relistor’s value, thanks in part to an oral product formulation currently in Phase III development. CEO Carolyn Logan told investors February 7, "Relistor just [did] not receive all the attention it would receive in an organization like ours." – Joseph Haas & Ellen Licking

Pfizer/Ferrosan: From Russia and Norway and Eastern Europe with love? Pfizer’s acquisition February 7 of Danish firm Ferrosan’s consumer health care unit shows diversification is alive and well within the world’s biggest pharma, even as the company pulls back on R&D. Exact financial terms of the deal weren’t disclosed, but sister publication "The Tan Sheet" reports executives from Ferrosan's owner, Altor Equity Partners, said the deal was larger than €100 million ($136 million according to same-day conversion rates); analysts with UBS Investment Research, meanwhile, assume a price around $600 million based on Ferrosan's recent yearly sales figures. The deal gives Pfizer some key brands -- including Multi-tabs multivitamins, Bifiform probiotics and the Imedeen skin care supplement line – in Nordic countries as well as the rapidly growing market of Russia. More importantly, it expands Pfizer’s global footprint, allowing for the expanded distribution of its own nutritional brands, such as Centrum multivitamins and Caltrate calcium and vitamin D supplements. – Elizabeth Crawford

Danaher/Beckman Coulter: The big deal of the week was diversified med-tech play Danaher’s $6.8 billion acquisition of Beckman Coulter, which has struggled to get its testing business back on track after an FDA-triggered withdrawal of its cardiac troponin test last spring. The sale isn’t unexpected; following the resignation of Beckman CEO Scott Garrett in September 2010 and ongoing quality issues, speculation about a possible deal has been rampant since December, when it was widely repored the firm had retained Goldman Sachs. Nor is it surprising that Danaher is the ultimate buyer; Beckman is not known as a particularly innovative company and has been very slow to move into the molecular diagnostics space. It therefore makes sense that its assets, heavily centered on consumables and services in clinical chemistry, would be of greater interest to a company like Danaher, a noted acquirer of established instrumentation plays. In addition to pushing forward with ongoing clinical trials supporting two 510(ks) required for the market reentry of Beckman’s AccuTn1 troponin test, Danaher’s other main priority as the testing firm’s new owner will be completing quality control fixes and cutting $250 million in costs. – Jon Dobson

Optimer/Astellas: Promising new Phase III data surrounding its antibiotic candidate fidaxomicin has Optimer Pharmaceuticals preparing for a possible summertime launch of the drug, pending approval and a PDUFA date of May 30. While Optimer intends to keep the drug in-house in the US, the San Diego biotech has partnered with Astellas to advance and commercialize the drug in Europe, selected Middle Eastern and African nations, and the Commonwealth of Independent States. (In addition to US rights, the biotech has for now also retained Asian rights, although it may partner those territories soon.) Astellas paid $68 million up-front for the rights to fidaxomicin, with a further $156 million in milestone payments and tiered sales royalties that range above 20%. Optimer is positioning fidaxomicin as a first-line treatment for patients at risk of recurrence of C. difficile infections, which cause severe diarrhea often in hospitalized patients and those who have received other antibiotic treatments that have disrupted the balance of flora living in the gut. Robert W. Baird analyst Thomas Russo pegged the market for the drug at nearly $250 million annually by 2018. – Paul Bonanos

Needy Candy Hearts image courtesy of flickrer piratejohnny

Pfizer vs. Merck and the Future of R&D: Deja Vu All Over Again

Pfizer and Merck begin 2011 with brand new CEOs and not a whole lot else in common.

Merck's new CEO, Ken Frazier, took over the reins as part of a planned succession on January 1. Ian Read took over as CEO of Pfizer much more suddenly, when Jeff Kindler resigned abruptly in December.

Both faced essentially the same challenge as 2011 began: how to deal with unrealistic expectations for growth in 2012.

By now you know the story. Pfizer's Read responded by acknowledging that revenues would not meet expectations, but pledged that earnings would, thanks primarily to some deep cuts in R&D. Frazier, in contrast, said simply that Merck would no longer stand by its guidance, taking the position of defending R&D spending rather than sacrifice new opportunities for relatively short term earnings targets.

Ah, its good to have Merck and Pfizer posing a strategic dichotomy in R&D again!

A dozen years ago, Pfizer (under CEO Hank McKinnell) and Merck (under Ray Gilmartin) waged a similar battle for the hearts and minds of investors during an earlier (and much, much smaller) patent cliff period.

Remember when Pfizer swooped in to buy Warner-Lambert away from American Home Products? Though Pfizer wasn't the loudest advocate of the view, the acquisition put the company in the camp of those who argued that the future of R&D depended on "critical mass"--building the scale to allow huge investments across a range of therapeutic areas and targets to drive growth for the decade ahead. Pfizer followed the Warner-Lambert deal with the acquisition of Pharmacia, and built its position as the biggest of Big Pharma in that era.

Merck, on the other hand, declared its intention to eschew big mergers, with Gilmartin saying any mega-deal would be a "distraction" from the core business of delivering organic growth from internal R&D supplemented by licensing or small, targeted acquisitions. And Merck stood by its guns, become the first Big Pharma to weather a genuine patent cliff (Zocor, primarily) without making a big acquisition (or being bought up itself).

So who was right?

Well, its hard to argue that "critical mass" was such a great idea, what with Pfizer's Read taking the scissors to his company's bloated R&D budget. On the other hand, it isn't like Merck did so well with that organic growth thing either; the company's acquisition of Schering-Plough two years ago, was if nothing else a repudiation of the "distraction" argument.

The fact is that neither company succeeded in delivering a sustainable product flow over the decade that followed the strategic divergence. That is why both are in the pickle they are in today.

Read and Frazier are now charting different paths. It seems unlikely that both are right. But history says both could well be wrong.

image from flickr user mtsofan used under a creative commons license

Pfizer's UK Sandwich Has Wrong Kind of Filling

Pfizer's decision to close down its UK-based R&D site in Sandwich, Kent, is one the government could have done without. It means 2,400 fewer jobs in the UK, hits tax revenues and comes at a time when the politicians in power are still reeling from worse-than-expected economic figures for the country from the fourth quarter of 2010.

Pfizer says the move isn't a reflection of its views on the UK as a location for pharmaceutical research. Instead it's part of a broader, global cost-cutting plan that's been going on for a couple of years; Groton, Connecticut was hit in the latest slashings too (25% of the 4,500-strong workforce there is going).

The problem is that the Sandwich site at Kent is focused on areas that Pfizer's pulling out of: allergy/respiratory, internal medicine, urology, virology etc. Viagra's hey-day is over (at least for the manufacturer), leaving Sandwich with...well, the wrong kind of filling.

That said, some of the choiciest parts of the filling, notably pain research, will be moved to the drug giant's Cambridge, UK site, but we're not talking big numbers; R&D president Mikael Dolsten instead used the vocabulary long familiar to many of his colleagues, that of the biotech-like unit. "We're creating more of a biotech pain unit" in Cambridge, he said.

There's no doubt that this is still a snub to the UK (and Groton). CEO Ian Read outlined in the company's Feb. 1 results announcement key steps in the increasing-innovation-and-productivity process to include "a realigned global R&D footprint to increase our presence in key biomedical innovation hubs."


So we didn't need Read to tell us that Kent isn't a key biomedical innovation hub. Still, the closure -- which will occur over the next 18-24 months -- has triggered a flurry of activity among politicians to try to carve out a plan as to how to maintain R&D activities at the site. No doubt they're thinking of star-child GlaxoSmithKline (a UK-headquartered firm, incidentally), which is putting about £11 million, or a third of total funding, into a new bioscience innovation park near its current site in Stevenage, north of London, and which in November 2010 announced its plan to invest £500 million in local R&D and production, including adding manufacturing capacity at its Hertfordshire site for respiratory disease.

UK governments moves to try to attract and retain R&D-focused companies to Britain include a "patent box" offering lower tax on income generated from IP discovered in the UK, an innovation investment fund to help fill the empty VC coffers and thereby kick-start investment in biotech, and ongoing attempts to try to make conducting clinical trials easier, cheaper and less bureaucratic.

None of these are going to influence where the Pfizer behemoth does or doesn't choose to have a footprint. Meanwhile, moves to curb drug prices -- including the UK's plan to introduce value-based pricing, essentially putting an end to free (ish) upfront pricing -- aren't exactly compelling reasons to stick around in a market which, after all, is only worth about 3% of the total.

Update: 3pm (UK time): Alternative Fillings for the Pfizer Sandwich
Pfizer's biotherapeutics chief JC Gutierrez-Ramos told The In Vivo Blog this afternoon that "there's a lot of work ongoing to explore alternative parterships at the Sandwich facility," and that nothing's off-bounds. Multiple ideas, multiple discussions with partners of all types....CROs, investors, companies and academia. "Hopefully we'll see some results" of those discussions over the coming months, says JC.

Meanwhile, he's busy rolling out the company's ambitious plan to create biomedical research engines (or Centers for Therapeutic Innovation) in a handful of cities across the globe...which will one day include London, but, we understand, not Sandwich.

Deals Of The Week: The Sputnik Edition

Outside the deal making arena, the word garnering significant air time this week was “innovation.” During this week’s bipartisan date night, also known as the State of The Union address, President Obama mentioned the word at least nine separate times, as he channeled Survivor’s Jeff Probst. “We need to out-innovate, out-educate, and out-build the rest of the world.” He called on the country to “get behind innovation”, exhorting “this is our generation’s Sputnik moment.”

One could well ask if this is Big Pharma’s Sputnik moment as well. The biopharma industry is well aware of the need for innovation. Indeed, the stricter pricing environment in Europe and the US (where payers are pushing back on multiple classes of drugs even if NICE-like decision making isn't yet a reality), has already forced a wholesale shift, with a greater emphasis on devising drugs for unmet medical need and actually demonstrating said value.

As the industry wrestles with its innovation gap, there are a number of puzzles to solve. The first, and potentially easiest, to come to grips with is access to new products and new ways of thinking. It’s one of the primary reasons biopharma companies are cutting deals with academia and not-for-profits with such regularity, none more so than Pfizer, which rolled out its New York-based Center for Therapeutic Innovation(CTI) just hours before the Prez made his way to Capitol Hill.

A thornier question is what actually constitutes innovation these days. Ask a completely random group of industry execs and the answer almost certainly would be new drugs (or devices) to address some unmet medical need: lupus, major depressive disorder, Alzheimer’s. Undoubtedly those are areas deserving investment; so too, however, are improvements in care delivery in high cost arenas like diabetes or hypertension, where the problem isn’t lack of therapy, but actual compliance. There’s a growing opportunity on the service side, and some companies – Sanofi in diabetes, Novartis via its collaboration with Proteus Biomedical – are taking important, albeit early steps, in this direction.

For pharmas to “win the future”, maybe they, too, need to reinvent themselves, like the Michigan-based mom and pop roofing company run by the Allen brothers, which Obama highlighted in his SOTU challenge. One way to do so is by embracing new definitions of innovation beyond the canonical: a new drug hitting a novel target that historically garners a premium price tag. We remain an industry where “better” might mean “faster” (or more convenient) but it almost never means “cheaper”. Why not?

It's a question worth pondering for big drug makers; as Obama rightly reminds us, "Our destiny is our choice." Meanwhile it's time to take a spin through another weekly deal-making wrap up...

Novartis/Genoptix: This week Novartis launched a $470 million cash tender offer for cancer specialty testing lab Genoptix, which offers personalized diagnostics services related to hematological malignancies – and to a lesser extent solid tumors – to community-based oncologists. The acquisition will add more muscle to the Swiss pharma’s two-and-a-half-year-old Molecular Diagnostics unit. As the pharma’s division head of pharmaceuticals, David Epstein, told investors on the company’s quarterly earnings call on Jan. 27, the move ensures companion diagnostics would be “readily available as we launch our new pharmaceuticals.” Indeed, the acquisition gives Novartis infrastructure and also know-how not normally found in pharma-based R&D that should smooth the transition from biomarker identification to actual companion diagnostic test development, which could range from home brew tests run at Genoptix’s lab to more broadly distributed test kits. As such, the deal is another indication of the confidence the pharma has in its pipeline of targeted cancer drugs, largely for hematological malignancies, and their belief in biomarkers – a marching order unaltered since the formation of the Novartis Institutes for Biomedical Research, whose resources directly fuel much of the effort of the Molecular Diagnostics unit. (To learn more check out this issue of IN VIVO.) Even as the industry has turned more and more towards outsourcing R&D, Novartis continues to drive translational research from within via NIBR. By taking on the risk of bringing in and supporting a diagnostics development infrastructure, it’s making a similar statement in the testing realm. – Mark Ratner

Amgen/BioVex: Amgen's Jan. 24 earnings call promised a plan to invest more heavily in research & development. On the same day, the company put its money where its mouth is.
Amgen deepened its commitment to oncology, revealing plans to acquire biologic vaccine developer BioVex for a $425 million cash upfront payment as well as milestone payments totaling as much as $575 million. Cash-rich (the big biotech has around $18 billion in its coffers), Amgen's massive upfront commitment - the largest for any privately held biotech in at least two years, according to Elsevier's Strategic Transactions database - is a powerful vote of confidence in cancer vaccines, the area in which BioVex has concentrated most of its efforts. The agreement is also easily the largest deal in the sector since April 2010, when Dendreon received approval for Provenge. The deal represents a payday for the well-funded BioVex, which has raised $175 million from at least 15 firms since its spinout from University College London in 1999. For BioVex, the sale to Amgen – especially at this price tag – makes obvious strategic sense. With two Phase III trials underway on its OncoVex product, an immunotherapy for both metastatic melanoma and head and neck cancers, the company faced increasing commercial costs that would require an alternate source of funding. "Getting to the public markets is hard in the current circumstances," Coffin told sister publication "The Pink Sheet" DAILY. "Amgen has amazing resources, and we felt that on balance, this was the best overall opportunity." – Paul Bonanos

Ligand/Cydex: For biotechs, the truism “it’s good to have a revenue stream” has never been more important than in today’s capitally constrained environment. The logic of regular income underpins Ligand Pharmaceutical’s purchase this week of privately-held Cydex Pharmaceuticals for $36 million, nearly all of which – $31.2 million – was paid upfront. The move diversifies Ligand, a classic drug development play founded in 1987 that has been moving away from that paradigm to a model described on the company’s website as “developing or acquiring royalty revenue generating assets and coupling them to an efficiently lean corporate cost structure.” Not including new licensing revenue or accelerated growth of the San Diego biotech’s Promacta, the deal is expected to double Ligand’s projected 2011 revenue relative to what it stood to pull in as a stand-alone and moves the firm forward in its goal of becoming a profitable entity. In 2010 Cydex chalked up $16.3 million in revenue thanks to its proprietary drug reformulation Captisol technology, which works by surrounding drugs with specially modified cyclodextrin molecules to allow tighter control of a medicine’s delivery. The Kansas-based Cydex, which will continue to operate as an independent subsidiary of Ligand following the close of the acquisition, already has numerous partnerships with industry players, including Onyx Pharmaceuticals and Prism Pharmaceuticals for the creation of Captisol-enabled IV formulations of carfilzomib and amidarone respectively. And in terms of regulatory risk, the formulation technology is something FDA seems comfortable with – it’s already included in five marketed medications. If Ligand believes it can earn a pretty penny from the Captisol franchise, Cydex’s investors, which include among others SR One, Eastman Ventures, and Techno Venture Management, have barely achieved an exit. Since its inception in 1993, Cydex has raised around $27 million in financing; like so many other private companies, it tried – and failed – to go public in 2008. – EFL

Teva/Corporacion Infarmasa: Teva Pharmaceuticals has conspicuously shied away from the sometimes frenzied investment in China, India and other emerging markets, noting the high valuations and intense competition. It is targeting Latin America for growth, however, as it progresses with plans to increase revenues from $14 billion in 2009 to $31 billion in 2015. Thanks in part to its 2006 acquisition of rival Ivax, it now has operations in Venezuela, Mexico, Argentina, Chile, Brazil and Peru. With this week’s acquisition of Corporacion Infarmasa, one of Peru’s top ten pharma companies, it makes additional in-roads into this Latin American market. Terms weren't disclosed, but Corporacion Infarmasa is owned by two American investment groups: The Rohatyn Group and Altra Investments. Infarmasa manufactures and sells a portfolio of more than 600 branded and non-branded generics, focused largely on antibiotics, antihistamines, analgesics and corticosteroids. By combining Infarmasa with its existing Peruvian organization, Corporacion Medco, Teva will be the number two player in a market that had a CAGR of 12% between 2005 and 2010 and could reach $1.8 billion by 2015. Expenditure per capita on pharmaceuticals in Peru is one of the lowest in Latin America, leaving ample opportunity for future increases, Teva said. – Wendy Diller

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