The Big Red Biotech Blog

Biotech Markets and Funding

Here's a good article by Bruce Booth of the Life Sci VC blog discussing the heyday of IPOs in the 1991-1994 span versus, the history of these deals to date, and the current investment environment.  What's the story?

IPOs of that era paid handsomely to the VC backers of the time.  The average step-up in valuation over the private invested capital was -- 4x.   There was a very low cost-of-capital provided by public equity investors in that period. Much lower than today.  For most of the past decade, step-ups on total invested capital have typically been only 1.5x or so.  Sadly, high capital intensity has been the signature of many of the past decade’s IPO stories.

The playing field has changed since then as investors realized over that time span that only a subset of the 1991-1994 IPO window have accrued real value over time.  Gilead, MedImmune and Vertex might be considered notable exceptions.  Most of the other IPOs have underperformed all the major indices.

 Booth instructs that there is a major flaw in the former IPO model that 3 main features:

• high capital intensity funding large portfolios, requiring serial public equity, with little focus on capital efficiency
• endless cycles of “rinse and repeat” anti-shareholder behaviors where new investors are recruited to fund the promise at the expense of existing shareholder dilution
• management teams too focused on “built-to-last” company survival vs shareholder value maximization, even when the best outcome for existing shareholders, and often patients, is to sell now and access the balance sheet resources of a bigger company

These flaws have led to IPOs a less attractive means of fudning.  As Booth says, if most IPOs trade down after their IPOs, why bother buying at the offering.  Seems rational.  So in the current environment, private backers are becoming more activist and push for strategies that maximize their return in these companies -- which includes the proposition of selling the company "realtively early" to big pharma players. This avoids the dilution problem described above if trying to go the long haul.  The old IPO model is gone.

In the current situation, one of the big change drivers is Big Pharma R&D productivity issues and their increasingly active M&A interests.  Big Pharma in recent weeks has tried to make deals for Human Genome Sciences, Amylin and Illumina -- but were thwarted by big shareholder interests. As described above, activist big shareholders are playing a larger role in trying to maximize their investments and have resisted these perceived "low ball" offers. With more buyers crowding into the market, the pressure to pay a premium is just going to go higher. That's a trend with which biotech investors are well attuned.  See Fierce Biotech. 

Posted by Bruce Lehr May 5th 2012

 

 

Good Article on Security of Virtual Biotechs

Here is a good article from Stewart Lyman at Xconomy (I find I like a lot of Stewart's articles) regarding the solidity and security of virtual biotechs. The article questions whether this is a model that we'd want to perpetuate as a dominant form. Why not?

The basic argument against this type of company has two main prongs.  The more serious of the two in my view is that these companies are often built on a research idea or premise that they acquired somewhere else (often academia) and don't have the wherewithal to confirm whether the science is sound. If these companies embark on a development program with the underlying science being bad, they are doomed to fail.  Stewart cites many cases where the literature is either flawed (retractions) or non-reproducible. See the Amgen and  Bayer studies on this issue.  Reproducibility was less than 11% for "landmark" cancer papers for example.

The second argument is because the companies are virtual, they don't contribute to the development of vibrant biotech clusters. Clusters help sustain an ecosystem by providing a steady labor pool and a critical mass of intellectual power and innovation. Leading biotech clusters continue to draw investment in places like Boston, San Francisco and San Diego. Virtual companies -- are well -- virtual. They don't provide a lot of infrastructure and contribution to clusters.

The main reason virtual biotechs are popular of course is that they reduce the capital needs of the company.  The company really then focuses on a good management team and hopefully a good molecule/technology. But if the quality of the latter is compromised, that's where the idea falls apart. And of course, these companies are really just building a project to be sold.

Posted by Bruce Lehr May 4th 2012.

New Drug Development Financing Tool?

Andrew Lo, an MIT finance engineering professor, when he floated idea of funding new drug development with CDOs -- collateralized drug obligations.  The CDOs would be able to invest in a series of drug development projects that would pay returns if they resulted in successful treatments reaching the market.

The idea would be for investors to put up $50 B to $100 B to fund 150 drug projects over 10 years.  Hopefully, this would be another funding mechanism and would relieve pressure on getting all the funding from government sources, weakened VC networks and Big Pharma itself.

Naysayers may point out that the CDO concept didn't work out too well for housing and mortgages -- but Lo counters that he forsees a big funding gap for drugs in the coming years and that this would mean a drop in new treatments. 

Lo says, "If there's a cancer bubble, I can live with that."  I don't know if CDOs are viable but I like the novel thinking to bring an idea like that to the table for consideration. See Fierce Biotech.

Posted by Bruce Lehr May 4th 2012.  

NIH Cuts First Translational Science Deal

Yesterday, Francis Collins announced that the NIH has secured a deal with Pfizer, AZ and Eli Lilly to collaborate on existing compounds to look for new uses (disease treatments) for them. The four-way partnership will be led by the NIH's new National Center for Advancing Translational Sciences (NCATS).  Collins of course has been a major proponent of the center and the need to speed up the pace at which discoveries are turned to medicines.

This pilot program has legal templates established among the players which should clear IP hurdles that could bog things down. The rationale for looking at exisiting drugs is that sometimes a drug developed for one disease does work for another -- e.g. AZT developed for cance rbut was ultimately applied to AIDS.  These existing drugs have many times also undergone previous safety testing so not having to redo safety work can also speed the development process.

Collins is excited to get started. He notes that researchers have identified the causes of 4500 diseases but only 250 have developed treatments.  Collins says, "The future has never looked brighter in terms of the promise of biomedical research, but we have to be smarter than ever, and we have to look for new partnerships."

It is expected that other members of Big Pharma will join the party when the pilot program gets underway and especially if it bears some early fruit.  See Xconomy and Fierce Biotech.

Posted by Bruce Lehr May 4th 2012.

First mAb Submitted to EMA for Biosimilar Approval

A biosimilar version of Remicade (anti-TNF drug) is the first mAb to be submitted to the EMA for review.  Celltrion is believed to be the company making the submission, although this has not been formally revealed.  Celltrion has conducted clinical trials with its version of the drug in 19 countries over the past 2 years. There are 16 -- yes 16 -- approved indications for Remicade.  It is not known if Celltrion is seeking approval for only the RA indication (matching trials) or going for additional indications as well.  Extrapolation of safety and efficacy data from one indication to others is allowed potentially so it is a pertinent question.

First Monoclonal Antibody Submitted to EMA for Biosimilar Approval.

 The anti-TNF market is estimated to be worth $21 B. Analysts are torn as to whether a biosimilar version is a bigger threat to J&J's Remicade or whether a (humanized) biobetter version of the antibody will more likely prevail.  J&J has its own humanized replacment called Simponi. Celltrion is betting on gettig share however and is submitting its application well ahead of Remicade's 2014 patent expiration date. Celltrion will also go to Korea and other emerging markets in Asia and Central/South America where Remicade is not under patent.

Now, we all wait to see how Celltrion's application does at EMA.  More mAb biosimilar applications are expected to be submitted to EMA this year.  Whether these have a huge impact on the market, depends upon how easily they are approved and whether companies like Celltrion (or Samsung) can make good on their promise to drop prices by 40-50% over the reference product. The race has begun in earnest now.

Posted by Bruce Lehr May 2nd 2012.

India to Invest cGMP Compliance for Vaccines

Four years ago, Indian regulators suspended licenses on 3 vaccine manufacturing facilities due to quality issues.  The suspensions resulted in vaccine shortages to great hue and outcry by the populace.  The government will now invest $37 M in plant upgrades to cGMP.

India plans $37m investment in vaccine cGMP compliance.

The DPT vaccine facility in Coonoor and BCG vaccine facility in Chennai will receive the bulk of the new investment.  Upgrades are nearly complete now at the third facility in Kasauli.  The government wants to see the improvement in quality and to boost vaccine output. 

HLL, a company best known for producing condoms, is responsible for making the upgrades.  Now, that's what I call real prophylaxis.

Posted by Bruce Lehr May 2nd 2012.

First Drug With $1 Million Price?

Here's an article from Matthew Herper's column in Forbes that discusses whether the first drug that costs more than $1 million annually is already on the market -- and we just don't realize it yet.  Interesting to ponder for sure -- and perhaps horrifying.

I wonder if this is a reason that many people back the concept of biosimilars down the road.  Seems clear [to me] that governments won't sustain this type of pricing for long.

Posted by Bruce Lehr May 1st 2012.

Berwick: Cost Effectiveness is Permanent Condition

Here is an Xconomy post from yesterday that highlights remarks made by Dr. Donald Berwick, the former administrator of the Center for Medicare and Medicaid Services.  He spoke last week in California at an invitation-only conference of healthcare executives and investors sponsored by the private equity firm Health Evolution Partners. He spoke about our health care system and health care reform. 

Dr. Berwick said that it would be a tragedy for America should the Supreme Court strike down the Obama Administration’s Affordable Care Act. Yet his primary theme was that it was getting very late in the game to slow the aggregate cost of health care as the baby boomers come into retirement. Citing his recent article in JAMA, Berwick noted that the sum of the lowest available estimates indicate that in excess of 20 percent of total health care expenditures is wasted. Berwick suspects we are really wasting one of every three dollars that we spend. This seems consistent with the oft-cited disparity between total US health care spending and outcomes in this country. 

The urgency of cost control is now such that, he said, there will be big reductions. The only question is whether we will do it in a good way or a bad way.  As to the future impact of all this on innovative life sciences companies, Berwick sounded an unmistakable warning. “If your products are expensive, it will be challenging; if yours is a firm focused on controlling costs, then your time has come.” In other words, biotech and medical device companies had better develop their case for cost effectiveness as their products enter into clinical development, because mere efficacy and safety may not get you paid in this brave new world.

What do you think his position would be relative to Abbott's strategy below to challenge the validity of biosimilars?

Posted by Bruce Lehr May 1st 2012.

 

 

More on Abbott Anti-Biosimilar Petition to FDA

I posted a few days ago on Abbott's letter to the FDA urging it to reconsider its policy on reviewing biosimilars.  Abbott argues that to approve any biosimilar that is challenging a reference product filed prior to the law's enactment in March 2010 will necessarily cause the FDA to use innovator company trade secrets in their analysis -- and thereby violate provisions in the 5th amendment.  Provocative, yes?

If Abbott's argument is correct or at least has good chance of being found so in the federal courts, this would seem to completely undermine the intent in geting biosimilars approved, and certainly would hamer any positive healthcare budgetary effects (i.e. saving drug costs) that Congress may have been seeking in passing this legislation.

Read more here in today's Pharmalot blog.

Posted by Bruce Lehr May 1st 2012.

Tufts Report on Academic-Biopharm Partnerships

A new Tufts Center for the Study of Drug Development study shows academic medical center (AMC) and biotech partnerships are increasingly important to basic research and developing new medicines. The study looked at 3000 grants to AMCs from 450 biopharm sponsors through 22 medical schools. Their conclusion is that the nature of these partnerships is continuing to evolve and that they have not yet reached their full potential.

The report looks at 12 primary partnership models of AMC-biopharm collaboration. There is a shift occuring toward more risk- and resource-sharing models rather than the more traditional unrestricted research or fee for service models of the recent past.  Rather a range of partnership models is arising from corporate venture funds to pre-competitive research centers to academic drug discovery centers.

The report concludes that in the face of an increasingly challenging R&D environment (often discussd here) and overall global competition, we are likely to see the continued proliferation of AMC-biopharm partnerships.

See full report. Download Tufts AMC-biopharm R&D study

Posted by Bruce Lehr Apr 30th 2012.  

Supreme Court Sets AMP v. USPTO (Myriad) Schedule

According to the Patent Docs blog, the Supreme court has asked the all participants in "Myriad case" to submit  briefs addressing "the applicability of the Court's recent decision in Mayo" to Myriad's isolated DNA claims. If you are so inclined, the Court also invited the submission of amici briefs by June 15th.

Oral arguments will then follow on July 20th for those who want to have their hot popcorn ready in front row seats.

Posted by Bruce Lehr Apr 30th 2012.

Big Pharma Revenue Holes: How Low Can You Go?

Derek Lowe reminds us that some of the Big Pharma companies out there have BIG BIG BIG revenue holes to fill between now and 2020.  Take a look at both Lilly and AZ's challenges ahead. Though Pfizer ain't far behind itself. Looks like AZ's whether by his choice or the board's go out while the getting's good.

See here for yourself!  The graph shows Big Pharma's expected revenues through 2020 on its existing product portfolio.  Lilly and AZ?  All we can say is "OUCH".

Posted by Bruce Lehr Apr 30th 2012.

PhRMA Criticizes Biosimilar Flexibility

PhRMA has weighed in with its comments to the FDA guidelines on biosimilars.  In those, the trade group says that the FDA should not allow biosimilar manufacturers potential flexibility in delivery devices and formulations -- and still regulate it as a biosimilar.

PhRMA speaks out against FDA biosimilar flexibility.

A spokesman for PhRMA said, "Intentionally introducing differences to the molecule or the finished product will increase the level of uncertainty regarding the proposed biosimilar's similarity to the reference product. The statute imposes a scientifically rigorous standard that each product must be highly similar to its reference product.  Statutory considerations therefore cousel that FDA guidance should recommend that applicants minimize controllable process and design differences."

Several Big Pharma and BIO have weighed in with similar comments. 

Posted by Bruce Lehr Apr 30th 2012