The Big Red Biotech Blog

It's Dealers Choice for Big Pharma R&D

Several articles on R&D models, new drug acquisition and innovation coming out of BIO 2011 today in Fierce Biotech. 

First up, Merck's head of worldwide licensing strategy, David Nicholson, tells us (here) that it will be on the hunt for very early stage projects -- before proof of concepts -- to augment its product pipeline (rather than build technology base).  Merck says it does 50 "significant" deals per year. The acquisition of products will be aligned with the 11 disease categories that Merck has decided to focus on (like CVS disease, neuroscience or oncology - plus 8 more). Merck wants to get in early and to partner as its ticket to extracting maximum value in these deals. Merck says that it and its academic partners are more skilled now at valuing early stage assets and it is now easier to work with Tech Transfer offices than in the past. "The majority of the science is 'out there', not in Merck's labs" says Nicholson.

Fitch Ratings has published an analysis (here) of Big Pharma's drug development activity since the beginning of the year and 22 new late-stage programs were added to their pipelines, mostly from in-licensing and acquisition. The most active dealmakers -- Lilly, Pfizer, and J&J -- were among those companies looking to take the biggest hit via the patent cliff. The awards for best internal pipelines go to GSK, Novartis and BMS. The majority of companies though seem to be betting on a greater return from in-licensing over internal development from their own R&D.

Finally, Big Pharma's headed over the patent cliff are not only lookng to academia for help but are also scouring the countryside for deals with biotechs to increase their pipeline innovation quotients (here). For biotech's that is good news as there are more deals to be had at better terms to provide much needed funding. Should biotech's fear the increased attention being shown by Big Pharma to academia? "if you've got good stuff you don't need to feel threatened by big pharma's interst in academia" IF you have good stuff.

Posted by Bruce Lehr June 28th 2011.

Is Biotech Following in Big Pharma’s Footsteps?

The following blog post from PharmaTech talk wonders aloud if biotech is going down the same path as Big Pharma when it comes to reductions in R&D expense (down 1% in 2010) in response to dwindling funding sources (rather than dwindling revenues due to patent cliffs with Big Pharma). 

In Biotech's case, only 40 of the more than 270 publicly traded large-molecule companies are profitable, and the rest must rely on venture capital. Companies without products on the market are having a tougher time attracting funding these days. Up-front payments have decreased about 55% in the past five years, according to Ernst & Young. Money is increasingly contingent on achieving drug-development goals

PharmTech Talk » Is Biotech Following in Big Pharma’s Footsteps?.

The writer wonders aloud if this continuing trend could become a vicious cycle in which small biologics companies keep spending less on research, which in turn prevents them from discovering potentially marketable products that could keep them afloat.

I think not.  I don't know that all 270 companies should survive.  That would not be the case in most industry models.  I think the stronger companies will rise to the surface and will be able to continue bringing innovative products forward - whereupon they will be compensated through licensing for their properties or will be acquired.  Either way -- the value for the innovations will be recognized and the model will roll on albeit perhaps in a modified form. 

By the way, some of the Big Pharma companies may not survive either.  If you read this post from In the Pipeline last week analyzing Lilly and AZ's current situations, one might conclude that either or both are prime to be swallowed by a bigger player.  Thus, Lechleiter may spurn "mega-mergers" but he may end up on the received rather than the giving end of one.

 
Posted by Bruce Lehr June 27th 2011.

 

 

Is This Future of Big Pharma?

Here is a provocative article from Institutional Investor that discusses problems with the Big Pharma model and passes through some predicitons of various analysts as to where we'll end up.  My favorite assertion in the bunch?  Only Roche and Novartis will survive as "full-fledged, real [drug] companies".  Wow --that's 2!

The others?  They'll have core competencies that fall into one of four basic skill sets: research, development, manufacturing and marketing.  Viren Mehta, founder of Mehta Partners, says there's no reason to expect that a single company will be a master of all four or even two or three of them.  Again - Wow!  In the future, he predicts there will be no big or small companies, and no distinction between pharma and biotech.  I believe the last -- I think drug companies will produce (or sell) generics, biosimilars and biobetters, small and large molecules and innovative drugs all combined in a single portfolio.

The other revelation for me oozed out when senior pharma executives were asked, "What is the core competency of your company?"  Answers ranged from conducting clinical trials to global marketing to ultimate legal responsbility for safety.  The analysts predict that ultimately some will shrink -- focusing on only one or two specialties. We may be left with general contractors that gather the work of their sub-contractors to submit to the FDA.  Some may only be a brand name that stands behind a distribution machine.  I've also seen speculation that the "big pharma's" will start to look like banks to fund projects and do marketing.

With these type of predictions flying in the wind, it is sure to be a period of constant metamorphosis while the ultimate business models shake out for each company (assuming that they survive).

 

Posted by Bruce Lehr June 7th 2011.

Big Pharma Battle of Business Model Taking Shape

Several articles were published in Fierce Biotech this morning that deal with the challenges faced by Big Pharma -- particularly in development -- and the resuting changes that are occurring.  This is not brand new by any means but different camps are beginning to take shape. See here, here and here.

First we have Richard Barker, departing President of the Association of the British Pharmaceutical Industry, declarign that "innovation ecosystems" will be the way that Big Pharma will puruse R&D in the future.  These ecosystems will consist of a network of resources internal and external to these big companies that are supposed to pump up innovation while bringing down the costs.  They hopefully will also reduce risk as compared to the current "unproductive" Big Pharma R&D efforts.  Many of these are collaborations between Big Pharma and academic research institutions.  Pfizer, GSK and Sanofi are among companies pursuing these arrangements.

On the other hand, we have several Big Pharma players who are lookng to maintain their internal R&D investments -- in more focused efforts -- with the belief that they will now start bringing more blockbuster drugs to market in the next several years.  Companies embracing this model are exemplified by Merck, Lilly and Novartis to name three. Novartis has had a recent spate of success -- although it has added the permutation of focusing development on niche areas to gain approval and then to expand out the applications for that molecule to build bigger revenue profiles.  The other two players have a less proven track record and the jury is still out on their current late stage candidates.

The third and most interesting perspective is in the third Fierce Biotech article via Business Week.  It argues that Big Pharma needs to work on its whole model -- not just the R&D portion.  It promotes the idea that pharma get way outside the box with its current business model and think about working to satisfy its customers (patients) and not just figure out ways to commercialize drugs more cheaply. One more far-fetched idea asks what if Pfizer teamed with Wal-Mart to create a Readi-Clinic at Wal-mart powered by Pfizer" coupling Pfizer products and services to deliver to patients. These authors claim the industry needs to get solely off idea of inventions (new drugs) and get to innovations (solutions for people) -- which aren't always dependent on new inventions or technology but new models for delivering value.  

Interesting to ponder.

Posted by Bruce Lehr June 3rd 2011.

Lilly’s New Biotech Company Builds on Alliance Strategy

This post from PharmaTech Talk discusses Lilly's exploration of new business models - spurred by this week's announcement that it is forming a new biotechnology company, called BioCritica, with private investors. BioCritica will focus on the development and commercialization of hospital-based, critical-care compounds including Lilly's Xigris for the treatment of severe sepsis. The company will also receive rights to acquire other compounds currently in prec-clinical development at Lilly.

PharmTech Talk » Eli Lilly’s New Biotech Company Builds on Alliance Strategy.

BioCritica is another model that Lilly is trying to help find an outlet for select products in its pipeline that might be better exploited by the alternative commercial strategy. It is a similar experiment to Lilly earlier this year committing $150 M to severall venture funds for early stage research and development. The arrangment is known as the Mirror Portfolio. Lilly continues to explore alternatives to its traditional model as it looks for novel ways to manage its pipeline and commercial portfolio to maximum effectiveness - with greater flexibility and better resource utilization.

 

Posted by Bruce Lehr May 24th 2011.

New Biotech Licensing Model to Pay Investors

Xconomy's Luke Timmerman did a nice piece this morning on the difficulty Biotech's are having with paying off their investors in the current economic climate.  He quotes, Jim Posada, a former dealmaker at Lilly and GlycoFi, as promoting a licensing based model. This is based on the observation that Biotech IPOs are non-existent and that Big Pharma outright purchases of Biotech companies is also becoming much more difficult.

Posada's model offers another way. Under it, new Biotech's would seek relatively small investments from its backers -- say $10-$15 million over 3 years.  The company would take a drug through animal testing and phase I -- demonstrating safety and efficacy to that point. Then it's time to take that package to Big Pharma to gain a licensing deal.  Big Pharma would be asked to offer upfronts in the $30-$50 million range with heavier multi-hundred million milestone based payouts. However, the upfronts would be sufficient to pay off the early investors of the $10-$15 million at a reasonable return for their risk.  The milestone based rewards might never be realized but aren't critical to paying off the intitial funders.

Posada recently structured such a deal with Resolve Therapeutics and its lupus property in development. They raised their first two million.  So relatively modest investments might get the ball rolling through early stage development until a Big Pharma partner can with more confidence make its licensing deal.  It cuts the risk for everyone involved and makes it match the reward in a reasonable time frame. The Biotech will still need to have good programs in the right disease areas and keep its capital investments under control until funding warrants more. In the first stage, these companies may take on a much more virtual look. It's a trend whose time has come.

Posted by Bruce Lehr May 23rd 2011. 

 

Time to Stick Fork in Pharma Big Brand Model? It's Done.

Viehbacher (Sanofi), Russell (Shire), Scangos (Biogen) and other CEOs say the Big Pharma big brand, blockbuster drug model is done!  Time to get out the forks.

 

PharmaGossip: Is Pharma's big brand era over? | Reuters.

Now the trend is toward developing products aimed at specialty markets -- like rare diseases, including genetic diseases.  Sanofi just acquired Genzyme for that reason.  Shire also focuses its development efforts in this area and has double digit growth rates and a high P/E multiple to show for it.

Now Big Pharma wants to play too. Which is great, except if everyone is after a rare disease model is it rare any longer?  Being a copycat is the sincerest form of flattery until all the profits are gone. 

Posted by Bruce Lehr May 16th 2011.  

Shire Finds Big Value in Rare Diseases

Here's a good piece on Shire's strategy to focus on rare and orphan diseases.  It recounts the company's success and also points out perceived opportunities in the future. For example, Shire has expressed an interest in seeking out properties in gene therapy and stem cell areas for possible future investment.  It is also seeking additional treatment applicatins for its existing drugs.

Shire Finds Big Value in Rare Diseases, and a Strong Growth Path for its Boston Unit.

Shire's CEO Angus Russell seem well aware that other bigger players are beginning to eye the rare disease area too but feels confident in Shire's ability to add value.  Shire is projecting "mid-teens growth" through 2015.  Why not? With successful drugs like Elaprase for Hunter Syndrome, Vpriv for Gaucher's Disease and Replagel for Fabry's Disease.  The latter two have received a big sales boost due to Genzyme's manufacturing issues with its two drugs.  These drugs now represent 30% of Shire's porfolio sales -- up from 4% in 2005.

 As Russell notes, the world is more holistic now, and factoring in payers, more informed patients, and policy makers looking to reduce costs, "We're seeing the shrinking of that mass marketing [drug] model."

 

Posted by Bruce Lehr May 12th 2011.

Will Academia-Pharma R&D Deals Threaten VCs?

This headline comes from the very good Life Sci VC blog.  It asks whether the large uptick in Big Pharma and Academia broad R&D pacts (see Sanofi-Harvard, Pfizer-Washington U, Bayer-UCSF, UCB-Harvard, Sanofi-Stanford, Gilead-Yale, Pfizer-UCSF, etc.) will exhaust VC opportunities for startup deals?

In a word, No!  In two words, Hell No! 

Life Sci concludes that this type of deal making still only impacts a very small proportion of the total academic projects out there.  For example, the Sanofi-Stanford deal announced this week is for a maximum of 5 programs per year in an institution with literally more than 100 with 50 departments and 100's of falculty. The pool is not exactly dry as a result of Sanofi's commitment.

Life Sci also argues that this new association of academia and pharma will help academia better understand the requirements for translational activities and what it really means to run a lead optimization program to industrial standards. Moreover, big pharma can help with academia funding gaps by covering more overhead in these deals and also fill a role in providing more early stage funding that VCs are shying away from in today's more risk-averse environment. VCs can jump in later on projects that may lose funding from their initial partners for a variety of "non-program" reasons.

Also while Big Pharma offers another alternative for academia partnerships and early funding, it may not be for everyone as there will be varying tolerances of academic groups for big pharma bureacracy as projects move inside the pharma R&D organization in later stages. Some good academic groups may choose not to engage with such a model.

The post concludes:

At the end of the day, I think there's a (mostly) healthy vetting process conducted by early stage VCs in evaluating, co-creating, funding and helping govern new startups out of academic labs. When done well, Pharma benefits from this,  as does academia.  I don't see these broader partnerships as threatening or significantly reshaping this important role of VC and their startups in the process of translating discoveries into clinical innovations. 

I would agree.  I think big pharma is adding not subtracting by entering these relatinships.  It's broadening the model.  It brings more commercial knowledge to earlier stages toward discovery. It has more of an evolutionary feel to big pharma R&D model than revolutionary feel to me. It may help create a more collaborative and open environment in the process -- that will hopefully result in more translational successes - that I think emboldens and actually helps everyone involved.  Success breeds success.

Posted by Bruce Lehr April 20th 2011.

Big Pharma M&A strategy has failed miserably

Burill and Co says Big Pharma blew it with its M&A activity over the past decade.  This published in a new report called Biotech 2011-Life Sciences: Looking Back to See Ahead.

The major finding in the report?  Big Pharma destroyed $1 trillion in value over the past decade. That trillion in lost  value is comprised of a decrease in market captilization of 17 of the industry's most active acquirers of $530 million plus an added $425 M spent on the acquisitions = nearly $1 trillion.

Article M&A strategy has failed miserably - Burrill.

To update and paraphrase Everett Dirkson, "A trillion here, a trillion there, and pretty soon you're talking about real money."

Looks like it is time to go back to the business model drawing board.  Companies are now looking to acquire smaller biotech's for their innovative pipelines but are being more careful not to assimilate them into their massive R&D structures (bureaucracies), or may be breaking their own massive R&D groups into more manageable (and agile) small units.

Burrill says, "If the industry is to return to the type of growth it once enjoyed, it must innovate its way out of its current predicament."

Posted by Bruce Lehr April 13th 2011.

 

Brand-name Drug Pricing. More than Theoretical Problem

Techdirt.com had this post this morning commenting on brand name drug pricing -- particularly for those drugs approaching the end of their patent life.  Though this blog can be a bit hysterical many times when it comes to the pharma industry and it perceived negative behaviors - the second part of this post makes an interesting point for marketers to consider.

The observation is that companies with brand name drugs that are about to come off patent are tending to raise prices more dramatically on those drugs compared to their whole portfolio -- presumably as they have more of a monopoly position while the last vetiges of their patents are in effect.  The blog asks if this is short-sighted profit taking? 

The blog also notes that historically brand-name drugs, due to their previous marketing/branding efforts, tended to still be able to claim a price premuim in the market over generic competitors.  So in raising the magnitude of that premium now, aren't these marketers making it even more attractive for consumers to switch quicker when a generic becomes available?  Effectively, is raising prices signifcantly prior to patent expiration just a recipe for causing quicker conversion to competitive products when they are available? 

Would companies in fact be better off, maybe lowering price slightly towards the end to make price differences less dramatic when the generics came in (though this depends on prices generic companies woudl choose to offer as well) and rely on that branding to carry the day in holding on to more share when the competition hits?  Isn't that what branding is for anyway?  To increase perceived value of a product.

It would be interesting to analyze because I think the recent data shows that generic conversion is happening much quicker now.  In part, is that due to price increases on a product shortly before patent expiration?  Or is the bigger factor, the reality that more third party payers are much more organized in making the switch to generics happen sooner.  Either way, does a big price increase just prior to patent expiration or a moderation of pricing to better compete with generics result in a bigger total profit for the drug in question.

It's interesting to contemplate.

Posted by Bruce Lehr April 8th 2011.

Novartis Cuts Costs to Keep R&D Spend

Novartis CEO Joe Jimenez says he is committed to cutting costs to allow Novartis to keep its $8 billion per year R&D spend to keep its pipeline full and flourishing.  He says Novartis has historically been able to deliver 1 product to market for every 6 that enter pre-clinicals (vs industry average of 1 in 23).  He attributes this to Novartis philosophy of going after meds in areas of high unmet need regardless of the market size.  Frequently, the company after gaining approval in the more narrow area is able to then find additional indications in bigger markets.

Jimenez contrasts this approach versus Pfizer which has announced R&D cuts of $1.5-$2 billion in order to offer returns in the face of Lipitor's patent expiration (not too mention stock buy backs and divestitures).  Jimenez says, "We're going the totally opposite way, which is using our cost reduction to continue to keep our R&D spending at the top of the industry".  Novartis continues to spend at a rate of aobut 20% of its pharma sales.

Jimenez notes Novartis has 147 compounds in clinical trials and analysts have pegged several as potential blockbusters (> $1 billion annual sales), such as Ilaris for gout and QVA149 for the treatment of COPD.  Jimenes says he is confident the company can keep its high R&D spending while also delivering strong double-digit growth in sales and profits. This will also allow it to maintain itself as a diversified company with investments in generics, vaccines, diangostics, OTC, and animal health businesses too.   See Wall Street Journal and Fierce Biotech.  

 

 

Posted by Bruce Lehr April 4th 2011.

C'mon Big Pharma, Break It Up Break It Up!

There have been several articles and blog posts circulating about whether many of the Big Pharma companies ought to consider breaking up to bring more focus -- and success -- to their drug businesses.  Several analysts and Wall Street watchers seem to be proponents of this idea.

The fact is that Big Pharma's R&D pipeline has not been as productive this past decade - the so-called Lost Decade.  This may be due (pick your poison) to tighter standards at the FDA, short-term return management practices, and poor R&D project selection and execution.  The situation is exacerbated by looming patent expirations (lost revenue) and by increasing 3rd party payer and government pricing pressures. All of this makes it difficult to keep funding expensive R&D groups that are exhibiting low returns. Seeking Alpha presented an analysis today that shows Pfizer, BMS, Merck, and Lilly all showed a 55-65% loss in real terms in their stock value over the past decade. OUCH!

Luke Timmerman wrote a post for BioBeat in Xconomy this morning that notes "bigger isn't always better".  The gist is that mega-mergers in pharma have not created value.  Additionally, these very large enterprises are too difficult to manage because they are so far flung.  They also consume a lot of managment time, overhead, and other cost not directly related to discovery (in R&D area).  Basically, it is wasteful and inefficient. Should the industry look to spin out non-core pharma businesses so it can concentrate on the finding new drugs? 

Well, Pfizer has announced that it does plan to look at whether it will sell or spin-off its non-core pharma businesses - animal health, nutritionals, consumer health and capsules -- to get back to its "innovative core".  The notion generally drew positive comments from commentators and the stock price rose 2%. 

Analysts have also wondered aloud if a company like Abbott might not do something similar with its valuable nutrional and diagnostic business units.  Speculation is that Abbott could see a 33% bump in its stock price if it were to make such a move.  It could then presumably focus the increased wealth on its drug business and get ready to find replacments for Humira revenues by 2016. See PharmaGossip and Barrons.

For a final word on this, we'l turn to a recent interview of GSK's CEO Andrew Witty, "We need to recapture the ability to empower creative talent in the discovery phase of R&D by creating an environment in the labs that reflects the fact that discovering a drug is as much an art as it is a process." 

We need to get back more to a biotech feel in R&D -- an environment that is smaller, nimbler and entrepreneurial and not so stifflingly big and corporate. Plus we need to explore taking som eof the savings from these trimmed R&D groups and spend that money on external public-private collaborations, research consortiums with more open data-sharing models, and look for better collaboration between discovery groups, regulators and governments.

 Posted by Bruce Lehr March 28th 2011.

 

BMS CEO Seemingly Gloats Over Impilimumab

BMS CEO Lamberto Andreotti says FDA-approval of ipilimumab for melanoma validates that the Big Pharma R&D model (at least as embodied in BMS) works.  See WSJ interview.

I'm thinking one drug does not a pipeline make and don't count your chickens before they have hatched.  No doubt an FDA approval of a drug likely to spin billions in revenue into BMS company coffers is plenty of reason to celebrate, but I wouldn't equate it with validation of a industry's R&D model or even BMS' model as a company. 

"My R&D pays" says Andreotti, "It pays not only because we have results, but because we invest our money very carefully."

Andreotti says BMS has spread risk by developing drugs for a range of different diseases using different approaches rather than pursuing various kinds of businesses [Ed note: like animal health, diagnostics, or consumer products].

My comments?  In general, I like idea of divesting non-pharma businesses (e.g. Mead Johnson nutrition) to focus on pharma if that is the business you want to be in.  I'm in alignment there with BMS approach (one Pfizer says it will also move toward).  But, I still think the jury shall remain out until BMS can consistently deliver approvals from its pipeline - until then I would avoid crowing about my R&D success.  Maybe besieged pharma CEO's need to tout their strategy "successes" whenever they get the chance.  But it is a long term game, so a string of long term successes is more indicative of proof for a successful model.

 

Posted by Bruce Lehr March 27th 2011.

KV's 'outlandish' price for prenatal drug stirs hornet's nest

KV's pricing decision on its hormone therapy, Makena, has done it now.  Most of you are undoubtedly aware that the company successfully introduced an FDA approved version of the drug earlier this month under the Orphan Drug Act.  With its FDA approval and seven years market exclusivity provided by the act, KV promptly raised the list price to $1500 per dose from the prevailing rate of $20-30 that was being delivered from in-house compounding pharmacies.  The next sound you could hear was the hornet's buzzing!

Backlash builds over KV's 'outlandish' price for prenatal drug.

KV now has members of the US Senate, the FTC, the March of Dimes, the NEJM, the American College of Obstetricians and Gynecologists (ACOG), and the American Academy of Pediatrics in hot pursuit and calling for them to roll back their "outlandish" price.  The FTC, at the Senate's request, will investigate whether the company is engaging in "potential anticompetitive conduct".  Most of the above groups have contacted KV directly to lobby it to reduce its price - even its former allies, like the March of Dimes, has expressed shock and outrage at the pricing decision.

For its part, KV seems to have figured out that it made a serious error in judgment but may not have figured out what to do about it.  It does seem to know that it will be unlikely to get past third party payers at this point and all the other anti-constituencies that it has united.  KV issued a statement in its latest 10Q filing with the SEC acknowledging the risk it now faces with its pricing.  It noted the following issues it needs to deal with for its pricing of Makena:

• Ability to maintain certain net pricing
• Degree of success in obtaining 3rd party reimbursement - including government, privae health insurers, HMOs, insurance companies, and Medicaid
• Convincing medical practitioners to prescribe
• Degree to which compounding pharmacies continue to produce unlicensed alternatives

"The success of the Company is largely dependent upon these efforts and appropriately responding to both the media and governmental concerns regarding the pricing of Makena."

As noted by several commentators, the whole circumstance appears to have been created by KV receiving Orphan status and exclusivity for a product it did not discover, didn't fund clinical trial work on, and don't even manufacture.  Then it MADE an egregious pricing decision for which it is deservedly being criticized.  However, one must question why Orphan status was even a possibility on a drug that had been around for 50 years, was previously shown to work in this application.  KV added some benefit in producing it under GMPs but certainly did NOT create any clinical value to the patient or provider along the lines of a $20 to $1500 per dose increase.  That's just plain greedy. 

This type of action I hope will be considered by the Congress in lookng at the Orphan Drug Act.  The Act has been good generally but is clearly intended as a carrot for companies to produce novel treatments for diseases/markets that would otherwise be unattractive for their revenues -- unless conferred with exclusivity.  However, it was not intended to allow a company to take an old treatment - gain approval - and then exploit a pricing position under a regulatory monopoly.  With the law written as it is, there is nothing to prevent another company from doing the same in the future.  It wouldn't surprise me if someone was working on new (old) projects right now. 

 
Posted by Bruce Lehr March 26th 2011.

GSK CEO Cites Pharma Industry Missteps

In a wide-ranging interview with The Guardian, GSK CEO Andrew Witty tells the interviewer while discussing big companies and their role in society,

"That's one of the great mis-steps of business over the last 20 years. They've allowed it to be perceived that it's all about money. It shouldn't be about that… We want to make a return, yes – we're not a charity. We want to make a good return for our shareholders. But we're going to do it by being in step with society."

The article credits Witty with beginning some chnages at GSK - including an end to obsessing about "white pills for western markets", claiming that the era of "bankable blockbusters" was over.  GSK's future lies in emerging markets and in developing vaccines; the company is the world's largest vaccine supplier with a 29% market share, and results from a potentially ground-breaking malaria prophylactic are due later this year.

"The minute a market begins to emerge, governments, people, start to prioritize resources to healthcare and one of the very first places they focus is vaccination," says Witty.

GSK has capped the cost of its drugs in the world's least developed nations at 25% of UK prices, with HIV drugs at cost. It has pledged to hand 20% of its profits from these countries to charities for the development of healthcare infrastructure. He has urged the rest of the drugs industry to do the same saying the individual impact is modest but the aggregate impact is significant.

These type of initiatives are more in line with a post I wrote almost a year ago about "Why Betterness is Good Business".  The gist was that companies who were good corporate citizens as well as well-run businesses earned best-in-class profits too.  There is a good, old-fashioned ROI incentive (in addition to perhaps more altruistic goals) to be in touch with your customers and society in a meaningful way.

 

 

 

 

Posted by Bruce Lehr March 20th 2011.

When is bigger Pharma not better Pharma?

According to In the Pipeline - when it's Pfizer.  And likely most other Big Pharma companies too.  As posted here yesterday, Pfizer intends to cut back to its "innovative core" by spinning off it non-Pharma divisions. This will allow it to concentrate on the drug business.  Now -- can Pfizer be successful doing that?

It seems most analysts and pundits woudl like to see them give it a shot -- as what they have been doing is thrilling no one.

 

 

Posted by Bruce Lehr March 15th 2011.

Pfizer Breaks Up to be More like Eli Lilly?

I was struck by several articles (see WSJ, Pharmalot, Fierce Biotech) today talking about Pfizer's contemplated sell off, spin-out, break up to become a smaller more focused company.  The idea is that it would divest its four non-pharma units - that being nutritionals, consumer health, animal health and Capsugel (capsule making) units.  It could also choose to spin out its "established products" group of off-patent drugs, generics and biosimilars.  This could amount to 40% or more of the current $67 B in revenues. Good idea?  Merck (Medco), BMS (Zimmer & Mead Johnson), Lilly (Guidant) and Abbott (Hospira) have all been cited as positive spin offs.

Presumably, Pfizer would then be able to focus, according to the new CEO, on its "innovative core". [Be The Ball]. This core consisting of its four pharma units - primary care, specialty care, oncology and emerging markets. This would also allow it to cut its R&D spend and apply it to a smaller company.  This may all be a great idea.  The analysts seem enraptured by it at the moment.  However, I was struck by a line I saw in several of the articles stating that Pfizer would then be able to "morph into a pure pharmaceutical research company" like Eli Lilly. Huh?

Has anyone read analyses of Lilly lately?  Particularly relative to their approach to the proverbial patent cliff.  Lilly stands poised to lose approximately 75% of its current revenues from patent expirations within the next 7 years.  It seems to be a foregone conclusion that Lilly will experience revenue drops in 2011 and 2012 at minimum -- before they have any chance to start growing again. Seeking Alpha discusses this.  They note that Lilly hasn't had the best track record of late delivering drugs out of its pipeline despite apparent attractive candidates.  If their revenue continues to fall beyond 2012, they are overvalued according to Seeking.  If they are able to deliver, they are undervalued -- but they need to deliver.

You know what?  Pfizer also has intriguing candidates in its pipeline too.  But it also has an even worse track record than Lilly in getting the darn things out. And when they put their spin-out plan into effect, they will have less diversification to lay off risk -- certainly within this new stand alone pharma business.  There's the rub.  The new model may be very attractive for its potential -- but it will reduce any safety net - and the business will need to deliver out of its pipeline to make it work. That means results need to improve dramatically from the pipeline - with the more focused and leaner R&D spend planned.

 

 

Posted by Bruce Lehr March 14th 2011.

Wokasch: Why Not Branded Drugs at Generic's Prices?

Mike Wokasch at the Pharma Reform blog note the changing landscape with regard to generics.  Generics now represent more than 70% of the volume of prescriptions written in the US and continues to increase.  He notes that this happens very quickly now as 3rd party payers and the government have placed strong incentives in place to make this happen in a matter of months once a branded drug loses patent protection.

Wokasch further notes that branded makers should be able to sell their product to the market at the lower generic market price than even the generic producers can as they have already made the investment in manufacturing/improvements, supply chain, packaging & distribution, marketing/sales.  All of these expenses by comparison would be new and incremental for a new generic maker of the same drug.  

He asks the provocative question - Why don't branded manufacturers drop their price to generic levels once the patent life is gone?  He argues this would allow them to hold market share.  It would also make it easier on payers and patients if they didn't have to switch drugs they were purchasing or using.  Why not?  In the past, it was likely more of a real dollar and cents issue of profits being eroded too quickly as the generics took a while to take over.  But now, does that still hold?  This conversion takes place in weeks to months. 

The biggest issue, he says, may be that innovators may see this as "throwing in the towel".  To me, to  a large degree it would be an admission that they weren't adding any value once the drug went generic -- and I'm not sure they are.  I think the argument that most or all generic makers produce an inferior product is dubious.  But, I do see a problem with an innovator diluting its brand by going generic under same brand name.  I think it would be necessary to at least form a separate division ala Novartis that uses that name for innovative products and uses its Sandoz division to produce generics. 

I am still of the opinion that for the bulk of the innovators -- most will end up producing generics too as they struggle with their pipelines and financial issues.  Roche may remain an exception -- but will in fact be an EXCEPTION.  Most companies will produce brand name products and generics -- and I think some of the generic producers will cross over the other way and make innovative products too. 

So, I suspect many innovators will adopt some kind of quick conversion generic strategy where they will sell the same drug at lower prices soon after patent expiration.  They will use another brand (company) name for the product (same drug name), and may also segment geographically as to where they sell the generic or perhaps  by end user like government versus private sector. But I think it will happen.

Posted by Bruce Lehr March 12th 2011.

Gates Foundation Takes Equity Stake in Liquidia Tech

As reported in Xconomy-Seattle, the Bill and Melinda Gates Foundation has broken new ground by making its first equity investment in a biotech firm.  The company, Liquidia Technologies in RTP, NC, is the recipient of $10 M in equity investing.  The Gates foundation will have a non-voting member on its board as part of the deal.

Liquidia has a novel 3-D nanotechnology that allows it to create specific shaped particles very reproducibly to evoke a specific immune response and is useful in a variety of vaccine applications.  The tight 3-D particle shape control is scalable and is expected to be accepted by the regulatory bodies like the FDA.

In return for its investment, the Gates foundation will have intimate access to the company's development programs and be able to provide input.  They will have an expectation that the company will make its technolgy available for global health products development in keeping with the Gates' mission.  As part of the deal, Gates has specified particular projects that it would like to see Liquidia work on.

Gates says this is a different type of tool it would like to experiment with to back companies in which it has a specific interest that have platform technologies with a wide variety of applications. The equity funding format is more flexible for Liquidia and if things go well follow on funding is possible.

 

Posted by Bruce Lehr Mar 8th 2011.

Biotech IPOs are Extinct. Need New Partnering-Risk Sharing Models

Luke Timmerman wrote this nice piece in Xconomy today talking about how the biotech industry needs to get away from IPOs as a potential funding mechanism and work with new risk-sharing/partnering models. The article uses Plexxikon's experience as a case study of sorts.

Last week, Plexxikon agreed to be acquired by Daiichi Sankyo for $805 M upfront plus up to another $130 M in milestones. And they were able to accomplish this after having raised only $67 M in funding over the years to establish its technology. According to Plexxicon's CEO, Peter Hirth, the company had relatively few means of cashing out as the IPO market was dead to them -- certainly at this type of $900 M+ price. 

Timmerman's point?  If this was true of Plexxikon, a company with something of real value to sell, what are the prospects for other biotechs?  The answer slim and none when it comes to the old IPO model for cashing out. There will be no other Genentech's and Amgen's coming through this mechanism.

Rather, something like the Plexxikon model is more likely to take over. Namely, Plexxikon has established a means to gain an in depth understanding of the targets it pursues, crafts a drug to work with that target, and also develops a companion diagnostic to select those patients who are most likely to respond favorably to its new therapy. In other words, they really understand the biology of the disease and science they are pursuing.

Plexxikon was then able to take its science to partners to develop into therapies.  The deals generated cash flow and funded further development. Plexxikon had to give up some of the ownership of the projects but also gained partners to share the risk.  The company was then able to stick to its area of expertise which was drug discovery and development -- and didn't need to develo expertise in all the other functional areas and their associated costs.

"We'd rather own 20 percent of a given product, not vertically integrate, and license it away at a value inflection point," says Hirth, "the industry really needs to rethink itself.  Most of the people are living 20 years in the past, and don't realize that they need to change."

It's change or become extinct.

 

 

 

 

Posted by Bruce Lehr March 7th 2011.

 

 

Big Pharma "We Have a Problem"

An article appearing in the NY Times today, and being amplified in PharmaGossip and Pharma Reform, re-emphasizes the mess the pharma industry is in as it hits the wall by on by (in no particular order):

• A spate of blockbuster drugs coming off patent
• A severe lack of new blockbusters coming through the pipeline
• Very much increased pricing pressure from 3rd party payers and governments
• Increased regulatory and government oversight resulting in fewer new approvals and an epidemic of manufacturing problems coming to light

According to a new Morgan Stanley report, "The operating environment for pharma is worsening rapidly."  And chiming in from the Center for the Study of Drug Development at Tufts is its director, Kenneth I. Kaitlin who cheerily adds, "This is panic time, this is truly panic time for the industry."  Other analysts say the industry became too dependent on the blockbuster model.  Now what?

"We seem to have a systemic problem here" says Francis Collins, director of NIH.  The Pharma Reform blog dourly adds that the situation was decades in the making and will take decades to turn around.  It further adds, that the business model will need to be revamped to include changes along the following lines:

• Must increase operational efficiency - more productivity with less wasted cost
• Must become more responsive to healthcare market needs
• Must replace traditional sales and marketing with healthcare market embraced programs(more education/science)
• Need to be responsive to heathcare provider needs and patient well-being rather than driving solely toward Wall Street returns
• Need to provide clinically meaningful benefits over currently available therapies

All of this will require a major change in philosophy and operating models - returning more to science based approach to finding preventions, treatments and cures with much much much less focus on me-toos and trial and error matches of proposed therapies to putative disease targets.  The  industry needs to fix its "innovative core" and will be in trouble until it does.

 

 

 

 

Posted by Bruce Lehr March 7th 2011.

Traditional Drug Model Overripe?

Here's another article, this time from NatureNews, claiming the current Big Pharma drug discovery model is past its time and will need to be replaced by something new - in this case with a more "open innovation" model consisting of participants from industry, academia, government and even charities.  Not a new idea but seemingly a persistent one even in face of historic opposition.

Clearly, the industry is reshaping R&D.  We've seen large cuts in Big Pharma R&D.  We're starting to see outsourcing.  We're seeing venture capital funding.  We're seeing technology and company acquisitions. Are we seeing open innovation?  Well yes, in the case of rare diseases -- and possibly for diseases endemic to only developing markets where the tradtional economic model looks weak.

An open innovation model is scientifically appealing. One problem it addresses well is the tendency of drug companies to pursue similar or identical target molecules for certain diseases.  It would be beneficial to know in advance that a certain approach has already been tried and failed - rather than throw away the time and effort to repeat a failed clinical study.  Not to mention sparing clinical trial participants the exposure to a failed approach.

But this type of model requires a certain amount of cooperation on the IP front.  Information needs to be shared at early stages in development. The model would also likely involve academic institutions in these early stages and these groups need to be funded. That may require cooperation from both the pharma industry, government and the aforementioned charitable funding agencies to provide the bucks to complete the work.

The carrot for industry in this is that it would share risk and cut expense for them.  But, industry still wants a return on whatever funding it provides -- unlike perhaps a charitable agency or a government which may be more satisfied with the cure itself regardless of whether it collects direct profits. Industry representatives who have commented on this approach have noted that IP concerns remain the biggest hurdle for them in investing in this model.  This model will likely get a trial in malaria.

But, industry being industry wisely will not put all its eggs in one basket.  Other academic-industry models are being employed where individual pharma companies have provided funding to academic partners -- usually in targeted disease areas -- in return for right of first refusal on discoveries. The idea is to make the academic partners into more of the industrial discovery arm. And this model, does take care of industry's IP concerns.

At least people are talking about different models now as the old standbys do appear to have run their effective course.  We will need to see which models apply best in certain situations.  It is likely better to have several working and competing models that can be applied to the proper circumstances.  One size is unlikley to fit all.

Posted by Bruce Lehr March 2nd 2011.

 

 

Avalon's Kinsella says Big Pharma more 'Predatory' toward Biotech VC's

Avalon's founder, Kevin Kinsella, says that Big Pharma predatory deal practices are about to destroy the life science or biotech VC community (or ecosystem as he calls it).  Since 2000, Kinsella says the situation has deteriorated.  In an article in Xconomy-San Diego, he cites the following types of practices from Big Pharma's business development groups as particularly detrimental:

• Deals with biotech have become completely back-ended.  Big Pharma is only providing enough upfront payments in deals to compensate the original VC investment.  All other upside must come from future milestones that are in the distance.  [Ed. note: I don't find that surprising given some of the large front loaded deals of the past that didn't come close to paying off for Big Pharma.  Sounds like a little VC whining to me. Likely will reduce VC activity in this area though].  The upshot is that VC's will be less than enamored to invest in early stages and to provide follow on funding.
• Bad faith negotiations.  Kinsella cites an increase since 2005 in instances where Big Pharma negotiated acquisition deals to completion and then walked away with no explanation.  The motive appeared to be deal shopping in some instances.  [Ed note: I agree this is highly unethical practice - especially if occuring with increasing frequency. It will make biotech's and VC's gunshy]. 
• Partnerships without risk.  Big Pharma is increasingly leery of funding any early stage work. Kinsella characterizes anything being offered prior to phase III as a "crappy deals".  In many cases, he claims Big Pharma may be more interested in tying up IP than developing the property to commercial. That means VC's have to raise more money and absorb bigger risk. The liklihood is that fewer of these projects will get funded. [Ed. note: My take is that it is rational for Big Pharma to want to do this given the past failures.  However, Kinsella is undoubtedly correct that this will result in less VC activity and fewer funded projects in this area under those conditions.  Also Big Pharma will end up bidding against itself for those fewer phase III projects - driving up their price.  This is likely unsustainable if all Big Pharma tries this approach].

Kinsella says in the article, "One might say that all this is just the way capitalism works, and on a micro level, I can't argue that."  So don't, I'd say.

However, Kinsella warns that VC's are less willing to assume risk of developing early stage drugs in chronic disease areas - and are more inclined to go after more me-too applications in defined areas. That will reduce investment in innovation needed for areas like heart disease, neurological disorders, osteoporosis, and other chronic diseases.

Almost anything else requires too much capital, too much time and too much reliance on a predatory Big Pharma BD team.  This results in aversion to risk, lower innovation, fewer venture funds for life science, less capital to invest and fewer biotechs. 

Isn't that cheery?

Posted by Bruce Lehr Feb 19th 2011.

 

 

 

Lilly Expands R&D with Virtual Companies and VC Funding

Lilly announced a new program to expand its R&D reach through a new program that has established three VC funds to help allay risk. Lilly will contribute $50 M to each fund and will rely on VC partners to raise an additional $600 M.  See Fierce Biotech.

Targeted experimental drugs will be explored by virtual drug companies, with Lilly geting first right of refusal at licensing any properties that come out of the development program. In this manner, Lilly can expand its early stage pipeline without bearing all the financial risk. It can also cherry-pick the most promising candidates for advancement into phase II and III trials.  

Said John Lechleiter, LIlly CEO, "This way we are not limited by our own resources and we can have more 'shots on goal'."

It's nice to see a novel approach.

 

 

Posted by Bruce Lehr Feb 15th 2011.