Monday, June 29, 2009

Lighting A Fire Over FDA

FDA has sometimes been portrayed as an agency full of cautious bureaucrats who would rather dicker with sponsors about esoteric statistical issues than approve products that patients need. But events we witnessed Friday underscore that the agency is full of hard working professionals well aware of the life or death implications of their jobs. Around seven p.m., a thunderstorm rolled through the Washington area, pretty typical for a summer evening. But after the deluge, there was another ripple of noise: sirens were blaring as emergency personnel raced towards FDA's Parklawn building, the massive structure in Rockville, Md., that had served as the agency's flagship office before the birth of the White Oak campus.

Fire trucks from Wheaton, Sliver Spring, and the National Institutes of Health – who knew? – converged on Parklawn, and a stretcher was wheeled towards the entrance.

Outside, evacuees clustered in three groups – security guards, cleaning staff, and a looser amalgam of desk workers. Everybody's consensus was that lighting had struck the building. The lights had flickered out and the emergency ones had come on, along with the fire alarms and an automated voice telling everyone to leave. But even the folks who wanted to go home after that were stuck; the fire trucks had blocked the entrance to the parking lot.

It seems that nothing too serious had happened. The evacuation order was a preliminary communication about an emerging safety issue, if you will. Eventually the fire trucks drove off and the employees drifted back in. And as night fell, there were still lights burning in Parklawn.

M. Nielsen Hobbs

VC Financing: Enter Comparative Trials and REMS Post-market Plans

In Washington, the policymakers and legislators are arguing over how to build comparative effectiveness research into the health reform bill.

Eleven miles away in the Maryland suburbs at the Food & Drug Administration’s new White Oak campus, the regulators are figuring out on a case-by-case basis how to apply their new authority to order post-approval education, distribution and testing programs for new drug approvals. under the Risk Evaluation & Mitigation Strategies authority.

But in the private capital markets removed from the political capital, these two issues are already moving from the conceptual, formative stages into real world requirements. Drug and biological entrepreneurs are learning that they better have answers to questions about both requirements when they go into venture capital firms for development funds.

VCs now expect companies seeking funding to bring in plans for comparative research during drug development and to recognize early what level of post-marketing controls FDA will require.

That’s what MPM Capital’s Gary Patou (in the picture above) told a session on successful drug development plans at the recent annual meeting of the Drug Information Association in San Diego. Clear plans for comparative effectiveness testing and post-marketing controls are becoming de rigeur parts of solicitations for funding from VCs, he says. (For a longer examination of the new de facto requirements for drug development plans from venture capital firms, see this story from The RPM Report.)

That means that the funding spigot from private capital will help enforce and establish the new government additions to drug development. Policy is made in DC, but practice is enforced by VCs.

Sunday, June 28, 2009

While You Were Oh So Close

Chalk it up as a learning experience for US Soccer, but damn that was a tough loss on Sunday in the Confederations Cup final. At least the trip to the finals should bode well for next year's world cup. OK we're off to our Euro-Biotech Forum meeting early in the morning on Monday (a 6am bus to the airport! so glamorous.) so we're letting this WYW fly early (we'll try to update early Monday morning ET).

Hope to see some of you in Barcelona. While you were brushing up on your Catalan ...

  • The New York Times' Forty Years War series about cancer research asks whether the NCI's grant system--which tends to award cash for projects likely to lead toward only incremental advances, according to the article--is an impediment to more fundamental advances that are typically based on riskier research.
  • This week's rumored buyer of Elan is Novartis. The Sunday Times (via Reuters) is reporting a well placed sources confirmed the talks. Meh.
  • Novo Nordisk tries to capitalize on Sanofi's Lantus woes, points out its Levemir insulin hasn't seen the same cancer signal that has knocked Lantus.
  • Is fibromuscular dysplasia an underdiagnosed condition or an extremely rare disease? The WSJ reviews the evidence.
  • The NYT's Well blog asks (and kind of answers) the question, Can you get fit in six minutes a week? Check out the post; we'd tell you ourselves but the premise got us to thinking about the 'six minute abs' scene in "There's Something About Mary" and we surfed over to youtube to find it. Yes, it's still hilarious.
  • Lidge saves. No kidding!

Friday, June 26, 2009

DotW: Dollars To Donuts

It was a busy week but not necessarily in terms of deal-making activity. Instead, all eyes were on Washington DC, where the discussion on healthcare reform continued to dominate--from the spacious halls of Congress to the tight confines of taxi cabs. As you muse over how many dollars it will take to close the donut hole (are these the Dunkin' variety or Krispy Kremes?) and ponder emerging news about the exclusivity period for biologics, we bring you...

GlaxoSmithKline/Chroma: We confess we've had entirely too much fun writing about this deal this week. We could use this post to delve into the industry's mysterious desire to inflate a deal's price by including stratospheric but highly improbable bio-bucks figures. But where is the fun in that? So let's focus on the actual deal. Here's what we know: GSK and Chroma teamed up June 23 in an option-based drug discovery and development deal. In conjunction with the deal, Chroma announced its $24.5 million Series D financing, which GSK also took part in, although it hasn't become a major shareholder overall. According to Chroma's CEO Ian Nicholson, GSK's stake is "well below 10 percent." Further terms weren't disclosed beyond the $1 billion 'biodollars' figure Chroma cited in a press release, but the helpful folks at EP Vantage provided some additional color on the tie-up: "we found out that GSK paid £5m upfront and contributed £5m of the £15m Series D, giving GSK a 5% equity stake in Chroma. So a total upfront consideration of £10m," EPV commented on our earlier post.

Every little bit counts, as they say. In exchange for the cash and equity, Chroma will use its macrophage-targeting technology to identify four small molecules, mainly for inflammatory and auto-immune disease indications, although the deal covers other indications as well, according to Nicholson. The biotech will take these compounds through proof of concept, at which point Glaxo can exercise its option to take an exclusive worldwide license. As an option-based deal, the tie-up illustrates yet again that this kind of risk-sharing approach to partnerships is GSK's modus operandi. (When it comes to actually exercising the option--well, that's another story.) Earlier this month the Big Pharma signed a similar deal with Concert Pharmaceuticals around three preclinical candidates in which it paid $18.3 million up front in cash and took a $16.7 million equity stake.

From Chroma's standpoint the equity stake was likely just as important as the option portion of the deal. At a time when every small company is a seller, and Big Pharma is barraged with pitches screaming "Buy me!" (or at least "Buy a piece of me!"), engaging the larger company is the real sticking point for smaller biotechs. With skin in the game, GSK is far likelier to pay closer attention to the ongoing work at Chroma, which likely stands to benefit the company as its programs move through development. Indeed, the need to engage Big Pharma is one reason traditional VCs are going out of their way to include corporate venture investors in their syndicates (the fact that CVCs still have money to commit is just a minor detail).

Biovail/Cambridge: Okay, we admit it: we’re obsessed with Xenazine, a drug for Hungington’s chorea that was approved by FDA last year. But we have our reasons. We see Xenazine as exactly the type of narrow-market product that the new regulatory and reimbursement climate favors. And, as the flurry of deal-making triggered by its approval indicates, it demonstrates that these types of products can be very lucrative, albeit not at the level of the primary care blockbusters Big Pharma is built on. (You can read much more “The Billion Dollar REMS,” from The RPM Report.)

Biovail certainly agrees with us: the company paid $200 million to buy-out Xenazine developer Prestwick Pharmaceuticals. That deal was complex, since Ovation (now Lundbeck Inc.) simultaneously acquired US marketing rights for the drug for $50 million, so Biovail really acquired Canadian marketing rights and a US royalty stream. Now Biovail is upping its piece of the Xenazine pie by acquiring global commercial rights from Cambridge Labs. Biovail paid $200 million when the deal closed June 22—an indication of the value the company sees in the product. The company will pay an additional $30 million over the next two years.

In one sense, Biovail is simply buying out a large royalty obligation: Cambridge collected 50% of US revenues. With almost 2,000 patients already on therapy at an average annual cost of $30,000 to $50,000 each, that is already a significant amount. Biovail won't save all that money; the company will continue to pay a royalty to an undisclosed third-party who manufacturers the product for global markets.

Still, Biovail says the transaction will be immediately accretive to revenues and margins, and will add $23 million to $26 million to Biovail’s cash flow in 2010. (Those figures include the contribution from international sales from European marketers of the drug as well as the impact from canceling out the royalty obligation.) It is also a pipeline play, giving Biovail full rights to a controlled-release formulation of the drug and a single isomer version of the active ingredient. Those line extensions may be key to expanding the market beyond Huntington’s; the extended release form is in development for Tourette Syndrome.

But the deal has one more wrinkle, in keeping with the unique profile of Xenazine: It takes out a layer between Biovail and international marketers of the drug, and this is a case where cutting out a middleman can pay off for reasons that aren't strictly economic. Xenazine is basically a generic drug around the world, raising a high potential for diversion into the US to capitalize on the premium price. Biovail told its investors during its second quarter call in May that Cambridge was keeping appropriate track of the supply in Europe, and the company says preventing diversion is not a factor in this deal. But we’re still betting that this transaction buys Biovail some peace of mind.—Michael McCaughan

MediciNova/Avigen: It ain't over till it's over, but for Avigen--and major shareholder Biotechnology Value Fund--the future grows clearer every day. Late on Thursday came news that MediciNova and Avigen had reached an "understanding of certain key terms", paving the way for MediciNova's acquisition of the troubled biotech. Should it come to fruition, the deal would combine the two companies' development programs based on the novel glial activation inhibitor ibudlast. (Avigen's AV-411 is stalled in Phase I studies for neuropathic pain; while MediciNova's MN-166 has advanced to Phase II for multiple sclerosis.) Interestingly, the buy-out by MediciNova recalls the plan Biotechnology Value Fund proposed several months ago.

Avigen has been reeling ever since last fall when its multiple sclerosis spasticity drug, AV-650, failed to meet its primary endpoint in a Phase IIb study. Shortly afterwards, Avigen reduced headcount and suspended its other clinical programs but BVF, loudly and publicly, called upon the biotech to suspend operations and return its remaining cash to its shareholders. Meanwhile, BVF offered to buy the company's outstanding shares with a tender offer of $1.20 per share, with the intention of merging Avigen with MediciNova. But to effect this latter proposal, BVF needed to win control of the board, a change that could only happen with the support of two-thirds of Avigen's shareholders. In late March, BVF came close--its proposal swayed 58% of Avigen's investors--but that wasn't good enough. At the time Avigen's acting CEO, Andrew Sauter, promised the biotech would sell off the remaining assets and roll-up the company. In an interview with "The Pink Sheet" DAILY, Sauter made it clear that Avigen would consider a bid by MediciNova as long as it offered fair return to Avigen shareholders.

And it looks like both sides have come to an agreement on the definition of "fair". Under the terms of the merger, Avigen shareholders will receive a consideration approximating Avigen's net cash liquidation value plus $3 million. Avigen shareholders would be able to elect to receive this consideration in cash or as MediciNova stock. At the end of 18 months, any unexercised convertible securities would be paid out at their cash value. "We believe that the proposed merger presents clear advantages for the shareholders of both companies," said Yuichi Iwaki, MediciNova's President and Chief Executive Officer, in a press release.

Astellas/NeurogesX: This week's deal with Astellas to market and distribute the neuropathic pain patch Qutenza in Europe bolsters NeurogesX’s cash position, giving the company some breathing room to prepare for regulatory approval and a 2010 launch in the U.S. market. Qutenza was approved for neuropathic pain in non-diabetic patients by the European Medicines Agency in May and it is pending review at the FDA, with an Aug. 16 user fee date. A European launch is expected by the first half of 2010. NeurogesX is set to get €30 million ($42 million) upfront for Qutenza commercialization rights from Astellas' European subsidiary. In addition to 27 countries in the European Union, the deal covers Iceland, Switzerland, and some countries in the Middle East and Africa. This isn't exactly the deal Astellas watchers have been expecting ever since it tried--and failed--to bring CV Therapeutics in-house. But in a small way, rights to Qutenza help the Japanese pharma achieve another ambition: bolstering its European presence with an additional product it can market alongside its specialist-focused medicines in dermatology, urology, transplantation, and infectious disease. The dermal patch Qutenza packs a high concentration form of synthetic capsaicin (also called trans-capsaicin) that stimulates transient vanilloid 1 receptors in the skin to subdue overactive pain receptors. As part of this week's agreement, Astellas will also pay €5 million upfront ($7 million) for a co-development and commercialization option on NGX-1998, a Phase I liquid formulation of the NeurogesX product.

The deal is definitely a balm to NeurogesX's uncertain cash position: the company had about $19 million in cash and marketable securities at the close of the first quarter, enough to carry it through 2009, but insufficient to give the company much comfort in making plans for breaking into the U.S. market. During a June 22 investors’ call, Chief Financial Officer Stephen Giglieri declined to provide runway guidance, but added: “Obviously, putting $49 million into the bank is going to extend our runway fairly significantly.” (It's all about the runway, people.) NeurogesX is also eligible for roughly $100 million in sales-based milestone payments and additional option payments for the liquid formulation. (Not billion dollar bio-bucks territory, but nothing to sneeze at either.)--Emily Hayes

LabCorp/Monogram Biosciences: Molecular diagnostics specialist Monogram Biosciences will become part of LabCorp under a tender offer announced this week. The deal, for $4.55 per share of Monogram’s stock is worth $155 million including the net indebtedness LabCorp picks up. (According to the press release announcing the news that gives Monogram an implied equity value of $106.7 million.) For the cash, LabCorp gets two of the more innovative marketed commercial tests in the molecular diagnostics space: Trofile, developed in collaboration with Pfizer, identifies patients who are eligible for the CCR5 class of HIV drugs and is a companion diagnostic for Pfizer’s first-in-class drug Selzentry; HERmark, the first commercially available functional Her2 assay, is one of a new wave of Her2 tests for breast cancer patients. Monogram is also applying the technology that led to HERmark, called VeraTag, to other cancer markers in the EGFR pathway. But it’s been struggling to come up with the resources to do that--or, as we wrote earlier this year in our coverage of the new generation of Her2 tests--to validate its Her2 assay in a prospective trial. Moreover, Monogram has been building disease management capabilities in two distinct therapy areas – HIV and oncology – also a difficult challenge for a small company with limited capital. The cash reserves at LabCorp, which has been eying the esoteric testing market for some time, should solve those problems.--Mark Ratner

(image by flickr user Pink Sherbet Photography used with permission via a creative commons license.)<

Piven on Biologics Exclusivity: Ten Years!

By now you've heard that the White House thinks seven years exclusivity for biologics is the right way to go. The branded firms were shooting for 12 or 14. Here's the Pink Sheet Daily coverage and the White House letter from Nancy Ann De Parle and Peter Orszag.

Breaking news: PhRMA and BIO have hired a new agent, who responds, uh, point blank:

Hmmm. The ball's in your court, Waxman. Happy Friday.

Thursday, June 25, 2009

Taxicab Confessions: Harvey's Health Reform Plan

President Obama, Peter Orszag, Doug Elmendorf, Senators Kennedy, Baucus, Dodd, and Grassley, HHS Secretary Sebelius, and Rep. Waxman, I hope you're listening.

You all should know, that at the very least, the health care reform debate is having a strong impact on the average citizen. They are following the debate closely and developing opinions on possible solutions. How much so? We at the In Vivo Blog and The RPM Report recently experienced it firsthand.

After a lovely rooftop event for health care watchers sponsored by Hill & Knowlton, we hopped in a cab at a respectable hour on our merry way home. Our cabbie, Harvey, somehow deciphered that we write a lot about health care. I believe what tipped Harvey off was us calculating exactly how PhRMA's $80 bil. deal would be scored by CBO, our love of the epic Senate HELP markup, and the lively debate over exactly what the final health reform bill will look like.

Harvey wanted to know more and more about our thoughts on where everything is headed. We explained as best we could in lay terms about the various pieces of legislation and where the different sides stood on the debate.

Here's the thing: Harvey knew a heck of a lot about health care policy. For example, we pointed out that a major issue in health care is payment reform and incentivizing doctors and hospitals to get paid for quality outcomes rather than volume of services.

"Exactly!" Harvey shouted. "The problem with the health care system today is that it has moved away from being about the patient. Health care reform must re-focus on the patient and the quality of care. It's not about volume of services."

As we reached our final destination after a long day of Congressional activities, Harvey said: "Do you mind if I pull over? I want to finish this conversation about health reform."

Um...sure...we'd love to talk more about it.

He then asked us whether there were any innovative projects out there that were focused on quality. We named a few: Geisinger, Billings, Intermountain Healthcare and the Medicare Physician Group Practice project.

"Wait, wait," Harvey interupted. "Let me get a pen." He got his pen and pad out. "How do you spell Geisinger?"


"And where is Geisinger?" Harvey asked us.


"And what do they do that's different from other hospital systems?"

We then explained Geisinger's system where they essentially hold to a tried-and-true quality system that has an important compliance component and if they make a mistake, they take on th extra costs.

"You know," Harvey began after our conversation about Geisinger and specifics about Intermountain and Medicare, "I think I have come up with the solution to reforming the health care system in this country."

Hmmm. I think Harvey could tell we were skeptical.

Harvey's proposal (slightly paraphrased):

"You create a number of "free" hospitals in each state. The number and location of hospitals would be dependent on the size and population distribution of a given state. The doctors who work at each hospital are paid a flat salary. Care at these hospitals would be completely free. The only pre-requisite is that patients would be completely restricted from suing. There would be no liability."

Twenty minutes after we had pulled over, he concluded: "That's the only answer I can see to the problem."

Sure, there aren't a lot of details to Harvey's plan but there's a larger lesson: Everybody appears to be engaged in the health care reform debate, so much so, that even our trusty cabdriver Harvey is coming up with innovative approaches to care.

While we don't expect to see the Harvey Provision in the Kennedy, Baucus, or Waxman bill, it's telling that the debate is trickling down to those who don't have a direct interest in health care policy and demonstrates that there is public momentum behind reform at the moment. Of course, things change quickly.

So President Obama and Chief of Staff Emanuel, Harvey is ready to brief you on his health reform plan if things stall in Congress. But you may want to leave the afternoon free for it.

Tuesday, June 23, 2009

Quick Takes from Obama Press Conference

Here's our quick takes from the Obama press conference earlier today on health reform:

1) Health care reform represented the anchor leg of Obama's prepared comments at his press briefing, following his comments first on the situation with the protests of the Iranian election and then the importance of an environment bill. We believe that's meaningful and that the White House is very serious about passing sweeping health care reform legislation, much more so than an environment bill.

2) Obama made it as clear as he ever has before: the bill must be deficit neutral or better over a decade. He will not sign a bill that isn't. What does that mean? The final bill will have to be scored at $1 trillion over 10 years. In other words, if a bill is scored as costing $1 trillion over 10 years and covers 75%-80% of the uninsured, we believe that's a bill that gets signed with a Rose Garden ceremony. The administration, or the next one, can work incrementally to cover the remaining 20%-25% of the uninsured.

3) If the only thing that stands between a health care reform bill and no health care reform bill is a public plan option, the President will sign a bill without a public plan. That was our read of his comments: "Ultimately, I may have a strong opinion but it's too early," to make a decision on the plan, Obama said.

4) Obama demonstrated a real and deep understanding of complex health care issues during the Q&A and we believe that is a positive for health care providers. Why? Because when it's time to make extremely tough decisions on reform, Obama will know exactly how deep the cuts that doctors, hospitals, insurers, and drug/medical product makers are sacrificing for reform and how policy decisions will be impacting the overall system.

5) Obama also showed real teeth when it came to the public plan debate. When asked a tough question about the potential for employers to drop their coverage and send people to a cheaper public plan and the inability of private insurers to compete with a government option, he put all of the onus on the private insurers. He essentially said that any private plan worth its salt should be able to compete ably with a public plan assuming 1) the rules are the same and 2) the public plan is not continually subsidized by taxpayer dollars--it has to be premiums paid by enrollees.

If you're interested in health care reform, you can follow our twitter feeds at and

When Is A Billion Dollars Not a Billion Dollars?

When you read about it in a press release. And today's award for most egregious use of a biodollar deal total goes to Chroma Therapeutics.

Don't get us wrong. Chroma no doubt signed an interesting, solid option-alliance with the King of All Option Alliances, GSK. The deal is in an exciting area of inflammatory disease research, using Chroma's esterase-sensitive motif (ESM) technology to create compounds targeting macrophages. Macrophages are central to inflammatory cascades that give rise to a variety of conditions. The undisclosed upfront and some early milestones will likely--if they're akin to payments in other GSK option-alliances--allow Chroma to fund the disco-development programs through POC.


But there is zero clarity in Chroma's press release on the financial details. There's only one figure: $1 billion dollars. That's what Chroma gets "in milestone and option payments in the event that all four programs are successful." Cue "$1 billion dollar deal!" headlines. [UPDATE: here's one from Reuters!]

Is it impossible for Chroma to get $1 billion of GSK's cash-money? No. Is it highly friggin' improbable they get anywhere close? Yes.

Of course the improbable happens on occasion. For instance (if you'll allow us to go off on a tangent): on Sunday night the US men's national soccer team was up against Egypt in FIFA's Confederations Cup, in the last match of the group stage. For USA to advance to the semi-final, they needed to win BIG against a highly favored Egypt. In fact their margin of victory combined with Brasil's margin of victory over Italy (thanks to the tournament's goal differential rule to break ties in the standings) had to be six goals. And they weren't exactly playing very well going into the game.

What happened? Brazil beat Italy 3-0. Improbable, but not overwhelmingly so. And USA beat Egypt 3-0. Very improbable. USA advances to play Spain tomorrow. Taken all together? Extremely improbable!

The stars do align, sometimes. We were cheering for USA from our couch on Sunday night and we wish Chroma the best too. But lets see what has to happen for Chroma to reach that ten-digit number.

Chroma's macrophage-targeting compounds don't exist yet. The company "will undertake four discovery and development programs" to identify the small molecules. OK, so that has to work out. They need to identify lead compounds, optimize, start preclinical development programs, the whole nine yards.

Those four compounds need to make it to the clinic. Then those four compounds need to be successful up through Phase II proof of concept studies (after they've been deemed safe in Phase I). Then GSK will have to like each one of them enough to pull the trigger on its option.

Now keep in mind that success in the clinic doesn't necessarily translate into an option getting exercised (nor is that necessarily bad for Chroma). See, for example, GSK's deal with Exelixis, where GSK decided not to option Exelixis' Phase III XL184. Bad news for Exelixis? Hardly--BMS came in and paid top-dollar for the program only weeks later.

OK so say the programs are all successful through POC, and GSK options all of 'em. Well then each compound needs to be successful in large Phase III clinical studies, and eventually all four need to get approval. Probably (the release doesn't say) in multiple markets like the EU, the US, Japan, maybe even some developing countries like the BRIC markets? And then we're probably talking sales milestones as well. Do all four drugs need to become blockbusters? Do they need to avoid generic competition for a set amount of time? This is no six-goal differential. It's a sixty goal differential.

We don't think Chroma management is deluding itself. Maybe the up-front is better than some other GSK option-alliances and they'd rather not piss off current partners by having Chroma shout their windfall from the rooftops. But inflationary biodollar figures like $1 billion for a discovery alliance are just, well, silly.

image from flickr user peat bakke used under a CC license

Monday, June 22, 2009

Wacky World of Generics: REMS Edition

Here's a "Catch-22": If the Food & Drug Administration prohibits sale of a drug outside of a tightly controlled restricted distribution program, how on earth is a generic company supposed to obtain supplies of the product to use as a comparator in bioequivalence trials?

If you are Dr. Reddy's, hoping to be first to challenge the patents on the anti-cancer agent Revlimid, you ask nicely. And if you are Celgene, apparently, you answer "no way." That, at least, is how Dr. Reddy's describes the situation in a citizen petition filed with the Food & Drug Administration earlier this month. (We have the full story in "The Pink Sheet" DAILY.)

This petition has all the markings of a test case. The goal is not so much to accelerate a generic challenge to Revlimid (the earliest a generic launch could possibly come is three years from now) but rather to define a process to assure that the new Risk Evaluation & Mitigation Strategies authority given to FDA in 2007 doesn't become a perpetual exclusivity award for sponsors.

The law (known as FDAAA) states unequivocally that restricted distribution programs are not to be used to block or delay generic competition. It's just that, well, it's one thing to say that, another thing to make it so.

Certainly, George Horner--the former CEO of Prestwick Pharmaceuticals--doesn't see any realistic way for generics to compete against products covered by REMS. He told us that in a story on the fascinating development program--and flurry of business development activity--for the Huntington's chorea therapy Xenazine. (You can read all about it in The RPM Report.)

In the petition, Dr. Reddy's is proposing a process that would essentially allow generic manufactures to obtain an authorization from FDA for studies, and then compel manufacturers to provide samples (at market prices) for use in bioequivalence trials. That certainly seems reasonable enough--and we bet (after much regulatory machination) FDA ends up setting a policy along those lines to eliminate the Catch-22 facing Dr. Reddy's.

But that still doesn't address the bigger issue: While it is presumably simple enough to create a bioequivalent version of the active ingredient in Revlimid, is it really possible to create a generic equivalent to the restricted distribution program for the drug? Celgene would argue no. In fact, the company has argued no in the context of the predecessor product--the notorious thalidomide. (Read more about that case here.)

Put another way: does FDA really want to make it simple for dozens of sponsors to launch versions of drugs like thalidomide, when the agency has already determined that the risks of inappropriate use are high enough to merit costly, burdensome post-marketing restrictions? Our hunch: products covered by restricted distribution programs will end up looking more like biotech therapies facing follow-on competition than they will like conventional generic drugs.

And, for now, there isn't even a clear-cut way for generics to begin the process of proving bioequivalence.

Rangel-ing Over Drug Promotional Expenses: A Tussle That Might Not Scare Pharma Too Much

The advertising, broadcast and medical publishing sectors were thrown into a tizzy on June 16 when reports from Capitol Hill said that removing the tax deductibility of drug promotional expenses remains a live issue in the funding discussions around health care reform.

They should have been ready. There have been reverberations for over a year that pharma’s critics on Capitol Hill might try to raise some money for health care reform from the drug industry’s marketing budgets. White House Chief of Staff Rahm Emanuel has previously talked about giving manufacturers a choice between deducting R&D expenses or promotional expenses.

So it shouldn’t have come as such a shock when House Ways & Means Chairman Charles Rangel (D-NY) said on June 16 that his committee was looking seriously at removing the deductibility for drug promotional spending. But the thought of losing such a lucrative and solid stream of funding has a way of focusing the attention of the sectors that count on pharma promotional budgets: think of the nightly news programs on TV. Their ad sales staff must be in a panic.

The $37 billion price tag that Rangel casually attached to the possible change quantified the challenge and gave it a magnitude that made it more threatening.

The $37 billion figure is presumably calculated as a ten-year revenue estimate, the format that dominates government projections. It does not, however, appear to relate directly to any discreet part of promotional spending like DTC, which is generally estimated at about $4 billion per year.

Eliminating ten years of DTC expenditures would add up to a figure in the ballpark range to Rangel’s number, but that does not mean the government would collect that amount of money. The government revenues would come from the reduced taxes on the expenditures, not from the reduced expenditures. The total expenditures do not translate directly into new tax revenues.

To achieve $37 billion in new tax revenues at the current corporate tax rate would require removing the drug industry business deductions on somewhere around $106 billion in expenditures over the next ten years.

We’ll have to wait a while to find out where the calculation comes from. Removing the tax deductibility of promotional spending was not included in the June 19 draft of the House Democratic health reform proposal.

There is one quick hint in the bill about what promotional expenses being considered for losing deductibility. The June 19 draft contains a penalty provision for companies that do not live up to new sunshine disclosure provisions for gifts to doctors. If companies get caught failing to report gifts or misreporting gifts, then they would lose the ability to deduct “any expenditure relating to the advertising, promoting, or marketing (in any medium)” of a drug or device during the year of the violation.

That can’t be a penalty if elsewhere the bill would take away the deductibility of all promotional spending. Therefore, the Democrats do not appear to have in mind a full-out assault on the deductibility of promotional spending. Which means if you are a business that relies on promotional spending from pharma, now is the time to get to the Hill to draw the line between the dollars that support your efforts versus the dollars that support other forms of promotion. The definition could have a big impact.

Did Critics Force Pharma To Cut Back Spending Too Early?

Maybe Rangel and company hoped to get some of the saving from the lavish pharma entertaining budgets. But in what may now appear in hindsight as a strategic miscalculation, the industry critics have already forced pharma to stop some of that entertaining voluntarily – getting rid of what could have been a nice source of health care funds.

Pharma’s voluntary cutbacks over the past five years in the most unseemly marketing practices, in fact, gives a hint why Rangel’s comments may not scare the industry so deeply.

Forcing pharma companies to think more carefully about their marketing expenditures (as tax disadvantaged expenditures will be more painful) may provide the cover that some industry execs want to trim back marketing and sales budgets. This is similar to arguments by pharma execs for decades that they did not like having to fund expensive sampling/giveaway programs but were afraid to stop until their competitors stopped.

An across-the-board rule like taxing ad expenditures would force all the industry companies to reassess promotional budgets and force an assessment of new ways to build customer loyalty and interest in their products.

In Vivo Blog and its affiliate The RPM Report have been touting the new post-market control programs (the REMS of the 2007 FDAAA Act) that are being required more frequently by the Food & Drug Administration as an alternative to fill the gap for discredited promotional activities. There are other, less costly ways that the current detail forces and TV ads for pharma to build its ties to the medical community and patients. Rangel and his tax approach may just be hastening the era of those changes.

That may be why we are hearing that some influential strategists within pharma are not putting a fight with Rangel at the top of the 2009 health care reform fight. Privately, they say there are much more important fights and issues in health care reform to waste too much time and effort fighting the deductibility of promotional expenses. This may be a legislative argument that pharma is not afraid to lose. They won’t say that openly, but don’t expect much effort and money directly from the drug companies to be devoted to the promotion fight.

Of course, if pharma reacts in a prudent way to higher promotional costs and cuts back those expenditures effectively, then the government will not have promotional tax dollars as one of its sources of revenues for health care reform. That would mean that the government would under-estimate the sources of funding for a new health care program. Would that be the first time?

Health Care Reform: Too Big To Fail

The House health reform discussion draft (pre-cursor to the bill) is 852 pages. Senate bills will eventually be hundreds and hundreds of pages as well. Those are some big bills.

The seemingly endless pages of legislative language represent hundreds of different policy options the two chambers of Congress are considering as part of health care reform.

The number of bills kicking around in the House and Senate, their size and complexity, the high estimated costs (way over $1 trillion over 10 years) from the Congressional Budget Office, and the markup of Ted Kennedy's bill moving at a snail's pace all have contributed to one conclusion as the process hits the most sensitive phase to date: health care reform appears doomed to fail.

Here's the reality for Democrats: Health care reform is too big to fail.

The party--from the White House to elected officials in Congress--has made health reform the linchpin of its domestic policy agenda. The President and key committee chairmen on down have staked their political futures and credibility on health care reform.

That's why the troubling start--higher than expected costs, delays, controversy over key provisions--has triggered real panic among Democrats.

We're not going to minimize the problems health care reform faces in the present. But the big picture should not be lost.

First, for Democrats, it is imperative to have one bill done by the month-long August recess deadline imposed by Obama. We wrote about this in "The Pink Sheet" and The RPM Report. Here's an excerpt:

"Democratic leaders are trying to move quickly to meet a deadline imposed by the White House to have a bill passed before Congress leaves for its month-long August recess.

"We've got to kick that deadline down the road," said Alaska Republican Lisa Murkowski. Republicans repeatedly referred to the deadline as "arbitrary."

Democrats' fear is two-fold: First, lawmakers fear that the lag in itself will slow momentum for health care reform.

Significantly more important, however, is fear among party leaders that the recess would give Republicans a full month in their home states rallying support against Democratic proposals, as well as time for other opposition groups to conduct grass roots campaigns and public polling.

Moreover, if a clear-cut agreement isn't reached by the recess, Democrats themselves will be left to answer tough questions from their constituents on the fence about the legislation, or multiple pieces of pending legislation, without being able explain the reforms, benefits, cuts, or revenues contained in a final bill.

The approach recalls the 1993 health reform experience when many crucial Democratic elected officials struggled to communicate the complicated Clinton bill to voters in their districts and home states during the long delays in the legislative process, and thus, subsequently suffered politically from the fallout."

Second, the strategy by Republicans to delay progress of Democratic proposals in Senate committees should not cloud the fact that Democrats have historic advantages in both the House, Senate, and the White House.

The numbers to remember: 79, 59+1, and 60.

The first, 79, is the margin Democrats enjoy in the House. The second, 59+1, is the number of Democrats (we'll count independents who vote with Democrats) plus Al Franken, who could be seated as the junior Senator of Minnesota at anytime, in the Senate. The sum of the equation gives Democrats the filibuster-proof 60 votes they desperately need to move forward.

That's not the same "60" we mean by the last number. That 60 is Obama's approval rating; 60% of all Americans approve of the job he's doing, according to an average of polls from Real Clear Politics.

Now, there is the strong argument that Democrats themselves don't all agree on health care reform and certainly wouldn't vote in lockstep along party lines to pass sweeping legislation that impacts one-sixth of the economy. Presently, that's absolutely the case and was reinforced by comments on the Sunday morning talk shows.

However, we bet that health care reform--particularly universal coverage--is so important in defining the future of the Democratic Party that they will have no other choice than to come together. If they don't, Obama will make that case to them in the final stage of the legislative process.

And if those three numbers (79, 59+1, and 60) aren't enough, there's always a fourth number, 51. That's the simple majority it would take to pass reform as part of the budget reconciliation process in the Senate, with healthy margins assured in the House.

Democrats themselves point to 51 as a course of last resort. But the only way to get to 60 votes in the Senate may be to make sure you have 51--a threat of inevitability that would persuade conservative Democrats and moderate Republicans to sign on to a sweeping health reform bill.

We believe the 51-vote strategy is one of last resort, but one Democrats will resort to if necessary if the choice is between that and no health care reform. Put simply, Democrats have placed too much of the Party's future in the health reform basket to abandon it now.

Which one, two, or five Democratic Senator(s) wants to be known as the reason Obama's health care reform plan was torpedoed and likely delayed at least another four years if not another 15?

So while reform has hit some roadblocks, those roadblocks were predictable. For Democrats, health reform has become too big to fail.

Of course, that's what they said about Lehman Brothers.

While You Were Calling Your Father

We hope you enjoyed a restful Father's Day/Solstice weekend, without too much rain. It was blissfully quiet in industry land, the calm before the storm, maybe?

While you were playing Bethpage Wet ...

  • Like health care reform news? We've got a few posts for you today and this week promises to be a busy on on the HCR front. Start off with this WSJ wrap of the weekend deal that sees Pharma agreeing to spend $80 billion over the next ten years to improve Medicare benefits.
  • Merck's statement on the deal is here.
  • Have you signed up for Euro-Biotech Forum yet?
  • Roche is collaborating with Covagen, a Swiss biotech developing a new kind of protein-based drug it calls Fynomers. Undisclosed targets, undisclosed terms.
  • Even for a losing streak, the Phillies' current one pretty spectacularly awful.
  • A workout for fathers with young children. Happy belated fathers' day.
image from flickr user @@:@@ used under a creative commons license.

Friday, June 19, 2009

Knowing the Score: Doing Our Part to Keep Hope Alive

Okay, everyone in Washington was a bit taken aback by the first official "score" of a health care reform proposal. Keeping score, of course, is at the very essence of everything in our nation's capital, but in this case "score" refers to the budgetary impact of a piece of legislation, as analyzed by the Congressional Budget Office.

Since (for the time being at least) everyone agrees health care reform has to be budget neutral, the score is a very big deal indeed. Every dime of added cost has to be offset by some kind of payment cut or (gasp) new tax.

No one thinks it will be cheap to expand coverage to the 46 million (and growing) uninsured population in the US, but neither does anyone know for sure exactly how much it will cost. (Or, what is more important, how much CBO thinks it will cost, which is what matters when it comes to how much you have to budget to pay for it.)

So, when CBO reported back that the first bill--admittedly little more than a rough draft from the senate Health Committee--would cost $1 trillion dollars over 10 years while reducing the population of the uninsured by just 16 million, it caused a fair bit of consternation.

With all due respect to folks like Utah Republican Senator Bob Bennett--who is fond of saying that high quality health coverage is cheaper than the mismash of inadequate coverage we have today, so that there really is a "free lunch" on health care reform--well, there is in fact no free lunch. At least not in CBO's eyes. You can't just provide subsidized insurance for the masses, wave your arms and get to universal coverage. It costs money. Lots of money.

And with that, the health care reform push stalled--at least for a week--while everyone reconsiders how best to proceed.

Never fear: The IN VIVO Blog is here. Time for some outside the box thinking on alternatives that can reduce the population of the uninsured without breaking the bank. Here are our modest proposals:
  1. Bus the uninsured to Canada. Figure 1 million buses of 46 people each, plus a driver and gas money. Got to be less than $1 trillion.

  2. Start another war. Commit ground forces. End the war. Spend the savings on health care.

  3. Harvest the organs of the uninsured. Sell them to the wealthy.

  4. Relocate the 46 million uninsured to McAllen, Texas. Give Texas back to Mexico. (Or just let it secede).

  5. Have President Obama go on Oprah to promote downloadable internet coupons for free health care. Blame unexpectedly high demand for program failure.

  6. Steal John McCain's insurance card. Make 46 million copies. That way everyone can have coverage just like a member of Congress.

  7. Replace glue on postage stamps with a cocktail of Lipitor, Prozac and Provigil. Sit back and wait for heart attacks to go down, productivity to go up.

  8. Take Obama's $900 billion set aside for health care to the roulette table at the Mandalay Bay. Put it all on black.(Ed. Note: Wesley Snipes approves!) If red comes up, nationalize the casino. Repeat at other Vegas hotels until you have $3 trillion in winnings.

  9. Maybe the swine flu can take case of the problem?

  10. Tax snarky bloggers until you have enough money or they stop.

Deals of the Week 3G S

Welcome to the 3G S version of Deals of the Week! It's just like previous versions of DOTW except much, much faster, and much, much more powerful. Unlike 3G S versions of other technological marvels that coincidentally became available today, DOTW 3G S doesn't cost extra (still free!) and under most circumstances you won't have to queue to read it. Oh, and subscription not necessary, but oh so convenient.

Just for you, dear readers, we've put together an all-star playlist, where your favorite companies cover your favorite hits! Are we reaching just a little? Yes. Is your normal DOTW blogger busy writing something some of you will actually pay for? Absolutely. Are we in a hurry to get down to the pub Apple Store? mmmmaybe.

1. Zicam marketer Matrixx Initiatives covers Nirvana's "Smells Like Teen Spirit"
2. Sanofi-Aventis covers the Red Hot Chili Peppers' "Give It Away Now"
3. Genzyme covers Neil Young's "The Needle and the Damage Done"
4. Arena Pharma covers Bare Naked Ladies' "If I Had Million Dollars" (100 times)
5. Biogen Idec covers Oasis' "Don't Look Back in Anger" (dedicated to Genentech)

Enough already, lets get to the best app store on these here Internets, it's ...

Johnson & Johnson's Tibotec/TB Alliance: The diversified JNJ may be busy crossing the t's and dotting the i's of its pending acquisition of Cougar Biotechnology, but its not too busy to burnish its image and do some good in the developing world. This week came news that JNJ subsidiary Tibotec was teaming up with the not-for-profit TB alliance to speed the development of TMC207, a novel molecule in Phase II clinical trials that targets a specific energy-storing enzyme that looks to be especially promising in taming multi-drug resistant tuberculosis. (Interim mid-stage data for TMC207 recently published in the New England Journal of Medicine have been generating quite a stir in the ID community: in the placebo-controlled study, the addition of TMC207 to a regimen of five other TB meds cleared traces of the nasty bug in the sputum of 48% of the participants, compared to 9% in patients taking the standard-of-care regimen.) Under the terms of the agreement, Tibotec continues to develop TMC207 for the treatment of multi-drug resistant TB, but the TB Alliance will pitch in when it comes to the drug's development costs. Once the drug is approved, Tibotec promises to establish an access program to ensure the compound reaches the people most in need of the the medicine--those in developing countries. The TB Alliance also has a royalty-free license for world-wide development of TMC207 and will collaborate with Tibotec to develop additional follow-on compounds. The deal recalls last fall's collaboration between Summit and Lilly's TB Drug Discovery Initiative and shows the increasing ground swell of support by Big Pharma for what has long been a neglected disease area. No word on whether Tibotec plans to apply for the FDA's Priority Review Voucher program, a new incentive scheme for drug development in neglected diseases, on the basis of the TMC207 research--Ellen Licking.

Watson/Arrow: On June 17, Watson Pharmaceuticals announced a $1.75 billion cash and stock deal to snap up the privately held generic company Arrow Group, which markets in more than 20 countries. Beyond Arrow's 100+ drugs, Watson gets the company's international sales, legal and regulatory infrastructure. Arrow, founded in 2000, operates as Cobalt Pharmaceuticals in the US and generated $647 million in total revenues last year. Watson execs also believe they’ve gained a long-term investment in generic biologics through Arrow's 36% stake in Eden Biodesign, a biologics CMO. The price of the deal--at about 2.7x 2008 revenue--falls in line with other recent generics deals like Mylan/Merck KGaA and Barr/Pliva; since Watson hasn't had to raise debt to pull it off ($1.05bb in cash and 16.9mm shres of common stock plus $200mm in zero coupon preferred stock redeemable in three years), it can continue to shop for more deals. Our full write up is in "The Pink Sheet" DAILY.--Carlene Olsen

GSK/Dr. Reddy’s: On June 15, GlaxoSmithKline and Indian generics giant Dr. Reddy’s allied to develop and market drugs in emerging markets, including India. GSK gains access to more than 100 branded generics in Dr. Reddy’s portfolio and pipeline for cardiovascular, diabetes, oncology, GI and pain indications. GSK and Dr. Reddy’s will co-promote the drugs in some markets and under only one of the company’s brand names in others. As “The Pink Sheet” DAILY writes, GSK says it is still sorting out “which products will be sold under what brand, in which countries." Generally, though, Dr. Reddy's will manufacture generic drugs, which GSK will then market in certain African, Middle Eastern, Asia Pacific and Latin American countries, focusing on key markets such as Brazil, Mexico, India, China and Turkey and aided by its emerging markets sales force, 11,000 reps strong. The announcement comes on the heels of GSK's deals with Shenzhen and Aspen; since the beginning of the year the pharma has entered into at least four deals that expand its presence in emerging markets. You might even say it has an emerging markets strategy.--Carlene Olsen

Vitae Pharmaceuticals/Boehringer Ingelheim: Vitae says it has extended its cash runway beyond 2010 by agreeing to co-develop BACE inhibitors for Alzheimer’s disease with BI. In what we learned was a highly competitive deal, the biotech gets $42 million upfront in its second alliance with the German pharma; as we noted earlier this week, the pair have been partnered since 2007 to develop 11beta-HSD1 inhibitors for diabetes and other metabolic disorders. The cash will come in handy: Vitae CEO Jeff Hatfield told "The Pink Sheet" DAILY this week that Vitae’s lead renin inhibitor compound VTP-27999--which it recently reacquired from ex-partner GSK--should enter clinical development before the end of 2009, and a $13 million loan secured last October was only going to get the biotech so far. BACE inhibition is a very difficult but very promising avenue of disease-modifying Alzheimer's research; hence such a large upfront payment for a program still in lead optimization--Joe Haas

Adimab/Merck and Adimab/Roche: Yeast-based antibody discovery platform play Adimab announced its first two deals this week, with Merck & Co. and Roche. The companies have been light on specifics, but the deals include upfront payments, preclinical and clinical milestone payments, and commercial milestones and royalties. Adimab thinks its on to a winner with a discovery platform it claims is both faster and better than conventional phage display technologies, and unencumbered by IP cross-licensing. (Of course there are plenty of companies who still dig the phage, for whom phage is the rage: this week Morphosys said that Schering-Plough (still betrothed to Merck) extended its access to Morphosys Hucal Gold library for another year.) Adimab will make antibodies to multiple undisclosed targets for Merck, and one undisclosed oncology target for Roche. What's perhaps more interesting is the biotech's overall deal strategy, which we've discussed here and will dive into deeper in the next issue of START-UP.--Chris Morrison

Covidien/Neuromed and Covidien/Nuvo: This is your medical device company on drugs. OK, to be fair Covidien, the diversified ex-Tyco Healthcare conglomerate, is apparently the largest supplier of controlled pain meds in the US, but it's much better known as a medical device company--devices account for greater than two thirds of its sales and its recent business development activity has been dominated by device acquisitions: VNUS, which closed this week, was the latest and you can read all about it here. So now that you've forgiven us for overlooking Covidien's pain drug franchise, part of its Mallinckrodt unit, on to the news! This week Covidien licensed Nuvo Research Inc.'s two topical formulations of the NSAID diclofenac (the more advanced drug is already under review at FDA, with a PDUFA date in early August; the second is in development). The next day, Covidien bought rights to Neuromed's Exalgo extended-release hydromorphone, a compound Neuromed licensed from JNJ's Alza Corp. in 2007. The drug recently hit its primary endpoint in a Phase III trial and has a PDUFA date in November 2009, though Covidien notes in the release announcing the deal that the class-REMS may slow things up a teensy bit. Both deals include undisclosed up-front payments, milestones and royalties.--Chris Morrison

Thursday, June 18, 2009

Baucus CER Deal Under Stress

With a little help from its GOP friends in the Senate, the pharma industry could still fashion a bad agreement on CER out of the positive discussions that have been underway for over a year with Senate Finance Committee Chairman Max Baucus (D-MT).

Sens. Orrin Hatch, R-Utah, and Mike Enzi, R-Wyo., are temporarily keeping the Baucus approach to comparative effectiveness -- which could be called CER soft -- out of the Senate Finance Committee’s health care reform bill.

Hatch and Enzi are two of the longtime stalwarts of policy affecting the drug industry. They have a go/no-go status on CER because of a de facto arrangement with the ranking GOP member on Senate Finance, Charles Grassley, R-IA, who ceded decision-making on CER legislation in his committee to his colleagues on the Senate Health, Education, Labor & Pensions Committee.

CER is now traveling through the legislative process under a new pseudonym: patient-centered outcomes research, part of Baucus' amusing and practical effort to move his bill under whatever name seems most acceptable and non-inflammatory on Capitol Hill. The Baucus proposal for CER remains a separate legislative bill. The plan is to attach that bill to the developing Senate package for health reform, being melded together by the Senate Health, Education, Labor and Pensions Committee, Senate Budget Committee and Senate Finance.

Representing more adamant critics of CER, Enzi and Hatch are pushing for consideration of three issues. The danger of bringing the issues up again now is that the Baucus CER approach could fail to get on track to join the main activity on health care reform and less favorable approaches to CER could slip into the gap. In the name of layering on several more specific protections against the use of CER reviews to control treatment choices, the GOP members are risking creating an open field for other CER proposals to supplant the work that Baucus has been doing on the issue since early last year.

The Baucus staff preparing the CER bill have won praise from industry stakeholders for working with affected industries on the CER scheme. There may be more willingness by those seeking more protections against CER to seek changes to the Baucus bill because a separate approach is gaining interest in the House, sponsored by Oregon freshman Kurt Schrader (HR 2502). That effectively gives the proponents of a soft CER approach a second alternative to push.

Age Discrimination Leads List of Recent Complaints

At the top of the list of CER changes being sought by the GOP is an assurance that there will not be age discrimination in treatments based on CER determinations – i.e. that no decisions whether to accept CER information for treatment selection will be made based on the age of the patient alone. This is a major concern of one of CER’s most obdurate critics in the Senate, John Kyl, R-AZ. Kyl raised the issue earlier in the spring in April and re-introduced it on June 15 as S 1259 along with six GOP co-sponsors, including minority leader Mitch McConnell (Ky).

The GOP HELP members also suggested language to prevent establishment of a quality-adjusted life years threshold by the Centers for Medicare and Medicaid Services to determine coverage for a treatment.

Finally, the GOP took up the cause of some CER critics who argue that a new CER institute might establish a different, and confusing, level of evidence for approving or rejecting medical products that would supplant and damage the substantial evidence standard used by thee Food & Drug Administration. That could be further impacted should a recently introduced bill that opens the door for comparative effectiveness research to be put on drug labeling become law (“The Pink Sheet,” May 25, 2009, p. 4).

The GOP concerns slow down a process of incorporating CER into the Senate bill that had appeared to be moving along smoothly. The push for changes just before the Finance Committee’s self-imposed deadline for beginning consideration of CER on June 17 may also be a small part of a developing GOP effort to slow down the overall effort to get Congressional health care reform bills through each chamber before the August.

The current Baucus version of the comparative effectiveness bill, the Patient-Centered Outcomes Research Act of 2009, was introduced June 9 with co-sponsorship from Senate Budget Committee Chairman Kent Conrad, D-N.D. It is an update of legislation introduced in the last Congress and maintains the creation of a public-private entity to drive research and offers a set of standards that must be met in order for comparative effectiveness research to be incorporated into coverage decisions (“The Pink Sheet” DAILY, June 9, 2009).

If Senate Finance cannot resolve the GOP complaints and get the bill moving again, the only comparative effectiveness option that would be debated in the Senate would be the HELP proposal which would undo the extensive work between Finance Committee staff, the pharma and insurance industries and other stakeholders on the proposal. The HELP proposal is much less detailed and puts HHS in the driver seat in terms of guiding comparative effectiveness research (“The Pink Sheet,” June 15, 2009, p. 13).

Starting After the 4th Is Not a Critical Blow To Legislative Schedule

While the comparative effectiveness options are not necessarily holding up the overall health care reform bill, they could be a contributing factor to why the committee has pushed back the markup on the full package until July.

Senate Finance will not start public consideration of the full health reform effort until after the Fourth of July recess. The delay is widely being attributed in Washington to a high preliminary score from the Congressional Budget Office on the most recent version of the Finance Committee proposal.

Reports are circulating that the Congressional Budget Office has scored the bill at $1.6 trillion, a number higher than the initial score of the incomplete HELP Committee health care reform bill. The Finance Committee held off introducing the draft chairman’s mark following the negative feedback that arose in the wake of CBO’s scoring of the HELP bill. The two-week delay in the Finance Committee consideration of health care reform does not preclude finishing a bill before the August recess, advocates say. The Senate leadership still has room in August to delay recess to get a vote if Finance starts consideration immediately after the Fourth of July break.

Senator Enzi, in a press release, commended the Finance Committee’s deliberative process that included members from both sides of the aisle, while criticizing the HELP Committee's start of consideration of its bill.

from flickr user te.esce used under a creative commons license

Wednesday, June 17, 2009

Turning Off The Runway Lights At HHS

If the wide variety of health care reform proposals swirling around Washington ever coalesce into legislation that is signed into law, HHS will have dozens of new responsibilities. But sponsoring fashion shows would no longer be one of them, if Sen. Coburn has his way.

The fiscally conservative Republican from Oklahoma is sponsoring a health reform amendment to prevent HHS from using funds to sponsor fashion shows; the amendment will be considered during markup of the Senate Health, Education, Labor and Pensions health care reform bill, known as the “Affordable Health Choices Act,” which begins June 17.

Coburn has long had a beef with HHS spending money on the lights and glamour of the runway, as expressed a number of times on his web site, including in a statement protesting HHS sending dozens of employees to a conference at a beach resort where the entertainment included a “sizzling fashion show.” He also has questioned why money is being spent on social events, including fashion shows, to raise awareness of the search for an HIV vaccine when that money could be used to actually conduct research on a vaccine.

As Coburn put it in a 2008 press release: “Who knows what scientific discoveries could be unlocked at a bar or fashion show! But with your tax dollars, we will find out!”

image from flickr user maddsmadds used under a creative commons license

Everyone’s Holding Hands For Health Reform; DNC is Holding Out Its Hand

Just as we were enjoying President Obama’s unflagging effort to promote health reform as a collaborative, hand-holding effort drawing from both sides of the political aisle, we received this fund-raising email from the Democratic National Committee.

In an effort to drum up the same contagious enthusiasm and grassroots networking that sustained the Obama campaign, the DNC, over the president’s signature, sounded the alarm on health care reform, blasting an email to millions of supporters today asking them to “donate whatever you can” to the “campaign for real health care reform.”

“Today, spiraling health care costs are pushing our families and businesses to the brink of ruin, while millions of Americans go without the care they desperately need,” Obama wrote to the masses. “Fixing this broken system will be enormously difficult. But we can succeed.”

Using the now familiar we will prove them wrong tone, Obama called health reform the “biggest test of our movement” since the election, stressing that opposition will be “fierce.” The public call to arms comes one day after Obama spoke at the American Medical Association in an effort to warm doctors to an overhaul to the health care system (covered here in The Pink Sheet).

“To prevail, we must once more build a coast-to-coast operation ready to knock on doors, deploy volunteers, get out the facts, and show the world how real change happens in America.”

A link to make a donation brings recipients to “Organizing for America,” a web project of the DNC that bears the web address

“It doesn't matter how much you can give, as long as you give what you can.” Obama wrote. “Millions of families on the brink are counting on us to do just that. I know we can deliver.”

Will Obama’s second effort to mobilize the masses pay off?

– Lauren Smith

image from flickr user plamoe used under a creative commons license

Tuesday, June 16, 2009

Adimab Banks on the Value of Discovery

Adimab, the yeast-based antibody discovery play we wrote about here, and here, will announce its first two alliances today: a multi-target therapeutic deal with Merck & Co. and a single-target therapeutic/diagnostic deal with Roche.

There aren't many details in today's press release, but that's OK: these are very early stage deals anyway. What's more interesting to us is Adimab's overall partnership strategy, and its co-founder and CEO Tillman Gerngross' staunch belief that a focus on discovery--and not taking a single step down the development pathway--will allow the company to capture significant value.

(For our readers familiar with the revolting flavor of spreadable yeast extracts, apparently drug development is a lot like Marmite: either you love it or you hate it. )

First the new deals. For Merck, Adimab will use its discovery platform to identify fully human antibodies against a number of targets selected by Merck. We know that number is greater than one, but that's about it. Merck has rights to develop and commercialize those antibodies as therapeutics. Roche has tasked Adimab with discovering antibodies against a single target, and has the right to develop and commercialize those antibodies as therapeutic or diagnostic products.

Importantly there is absolutely no exclusivity around any of the targets, Gerngross tells us; Adimab can do deals with other companies on the same targets if it chooses. For its labor Adimab gets undisclosed up-front payments, pre-clinical and clinical milestone payments, and eventually commercial milestones and royalties. Though we should note that the two deals aren't necessarily structured in the same way: as Gerngross told us in May at BIO, Adimab is flexible with regards to upfronts versus royalties and terms in between. "Just pay us," he said. The biotech is also open, in some cases, to its partners taking an equity stake (though again, there is no clarity as to whether Merck or Roche has done so).

See here for an overview of Adimab's technology; essentially the company says it has created a faster and more fully human antibody discovery technology unencumbered by the various IP cross-licenses prevalent in existing platforms like phage display. Once Adimab has been given an antigen it typically takes eight weeks to deliver about a hundred antibodies that bind that target.

So Adimab will rake in cash from its discovery deals, which it plans to announce more of in the coming months (Gerngross tells us the biotech is essentially cash-flow positive, with minimal burn and no plans to raise additional capital), and build its business: keep expanding the library, do more deals. But here's where the company parts ways with about 99% of discovery-focused biotechs. It has no plans to build a pipeline of its own. At least not directly.

Adimab will not do development work. "I think that's where many other companies have made mistakes," says Gerngross. Often they're forced down the development route to validate their own technology for partners, he says. If a biotech is promoting a technology platform that isn't well-validated, "what ends up happening is that people will say 'the science sounds great, but show me that this really works,'" he says. "And before you know it you're in the business of conducting preclinical development with a company that was originally put together to solve a scientific problem. And it creates tension and requires resources that are very significant."

Gerngross contends this isn't a problem for Adimab. "Who will argue that fully human antibodies aren't a validated modality? Having strategic access to antibody discovery is a must, it's not an option" for pharmaceutical companies that are near-uniformly saying that 20 or 25% of their pipelines will come from biologics, he says.

So the challenge is to monetize the discovery capabilities within Adimab. If you're going to eschew the development pathway the problem becomes getting sufficient value for the company's investors with a series of discovery alliances. Adimab has raised cash in three venture rounds from SV Life Sciences, Polaris Venture Partners, Orbimed Advisors, and Borealis Ventures.

The simplest way would be to whet the appetites of a few pharmas and wait for one of them to pounce. Cue bidding war and a GlycoFi-esque takeout valuation. VCs invested a total of about $35 million since 2000 in that company, Gerngross' previous effort, which Merck bought in 2006 for $400 million.

But "we're not building Adimab to be acquired," insists Gerngross. "We think we can build a cash-flow positive company that can generate an enormous amount of value," he says (though there's always an offer that's too good to refuse).

And to be sure there are other ways of monetizing discovery. Gerngross points to some of the deals signed by Regeneron (like this one) as an example. "Very big upfronts, five-year commitments, royalties ... if you can do a number of those it's more attractive than a single acquisition," he points out. To which we'd add: particularly if you aren't ploughing the cash into pipeline development and can find a way to return it to your shareholders in a tax-efficient manner.

So Adimab will continue to sign the kind of funded research programs it has just announced with Roche and Merck, with an eye toward more strategic discovery deals that give large companies direct access to Adimab's platform, says Gerngross. "We can transfer the capabilities to them," he says, for them to use the discovery platform non-exclusively across a pre-determined swathe of targets or programs, unlimited targets, unlimited programs, whatever. It'll depend on the price. These sorts of non-exclusive arrangements sound like the kinds of deals Alnylam has managed to sign with the likes of Roche.

And then there's another wrinkle, a third kind of deal in the works at Adimab outside its Big Pharma discovery services ambitions. "We see opportunities for smaller, more agile players that really understand the valuable targets in, say, oncology," says Gerngross. Put that expertise together with Adimab's antibody platform, he says, "and we're looking at a story that's very compelling."

Adimab has identified oncology, inflammation, and infectious disease as three areas to embark on these sorts of ventures, and is already in active discussions in two of those therapeutic spaces. How such a deal would be structured remains to be seen but Gerngross envisions an autonomous entity in which Adimab and the other party would have equity stakes and which would be able to raise its own development capital.

These ventures will keep Adimab a step removed from drug development, where it won't have to compromise its platform business. The only question is what potential partners and investors would be willing to pay for that discovery platform: do they value discovery as much as Adimab?

image from flickr user jonben used under a creative commons license.

Monday, June 15, 2009

Vitae and Boehringer Get on BACE

Vitae Pharmaceuticals and Boehringer Ingelheim will announce today that they're collaborating in the area of beta-secretase (a.k.a. beta-site APP cleaving enzyme 1, or BACE) inhibitors to treat Alzheimer's disease. [UPDATE: release is here.]

Vitae will get $42 million up-front in combined cash, equity payments and research funding, and will be eligible for $200 million in pre-commercial milestones in the Alzheimer's indication for one molecule, as well as commercial milestone payments and royalties, and payments for other molecules or other indications. But it's waaay early, which we'll get to in a minute.

Since re-embracing its discovery roots in 2005 (a phenomenon covered here through the prism of a 2005 deal with GSK in the renin area--a deal that has since been shuttered) Vitae has now entered three discovery alliances. Today's alliance, the GSK deal and a 2007 deal with Boehringer in the diabetes space that brought in $36.5 million up-front. In fact the two BI upfronts combine to equal just about all the other financing that Vitae has raised (not including milestone payments from deals) since its inception as Concurrent Pharmaceuticals in 2001.

This latest alliance is, on the face of it, a taller order than renin or the 11beta-HSD1 inhibitors Vitae is working on in the metabolic space. BACE inhibition is an extremely difficult area of Alzheimer's R&D, and the scarcity of assets around this target perhaps reflects the large-ish upfront payment for a program that Vitae's web site suggests is still in its infancy.

But for BACE-inhibition, $42 million for a program in lead optimization sounds about right. After all, CoMentis got $100 million up-front for its own BACE inhibitor program from Astellas. That compound was only in Phase I, and when it entered the clinic in 2007, CoMentis immediately became the subject of takeover rumors.

The Boehringer cash will augment a $13 million venture-debt deal Vitae closed last October. At the time of that loan announcement Vitae's runway ran 'into 2010' so the infusion should come as a welcome relief. Just maybe they'll get enough of a lead to steal second.

image from flickr user phillenium1979 used under a creative commons license