Lesson from the JPMorgan Conference: Exceptions That Prove the Rule

Look both ways before you cross The Street

Roger Longman's earlier post about biotech hype got us thinking about a few conversations we had and presentations we watched last week, the way the financial markets respond to--or don't respond to--the optimism of chief executives, and how sometimes that optimism turns out to be quite warranted.

For example it seems like every year we sit down at the St. Francis on Day One and listen to Celgene chairman/CEO Sol Barer, PhD, promise the world to the room chock-full of investors. This year that promise was more stratospheric growth for the company's blockbuster Revlimid, even in the face of competition from Millennium's Velcade.

And you know what we thought to ourselves this year when a once-again upbeat Barer suggested that "in many ways we are at the beginning of Revlimid's commercialization," then threw up a slide crammed with ongoing or planned studies of the blockbuster and guided that sales at the firm would jump to $1.8 billion from $1.4 billion? We thought well why the hell not? Celgene keeps delivering. Barer didn't even have to mention the company's acquisition of Pharmion to get investors excited; that deal, and Pharmion's products, barely registered during his spiel.

That said, skepticism has to be the default view when countered with the overwhelming optimism that characterizes the hype Roger wrote about last week. And in today's R&D and regulatory climate (the results of which we've well documented) it's relatively easy to be a skeptic. Technologies may be fascinating and drugs may be promising (we heard about our share of fascinating technologies and promising drugs last week, for sure), but in the end most technologies don't end up churning out dozens of drug candidates for one reason or another and most drug candidates themselves fail. That's simply just the way it is.

But then there are the Celgenes of the world. And maybe the Vertexes? We sat down with Vertex Pharmaceuticals CEO Joshua Boger, PhD, at the JP Morgan conference to talk about telaprevir (née VX-950), its leading HCV protease inhibitor. (We won't go into the specifics of the massive HCV opportunity here, but note we've covered the area pretty extensively in the past in this IN VIVO feature and this shorter piece on Vertex's landmark ex-US deal for telaprevir with J&J's Tibotec, among other pieces.)

Vertex's stock has been pummelled by Wall Street in recent months following the interim analyses of its first two large Phase IIb trials of telaprevir last November. Those trials have so far established telaprevir, which is further along than any other experimental direct antiviral in HCV, as a potential breakthrough therapy in HCV. The company's stock fell because even though the interim look suggested the drug would find a place in first line HCV therapy (SVR rate at 24 weeks was 61% in the first trial, 65% in the second), given the confidence Vertex displayed in the molecule's prospects--and the sheer size of that J&J deal--one could be forgiven for thinking telaprevir was going to do better. And then make you a sandwich and wash your car.

And then there are the concerns about the drug's thrice-a-day administration that we have heard from other observers, who suggest that even if Vertex is first to market by a couple years, HCV patients might wait for something more convenient. They've waited for years already, in some cases, why not another year or two?

Boger seemed weary of explaining the fallacy of this argument but gave it a go for us anyway. "There are a lot of amateur market opinions," he said, and people are confusing HCV treatment with HIV treatment: the latter is a chronic, for-the-rest-of-your-life regimen, but the former could be shortened to less than six months with the addition of telaprevir to existing interferon and ribavirin standard of care (currently a 48-week therapy). Vertex's critics "couldn't be more wrong," he said. "This isn't a chronic condition where you take the drugs forever--this is a cure."

Vertex hasn't seen a compliance issue in its clinical trials, Boger maintained, and even if it would be nice to have a protease inhibitor with twice-a-day or once-a-day administration, he said, it wouldn't be as a means to boost compliance. Rather it would be easier to combine a twice-a-day drug with other direct antivirals that could follow telaprevir to the market, such as an HCV polymerase inhibitor.

And as for patients waiting for a better drug, Boger bristled and chalked that up to wishful thinking from competitors. HCV is a case where a drug that makes the first leap in patient benefit will define future drugs' clinical and regulatory pathways, he said, plus take the lion's share of pent-up market demand that will never exist again. "I've never seen a field where the potential of being first to market is this big," Boger said.

Is that more hype? And has Vertex's own hype come back to bite it recently? Maybe, but that doesn't mean they won't succeed with telaprevir. We wouldn't bet against them.

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While You Were at ASH

We'll start our weekend-roundup jamboree with some news out of the American Society of Hematology meeting in Atlanta. So in a way this should be called, 'while you weren't' at ASH, but we're sticking with convention. Here are a few bits of late-stage clinical news out of the blood meeting:

• ASH: JNJ and Bayer said on Saturday that their Phase III Factor Xa inhibitor anticoagulant rivaroxaban was superior to enoxaparin (Lovenox) in preventing venous thromboembolism in patients following hip replacement surgery. Rivaroxaban is a once-daily oral, while Lovenox is injected. Boehringer Ingelheim's rival treatment dabigatran, a thrombin inhibitor, has begun a mid-stage trial in acute coronary syndrime says Reuters.


• ASH: Bayer, with Biogen Idec, also posted postive results in oncology, as the companies' Zevalin lymphoma therapy significantly increased progression-free survival in follicular lymphoma.
  
• ASH: Celgene's Revlimid added to dexamethasone in a Phase III study significantly boosted progression free survival in newly diagnosed multiple myeloma patients compared with dexamethasone alone.
  
• ASH: Adding Millennium's Velcade to standard of care in front-line multiple myeloma treatment "achieved a fourfold increase in complete remission rate," according to results of a Phase III study presented at ASH.


• MGI Pharma, the oncology and acute care specialist, was bought early today by Japanese pharmaco Eisai for $3.9 billion. You can read our first take here, and we'll no doubt have more to say on this later when we're, you know, awake.

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What's Next for Celgene?

First a confession. I (correctly but timidly) voted for "someone else" in the IN VIVO blog poll on the next biopharma acquisition target. That said, I certainly never would have picked Pharmion.

Celgene, on the other hand, would definitely have been one of my choices.

No, we don't have any good scuttlebutt to base that on. Its just that we've been writing and thinking a lot about the impact of the new drug safety legislation--and especially the new authority given to the Food & Drug Administration to impose risk management plans. You can't think about the impact of tighter post-marketing safety regulation and restricted distribution programs without thinking a lot about Celgene.

The company's STEPS program for Thalomid is routinely cited by FDA as one of the few, clear successes of the restricted distributuion regulatory model. It is also a clear commercial success, helping both Thalomid and the follow-on Revlimid make it to market and generate a nice healthy revenue stream--despite onerous monitoring and surveillance burdens for the sponsor.

Not only that, Celgene has a patent on the STEPS program, carving out an unusual and now unusually valuable intellectual property position for a biopharma company. So, as the rest of the industry wrestles with how to make money under the new regulatory order, I expect a lot of people will be taking a close look at Celgene.

If you are looking for a place to start, try a story from The RPM Report's Kate Rawson: "Building a Business in Drug Safety." When Celgene pioneered that business model, it looked like a clever niche strategy for a specialty pharma business. In the new drug safety era, it may become more like business as usual.

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Pharmion’s Euro Bet Pays Off

So while we all speculated on who might buy Biogen Idec and whether Genzyme would be next, out comes Celgene with its $2.9 billion cash and stock offer for Pharmion (35% cash, 65% equity, at an almost-50% premium to Friday’s close). “We didn’t see this coming,” admitted Citigroup analyst Yaron Werber on the conference call.

Neither did we. But it makes sense: it’s another case of licensor buying licensee, since Pharmion had in 2001 acquired ex-US rights to Celgene’s controversial yet successful thalidomide (Thalomid), marketed first for leprosy in the US and then for multiple myeloma. That deal (amended three years later) had already given Celgene a small equity stake in Pharmion; now Celgene receives 100% of ex-US sales instead of the 23.5% royalty that Pharmion otherwise would have paid.

The big problem is the potential for anti-trust issues: Pharmion’s biggest-selling drug, azacitidine (Vidaza), was approved in 2004 for myelodysplastic syndromes (MDS), the same indication targeted by Celgene’s leader, Revlimid (a variation on the thalidomide theme, lenalidomide) which is on track for nearly $1 billion in sales this year.

The companies have indeed allowed an extended period for FTC review, saying the deal won't close before the end of the second quarter of 2008. But Sol Barer, Celgene’s Chairman and CEO, expressed confidence that anti-trust would not scupper the deal, claiming that Revlimid and Vidaza address very different market segments within MDS. Indeed, this deal will be less about overlap and cost-cutting than about leveraging Pharmion’s commercial organization, he said.

Now admittedly, Pharmion’s European organization is smaller than Celgene’s in sales rep terms. The opportunity there, noted Barer, is for cost-avoidance, since Pharmion was about to strengthen its European infrastructure pending Thalomid’s imminent approval. (For now the drug's only used off-label in Europe.) Now it may not need to. But Celgene certainly will tap into Pharmion’s European expertise as it launches Revlimid in Europe—this was Celgene’s first EU drug approval in June 2007.

Indeed, it’s Pharmion’s European angle, along with its focus, that ultimately allowed it to score this high value deal, worth over 10 times its $256 million in annual revenues. CEO Pat Mahaffy knew from the time the company was founded in 2000 that a European presence would stand the company apart from its in-licensing-focused peers. (You can read more in this 2002 IN VIVO feature.) He’d seen it happen already during his time as CEO and president of NexStar, sold to Gilead in 1999 for $550 million in large part because of the European sales force that Mahaffy had set up.

By being one of the first to offer an integrated development and commercialization service in Europe, Mahaffy reckoned he’d win some product rights on which to build the business. He did. He won Thalomid, though hardly a risk-free proposition, even now: Gruenenthal, the original marketer of thalidomide in its original indication as a treatment for morning sickness, still faces lawsuits. (Read more on this website.) Pharmion also won rights to Vidaza from Pharmacia, again taking a risk since the project had stalled and required further late-stage trials ahead of approval.

The gamble on Vidaza paid off, though: promising Phase III results released in August triggered a near 60% rise in Pharmion's share price, more than undoing the downward blip earlier that summer when GPC's satraplatin, to which Pharmion has European rights, first stalled at the FDA. Pharmion's shares have been rising ever since. Indeed, Celgene's generous premium comes on top of a near all-time-high for Pharmion's stock--more than enough incentive to sell even if Mahaffy didn't want to.

And from our conversations with him, he probably didn't. Mahaffy was one of the few industry CEOs who really did seem to want to build a stable, independent business. More than that: Pharmion is one of the few spec pharmas which seems to have the capacity for long-term independence (a challenge we discussed in this IN VIVO feature), having built an expertise--in European commercialization and in oncology--that distinguishes it as an in-licenser, allowing it to punch way above its weight in the competition for important products.

Congratulations to Pharmion's shareholders. But we're still a little saddened by the loss of one of the rare recent start-ups which succeeded based on a truly innovative commercial strategy.

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While You Were Acquiring

Back when we ran our "who's gonna get bought next" poll on the IN VIVO Blog most of you followed the herd--and chose Biogen Idec. All of you who chose "someone else," take a bow (we know you had Pharmion in mind). Tonight Celgene announced it was buying the cancer-focused biotech firm for $72 per share, for a grand total of $2.9 billion. We'll have more on this on Monday. (Had this deal not happened we may have gone with "While you weren't covering the spread against MIAMI.")

• In other news--does anyone else feel like the world is hurtling toward the 99-cent genome? Forget the $1000 genome, Bionanomatrix is touting its efforts toward a $100 genome (last Monday's Philly Inquirer). And on Friday consumer genomics hit the front pages, as Iceland's deCODE Gentics announced its deCODEme business and Google/Genentech-backed 23andme responded with a 'we're launching our business too' press release late Friday afternoon. Saturday's New York Times has a review of those efforts and more. The Financial Times chimes in as well.


• Barron's isn't confident that prasugrel's data is enough to buoy Lilly, reports Reuters.


• Just when you thought there was nothing more to write about insomnia. The New York Times magazine presents the 'sleep-industrial complex.'

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