Nektar Takes A Deep Breath

Deep breath in. Deep breath out. Nektar execs, have you found your quiet place, yet?

It's been a stressful few months for Nektar employees. The company's 13-year marriage with Pfizer soured last October when the pharma unexpectedly decided to stop selling its inhaled insulin Exubera. True, Pfizer did cough up a hefty divorce settlement--a $135 million forgive-me gift, plus a promise to help with insulin supply and on-going clinical trials. (For more on the future of inhaled insulin, see here.)

Yesterday came the news that Nektar is eliminating approximately 150 positions--110 existing jobs plus 40 unfilled openings--as it restructures the company to "transition form a drug delivery service provider to a therapuetics drug development organization." In addition, the company announced that Hoyoung Huh, the company's COO and head of its pegylation business unit, is leaving to become CEO of BiPar Sciences, an up-and-coming biotech developing oncology therapies.

We've said it before. (No doubt, we'll say it again.) It's a terrible time to be in drug delivery. Making money in this space has always been tough--it's not enough anymore to take an existing molecule and dress it up with a PEG molecule to extend its shelf-life or aerosolize it for delivery to the lungs. Payers and physicians want proof that a new formulation isn't just convenient, but that it's superior to existing available medicines. As David Steinberg, an analyst with Deutsche Bank, told START UP in December: "The old model of drug delivery is completely broken down. To be successful you have to think far more innovatively."

Thing is, it takes a lot of money--and risk--to engineer a delivery system robust enough to deliver a real therapeutic advantage. Look at the field's lone success story in recent years--XenoPort. The company's share price has increased more than six-fold since its 2005 IPO, thanks to the success of its gabapentin pro-drug, XP13512, for restless leg syndrome and neuropathic pain. Last February GlaxoSmithKline agreed to fork over $75 million in cash and another $500 million in development, regulatory, and sales milestones for the compound. (Just for the record, Xenoport raised approximately $270 million in equity capital and another $160 million from partners to get enough data to convince the pharma of XP13512's value.)

So, the big lesson from XenoPort's success? Delivery technology ain't enough. XenoPort was only able to sign this monster deal with GSK because XP13512 is a new chemical entity with hard-to-duplicate molecular advantages. (The nifty formulation technology is an added bonus to investors -- a key part of its discovery platform.)

Of course, there is a corollary to this lesson (This IS a Windhover publication.) To be successful in drug delivery today means spending research dollars on two fronts: not only do you have to spend money to engineer the delivery system, but you also have to spend money to discover and develop novel, first-in-class or best-in-class compounds. Which leads this IN VIVO blogger to wonder, why even bother with the delivery piece of the puzzle?

Seem's like Nektar's board and CEO, Howard Robin, have been asking the same question. As part of the company's restructuring, Robin noted in a press release that "We are transforming Nektar into a world-class drug development company."

My friends and colleagues know I'm a big believer in the "I think I can" strategy. But it's tough to see how Nektar's transformation will occur near term. True, the company's inhaled amikacin, which is being co-developed with Bayer AG, is expected to enter Phase III clinical trials later this year, and its two leading PEGylated small molecule programs, PEG-irinotecan and oral PEG-naloxol, just entered Phase II clinical trials. But will there be the leadership to push these two products through development now that Nektar's PEG champion and resident brainiac, Hoyoung Huh, is jumping ship to take the helm of BiPar Sciences?

Maybe "the decision to step down as COO was a difficult one," as Huh asserts in another press release issued today. After all, he hasn't severed ties with the company completely. He'll be serving on the company's Board of Directors until 2009 or until a replacement has been identified according to SEC documents. Or maybe, Huh, whose CV lists an MD, a PhD, and a stint as a McKinsey partner, saw the darkening skies and approaching stormy seas and left for the relatively calmer waters of private biotech.

February 27 should be an interesting day. That's when Nektar will release results for the fourth quarter and full year of 2007. Meantime, Nektar employees, remember: deep breath in; deep breath out.

Photo courtesy of Flickr user Transguyjay through a creative commons license.

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Deals of the Week: You Can't Always Get What You Want

It's been a busy--and, for some, disheartening--week in biopharma land. Just three days after researchers disclosed that Vytorin, the highly touted cholesterol drug that combines Schering's Zetia and Merck's Zocor, is no more effective at preventing heart disease than Zocor alone, came the first class action law-suit. David Rheingold, the attorney in the case, filed the federal suit on behalf of his momma. (What a good son.)

The Vytorin kerfluffle aside, Novo Nordisk announced it was shelving its AERx inhaled insulin drug while NitroMed announced it would no longer provide sales and marketing for BiDil, the first drug approved for use in a specific racial group. As part of its retrenching, the company laid-off 70 of its 90 employees and hung out a for sale sign, hiring Cowen and Company to "explore strategic options."

NitroMed wasn't the only company to announce it was "restructuring". So did Novartis, which took a $444 million charge to pay for a program that will cut thousands of jobs. In addition, the company announced that its twice-delayed diabetes treatment, the DPP-IV inhibitor Galvus, may never make it to the US market at all. (The drug was approved by the EU back in September.)

All of which reminded this IN VIVO blogger of that classic Rolling Stones tune "You Can't Always Get What You Want." (You know what comes next.)

Pfizer/Scil Technology: Another week, another Pfizer deal. This blogger admits she was nonplussed upon reading the news release. Pfizer and ... Scil? A German tissue regeneration player? But yes, devoted readers, Pfizer has once again demonstrated its passion for biotech products, signing a $250 million deal to in-license world-wide rights to Scil's osteoarthritis therapy, CD-RAP, to regenerate tissue in aging joints. (Hey, it wasn't an acquisition.) The companies didn't break out how the $250 million in potential rewards will be split among up-front fees and milestone payments. But Ed Harrigan, Pfizer's SVP of worldwide business development, did say this in a news release:"This partnership reflects Pfizer's on-going commitment to pursue the best science anywhere on the globe and secure novel technologies and products that will complement our existing research programs." (We're grateful to Ed Harrigan and his team--their biologics focused deal-making continues to make us look smart.)

Alfacell/ Strativa Pharmaceuticals: Alfacell licensed its Phase III cancer therapy, Onconase, to Strative Pharmaceuticals for $5 million up-front and up to $225 million in cash milestones. Under the terms of the agreement, Strativa has exclusive marketing, sales and distribution rights to Onconase for the treatment of cancer in the U.S. and its territories. Alfacell, meanwhile, retains the rights for product manufacturing, clinical development and obtaining regulatory approvals. The drug, which is a natural protein isolated from the leopard frog, was developed using Alfacell's ribonuclease (RNase) technology for the treatment of inoperable malignant mesothelioma, a rare cancer affecting the lungs and usually associated with exposure to asbestos. Though the exact mechanism of action is unclear, the drug appears to selectively target diseased cells by triggering apoptosis. Onconase has been granted orphan drug status as well as fast-track development status by the FDA for the treatment of malignant mesothelioma.

Warburg Pincus/ Lifecore Biomedical: Warburg Pincus, the global private equity player, agreed to buy Lifecore Biomedical for $17 a share, in an all-cash deal worth roughly $239 million. (That's a 30% premium to Lifecore's average share price for the past 30 trading days in case you were wondering.) "As a private company, Lifecore will have greater flexibility to focus on its long-term strategic direction. Warburg Pincus and its affiliates have confidence in Lifecore’s future and will support achieving our long-term goals,” said Dennis Allingham, Lifecore's President and CEO in this release. We admit that Lifecore's profile--it's mostly a dental and OEM supplier--makes it the kind of device company to which we don't typically devote a lot of ink. It's also true that $239 million is small potatoes in the PE world. (Just a few months back TPG Biotech ponied up $1.3 billion for the Canadian Axcan Pharma and its portfolio of treatments for gastrointestinal disorders, for instance.) But Warburg Pincus's involvement has us intrigued. And, it's in keeping with the deeper entwining of biopharma and PE as the credit crunch halts mega-deals in other industries.

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Deals of the Week: far from the Westin St. Francis

Attention JPMorgan attendees: we trust you've consumed enough resveratrol to make up for the pickled brain cells. Your steadfast Deals of the Week writer has been keeping tabs from afar and sighing over the gossip missed. (Feel free to drop a line with any juicy conference post-mortems.) Meantime, here's a review of the items you may have missed while talking it up at the Westin St. Francis.

Genzyme/Isis: The deal of the week, and the one generating all the buzz in the Westin hallways and Union Square restaurants was Genzyme's agreement with Isis for the southern California biotech's phase III anti-cholesterol medication mipomersen. As we wrote here, the deal, which included a $325 million up-front, $825 million in development and regulatory milestones, and an additional $750 million in commercial milestones, is a bold statement by specialist play Genzyme to remain an independent entity. Mipomersen, a lipid-lowering compound that targets apolipoprotein B-100, is a weekly injectable being investigated first for the rare, inherited disorder familial hypercholesterolemia (FH). Henri Termeer, Genzyme's CEO, describes the asset in the press release as a “very Genzyme-like product.” No doubt he's also eyeing its possible use in the general population in patients with high cholesterol and at high risk of cardiovascular events who are ineligible for statin therapy.

Pfizer/Tacera: Genzyme wasn't the only company dealing in the biologics space this week. On Monday, Pfizer signed yet another large molecule deal, this time with Tacere Therapeutics for world-wide non-Asian rights to the biotech's RNAi hepatitis C drug, TT-033. (Back in June, Tacere brokered with Oncolys BioPharma for the Asian rights to the same compound.) TT-033 is pre-IND, but that didn't stop Pfizer from agreeing to pay--potentially--more than $145 million in development and commercialization milestones. And that doesn't include the undisclosed up-front fee signed by the two companies. Pfizer has been among the most aggressive of big pharma's biologics acquirers, buying both Coley Pharmaceuticals (vaccine technology) and CovX (antibody scaffolds) late last year, as well as inking licensing deals with Xoma (antibodies) and Direvo Biotech (bioengineered proteins) last fall.

Wyeth/ Mochida Pharmaceuticals: Wyeth was another big pharma betting heavily on a preclinical compound this week. On Jan. 9, the pharma announced a deal with Japanese drug maker Mochida Pharmaceuticals for that company's experimental pain medication, a TRPV1 antagonist. Financial terms were not disclosed, but news reports cited Wyeth paying a one-time payment upon the signing of the contract, as well as milestone payments. In addition, Mochida retains the right to co-develop and market the drug in Japan. TRPV1 antagonists are in vogue within Big Pharma: Eli Lilly and Merck both have compounds belonging to this class in development. As we've mentioned before, Wyeth is not known for its overly aggressive business development team, which prefers early stage licensing deals over major acquisitions. Clearly Mochida's TRPV1 dovetails nicely with such a strategy and adds to the company's pain franchise, which also includes (the recently delayed at FDA) methylnatrexone thanks to a 2005 deal with Progenics Pharmaceuticals. (Though whether the deal can stem some of the pain resulting from last summer's troubles with Pristiq and bifuprenox remains an open question.)

Teva Pharmaceuticals/India: The Business Standard reports that Israel's Teva Pharmaceuticals plans to invest more than $1 billion dollars over the next 24 months buying Indian drug companies and setting up manufacturing facilities. We admit this isn't really a canonical deal of the week, but it does represent yet another example of off-shoring infrastructure, one of our major themes for 2008. (For more, check out the January issue of IN VIVO.) And it's not like this is something Teva is musing about doing. A few weeks ago, Teva acquired over 100 acres of land near Gwalior, Madhya Pradesh, to set up active pharmaceutical ingredient (API) manufacturing facilities that will match the production capacity of India's major generic players Ranbaxy, Cipla, and Dr Reddy’s.

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Deals of the Week: The Christmas Edition

'Twas four days before Christmas and all through the house, not a creature was stirring except for...the biz dev teams at several major pharmaceutical companies. My, has it been a busy week for those folks.

It's almost as if the Ghost of Christmas Yet to Come paid them a visit, offering a cautionary tale of the industry's fate 20 years hence: A graveyard filled with names like Pfizer, GlaxoSmithKline, and Eli Lilly. Perhaps, not wanting to be boiled in their own puddings or buried with stakes of holly through their hearts, the good folks at Big Pharma decided to spread some Christmas cheer via deal-making. (Or maybe they just needed a little retail therapy.) Without further ado:

Pfizer/CovX: Pfizer announced Tuesday it was buying the privately held next-generation protein play CovX for an undisclosed sum. The La Jolla-based biotech has developed a platform technology that links therapeutic peptides to antibody scaffolds. Already the company has three early stage compounds, one in diabetes and two in oncology. "The deal demonstrates Pfizer's ongoing commitment to build a competitive biotherapeutics enterprise, " said Corey Goodman, PhD, president of Pfizer's Biotherapeutic and Bioinnovation Center, in a press release. The acquisition bolsters Pfizer's large molecule discovery capabilities, but probably doesn't constitute an engine ala Bristol-Myers acquisition of Adnexus. As we wrote here, Pfizer appears to be a big believer in acquiring biologics capabilities through a serial acquisition strategy. Among its recent deals: the acquisitions of PowderMed, Rinat, Biorexis, and Bioren.

Merck-Serono/Idera & Merck-Serono/Flamel: Merck-Serono inked two deals this week. The first with TLR player Idera for two TLR9 compounds in the oncology space worth $40 million up-front and an additional $381 million in milestones. Not too surprisingly, shares of Idera surged on the news. It's the only big deal the biotech has inked in 2007: the company's last deal came about a year ago, when it signed a partnership with the other Merck worth $30 million in upfront payments. Merck-Serono also announced a collaboration with Flamel Technologies, which has developed a polymer drug-delivery technology called Medusa that can extend the activity of therapeutic proteins. Deal terms were small: just $2 million for investigating a protein in Merck-Serono's portfolio, as well as Flamel's R&D costs. This is the fifth deal Flamel has signed in 2007. Three months ago, it agreed to develop a controlled-release version of a protein for Wyeth.

Lilly/Ambrx & Lilly/BioMS & Lilly/Galapagos: Clearly Lilly execs took the Ghost of Christmas Yet to Come's message to heart. This pharma wins the honor for signing the most pre-Christmas deals, inking three this week alone. (And that doesn't count the news that Sidney Taurel, the pharma's pugnacious CEO and chairman, will cede his CEO hat to the friendly giant John Lechleiter, PhD, currently the company's president and COO.) On Monday, the company signed a research collaboration with Ambrx, a protein engineering company, for an undisclosed upfront fee and milestones. The deal builds on an existing collaboration signed by the two companies at the beginning of 2007. And Lilly execs should be quite familier with Ambrx: one of the biotech's co-founders, Richard DiMarchi, now a chemistry professor at Indiana University, spent two decades at Lilly as a VP of Biotechnology. On Tuesday, Lilly signed a rich licensing deal with the Canadian drug company BioMS for its multiple sclerosis therapeutic MBP8298. As part of the deal, Lilly will pay BioMS an $87 million up-front fee plus milestone payments that could reach $410 million. The two companies will share development costs, while Lilly will take over world-wide marketing. Finally, on Wednesday Lilly announced a smaller deal with Galapagos to develop potential new medicines for the treatment of osteoporosis. Galapagos will be responsible for discovering and developing drug candidates through proof-of-concept, at which time Lilly has the option to develop and commercialize them on a world-wide basis. Lilly, of course, has a great deal of expertise in osteoporosis thanks to its experience developing Evista, Forteo, and arzoxifene.

Medtronic/Weigao: On the device side, Medtronic, which has been beset by bad news associated with its defibrillator, announced Monday it was purchasing a 15% equity stake in Shandong Weigao Group Medical Polymer Company (Weigao) for $221 million. In addition, the two companies will form a JV to market therapies in the spine and orthopedic sectors. "China is key to our global strategy as we continue to expand our geographic footprint," said Medtronic president and CEO Bill Hawkins in a press release. Hawkins' comments echo those of many pharma execs. China remains an alluring prospect for both western drugs and devices, in part because of predictions that by 2020 it will vault to second in pharmaceutical market size with a market of $120 billion according to IMS Health. (Look for more on China's fledgling biotech industry in an up-coming START-UP.)

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Paying the TLR Toll

Some much needed good news for the Toll-Like Receptor (TLR) space today. Merck-Serono, a division of Merck KGaA, announced it was licensing Idera Pharmaceuticals' two lead TLR9 agonists, IMO-2055 and IMO-2125.

Under the agreement, Merck-Serono agreed to pay $40 million up-front, plus downstream milestones worth approximately $380 million for the two therapeutics. IMO-2055 is in Phase I clinical trials for non-small cell lung cancer and in Phase II trials for renal-cell carcinoma. IMO-2125, meanwhile, is in Phase I clinical trials in patients infected with the Hepatitis C virus who have not responded to standard treatments such as interferon-alpha. This indication is not included in the agreement with Merck, which is centered purely around oncology applications.

To date, scientists know of 10 different TLRs in the human immune system that enable the body to detect pathogenic threats--viruses or bacteria that cause disease. Both Idera's IMO-2055 and IMO-2125 are novel activators of the TLR9 protein, a molecule found in certain innate immune cells such as B cells and dendritic cells. Along with TLR7, TLR9 activation has been the focus of much research--and hype--in recent years.

It's also been the subject of some high-profile failures. In January, Coley Pharmaceuticals and its partner Pfizer announced they were suspending development of their TLR9 agonist, Actilon, after disappointing results in two clinical trials of the molecule to treat Hepatitis C. In July, Anadys also suspended development of its TLR, ANA975, yet another anti-HCV drug partnered with Novartis, because of disappointing toxicology data in animals.

But despite the disappointing results in HCV, many believe TLRs have an important role to play in cancer treatments. Certainly Pfizer remains a believer: in November the company agreed to pay $164 million to acquire its partner to gain complete access to the technology, including a non-small cell lung cancer drug in Phase III clinical trials.

Depending on the sucess of the Merck-Serono/ Idera partnership, other pharmas may become converts too.

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Pfizer Supply Deal Ups Pressure on UK Price Cuts

UK drug pricing reform was on the books anyway. The Office of Fair Trading in February 2007 recommended a switch from the traditional PPRS system whereby companies are free to set prices as they wish, within broad profit constraints, to a “value-based” approach whereby drug prices are cut and capped according to a product’s perceived therapeutic benefit.

Now the OFT’s just gathered some more fodder in its call for an end to one of Europe’s friendliest national pricing schemes—from their review of the direct-to-pharmacy drug supply arrangement initiated by Pfizer in March, with several other Big Pharma following suit.

Pfizer decided to cut out the wholesaler and sell its drugs directly to pharmacists. It still uses a wholesaler, UniChem, to do so, but UniChem in this case is simply a logistics provider, receiving a fee-for-service rather than buying the drugs outright and taking a margin from selling them on to pharmacists itself.

Pfizer had plenty of reasons to embrace DTP, which you can read about in more detail in this IN VIVO feature. One of them is that it gets to control individual drug discounts. In the traditional model, manufacturers sell to wholesalers at a 12.5% discount to list price, wholesalers compete to offer pharmacies the most attractive price and typically pass on about 10.5% of that discount. The National Health Service reimburses the pharmacies at list price, but then claws back some of the profits they make from the discounting.

The OFT has concluded from its investigation that there is a “significant risk” that DTP schemes will result in higher costs to the NHS (despite Pfizer’s assurances otherwise). So, it says in a release issued today, since the PPRS scheme is under review anyway (the current plans runs from 2005-2010), here’s another reason to switch to a pricing system that ensures that pharmacists’ discounts are safeguarded.

The OFT’s helpful suggestions:

1) reduce list prices in the PPRS framework by an amount equivalent to the average pharmacy discount

2) force pharma firms to offer a minimum list price discount to pharmacies

The bit of good news: Pfizer and others are free to pursue the DTP set-up (“manufacturers should be free to choose the distribution method they consider to be most efficient,” says the OFT).

A somewhat Pyrrhic victory, though. As far as drug prices are concerned, whatever freedom there was will now certainly soon come to an end.

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While You Were at AHA

Well, the big prasugrel v clopidogrel showdown went down pretty much how observers expected it would: Lilly's prasugrel has the edge in efficacy--cutting heart attacks by 24% over Bristol/Sanofi's Plavix--but comes with an increased risk of bleeding. The press release is here. The WSJ covers the news here. We'll probably have more on this later.

• In other AHA news, Integrilin: a little jab'll do ya. Probably not great news for Schering-Plough, which, unsurprisingly, did not fund the study that suggested angioplasty patients do just as well with a significantly smaller dose of the drug.


• The New York Times chronicles Pfizer's fight to protect its Lipitor franchise from incursion by generic simvastatin. As the Financial Times pointed out last week, AstraZeneca has its own simvastatin-induced challenges with its blockbuster statin Crestor.


• GSK's gepirone antidepressant received a non-approvable letter from FDA. This is the third time FDA rejected gepirone, previously under development at Akzo Nobel (Organon), so not exactly a shocker.


• A study in Nature published on Sunday describes a new lung cancer target. Mutations in NKX2-1, which controls the activity of alveoli, may be responsible for up to 12% of lung cancers, according to researchers led by Matthew Meyerson of the Dana-Farber Cancer Institute and the Broad Institute. Reuters has the story.


• The Boston Globe looks at MIT professor Lenny Guarente's dormant relationship with Elixir Pharmaceuticals, the about-to-go-public company he founded in 1999, and his potential relationship with Elixir competitor Sirtris Pharmaceuticals.

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Exubera: Fun with the Classics

(With apologies to Joseph Heller.)

… We will courtmartial you if you turn our deal down, even though it would raise a lot of questions and be a terrible black eye for Colonel Cathcart Kindler.

Colonel Cathcart Kindler winced at the words “black eye” and, without any apparent premeditation, hurled his slender onyx-and-ivory cigarette holder Exubera inhaler down viciously on the wooden surface of his desk. “Jesus Christ Hank McKinnel!” he shouted unexpectedly. “I hate this goddam cigarette holder Exubera inhaler!” The cigarette holder Exubera inhaler bounced off the desk to the wall, ricocheted across the window sill to the floor and came to a stop almost where he was standing. Colonel Cathcart Kindler stared down at it with an irascible scowl. “I wonder if it’s really doing me any good.”

“It’s a feather in your cap with General Peckem Pfizer’s ego, but a black eye for you with General Scheisskopf the investors,” Colonel Korn informed him with a mischievous look of innocence.

“Well, which one am I supposed to please?”

“Both.”

“How can I please them both? They hate each other. How am I ever going to get a feather in my cap from General Scheisskopf the investors without getting a black eye from General Peckem Pfizer’s ego?”

“March Biogen.”

“Yeah, March Biogen. That’s the only way to please him Pfizer’s ego. March Biogen. March Biogen.”

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Exdoomera: Why Is Sanofi-Aventis Smiling?

Pfizer CEO Jeff Kindler must have been gritting his teeth as he read out loud the costs of the now-terminated Exubera inhaled insulin product.

Pfizer announced pre-tax charges of $2.8 billion related to the Exubera exit, with approximately $1.1 billion of intangible assets, $661 million of inventory, $454 million of fixed assets and $584 million of other exit costs.

That's a lot of zeros. Exubera, along with the now defunct cholesterylester transfer protein (CETP) agent torcetrapib, were supposed to lead Pfizer into an new age of blockbuster products. Now both programs are in rubble.

There has been a lot of buzz about the titanic failure of Exubera to meet expectations, but seeing the numbers in black and white is, nonetheless, staggering.

Less than two years ago, in January 2006, Pfizer paid Sanofi-Aventis a king's ransom--$1.3 billion--for the full rights to Exubera. Then the company brilliantly navigated the product, which had respiratory safety concerns that stalled its development for years, through an FDA advisory committee and US approval by focusing on a comprehensive risk management plan.

At one point, the drug was projected to be a $2 billion-a-year franchise. In the third quarter, Exubera generated $7 million in revenue. Pfizer took one last shot at jump starting the launch by unveiling a national direct-to-consumer ad campaign earlier this year, but that was throwing good money after bad.

Exubera may have failed for any number of reasons: patients were overly concerned about respiratory side effects; the failure of a primary care sales & marketing effort to make a mark in a specialty pharmaceutical category; or it was simply a bad product for the subset of Type 2 diabetic patients it was trying to serve. And it may have been all of those things together.

In the end though, it looks like Sanofi-Aventis pulled a fast one on Pfizer, Gordon Gecko-style (you have to have seen the movie "Wall Street" to understand this reference), giving up its right to a potential blockbuster only if Pfizer paid a huge premium for the French company's troubles. Someone's laughing all the way to the bank. However, that hit may be a tad easier to take if Pfizer chooses to make a significant run at taking a stake in the French drug maker, as rumor would have it.

For Kindler, this hardly seems like a fair shake for his first year as CEO. Will investors view him as a stoic leader making tough decisions to clean up someone else's mess? They may. However, this could be the last time Kindler gets the benefit of the doubt.

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How Much Does Pfizer Want to Succeed?

Yesterday, Pfizer’s Jeff Kindler ended the speculation around what we think is his most important appointment, elevating development chief Martin Mackay to the top R&D job (an appointment, by the way, which we predicted--here).

As the WSJ’s health blog pointed out, Kindler has chosen managerial continuity. If Mackay does some of the requisite R&D reforming, it will at least come from within the Pfizer context – and theoretically won’t generate the antibody response an outsider’s initiative would (like Peter Corr’s attempts when the former Warner-Lambert chief was briefly R&D boss).

Second, Mackay is not John LaMattina. He clearly recognizes the need to change Pfizer—as he’s noted to IN VIVO and as he’ll explain at Windhover’s FDA/CMS Summit on December 6.

But two big issues will determine how successful Mackay can be—one more or less in his control; the other out of it.

The first: just how far is he willing to go in reforming Pfizer R&D? A $7.5 billion annual cost, it is vastly too expensive for what it produces. And it’s got too many people working on too many projects to manage effectively.

To succeed—our view, of course--Mackay will have to reduce headcount; start and objectively judge experiments in development (like its Project Fisher, a parallel to Lilly’s Chorus division); figure a way to push biologics into the mainstream of Pfizer’s discovery and development and create systems for monitoring the likely but as yet unknown safety challenges they’ll present; push for independent (and probably independently traded) R&D organizations, on the models of Genentech or Theravance, to whose output Pfizer will have post-Phase II options; and figure out ways of partnering Pfizer’s own de-prioritized drug candidates.

Among other things. But that’s enough for right now.

Problem is: Pfizer’s commercial and financial sides (including its CEO) will have to accept and adapt to the kind of output a revitalized Pfizer R&D must generate—high-value specialty drugs, including biologics. That will mean a smaller, more focused commercial Pfizer--or even Pfizers (we’re all for disaggregation and spinouts—therapeutically focused mini-Pfizers, for example). When Pfizer has followed its instincts, taking a mass-market approach to specialty drugs, it’s failed: witness the disappointing performance of Rebif in multiple sclerosis or the disaster of its inhaled insulin, Exubera.

We know and respect Martin Mackay. And we know he has his work cut out for him. But if he does his bit, Pfizer then needs to let him succeed.

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While You Were Packing for New York

A few notes from the weekend that was. We hope you had a good one. Several of your resident bloggers will be converging on New York this week for our Pharmaceutical Strategic Alliances conference (remember, UBS isn't the only game in town this week!). Hope to see some of you there. Stay tuned to IN VIVO Blog for a few updates from the conference on Wednesday and Thursday.

• Profit up but care down at many PE-backed nursing homes, says the New York Times in a Sunday feature.


• Pfizer gets maraviroc approval in the EU--here's the early morning release--and Novartis gets an EU OK for its transdermal Exelon mild-to-moderately-severe Alzheimer's disease patch. Both approvals were expected.


• The WSJ is the latest paper to take a gander at GSK's slightly unusual CEO succession contest, while the FT wonders who will replace Jon Symonds as CFO at AZ (hat tip, Pharmagossip).

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Old Medicine in New Bottles

Two excellent posts from the Wall Street Journal’s Health Blog and Pharmalot noted speculation from Credit Suisse on a Pfizer bid for Wyeth (we detail that company's pipeline troubles here).

Catherine Arnold, who wrote the original report, is one of our favorite analysts and anything she writes we take seriously.

But let us put the acquisition in the context of some other big decisions Pfizer needs to make.

Since the simultaneous resignation announcements of Alan Levin and John LaMattina, Pfizer has to soon appoint a new CFO and a new research boss. We’re speculated before here and here about who Pfizer might turn to for R&D. The finance choice could be complicated by what we’re told is the likely retirement of David Shedlarz, Pfizer’s vice chairman as well as Levin’s boss, Pfizer’s former CFO, and Kindler’s one-time rival for the top job. A Shedlarz departure would further upset an investment community utterly uncertain about Pfizer’s direction.

But at this point, Pfizer shouldn’t be worrying about Wall Street (it ain’t as if, with $22 billion in cash and short-term investments on its balance sheet, Pfizer needs to sell stock). Instead, the choices Pfizer makes for the R&D and finance jobs will say a lot about just how much strategic change the company’s CEO and board believe they need to make.

Would, for example, they choose a finance boss who would advocate for a more radical use of Pfizer’s cash – equity investments in several dozens of biotechs, for example, or even a Roche-Genentech like transaction? Or, even more radically, with a splintering of Pfizer into a number of quasi- or indeed completely independent therapeutically focused companies, perhaps majority held by a Pfizer holding organization? Or will the new boss simply placate shareholders short term by continuing to increase the dividend (at 4.9%, already the highest in the industry, says Goldman Sachs) and repurchasing shares?

Now back to Wyeth. As we work on a story about trends in pharmaceutical dealmaking for the September issue of IN VIVO, we consistently hear about the revival of interest in major acquisitions—that the problems of Big Pharma are now so severe that CEOs are accepting meeting requests with investment bankers that, just a few months ago, they’d have ignored.

But such deals are difficult given that the product overlap among companies is more obvious to the FTC than ever. And having to sell the overlapping products is what kills value in these deals.

That’s why biotech acquisitions are so interesting. The product overlap is usually minimal and biotechs deliver biologics capabilities that Big Pharma badly wants. A metric of that desire: the highly competitive auction that ultimately delivered MedImmune to AstraZeneca for $15.6 billion.

Theoretically, Wyeth brings similar biologics capabilities to Pfizer that MedImmune brought to AZ, along with a host of non-overlapping small-molecule drugs.

And yet we remain skeptical that such a deal is either likely or in the best interests of either company’s shareholders. Sans CFO and R&D boss, Pfizer shouldn’t embark on their third gigantic integration effort in less than a decade. Wyeth’s biologics business will do at least as well under Wyeth as it will under Pfizer (let’s remember just how underwhelmingly Pfizer has performed marketing biologics like Exubera and Rebif). Meanwhile, any biologics successes will boost Wyeth’s $22 billion base of revenues far more than Pfizer’s $47 billion. Indeed, Wyeth will resist Pfizer’s blandishments, particularly if an offer comes wrapped in Pfizer’s shares.

And if Pfizer presses its case, as it did with Warner-Lambert and Pharmacia, its own investors could easily rebel: why try to cure a disease, they might reasonably ask, with the same therapy which has consistently failed to work?

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Wyeth's Leaky Pipeline

Poor Wyeth. The bad news just keeps coming. First came the FDA's July 24 letter asking for an additional year-long study of the company's menopause drug Pristiq. Then on August 10, the company announced it's own "daily double": a non-approvable letter for bifeprunox, a Phase III schizophrenia drug it's developing with Solvay Pharmaceuticals; and the preliminary halt of a study of HCV-796, a Hepatitis C drug Wyeth is co-developing with ViroPharma.

In addition to this negative trifecta, there's an on-going legal battle with generic-drug maker Teva over Wyeth's Protonix patent. (Wyeth has asked for an injunction to prevent the launch of the generic prior to the drug's patent expiration in 2010. A decision on the matter could come any day between now and September 7.) Perhaps it's no wonder the stock has been sliding. As of yesterday, Wyeth shares had fallen nearly 24% from their May high of $59.

Coming hard on the heels of the Pristiq news, the announcements about bifeprunox and HCV-796 must have been hard for Wyeth execs to swallow. DrugResearcher reports that just a few days prior, at the Drug Discovery & Development of Therapeutics Conference in Boston, Tom Hofstaetter, Wyeth's head of business development, told attendees that the pharma industry's productivity woes were a thing of the past. "The pipelines are more diverse and better quality than ever before," claimed Hofstaetter.

Ah, sweet irony. Seems like Wyeth's "diverse pipeline" has sprung a sizeable leak. And that puts additional pressure on the success of on-going collaborations with Progenics and Elan in pain and Alzheimer's disease. You don't have to be a brain surgeon--or even a lowly Windhover reporter--to know that the company is going to have to act--and fast--to shore things up. Investors are a flighty bunch and few these days are patient enough to endure a protracted turn-around.

Barbara Ryan, an analyst with Deutsche Bank, summed it up in her investor note: "While our expectations for Wyeth's pipeline have been relatively modest, it is now clear to all that the combined commercial potential of these products won't be sufficient to replenish revenues that will be lost at the end of the decade to generics." In the immortal words of Homer Simpson:"Doh."

I'm a glass full kind of gal. Earlier this year Wyeth won approval for Torisel, it's kidney cancer drug, and Lybrel, it's birth-control pill. More importantly, Wyeth is sitting on $12.19 billion in cash--money it could use to in-license some much needed late stage compounds or acquire smaller outfits to build up it's existing neurological or large-molecule franchises.

Still it's tough to see how Wyeth can quickly plug it's leaks through M&A or alliances. The company simply doesn't have much of a history as a deal-maker. (For a review of Big Pharma's acquisitive nature see these April and May IN VIVO articles, but be warned: Wyeth only gets mentioned in discussion of Big Pharma out-licensing [Wyeth's Hofstaetter tells us that Wyeth has to outlicense because it is over-productive in internal R&D] and as a non-acquirer.)

In fact, a quick search of Windhover's Strategic Transactions Database shows that, historically, Wyeth favors research-stage alliances over acquistions. In the past six years, the company has brokered only two deals for Phase III products--a $416.5 million deal for Progenics' pain drug methylnaltrexone and a $145.5 million deal for Solvay's bifeprunox. The other big deals? A 2004 alliance with Plexxikon for rights to its Phase I drug PLX-204 for Type II Diabetes worth $22 million, and a 2006 deal with Trubion Pharmaceuticals for rights to CD-20 targeted therapies worth $41 million. (See chart below.)

And you have to go back to the mid-1990s--a time when the names Wyeth-Ayerst and American Home Products were still in use--to find a buy-out linked to the company. Compare that with AstraZeneca and Pfizer, which, in the past five years, have spent $17 billion and $4.2 billion respectively snapping up biotech companies.

It's going to be an interesting few months for Wyeth. You can bet the IN VIVO Blog will be watching--and writing. And Wyeth execs, if you want to talk strategy, we are all ears.

(click chart to enlarge)

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Unusual Suspects: If Pfizer Decides to Really Rattle the R&D Cages

Yesterday, we listed a group of people -- we called them the usual suspects -- that we think Pfizer will try to woo if it ends up turning to an outsider to head up R&D. Today, we'll list some people who could do the job -- but you probably wouldn't think of them right away.

First off: Mark McLellan, former boss of FDA and CMS. The industry loves him; so do politicians. He was even relatively popular among the famously disgruntled FDA staff. But McLellan has just gotten huge funding for his Engelberg Center for Health Care Reform and, as Founding Director, he's not likely to abandon his post at what could be the center of US health policy.

Others qualify for the less-usual category because they’ve spent their careers in research, not development, and because they haven’t had the top R&D job. Michael Dohlsten who runs discovery for Boehringer Ingelheim. “A change agent,” says one recruiter. “He’s just that good.” Likewise, Allen Oliff, GlaxoSmithKline’s discovery boss. Or Marc Tessier-Lavigne, an academic for two decades before joining Genentech in 2003, now playing #2 in research to Richard Scheller.

Indeed, Tessier-Lavigne’s academic career is a particularly intriguing model for Pfizer. If Pfizer "wants to break the mold," says one recruiter, giving a scrub to its tarnished scientific self-image, why not go with an out-and-out academic – which is exactly what Merck and Novartis did in hiring, respectively, Peter Kim and Mark Fishman? Kim’s success at Merck certainly argues for the direction.

So in terms of an academic, why not…Pete Schultz of Scripps, also the director of the Genomics Institute of the Novartis Research Foundation, a prolific company creator (Affymax, Kalypsis, Syrrx and Ambrx, among others), and—by various accounts—intensely ambitious? Probably not—say headhunters: tough personality for a corporate job.

There are certainly a bunch of young research stars—though our headhunters were unwilling to give us their best ideas here. But there’s a problem for Pfizer with this route: Peter Kim was able to understudy for a few years with the previous R&D boss, Ed Scolnick. Tessier-Lavigne is understudying now. A new young academic joining Pfizer won’t have the same chance since LaMattina leaves in December -- and no internal candidate would want to take a temporary coaching job in the corner office.

So what do we think will happen?

Up to now, Kindler & Co. haven't strayed far from the corporate nest in replacing top commercial and business development management. So it's not likely they'll do anything different with R&D, particularly given the sales job they'll have to do to attract a really capable outsider. Our money's on the top internal candidate, Martin Mackay.

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Round Up the Usual Suspects: Who Will Run Pfizer R&D?

As soon as John LaMattina announced he was stepping down as head of the world’s largest pharmaceutical R&D organization, speculation over his successor bubbled over.

According to insiders, the top internal candidate is Martin Mackay, who spent most of his nearly 12 years at Pfizer on the discovery side; he’s only been running development since the beginning of the year.

But all the insiders and outsiders we spoke with think that Pfizer CEO Jeff Kindler will need to look externally, too (we understand he's using Spencer Stuart on the search).

Insider or outsider, however, he'll want someone who can straighten out the maze--cultural, bureaucratic, and physical--created from Pfizer's series of acquisitions. Not just the big ones, Warner-Lambert and Pharmacia, but also the myriad of biotechs, plus Pharmacia's acquisitions, too--many of which hadn't been fully integrated when Pfizer bought it.

Perhaps unsurprisingly, not a lot of names dropped from the trees we shook (mostly recruiters at a variety of white-shoe firms). “Who would want that job?” they chorused. Most obviously, Pfizer’s got an enormous challenge in replacing Lipitor in 2011 – a no-win situation, they said, even if the new guy creates the sleekest, best-looking R&D organization in the industry.

Or could there be a way out after all? We think maybe there could. Granted, if Vytorin and generic Zocor continue to munch away at Pfizer’s share of the statin business at the current rate, Pfizer could see $11 billion Lipitor turn into a $5 billion drug several years before patent expiration. In that case, Pfizer stock could reach the floor pretty soon. That's bad news for lots of employees (the layoff program will speed up) but it's good news for a new R&D chief (and his stock options): starting at the bottom is better than starting on a downward slope.

Plus, given all the corporate motivation provided by the loss of billions in revenue, the R&D boss would clearly be allowed to make some big changes--something that stymied previous R&D chiefs, in particular Peter Corr, who was pushed out of the job.

What's more, there are plenty of people who would simply love the ego boost that comes from managing a $7.4 billion budget.

So, we asked, which outsiders is Pfizer likely to approach? Our sources put them into two groups: the usual suspects and the less usual ones. In this post, we'll go through the former group. Tomorrow, we'll consider the less likely candidates.

Bob Ruffolo, Wyeth’s by-the-numbers R&D boss. He’s certainly shaken up the organization, but no one expects him to budge before he sees some of the fruits of his restructuring.

John Patterson, now a board member and head of development at AstraZeneca, the driver behind the effort to root out AZ’s nearly fatal NIH syndrome, and the architect of the industry’s most ambitious business development program.

Joerg Reinhardt, now CEO of Novartis Vaccines and Diagnostics, and the former development chief. But Reinhardt is joined at the hip with CEO Dan Vasella and probably will be his successor, say the jungle drums.

Jeff Leiden, former head of research and COO at Abbott, now a partner at Clarus Ventures (not, like the other senior folks at the fund, a "managing director" -- whatever that distinction means). Was a star academic physician (and a founder of several biotechs) before joining Abbott and would certainly add a start-up shine to Pfizer.

All of these folks would be relatively safe choices for Pfizer--execs with street cred. But Pfizer will need to do a terrific sales job to get any one of them.

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Sorry, I Still Don’t Get It

Pfizer launched its first TV campaign for Exubera this past week in an attempt to breathe a little life into the stalled inhaled insulin brand. And with just $4 million in quarterly sales after 18 months on the market, Exubera needs all the help it can get.

But will the “Now I Get It” campaign be enough to put Exubera on a faster track? As we pointed out in an IN VIVO article in May, Exubera has some pretty major marketing hurdles: 1) it’s not clear that inhaled insulin is any more effective than the injectable stuff; and 2) there’s that pesky long-term pulmonary safety signal.

But perhaps the biggest hurdle is the size of the inhalation device. As big as a can of tennis balls, it’s not exactly something you’d like to whip out at a restaurant. Pfizer tries to dispel that notion in the commercial: a man is shown holding and closing the device while having a meal with a friend—but in such a way as to disguise the actual size of the thing.

The size problem isn’t new: as reported by The RPM Report, during FDA’s 2005 advisory committee review of Exubera, one panelist noted that despite the increase in “metrosexuals carrying purses,” the inconvenience of carrying the device may actually prevent patients from complying with their treatment regimen. Embarrassment also may be a factor: as the Pharma Marketing Blog points out, the inhaler looks like a large bong.

It’s also interesting to note that the commercial doesn’t ever discuss the convenience factor of inhaled insulin—in fact, the word “needle” is never uttered. But maybe that’s because for the majority of patients, inhaled insulin can’t replace injections. Instead, Pfizer sells Exubera as a treatment to help control blood sugar levels.

Inhaled insulin should be an easier sell, and with a number of other inhaled insulin products coming down the pike (all with smaller inhalation devices), Pfizer is running out of time. It’s a slick commercial, but it’s doubtful that the introduction of DTC ads for Exubera will help Pfizer overcome device envy.

But hey, don’t take our word for it: judge for yourself. To see a clip of the broadcast ad, click here, and tell us what you think.

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While You Were Dominating the Competition

If you were too busy playing in the Wimbledon semis and finals this weekend (or maybe just watching) to keep up with the news, IN VIVO Blog is here to help.

• Inhibition! Some news out of the International Society on Thrombosis and Haemostasis in Geneva this weekend. First up, Bayer's rivaroxaban was significantly more effective than Sanofi-aventis' Lovenox in preventing blood clots after knee surgery, Reuters reports. Rivaroxaban, a Factor Xa inhibitor, is being developed with Johnson & Johnson. Another Factor Xa inibhitor, Pfizer and BMS' apixiban (which is approximately a year behind rivaroxaban in development), also posted solid results, in a mid-stage trial. Reuters has the story.
  
• Indecision! UK's National Institute for Clinical Excellence (NICE) has changed its mind, and now considers Eli Lilly's Alimta cost-effective in treating mesothelioma in certain patients.


• Interference!! Roche and Alnylam announced this morning a broad alliance in RNAi therapeutics, worth up to $1 billion. Alnylam gets $331 million up-front in cash and equity payments. We hope you're not all RNAi'd out cause there'll be more on this later ...

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Dalton Joins Pfizer

The make over of the corporate VC world continues.

IN VIVO Blog has recently learned that Pfizer Inc. brought aboard Barbara Dalton, formerly of SR One and EuclidSR, to lead its Pfizer Strategic Investment Group. In hiring Dalton, Pfizer is sticking with the decision to be represented by professionals with experience on the front lines of venture capital investing rather than shuffling people out from the corporate side of the business.

Dalton joins Debra Yu, formerly of Delphi Ventures and Bay City Capital, who helped start the group three years ago. She replaces Ilya Oshman. She’ll report directly to Ed Harrigan, senior vice president of worldwide licensing and business development. “We are certainly pleased to have Barbara join us – she brings a great deal of experience, is very well-respected in the field, and will surely put her stamp on Pfizer’s venture investment group,” Harrigan told IN VIVO Blog in an email.

Pfizer is taking a unique approach with this venture effort. First, as we stated earlier, it’s bringing in outside people with venture investing experience and, more important, connections. To be sure, any VC or chief executive will return a phone call from Pfizer. But the program clearly benefits from having familiar faces represent in the field at conferences and other venture gathering places.

Second, from the very first day the venture group steered clear of Pfizer’s internal research and development wheelhouse—pharmaceuticals—as well as some external efforts (remember the Pfincubator and our other posts?). Instead, the group sought to invest in companies that might influence how pharmaceuticals are used, marketed or paid for.

The group has built a significant portfolio in diagnostics and, no doubt as part of this effort, the corporate side of the house has stood up and taken notice, becoming an aggressive and progressive player in diagnostics. “She brings the needed talent and personality to the job that is important as our venture activity evolves to its new place in the organization," Yu told us in an email.

Prior to moving over to EuclidSR in 2003, Dalton had been president of SR One, one of the grand daddies of corporate venture programs in the pharmaceutical world, for two years. Founded by Peter Sears in 1985, SR One first invested on behalf of Smithkline Beckman. It has survived all these years as its corporate sponsor went through mergers.

Dalton became president in 2001 when Brenda Gavin, who took over for Sears in 1999, moved on to co-found Quaker BioVentures in 2001.

Dalton left SR One in 2003 with two other principals to become full-time investors at EuclidSR, a New York venture capital firm. This group grew out of a partnership between Euclid Partners, a venture capital firm, and SR One. The firm that sought to invest in companies that benefited from the “convergence” of health care and information technology.

EuclidSR raised at least one fund in 2000, the first year of the partnership. Dalton and other SR One principals invested on behalf of both GSK and EuclidSR until their departure in 2003. It’s unclear what Dalton’s departure means for EuclidSR. She couldn’t be reached for comment.

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Sometimes the Bear Gets You: Coley Pharmaceuticals Edition

Coley Pharmaceuticals shares lost more than half their value today after its partner Pfizer discontinued work on its lead lung cancer compound.

The nail in PF-3512676's coffin was an independent data safety monitoring committee's verdict that a mid-trial analysis suggests the compound plus chemotherapy works no better than chemo alone.

PF-3512676, previously known as Promune (and also as CPG7909), was snatched up by Pfizer in 2005 in a deal worth up to $515 million. The compound was supposed to work by triggering the immune system through stimulating toll-like receptor 9 (TLR-9).

This is the second TLR-modulating drug that has crashed out of the clinic after being dealt to a big pharma for top dollar. Novartis bought rights to Anadys's ANA975 drug, a TLR-7 agonist, for hepatitis C only a few months after the Coley/Pfizer deal. That drug's Phase Ib program remains on clinical hold by the FDA after preclinical tox studies unearthed a potential safety signal last summer. Merck also signed a broad TLR deal with Idera in late 2006; that deal is ongoing.

Coley will hold a conference call later this afternoon.

UPDATE: Coley's call provided little in the way of further information specific to '676. Pfizer is leading the data analysis, according to Coley CEO Bob Bratzler, who described the company as "dumbfounded" and "shocked" at the news.

CSO Art Krieg aimed to confine the bad news to these particular trials and drug combinations, saying "this is a setback for this approach to the treatment of lung cancer in these particular combination regimens ... [but] the mechanisms are validated and we don't think the impact of this will be enormous beyond these approaches." Cancer drug development is challenging, he added, and a lot of successful drugs have failed multiple clinical trials before approval.

Perhaps. But the snafu puts Coley in a tight spot. At last glimpse--end of Q1--the firm had $97 million in cash reserves; yesterday's news sunk Coley's market cap to $91 million. Even considering the firm's estimated burn of about $3 million per month, the market is now placing zero value on its technology platform, its partnered projects with GSK and Sanofi-aventis (and the future of the Pfizer collaboration), as well as its various preclinical activities in RA, lupus and oncology. There is blood in the water.

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The Downsizing Opportunity: Pipeline on the Cheap?

The IN VIVO Blog was in Michigan last week, attending a profiting-from-downsizing symposium.

Would Pfizer—we wondered at the Michigan Growth Capital Symposium--use its pull-out from the state (and the near-term freedom of some 2350 full-time Michigan-based Pfizer employees) as a way of pursuing an alternative research strategy—an experiment in externalization?

The venture world is all over Pfizer right now, looking for preclinical and clinical programs. And they’d particularly love ones that come wrapped with some of their key scientific supporters. Theoretically, we reasoned, the Michigan shut down could allow Pfizer to at least keep some of these researchers tied to the mother ship by letting them – on the VCs’ dime – take ownership of programs Pfizer will be shelving. Meanwhile, Pfizer would get equity and some kind of option on the programs, should they prove interesting to its marketers. If uninteresting to them, the program still might prove commercially worthwhile, giving Pfizer a nice equity upside.

But from the discussions in Michigan, and subsequent chats with VCs, it’s increasingly clear that Pfizer—despite an ongoing program to study how it should go about out-licensing or spinning off internal assets—isn’t moving fast enough. Its best Michigan-based researchers will soon be working for other companies, including Pfizer competitors. And when they're gone so will be the best conduits to, and conductors of, Pfizer's unwanted research programs.

Not that Pfizer is uninterested in venture opportunities that provide it relatively low-cost access to interesting programs. But if our Pfincubator post is to be believed, Pfizer would prefer to win cheap access to programs it didn’t create. That seems to be the intention behind its San Diego venture idea, in which Pfizer swaps infrastructure and capital for a start-up’s equity and options on its research output.

Success of that program seems just a bit more likely than an experiment at Novartis. Its pharma division’s option fund aims to co-invest with other venture funds but get, along with its equity, an option on its investee’s product. Since most VCs we know aren’t in the habit of giving co-investors in a round a better deal than they get (in this case, Novartis would get equity at the VC price plus the option), we don’t think this arrangement will get much traction. We’re likewise skeptical that VCs backing the start-ups Pfizer hopes to woo to its San Diego facilities will be particularly happy about ceding product rights for cheap space and some cash. We’ll be happy to be proven wrong.

Indeed, neither the Pfizer nor the Novartis venture adventure leverages its parent’s real differentiable assets—de-prioritized research programs. And it is only with that kind of unique asset (money and space are commodities) that a drug company can create the opportunity to get both equity appreciation and pipeline help. Novartis in particular should understand the value here: its only major recent primary care launch, Tekturna, came about because a small, privately held company, Speedel, created a product out of a de-prioritized Novartis program—on which Novartis had kept an option.

Pfizer and Novartis aren’t alone in their unwillingness to let start-ups take over assets on their shelves. Most companies won’t. Pulling together all the relevant information is expensive, invasive, and potentially competitive. It actually took the shutdown of all of its early-stage research efforts for Procter & Gamble Pharmaceuticals to try to monetize some of its unrealized value. It’s getting equity in a new Cincinnati-based spin-out, Akebia Therapeutics, which is developing two ex-P&G programs: an angiogenesis promoter (initial target: peripheral artery disease) and a Fibrogen-like EPO inducer. P&G also out-licensed two other programs—one for heart failure and one for atrial fibrillation, but these went to established companies, one large, one small.

But that doesn’t mean pharma shouldn’t do it – at least as an experiment in an alternative research strategy. Roche is the leader here—in deals, for example, with new companies, like Synosia and Amira, based around Roche IP. Lilly has certainly done plenty of out-licensing to already existing companies, like Vicuron and Cubist, but its recent deal with Versant Ventures to exploit its Chorus development division is a big step in the start-up direction.

The real question is whether more pharmas will begin to take advantage of the enormous opportunity to experiment with virtualized R&D – at very little cost to themselves. With the retirement of Pfizer's R&D chief and its most senior opponent of out-licensing, John LaMattina, it's likely that Pfizer will reassess the strategy it's so far pursued. In that reassessment, they'll soon realize that if they don’t provide some of the key research assets, they can’t hope to get low-cost options on what the start-ups do with them.

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