The Wacky World of Generics: Protonix Edition

Here is a headscratcher.

Wyeth decided January 30 to launch an authorized generic version of its blockbuster proton pump inhibitor pantoprazole (Protonix). The launch comes a month after generic manufacturer Teva shocked Wyeth by launching its own version at risk. Teva quickly halted shipments under a standstill agreement with Wyeth, and the company's investors assumed (prayed?) that a settlement would follow.

Apparently not. Wyeth decided to launch its own generic under a license to Prasco (more on them later). The announcement came the day before the standstill agreement with Teva was set to expire.

Wyeth's announcement was followed by a generic launch from a third company, Sun Pharmaceuticals, which under the complex rules governing these things shares six-months of generic exclusivity with Teva. Sun had not launched previously, presumably since it feared the potential for steep damages should it eventually lose the underlying patent litigation.

However, with two prior launches (Teva's in December and Wyeth/Prasco's the day before), Sun decided to take the chance.

And then Teva announced that it has no plans to relaunch its own.

Huh?

Did Wyeth really just finish off its biggest brand in response to a non-existent threat that Teva would re-enter the market for good? And why on earth is Teva sitting back and watching one of the biggest generic opportunities in history wither away?

Welcome to the wacky world of generics.

Believe it or not, there is a way in which this bizarre series of circumstances might make sense for all the players involved.

Bernstein Research's Ronny Gal and Tim Anderson suggested one possibility in a note sent Friday. Teva's decision not to launch reflects the fact that it already has significant inventory in the trade, so it has nothing to gain from contributing to a price war that would affect the selling price it can realize on the product already in distribution. And, by waiting until after Sun enters the market this time, Teva further minimizes the potential size of any damages it might owe down the road if it loses the underlying case.

If that is the case, expect Teva to launch sometime in the next quarter or so, once trade inventories of its product are depleted and it can come in at a new, more deeply discounted price.

There is another option, the Bernstein analysts say: that Teva gambled and lost. The at-risk launch was a bad gamble by Teva, intended to extort a settlement from Wyeth in litigation the generic company believes it will lose. In that case, Wyeth is calling Teva's bluff and will ultimately prevail in court, recouping at least some of its losses on the generic.

In theory, Teva could be on the hook for treble damages. However, because Wyeth has already lost a preliminary injunction ruling in the case, it is extremely unlikely that it would be awarded any damages above the actual losses incurred to Teva's product.

Bernstein believes Wyeth is pursuing the right course in either case: it is impossible to put the genie back in the bottle now that Teva's product is in distribution, and an authorized generic launch helps Wyeth hold on to a bigger share of pantoprozole revenues for longer. If the company wins the litigation and gets a bit more money back, so much the better.

The big winners in all this, however, are not the battling companies. Instead, they are the payors who will probably reap the biggest benefit, as generic competition in the PPI class intensifies. With Protonix once a $2.5 billion brand, there is plenty of savings to be had. But the opportunity is even bigger since it is sure to increase pressure on AstraZeneca to further discount esomeprazole (Nexium).

In fact, that pressure may already be showing. AZ reported last week that Nexium experienced a net price decline of about 8% in the US last year--but that came almost entirely in the fourth quarter. The company said US sales of the brand fell 18% in the last three months of the year, despite about a 2% increase in volume. Yes, its discounts really are that deep and getting deeper.

Oh, and then there is Prasco. In case you've never heard of them, they are a relatively new start-up (formed in 2002) by former Duramed CEO Thomas Arington to focus on--you guessed it--authorized generics. Duramed, incidentally, once took on Wyeth over the course of a decade in an unsuccessful battle to market a generic version of conjugated estrogens (Premarin).

If you can't beat 'em, join 'em.

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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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Chomp! Wyeth Snaps Up Haptogen

The names are different but the premise seems the same: a struggling big pharma snaps up a promising biologics player to add bite to its large molecule divsion. Less than two weeks after BMS announced its buy-out of next-generation protein player Adnexus, Wyeth broadcast its decision to buy the Scottish biotech Haptogen.

This is the twelfth acquisition by either a big pharma or big biotech in the biologics space since September 1 2006 according to Windhover's Strategic Transactions Database. Does IN VIVO blog see a trend? Hint: Do fish swim?

It's no secret that pharmas have lately had a tough go getting drugs approved. The FDA has approved just 10 new molecular entities through September, representing a 17% drop year-over-year and matching a 10-year nadir, according to a report today by Jim Kumpel, an analyst with Friedman Billings Ramsey. (Kudos to Pharmalot for its posting.)

Desperate to get access to new therapeutic modalities, cash-rish pharmas have spent the last several years trawling for biologics players. Recall these recent deals: Roche's acquisitions of GlycArt Biotechnology and THP; Merck's take-outs of GlycoFi, Abmaxis, and Sirna; GSK's purchase of Domantis; and AZ's $15.6 billion stunner for MedImmune. (Yeah, we're still talking about that deal. If you haven't read our take, click here and here. FYI, there will be even more in the October IN VIVO.)

It's not hard to see why a company like MedImmune would make a pharma salivate--the company's pipeline was full; and they had soup-to-nuts capabilities--from discovery through marketing--in biologics. But why the interest in Adnexus or Haptogen--companies with interesting platforms but no late stage products?

It's easy: Access. Most companies just launching large molecules programs are shut out of the most desirable targets because licenses to them--at least through "gold standard" antibody providers such as Medarex and Genmab--have already been given away.

“If you want to develop a product to one of those really important targets—say the CD-20 antibody—you’re blacked out,” notes Donald Drakeman, former CEO of Medarex and now with the VC firm Advent Ventures.

Better, it seems, to spend some dough and acquire new platform technologies that provide freedom to operate—for example, GlycoFi’s yeast engineering capabilities or Adnexus’s protein program--than engage in licensing deals that may blow up when a next-generation player gets acquired by a competitor.

The Wyeth/Haptogen deal fits nicely in this paradigm. Wyeth, though comparatively biologics-rich thanks to its acquisition of Genetics Institute about a decade ago and its focus on large molecule Alzheimer's Disease therapies, has had it's own share of pipeline troubles.

According to Cavan Redmond, EVP and general manager of Wyeth's biopharmaceuticals division, the pharma has been on the look-out for "technology driven companies that help us take it [biologics] up a notch, so that we can customize antibodies even more than in the past."

That was certainly the thinking behind the pharma's 2006 deal with Trubion, which included a $40 million up-front payment for access to the biotech's CD-20 therapy for rheumatoid arthritis, Tru-15.

Seems like the same philosophy applies to Haptogen. The Scottish biotech promises it can generate antibodies against targets normally too small to elicit an immune response. In addition, the company has developed novel drug discovery techniques based on the shark immune system. (And you thought it was just a great shark picture. Ha!)

Haptogen's shark platform "has a lot of potential to generate smaller therapuetic proteins that can be taken as oral drugs," Steven Projan, VP and head of biological technologies at Wyeth, told BioWorld Today (subscription required).

Wyeth and Haptogen didn't disclose deal terms, but its doubtful there was big money on the table. Wyeth, after all, is notoriously frugal in the business development department. And, in the biologics space, the pharma tends to pursue one-off opportunities, where it can leverage its own biologics infrastructure to lower the total cost of the deal.

There's no sign that pharma's biologics feeding frenzy will abate anytime soon. Who's next? The IN VIVO Blog's crystal ball is cloudy, so it's hard to say for certain. But companies worthy of keeping an eye on include: Ablynx, which makes camelid antibodies; Biolex, which recently registered for its IPO, and uses the plant Lemna to manufacture its proteins; and Xencor, which produces souped-up antibodies using its proprietary protein engineering platform.

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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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While You Were Watching the Weather Channel

Dean on the move

A few notes from the weekend that was. Yet again we've dipped into this morning's news, but it was a slow weekend unless you're an armchair meteorologist.

• Made in New Jersey. The NJ Star Ledger takes a look at Wyeth's Alzheimer's disease drug discovery and development programs (The NYT put Wyeth center stage for its own Alzheimer's feature back in June, which we pointed out here). (Hat tip, Pharmalot, where Ed points out that Wyeth's recent spate of troubles may be responsible for its proactive media push.)


• Made in China. Lilly announced early this morning a deal with Hutchison China Medtech, for multiple drug candidates in the oncology and inflammation areas sourced from Chi-Med's herbal medicine discovery platform. Chi-Med will get R&D support and upfront payments on each candidate, plus milestones ranging from $20-29 million per, plus royalties. The release arrived in our in-box at 7am BST, but it looks like the Telegraph had the scoop.


• Made in Heaven. Didja hear the one about Novartis buying Bayer? Pharmagossip helpfully illustrates some real world M&A difficulties.

Image: Reuters/NOAA

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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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