Deals of the Week: "King of Pain" Edition

Admittedly, it's been a quiet week for biz dev in pharma land. The big news has been clinical. On the positive side, the diabetes triumvirate of Amylin, Alkermes, & Lilly published studies on October 31, reviewed here , showing that long-acting Byetta has staying power. And then there's the therapeutic effect of good vibrations. On the negative side, GPC's stock price cratered on the news that accelerated approvals aren't really under threat, it's just that satraplatin doesn't work as advertised. Bad news from Lilly and Daiichi too, who announced this week that they are suspending two prasugrel trials due to concerns about side-effects.

And a new survey posted this week--this time from IMS--gives pharma execs yet another reason to worry: US pharmaceutical sales for 2008 are projected to increase at their slowest rate since 1963 as cheaper generic drugs drive down prices and docs write fewer scripts for medicines tied to harmful side-effects. (At least sales are increasing, right?)

But in case you missed them, here's the deal-flow round-up:

• Lilly inked a deal with India-based Glenmark Pharmaceuticals to acquire rights to a portfolio of TRPV1 antagonist molecules, including a Phase II compound, GRC 6211, for osteoarthritic pain. Terms of the deal: Lilly pays Glenmark $45 million up-front and up to an additional $215 million in milestones. The deal's a bit surprising--according to Windhover's Strategic Transactions Database, the pharma has signed only 12 deals in the pain space since 1994 and three of those transactions were out-licenses, including a $211 million deal to NeoSan for US rights to Darvon and Darvocet N.


• King Pharmaceuticals signed a deal with Acura Pharmaceuticals worth $30 million up-front and up to $28 million (per product) in milestones to develop and commercialize 4 of Acura's immediate release opioid analgesics. This isn't King's first foray into pain of course. Nearly two years ago, the company inked a much bigger deal with Pain Therapeutics for that company's Phase II, abuse-resistant, long-acting oxycodone product Remoxy. (See this March 2006 IN VIVO story for more.) Perhaps this week's deal is a signal that King is returning to a specialty focus centered on neuroscience and hospital/ acute care--the "King of pain," perhaps? That may be necessary for the company's survival. Last week King announced it was slashing 20% of its work force after losing patent protection on its heart failure remedy Altace.
  
• Another spec pharma deal: NycoMed announced it was purchasing Bradley Pharmaceuticals for $346 million. The reason: "This brings together the strengths of both companies with the objective of creating a leading specialty pharmaceutical player in dermatology," said Paul McGarty, Chief Executive Officer of Nycomed US, in the company's press release. European spec pharma companies have been knocking on the door to the US via acquisitions--witness also the Meda AB acquisition of Medpointe earlier this year (at nearly $800 mm). We won't be surprised to see more of these.
  
• Finally, on November 1, Merck inked a deal with Dynavax worth up to $136 million for rights to that biotech's Phase III Hep B therapy, Heplisav, which promises an easier dosing schedule and potentially better efficacy in weakened immune systems than the drug Recombivax HB Merck already markets. Heplisav combines a segment of the hepatitis B virus and a DNA sequence that activates a toll-like receptor, triggering an early immune response. While the terms of the agreement weren't overwhelming, it's signing suggests the following: 1) There is still faith in the Toll-like receptor field despite Coley Pharmaceutical's high profile failure last January; 2) Pharmas continue to show interest in vaccines, thanks in part to new adjuvants that allow the development of more potent medicines that also come with higher price tags. (See this September 2006 story by our RPM brethren for more.)

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Spec Pharma: Wrong Bandwagon, Guys

Ok, so we’ve commented before on the definitional problems around ‘specialty pharma’—the topic came up at our PSA conference, and in this IN VIVO feature.

But we feel compelled to say some more. Yesterday during an industry conference in London, yours truly came across two further 'interesting' uses of this label, which is fast becoming totally meaningless as a result.

The first was a UK drug delivery firm that has developed a technology to push tiny, splinter-shaped solid doses of biologics, vaccines or any other drug through the skin where they apparently dissolve and distribute just as fast as a subcutaneous injection. Fine. (Read more here, if you want.) But why call the firm ‘specialty pharma’, as its CEO Charles Potter insisted on doing (and insisted that I do, too)?

“We don’t want to be seen as just drug delivery,” Potter explained, “since that implies we don’t have our own products.” Yet, he continued, we don’t want to be pharma or biotech either, because then people might think we do discovery, and that’s risky. “So we decided to call it specialty pharma,” he concludes.

Ah. So ‘specialty pharma’ means ‘reformulation and delivery’. But then why is Spain’s mid-sized pharma firm Almirall also calling itself specialty pharma? In a press release announcing Almirall's acquisition of some drugs cast out by Shire, CEO Dr. Jorge Gallardo declared that the deal "..reinforces our position as one of the key European specialty pharmaceutical companies.”

Ok, so newly-listed Almirall wants to be a bit more like Shire and get into specialist niches (though it’s unclear at first glance how the $213 million worth of assets, which include peppermint oil, help further that cause). And ok, drug delivery wants to shed its service-associated image, and highlight the lower-risk nature of its game.

But jumping onto the spec pharma bandwagon in order to do that is not a good idea. First, it’s confusing, embracing, as the term now does, so many diverse strategies (and yes, biotechs are in there too). Second, the original spec pharma model is broken anyway, so why go near it?

The traditional acquire-and-market strategy, minus R&D risk, may have created substantial value in the US. But the party’s over. The winners can’t rely on in-licensed, low risk assets to sustain the growth they need. Rumors are that MGI Pharma is up for sale. Endo is looking at strategic options, including moving upstream into risky innovation. Shire and Cephalon have both long shed their specialty pharma clothes, and now prefer to be known as ‘biopharmaceutical firms’ (another popular new label, including among Big Pharma—the ‘bio’ bit supposedly adds a valuation premium).

Despite the challenges of spec pharma version 1.0, new players are emerging. But as Bryan Morton, the CEO of Europe-based newcomer EUSA Pharma, declares, we're not really spec pharma, “we’re start-up Big Pharma.” That, he reckons, captures the idea of possessing full commercial capabilities, adjusted for size.

So the industry re-branding is official, then. Big Pharma and the old spec pharma are now biopharma, new spec pharma are 'start-up Big Pharma', and pretty much everything else, from drug delivery, through mid-caps and even biotechs-with-commercial-ambition, is now spec pharma. Got it?

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What About Specialty?

We've heard a lot at Pharma Strategic Alliance from the Big Pharma, most especially Bristol-Myers Squibb, about externalization and the attractiveness of speciality markets.

But as bigger players look to fill their pipeline gaps with smaller, niche drugs, they're beginning to compete in a market long dominated by the so-called "spec pharma" players, who've traditionally built their businesses by acquiring and selling under-valued late-stage or marketed assets.

"There's a lot of capital chasing the same assets," notes Jeremy Goldberg, Managing Director of Corporate Development at Endo Pharmaceuticals, which has a handful of products for the treatment of pain. "It's measurably more competitive than it was three years ago," he says.

But Goldberg is confident that his company, at least, won't get shut out of the deal-making game thanks both to its focus and it's smaller size. A new product, notes Goldberg, can make a tremendous difference to his company's growth and top-line, an effect that wouldn't be seen in in a big pharma with a $25 billion revenue stream.

When looking to license, "biotechs need to ask who is the right partner for my asset? In pain, it's Endo," says Goldberg.

Okay, fine. But spec pharmas are certainly under pressure to expand into additional therapuetic areas. Look at Shire's willingness to pay $1.6 billion for TKT in 2005 to move beyond its ADHD franchise via access to biologics. How does a company like Endo become the partner of choice in a therapeutic area that isn't pain?

And will a big deal scare off investors who are presumably very focused on the reliable earnings-per-share returns that a typical spec pharma provides?

It's too soon to say. More than likely we'll be discussing a new business model at next year's meeting.

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Size Matters for Specialist Drugs, Too

Sales force size, that is. ZymoGenetics’ ex-US commercialization deal with Bayer HealthCare on lead recombinant human thrombin didn’t come as a huge surprise: the west-coast biotech had always said it would seek a partner ex-US.

But what was interesting about today’s deal was that Bayer also gets to co-promote rThrombin in the US for the first three years post-launch, in exchange for up to 20% sales commission plus bonus payments up to $20 million. Now, this is a specialist drug, sure—it was filed in December 2006 as a safer alternative to bovine thrombin for use in helping control bleeding during surgery, and the entire US market is today worth only $250 million or so.

But ZymoGenetics isn’t the only one going after it (which, incidentally, says much about the growing competition even for niche products). It shouldn’t have too much trouble displacing King Pharmaceuticals’ bovine-derived product Thrombin-JMI, given the recombinant drug’s superior safety and convenience. Bovine thrombin has a black box warning due to immunogenicity, which doesn’t affect rThrombin; the Zymo product can be stored for two years at room temperature, unlike some plasma-derived drugs.

But Johnson & Johnson is also on the loose, thanks to a 2004 deal granting the Big Pharma European and then North American rights to Omrix Biopharmaceuticals’ human blood-plasma derived thrombin, which, like rThrombin, is due for approval later this year.

Zymo argues that surgeons don’t like human plasma derived products either, and that the Omrix drug will also likely carry a warning. But a battle pitting Johnson & Johnson versus Zymo's planned 50-strong US sales force looked too one-sided, whatever the products. That helps explain why Zymo’s share price has remained so muted this year.

It also helps explain why Zymo agreed to the three-year US co-promote--even though it was earlier firm in its intention “to commercialize rThrombin in the US on our own”.

Zymo will still be in charge of US pricing and commercialization, and will book US sales. But Bayer’s added muscle will allow Zymo to quickly penetrate the market, converting a maximum number of hospitals to recombinant thrombin as fast as possible, and also countering any threat from J&J. With the support of Bayer’s 70 US sales reps and 25 scientific liaisons, “we’ll have the largest field force in the hemostasis market,” Zymo's president and CEO Bruce Carter said on the conference call following the deal's annoucement, “as well as what we believe to be a superior product.”

As for Bayer: it has long abandoned global, Big-Pharma style ambition in favor of a more specialist focus. Like other mid-sized pharma, it has tried to position itself as a flexible partner that’s willing to consider ex-US rights only—and let’s face it, that’s increasingly all that’s on offer in today’s sellers’ market, as we've discussed in previous IN VIVO articles.

But the Zymo partnership offers a glimpse of how mid-cap pharma may now be able to leverage the size they do have—relative to many a biotechs, anyway—to secure what are effectively global product deals for products with (relatively) low risk.

And the cost isn’t bad either: Bayer pays Zymo $30 million up front, $40 million on approval, and up to $128 million in milestones, most of which are sales based. Ex-US, it’s in charge, and pays Zymo double-digit royalties.

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