PhRMA's DTC Verdict: it ain't broke, we're not gonna fix it

PhRMA's second Office of Accountability report on DTC advertising is out today (covering the second half of 2006) and, well, nobody is taking it very seriously.

They probably shouldn't. PhRMA is hardly a watchdog, as several commentators have pointed out today, and their report, which updates all of us on its constituents adherence to 15 'guiding principles' of DTC advertising, isn't exactly a model of transparency. Names were not named. Examples were not provided. But hey, nice charts.

Brandweek's NRx blog sums up the instrinsic conflict and comedy nicely (and hangs on to $50 in the process).

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R&D: Worth It Only When You Don’t Pay for It

The late Michael Sorrel, one of biotech’s most perspicacious analysts, had a few basic rules for investing, one of which was the call option. Did the biotech have not merely a lead program, which could anchor the company’s valuation, but something else the stock buyer could get for free.

Same holds true with pharma. Analysts are now so skeptical of early-stage Big Pharma R&D that they want it for free. Or at least that’s the implication of some intriguing calculations from Craig Maxwell, European equity research analyst at JP Morgan.

Maxwell summed the estimated value of the six major European pharmas based solely on their current products plus their Phase III pipelines – the “embedded value” -- and then compared it to their current share prices (see chart). The closer these values came to the share value, the less the market—theorizes Maxwell—is valuing research. And that means the less the investor is paying for R&D.

Conversely, the bigger the gap between product value and share value, the greater the value the market is putting on research. No free R&D option—and a poor deal for investors.

Best value on the European market: Novo Nordisk (products equal 104% of share price). Worst deal: GSK (products equal just 74%).

Now, you can disagree with Maxwell’s estimates of product value. Maybe he’s discounting the value of GSK’s products and inflating Novo’s. But the fact that he won’t pay for R&D—that he wants it for free, and apparently can get it—seems about as damning an indictment of the value of R&D as we’ve heard in a long time.

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Amgen buys Ilypsa for $420mm cash

Amgen is acquiring polymer drug specialist Ilypsa for $420 million in cash.

That price is a nice return for Ilypsa's investors (including 5AM Ventures, Delphi Ventures, Johnson & Johnson Development Corporation, NLV Partners, and US Venture Partners), who invested a combined $46 million in the company's May 2003 Series A and July 2005 Series B.

Ilypsa, which spun out of the materials science company Symyx Technologies concurrent with its Series A, brings to Amgen the Phase II ILY101, a phosphate binder being studied to treat hyperphosphatemia in chronic kidney disease patients on hemodialysis.

ILY101 could help the company move beyond EPO while leveraging its existing infrastructure. Astellas nabbed Japanese rights to the then-Phase I drug in April 2006, in a deal valued at up to $92 million. If US rights were on the table now they would have fetched a pretty penny; given the therapeutic fit, and in particular Amgen's acute need for an alternative growth engine, it's not a surprise the Big Biotech chose to buy rather than ally.

START-UP neatly profiled Ilypsa in late 2005, chronicling the company's genesis (it is Scripps' Peter Schultz's seven thousandth start-up) and screening technology (which identifies non-absorbable polymer drugs) and initial focus on CKD (a massive market with significant unmet need).

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Hi, I’m from Medtronic. My name is …

In a wide-ranging keynote interview with colleague David Cassak at our ongoing In3 Medical Device Summit, Robert S. White, Medtronic’s chief development officer and vice president of corporate development, admitted his company’s reputation among those is the start-up world hasn’t been the best.

"That has been an area where we really have tried to improve,” White says. “Medtronic’s reputation has been mixed in terms of how friendly we’ve been to small companies. One of the things I’m trying to change is to make ourselves much more efficient and much less demanding.”

Over the past six to eight months, White says Medtronic’s corporate development group has closed several pure equity investments in companies without any rights tied to the investment. Medtronic is trying to decide on investments more quickly. In some cases, the company can do a deal in two to three months, he says. But often the time between initial contact and closing of a deal may take much longer.

But that’s not necessarily a bad thing. David asked White about the best way a start-up can pitch Medtronic. White says the best way might be to not pitch at all. First, he advises people to gain an audience the old fashioned way—through connections. “If you know people, reach out to them.” But if you don’t, try the direct route. Got to the corporate and business development offices and set up a meeting.

But leave the term sheet at home. “We really try to spend our time evolving our knowledge base around different types of companies and businesses out there,” he says. “So approach this as an education session, not as a pitch or a sales job. We find the best relationships develop over time.”

Interestingly, Medtronic sounds willing to invest more far a field than other companies in its strata--and it has some interesting pursuits. White says Medtronic has invested in roughly 70 companies, but only one half of them fit snugly into Medtronic’s current business; the other half falls in the so-called “White Space” areas where Medtronic sees potential but doesn’t yet have a focus.

Corporate investors like Boston Scientific, which still is digesting Guidant, and Johnson & Johnson Development Corp. seem less likely to invest in companies with technologies that don't have a clear cut fit into the parent corporation as we outlined in an IN VIVO article a few month back (Boston Scientific here, JJDC, here.) To be fair, however, classifying something as "white space" is purely subjective. If you try hard enough you can almost always find a business connection if you need to.

Anyway, will blog more from the Grand Hyatt in SF. If you're already here please say hello. If you're not stop on by.

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No Cure, No Pay

For most other consumer goods, you’d expect to get your money back if the product didn’t work. Not so for drugs, where many treatments don’t work in at least a significant minority of patients—but payors and governments can’t claim a refund.

That may be about to change. Today Johnson & Johnson’s Janssen-Cilag subsidiary offered to pay back the UK’s National Health Service if their blood cancer drug Velcade fails to help improve patients’ condition.

It’s not a done deal—the Department of Health will now consider the proposal. And there are still plenty of creases to iron out, such as what levels of improvement the drug would need to show in order to trigger payment. But the proposal has the backing of the UK’s cost-effectiveness body, the National Institute of Clinical Excellence, which means it’s likely to be accepted in some form or another.

Janssen isn’t doing this just to look good: for them, this scheme is the only way it will see any reimbursement for the £25,000-per-cycle drug, which NICE initially deemed too expensive to be cost-effective. This risk-sharing agreement is part of Janssen’s appeal against that decision, and the trend will probably catch on as other firms seek to overturn negative reimbursement outcomes. Some are already talking to NICE about similar schemes.

And small wonder: no cure, no pay makes absolute sense. It renders the cost of treatment economically feasible for payors, and it may help manufacturers, too, by forcing them to identify patients that will respond best to their treatment, and to find ways to improve compliance if a drug does not appear to have the same effect in daily use as it does in controlled trials. That will facilitate more widespread reimbursement and sales.

So why hasn’t 'no cure, no pay' caught on? It’s not as if Janssen is the first mover here. Novartis in 2004 tried it with hypertension treatment Diovan, to try to boost flagging sales in the US; the company claims it worked. In 2005, Bayer did the same with erectile dysfunction drug Levitra in Denmark, offering patients a refund if they were not satisfied. There are plenty of other even earlier examples, according to a paper in the British Medical Journal by Claus Møldrup, Associate Professor in the Department of Social Pharmacy at the Danish University of Pharmaceutical Science in Copenhagen. (See Box.) No cure, no pay hasn't caught on because it hasn't had to: traditional marketing techniques have worked fine.

Until now, that is. From here on, we'll see more money-back guarantees, and we’ll also see other schemes linking price to performance. GSK in September 2006 announced that it had persuaded two European governments to allow the price of pharmaceuticals to vary, in either direction, according to real-life data that emerge on the drug's effectiveness. (See February's IN VIVO article for a discussion of this and other price-discounting schemes underway in the UK.)


So governments and payors had better get cracking and set up their systems to receive funds, rather than simply pay them out—this was just one of the challenges that helped snuff out the Danish no-cure, no pay arrangements.

In the latest Velcade proposal, the NHS will be refunded in the form of a credit note from Janssen, according to the BBC. It’s not quite your money back, then—but at least you can try a new product for free.


SOURCE: BMJ 2005;330:1262-1264 (28 May)

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While You Were in the Cheap Seats

Go Phils!

IN VIVO Blog took in the Phillies-Giants game at Citizens Bank Park in Philly on Sunday. Hopefully our readers had better weather (though the game was excellent!). A few tidbits from the weekend ...

• It seems like Dr. John Buse's Congressional testimony on Wednesday will sure be interesting. The American Diabetes Association president-elect issued a statement on Friday (perhaps in an attempt to avoid mis-quotes), intended to be his only public communication until the testimony, that addresses the notion that GSK tried to silence his criticism of Avandia's risks in the past. NYT has the story, and Buse's statement.


• ASCO ... ASCO, ASCO. Have you heard, there's an oncology conference in Chicago? Lots of news from Pfizer, GSK, BMS and the rest. Covered well over at the WSJ's Health Blog.


• Wouldn't it be NICE? J&J has made the UK's National Institue for Clinical Excellence an offer it would be tough to refuse: the drugmaker will cover the cost of Velcade for patients who don't respond. The NIH would only pay when patients did well on the drug. Of course the details need to be ironed out. Full story at the FT. Hat tip Pharmalot.


• Insider at Pharmagossip highlights Big Pharma's latest new media problem: Youtube. He also directs us to this recent Simpsons excerpt: "Nappien activates your brain's napping centers, and attacks your body's awakegens."

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Jazz IPO Fails to Generate Buzz

IN VIVO Blog prefers the strong stuff

Yikes.

Jazz Pharmaceuticals IPO price fell from an expected $24-26 to a hoped-for $20-21 to an actual $18 per share, raising only $108 million when it had banked on at least $150 million. This morning the stock traded down in its first session, losing about 5% as of noon ET.

We've addressed the vaguaries of IPO pricing in the past, here and, more recently and more optmistically, here. Jazz would have been one of our bets to succeed in the IPO market where others had failed, given its larger-than-average size and impressive pedigree.

But it wasn't all rosy. The NYT played up the risks associated with Jazz's Xyrem (a.k.a. GHB) in a piece the other day and noted the biotech was running out of dough. $108 million should give the company an extra year or so of cash (it burnt through $82 million last year) but falls plenty short of its backers' hopes. With a market cap shy of $500 million, it's unlikely backers like KKR (which owned nearly half the firm, pre-IPO, after its big participation in Jazz's $250 million Series B) feel they are getting enough bang for their buck, at least for now.

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