Insight + Preparation + Dumb Luck = Blockbuster

This blog has spilt plenty of bytes on the nasty consequences for GlaxoSmithKline, and for the industry, of the Avandia problem – but we haven’t said much about who’s likely to benefit. That part of the story we left to The RPM Report – and you can see that analysis here.

As Kate Rawson notes in that story, the two biggest big beneficiaries are Merck’s Januvia – the only DPP4 inhibitor on the market—and Amylin/Lilly’s Byetta. But Januvia is in many ways a more interesting business case study – and one we’ll talk about in a public fireside chat with Merck CEO Dick Clark at Windhover’s annual shindig in New York for the industry’s top business development executives, Pharmaceutical Strategic Alliances.

Clark -- pictured right -- ain't exactly the pin-up CEO. He's a manufacturing guy, from the blue-collar neighborhood of the drug industry. But he's managed a turnaround at the otherwise very white-collar Merck of impressive proportions, this being the company, that not so long ago, looked like a cartoon Gulliver hogtied by thousands of litigious Lilliputions.

And as Clark and I will discuss at the PSA meeting, much of that success is due to Januvia, the product of a nearly perfect blend of scientific insight and strategy, management skill and dumb luck.

Trailing Novartis by four years, Merck’s DPP4 team not only built a molecule that avoided one of the receptor subtypes hit by Novartis’ compound, Galvus, they managed to convince the FDA – although no one is saying so, publicly – that by doing so they’d made a safer drug. Thus Januvia never got hit with the FDA scrutiny Galvus did – and ended up with a safety label so compelling (a side-effect profile comparable to placebo) that this once-a-day pill, noted one diabetologist, has become “the first truly simple-minded therapy in diabetes.”

And probably the fastest beginning-to-end development program for any first-in-class primary-care drug in recent memory (seven years from discovery initiation to approval). Indeed, Clark and research chief Peter Kim had decided – given the company’s thin late-stage pipeline -- that Januvia was one of two drugs (the other was Gardasil, the cervical-cancer vaccine) absolutely crucial to Merck’s recovery from its disaster with Vioxx.

And so Clark created a multi-disciplinary task force around the compound, with its boss reporting directly to him. Bureaucratic hurdles fell away. And the launch was as nearly perfect as a major primary-care launch can be – five months after launch, the drug had captured a greater share of attention (nearly 40%) than nearly any of the recent successful primary-care launches. And it’s now on target for what analysts think could be $775 million in first-year sales.

(We should mention that Clark did the same thing – another multi-disciplinary task force reporting directly to him -- with Gardasil – on track for $1.5 billion in worldwide full first-year sales.)

And then there’s dumb luck. Januvia has been the extraordinary beneficiary of the misfortune of others--the Galvus approval delay, in the first place, and now Avandia. Merck therefore took 100% of the profit from the excitement Novartis helped generate around the arrival of a brand-new anti-diabetic class—but none of the negatives of Galvus’ apparent side-effects. Likewise, it’s taking the lion’s share of Avandia’s lost prescriptions.

And all of this despite the fact that Januvia ain’t that great a drug. Good as an add on. But not particularly powerful in itself. Instead, Januvia is the perfect drug for our era, when safety—particularly mixed with extreme simplicity--sells far better than efficacy alone.

The PSA conference will be a good time to question Clark on just how much a CEO matters in creating a blockbuster. We forecast his answer this way: some -- but dumb luck sure helps.

Read More

Medtronic/Kyphon: Averting a Shake-Up in Spine...For Now

If Johnson & Johnson’s DePuy Spine and Abbott Spine weren’t overjoyed by Medtronic Sofamor Danek’s recent $3.9 billion acquisition of Kyphon, those two members of the spine market’s Big 3 at least heaved a big sigh of relief knowing that the market leader had eliminated the company that was emerging as a potentially significant competitor to the trio’s domination of this product sector. Indeed, Kyphon had already begun to flex its newfound muscle when it out-bid MSD and Abbott to acquire St. Francis Medical Technologies for $725 million last year—a deal that shocked the spine market as much for whom the acquirer was as for its huge sticker price.

Kyphon’s rapid recent growth and willingness to pay a premium price to acquire new technology marked perhaps the largest shock waves threatening to disrupt the status quo in the spinal market, where small companies have had little choice other than the Big 3 when looking for potential acquirers. Recently, however, that sector has been undergoing a bit of a shake-up with the major companies losing market share; MSD, in particular, has seen its market-leading position drop from 48% to 40%. These losses have largely come at the hands of the many burgeoning spine start-ups. Analysts now estimate there are as many as 150 spinal device companies, compared with one-third that number just a few years ago.

The start-up company growth and recent deal activity in this sector appear to belie the concerns that interest in the spine market peaked. A panel of investors and entrepreneurs at Windhover’s In Spine and Orthopedics conference last December (excerpted in IN VIVO) was quite bullish about the spine sector. Indeed, rather than entering a period of slower growth and retrenchment or consolidation, this group of spine industry veterans predicted that a number of product, market, and clinical forces are coming together to drive significant future growth, with one panelist suggesting that the current $4 billion spine market will more than triple in the next few years.

The factors contributing to this perfect storm in spine include innovations in diagnostics, particularly new imaging technologies, along with new implant designs, and a patient population growing not just from overall aging but from younger patients looking to take advantage of new treatment options. Clinically, the spine market is characterized by variety of conditions that can be treated by numerous therapeutic approaches; doctors are not wedded to any single therapy and continue to explore different options, resulting in a fertile environment for companies with innovative technology.

Indeed, with a clinical community receptive to new therapeutic options and a growing patient population, huge deals like Kyphon and St. Francis are likely to spur increased entrepreneurial and investor interest in spine, creating an opportunity for the growth of new mid-cap companies who themselves will be positioned to be potential acquirers, leaving the IN VIVO Blog to ask: Who will be the next Kyphon?

Read More

Drug Safety...or Food Safety...or Tobacco Safety...or Pet Food Safety...or Dietary Supplement Safety?

So which is most important to you? Well, if you're in charge of FDA, they all are. That came through loud and clear during a health care reporters breakfast with commissioner Andrew von Eschenbach organized by the folks at Health Affairs.

But fortunately for us here at the IN VIVO Blog, we only have to worry about drugs and biologics. With Congress taking off for their August recess, it looks like the Prescription Drug User Fee Act reauthorization as part of the much grander FDARA drug bill will have to wait until September to get passed.

So wait, doesn't that mean droves of FDA employees will be out of a job come September 1st because there will be no money to pay them (FDA gets half of its drug review budget from user fees)? Not so much. Von Eschenbach said the agency has already dipped into "carry-over" funds to ensure the agency will run smoothly while they wait for lawmakers to act. He expects/hopes the bill will pass in the first few days when the House and Senate come back from recess. Von Eschenbach emphasized he was working very closely with specific players in Congress to make sure that happens. The "carry-over" money, which seems to have magically appeared, is enough to last a couple of months before FDA would have to send out lay-off notices.

The RPM Report will be hosting a webinar on August 14 in partnership with the law firm Ropes & Gray to explain the commercial impact of the new drug safety rules for pharma and biotech companies. This will be the first in a series of audioconferences on the pending drug safety reforms.

Read More

While You Were Making History*

755*

IN VIVO Blog picked up on a few news items you may have missed over this fine summer weekend.

• The irony. Foot and mouth disease is back in Britain--though so far confined to a small area near the twin Pirbright laboratories of the UK's Institute for Animal Health and Merial Animal Health (a veterinary JV between Merck & Co. and Sanofi-Aventis).


• The agony. Mannkind is having trouble licensing its inhaled insulin product, the company's CEO said on Friday. The company's shares fell like they were whacked over the head with an Exubera bong. Wait, they were?


• The ecstacy! OK maybe not ecstacy, because we couldn't find anything resembling such excitement. But spending $16 billion (or selling out for $16 billion) must feel pretty good. The WSJ is reporting this morning ($ sub. reqd.) that Akzo Nobel is spending its Organon cash as ICI will accept a sweetened takeover offer.
  

(AP Photo/Chris Carlson)

Read More

Once in a Blue Moon: SGP's Stock Offering

When everyone and their pharmaceutical brother decides it's time to buy back their own stock, leave it to Schering-Plough to buck the trend.

The Big Pharma, fresh off the news it had emerged from the five-year old consent decree after righting all the wrongs at two manufacturing facilities ($500 million for the poorer, though), said it was selling a boatload of stock. The proceeds of this expected offering will cover some of the expense of its $14.5 billion cash takeout of Organon BioSciences, announced earlier this year (we covered the acquisition in depth, here).

The move marks the first time in months years decades? that a Big Pharma has decided to sell common stock to public investors (there have been plenty of debt financings and lots of cash raised via many divestments and spin offs, but zero equity offerings in a very long time as far as we can tell).

Schering-Plough is selling 50 million common shares (plus up to 7.5 million more in the greenshoe), which at yesterday's close would rake in nearly $1.5 billion toward the Organon tab. Simultaneously the company said it would sell $2.5 billion in convertible debt.

The fact is that Big Pharma rarely need to dilute shareholders since debt is readily available and they are often sitting on piles of cash that -- thanks to strong cash flow and goofy measures like the American Jobs Creation Act (oh yeah, how'd that go?) -- can resemble some of the minor peaks in the Alps. In fact most go out of their way to appease shareholders by buying back shares, the wisdom of which we question here.

But Schering-Plough has enjoyed success of late with Vytorin and Zetia, and has been growing both its top and bottom line nicely--so why not take advantage?

Read More

Novartis: Having & Eating Its Cake

It’s tough to be both a financial and a strategic investor. Which is why corporate VC has generally fared so poorly. If you’re out for returns, then you want to maximize the value of the company you invest in. If you’re out for product rights, you don’t.

For the last 10 of its 11 years, Novartis has been running a VC operation, originally as a way to fund the ideas of Novartis executives and scientists who’d been restructured out of jobs but later as a more or less pure returns-focused venture operation.

But now Novartis, like many companies before it, wants to have its VC cake (newco’s products) and eat it too (newco’s returns). Thus the interesting Novartis Option Fund experiment (confusingly, one of two option funds for Novartis as a whole—the other one is run by the pharma division and operates as a side-by-side fund with MPM Capital). Start-Up has discussed the funds briefly before, but Novartis Option now made its first investments, leading a $9 million round in RNAi delivery company Cequent Pharmaceuticals and a $14 million round in a re-start company called Adenosine Therapeutics.

The option fund works like this: along with its founding investment, Novartis Option Fund buys an option for a single program (any company Novartis Option invests in must have at least three programs--so that Novartis isn't exercising virtual control). The option comes with a pre-negotiated licensing deal and can be exercised at one of three increasingly expensive points: lead optimization, pre-IND, and first-patient dosing. Thus with Cequent, Novartis tops up a Series A led by Ampersand, Nexus and Pappas and, simultaneously, bought an option for another small amount to a inflammatory bowel disease program. With Adenosine, Novartis got an option to its A2B receptor antagonist program (Bristol has rights to its Phase III A2A agonist).

Clearly, the other VCs wouldn’t let the program go for nothing, but Novartis’ VC boss, Reinhard Ambros, argues that it's in Novartis' best interest to sign a market-priced deal as well. If it’s too cheap, he says, the start-up won’t work on the program—since Novartis has only one seat on the board, it can’t force things. And a cheap deal “hurts our investment returns,” says Ambros, which determine his annual bonus. If it’s too expensive, Novartis’ research group won’t exercise the option – and so has wasted its option price.

Meanwhile, Novartis Pharma’s option fund, the MPM Pharma Strategic Fund, is looking for later-stage programs—and according to the Novartis executive who oversees it for the company, Corinne Savill, will soon close its first deal. We'd earlier reported that the fund was looking to pick up product options without paying anything more than its equity. Not true, says Savill: they'll be paying option fees. You can't get something for nothing.


Too true.

Read More

Is Partial Agonism the Key to PPAR Success?

In case you haven't had your fill of TZD news this week, we bring you word that Dr Reddy's Labs and Rheoscience have dosed their first patient in what will be the first of several large Phase III studies of their partial PPAR gamma agonist balaglitazone.

Say what?

The timing of the trial's launch missed the Avandia circus by only a day and suggests there are companies out there willing to put in the time and money and Herculean effort to make their case for potentially differentiated products in a problematic class. Some senior industry executives think the odds are stacked against success.

Among those skeptics is Wyeth R&D chief Bob Ruffolo, who when interviewed by the IN VIVO Blog only six weeks or so ago, asked (rhetorically): "Who is going to bring a new, improved version of Avandia to market" given the regulatory mountain the FDA will surely make such a company climb?

And it's a fair question, particularly in light of the past few months' events. Let's review.

• GSK's Avandia, subject of everyone's favorite meta-analysis, though allowed to remain on the market for now, will get slapped with some stern patient- and doctor-scaring warnings. Takeda's Actos has avoided the whirlpool so far.


• The PPAR class hasn't exactly had smooth safety sailing prior to Avandia's snafu. Warner-Lambert's Rezulin kicked off the parade back in 2000 and so-called next-generation dual gamma/alpha PPAR agonists like AZ's Galida and Merck's MK-767 and Merck/BMS' Pargluva eventually followed.
  
• Clinicians and patients may be moving beyond the PPARs in any case. The RPM Report has reviewed the winners/losers: Actos may have seen a bump in the wake of the initial Avandia news, but that hasn't lasted. Merck's first-in-class DPP4 inhibitor Januvia is enjoying wild success in its first year on the market and observers are salivating over potential newcomers like Amylin's once-weekly Byetta and Novo Nordisk's liraglutide.

Nevertheless, Rheoscience presses on. If Actos is now the TZD safety standard bearer, it makes sense that to get to market now companies will have to prove their drugs as safe or safer than Takeda's (in fact, European drug regulators require such an active comparator to prove non-inferiority). Rheoscience is aiming to do just that. The first balaglitazone Phase III will be a European "six-month, double-blinded, randomized, placebo-controlled multicenter trial in which type 2 diabetes patients will be given daily doses of either 10 or 20 mg of balaglitazone versus the active comparator Actos (45mg/day) as an add on to stable insulin treatment," according to Rheoscience.

Our interest piqued, we got in touch with Rheoscience CEO Philip Just Larsen, MD, PhD. (For background on Rheoscience, check out our 2004 profile of the company.) Rheoscience's September 2005 deal with Dr. Reddy's got the Danish biopharma company European and Chinese rights to balaglitazone in exchange for taking responsibility for execution and costs associated with the drug's US/EU Phase III program and US regulatory submission (Rheoscience will also receive an undisclosed milestone payment if an NDA is approved and undisclosed royalties on US sales). Novo Nordisk once held rights to the drug, but returned them to Dr Reddy's in 2004, back when dual PPARs were still expected to dominate the class, says Larsen.

Larsen stresses the benefits of balaglitazone's partial gamma agonist properties. "It doesn't take full agonism for full glycemic control," he argues, pointing out that Phase II studies of the drug as well as preclinical models suggest that 20mg of balaglitazone is comparable to 45mg of Actos in that regard.

What's more, he says, balaglitazone shouldn't raise the same safety concerns as other TZDs, since in vitro models and preclinical trials suggest it causes less fluid retention than Avandia and Actos and is less adipogenic than those drugs. The second Phase III trial for the drug is an international long-ranging study to generate a safety database; again that trial will use Actos as a comparator, but Larsen says he doesn't expect either drug to generate the same cardiac ischemia safety signals that have plagued Avandia.

"It's worth emphasizing that it's not the class as such that is under suspicion for inducing cardiac ischemia," he says. "Actos is not associated with cardiac ischemia," a notion backed by FDA's David Graham during Avandia's recent panel meeting, he says.

Nevertheless the series of trials required to get balaglitazone onto the European and US markets will be very costly (Larsen declines to say exactly how costly). Patients and clinicians may be wary of TZDs and hamper trial enrollment (a suggestion Larsen disputes, particularly in terms of European patient accrual). The future of diabetes treatment may indeed by combination therapy, but whether or not TZDs are a mainstay of those combos remains to be seen as newer drugs like the GLP-1s make progress. The regulatory environment--for all drugs, it sometimes seems--is increasingly tricky. Larsen remains optimistic.

"I'm not worried about the regulatory environment. The advisory panel was in favor of drugs in this class, they're a necessary tool in the toolbox," he says. "Treating diabetics is a challenge and by limiting the options you put yourself in a difficult position, and these [TZD] products are quite efficacious."

As for the class' past failures, he points out that "the entire concept of pursuing the dual agonists was a blind alley, and it took those Phase III trials to show that is the case. That is how the selective PPAR agonists like balaglitazone were revitalized," and now shown that pursuing partial agonism could control the side effects related to full agonists like Avandia.

Rheoscience and Dr. Reddy's have competition. A second partial-PPAR gamma agonist in late stage trials belongs to Metabolex and Johnson & Johnson (we wrote about their innovative deal last summer). But don't expect any winners for quite some time. Balaglitazone's NDA won't be filed before late 2009 at the earliest.

Read More