DotW Strategies

As 2010’s days grow shorter, the pharmaceutical industry’s larger players face fundamental challenges, both in how they invest in internal research and how they ensure continued growth commercially for their medicines in the face of increasing scrutiny from regulators and payers. An analysis of Elsevier’s Strategic Transactions database in the October IN VIVO shows that, to date, most companies have adapted with a three-pronged strategy that places an emphasis on externalization, emerging markets, and unmet medical need.

This week’s edition of deals of the week doesn’t stray far from these established themes. (Poison ivy was apparently considered optional.)

Sanofi-Aventis’s alliance with Harvard University illustrates the ongoing allure of academic relationships, as drugmakers look to identify innovative new medicines ever earlier in the development cycle. Meantime, Glaxo’s tie-up with two Italian foundations in the development of a gene therapy to treat a disorder affecting only a few hundred people worldwide shows that no disease is too rare to attract Big Pharma’s interest--as long as the unmet medical need is high. Finally Pfizer’s deal with Indian biotech Biocon, illustrates drugmakers’ growing interest in both diabetes AND emerging markets.

GlaxoSmithKline/Fondazione Telethon & Fondazione San Raffaele: Big Pharma’s interest in rare diseases shows no signs of waning. This week’s rare disease pact – it seems like one a week is now pro forma for DOTW – aligns GlaxoSmithKline and two Italian foundations. On October 18, GSK announced plants to pay Fondazione Telethon and Fondazione San Raffaele €10 million upfront (about $14 million) for worldwide rights to a Phase I/II stem cell-based gene therapy for ADA-SCID, also known as "bubble boy disease." ADA-SCID, a single-gene defect which prevents the body from producing the enzyme adenosine deaminase, afflicts about 350 children worldwide, with about 14 EU patients and 12 U.S. patients born each year. (Thus, this isn’t simply GSK investing in a rare disease; ADA-SCID counts as one of those “ultra” orphan indications, a valid term even if it makes industry and advocacy groups squeamish.) Beyond the ADA-SCID program, the two foundations will partner with GSK on clinical programs in Wiskott-Aldrich Syndrome and metachromatic leukodystrophy, as well as four additional programs, all currently in preclinical development. In addition to the upfront payment, the foundations could earn specified development milestone payments for each program. In a same day business presentation, GSK’s Global Head of Rare Diseases Marc Dunoyer offered additional color about the rare disease unit’s strategic intent. The pharma intends to address 200 rare diseases with a focus in four primary areas: metabolism and inherited disorders, central nervous system and muscle disorders, immuno-inflammation, and rare malignancies and hematology. It continues to build its portfolio via dealmaking, including ongoing collaborations with Isis, Prosensa, and JCR Pharmaceuticals.—Joe Haas

Genentech/Biogen Idec: The longtime Rituxan partners have amended their co-development terms for next-generation anti-CD20 compounds. Biogen now gets slightly higher royalties on sales of the still-experimental compounds ocrelizumab and GA101, and their introduction will not trigger lower Rituxan royalties, as was previously outlined in their agreement. The firms squabbled for years over rights to what comes after Rituxan, and an arbiter ruled last year that Biogen had the right to participate in all anti-CD20 program development decisions. Historically Biogen has received 30% of the first $50 million in US and Canadian operating profits, then 40% of everything over $50 million, a threshold passed by Rituxan in the first quarter in each of the last three years, according to ISI Research analyst Mark Schoenebaum. Commercialization of ocrelizumab will no longer reduce Biogen's share of Rituxan profits, but certain regulatory and sales milestones of GA101 will. Also, Genentech will pay for all ocrelizumab development in multiple sclerosis, with Biogen receiving between 13.5% and 24% of US sales. With GA101, which in 2008 Genentech licensed from Glycart -- itself wholly owned by Roche -- Biogen will now pay 35% instead of 30% of US development costs and receive between 35% and 39% of profits based on certain sales milestones. GA101 is in advanced development for CLL and NHL. Ocrelizumab is in Phase II for multiple sclerosis but is no longer being tested in rheumatois arthritis. -- Alex Lash

Pfizer/Biocon: Pfizer and India's biotechnology flag-bearer Biocon finally -- after months of speculation -- announced a comprehensive global commercialization pact to bring to market a range of insulins including analogs of medicines marketed by Sanofi-Aventis, Novo Nordisk and Eli Lilly. Pfizer is doling out $200 million in upfront payments to Biocon, with the Indian biotech eligible for further milestone payments of up to $150 million. Biocon will also be entitled to additional payments linked to Pfizer's sales of its four insulin biosimilar products across global markets. As part of the deal, Biocon will take up clinical development, manufacture and supply of the biosimilar insulin products and regulatory activities needed for approvals in various geographies. Pfizer has told analysts that the deal will be "incremental," not "instrumental" to its strategy in emerging markets, biosimilars, and established products. Pfizer will be responsible for commercializing the products, while Biocon will develop and manufacture them. "Pfizer's participation in this market does raise the bar for the major producers of insulin over the long term," Leerink analyst Seamus Fernandez wrote in a same-day note. But it won't have a near-term impact because Pfizer brings little to the table beyond marketing muscle and the biggest opportunity lies in developed markets, where some of the products are patent protected for several more years. Sanofi's Lantus, for example, doesn’t lose exclusivity until 2015. – Vikas Dandekar

Romark/Intercell: Romark Laboratories and Intercell said they will collaborate on their hepatitis C programs by conducting trials on a combination therapy that will include Romark’s anti-viral drug nitazoxanide and Intercell’s HCV vaccine, IC41. The combination will seek to improve on the standard of care by adding IC41’s immune-boosting properties to nitazoxanide’s ability to slow cell replication without inducing mutations. The drug pairing will be studied side-by-side with the currently used combination of Pegasys (peginterferon alfa-2a) and Copegus (ribavirin), as well as a three-way combo of nitazoxanide, IC41, and Pegasys in a European Phase II trial slated for the first half of 2011. Nitazoxanide, an anti-infective agent in the drug class known as thiazolides that appears to activate protein kinase R, is already marketed to treat diarrhea caused by viral infections. It has been studied in conjunction with peginterferon and ribavirin as well. Tampa, Fla.-based Romark and Vienna-based Intercell did not announce financial terms of the deal.—Paul Bonanos

Sanofi-Aventis/Harvard University: Technically the tie-up between Sanofi and Harvard is a deal of last week, but with so much industry activity--and playoff mania--IVB somehow overlooked a deal that ought to be seen as a sign of the times. On October 14, Sanofi and Harvard announced they were joining forces in a broad translational alliance that gives the French pharma an early look at cutting edge science that could be important future pipeline substrate. Deal terms were not disclosed, but the collaboration is designed as a grants program, with a joint steering committee from both entities awarding funding based on scientific merit and “the potential to generate translational insight and value to biomedical research.” The boon for Harvard: scientists get access to flexible and rapidly available funding without spending hours – it’s really more like weeks or months – writing up government grants. Sanofi, in turn, has the opportunity to develop diagnostic, therapeutic, and prognostic applications of any discoveries made under the collaboration. Partnerships with academia have shown a marked uptick in number in 2009 and 2010 compared to years prior. According to Elsevier’s Strategic Transactions, the number of industry-academia partnerships jumped from 6 in 2007 to well over a dozen thus far in 2010. Nor are these the typical outsourcing relationships of yore; most are structured as true partnerships that aim to share both risk and reward. Notable recent examples: AstraZeneca’s alliances with University College London and Cancer Research Technology to create stem cell therapies for ophthalmic diseases and novel cancer medicines, respectively.--EFL

GE/Clarient: With cancer diagnosis and characterization in the vanguard of molecular diagnostics development and investment, it’s no surprise that GE Healthcare chose the area for its first major external investment in molecular test content. On Friday it announced an approximately $580 million tender offer for Clarient, which provides laboratory tests using important clinically validated cancer molecular markers including BRAF, EGFr, and KRAS. The deal, at $5 per share, is roughly a 25 % premium over its closing price yesterday of $3.77. Clarient hit profitability earlier this year, taking in $28.7 million for its testing services in the second quarter ending June 30. It utilizes most of the standard cancer testing technologies including immunohistochemistry, flow cytometry, FISH, and imaging. GE, working through its subsidiary in the UK (the former Amersham, which it acquired in 2003), expects to combine Clarient’s chemistry and molecular platforms with its own diagnostic imaging expertise, which would give it a full suite of triage and cancer diagnostic capabilities. In a sense, the link to imaging brings Clarient full circle. It originated as ChromaVision, a developer of digital microscopes, then morphed from an equipment maker into a service provider. Safeguard Scientifics, a 26% owner of Clarient going back to its ChromaVision days, said it will net approximately $145 million in the deal.-- Mark Ratner

St. Jude Medical/AGA Medical: St. Jude Medical’s announcement on Monday that it would pay $1.3 billion ($20.80 per share, a 43% premium) for AGA Medical, which had sales in 2009 of just $199 million, likely caused jaws around the industry to drop. Pick your chins off the floor, people. The transaction makes sound strategic sense, driving growth in key areas where St. Jude has significant resources but slower growing products. Case in point: St. Jude’s atrial fibrillation business grew by only single digits in the past year in the US, and the cardiac rhythm management sector is forecast to grow on a global basis by only 3% in the coming year. In contrast, AGA, operating in structural heart disease--a product segment that includes heart valves and various closure devices--enjoys double digit growth thanks to its leading share of the $250 million market for PFO closure. AGA also offers a number of new product areas to drive growth for St. Jude, including a next-generation vascular plug technology to replace embolic coils and a proprietary mesh-braided nitinol platform that will enhance the big device maker's product pipeline. In the company’s recent third quarter conference call, St. Jude Chairman and CEO Daniel Starks described the acquisition as a bolt-on to its cardiovascular franchise; the company is keeping on AGA president and CEO John Barr as head of the 550-person division. St. Jude’s recent deal flow indicates the company is trying to enter new markets via the business development suite. In September, the cardiovascular giant invested $60 million in remote monitoring company CardioMEMS, developing an implantable sensor for AAA and congestive heart failure monitoring. Early this year St. Jude also acquired intravascular imaging company Light Lab Imaging Inc. for $90 million.--Mary Stuart

Image courtesy of flickrer Neil Boyd used with permission via a creative commons license.

General Electric Drops to the tenth Spot (NYSE: GE)

Fairfield, Connecticut- The once mighty General Electric is now the tenth largest company in the United States in terms of market capitalization. Investors have hammered GE stock since 2007 when the company had a market cap of nearly $400 billion today shareholders value the company at $174 billion. Investors dropped GE shares 5% on Friday as revenues in their quarter three results came in lower than expected. GE has seen its profit decline from a record $22 billion in 2007 to $11 billion in 2009. Despite this 50% drop in profit the stock is 60% lower. Allan Edwards the CEO of The Markets Are Open has recommended GE shares since March 2009.

To see his full report Click Here

1)Exxon Mobil Corporation
2)Apple Inc
3)Microsoft Corporation
4)Berkshire Hathaway Inc.
5)Wal-Mart Stores, Inc.
6)Google Inc.
7)The Procter & Gamble Company
8)International Business Machines Corp.
9)Johnson & Johnson
10)General Electric Company

The General Election (NYSE:GE)

Investors will pull out their voting machines tomorrow when General Electric reports its third quarter earnings. General Electric is a diversified technology, media and financial services company which operates in more than 100 countries. GE is seen as a bellweather stock as its performance is seen to correlate to that of the U.S. economy. In 2009 GE profit plunged during the financial crisis, but the companies earnings have rebounded of late. In the last quarter GE recorded a profit of $3.2 billion.

Investors are going to vote tomorrow on what GE numbers mean for the company and then they will vote on what GE's numbers mean for the economy in general.

DOTW: Short, Sweet, and Not Just Roche

Thanks to some well-timed vacation for a few members of your hard-working blog team here at IVB things might be a little quiet for the next week or so. Not entirely so, but just enough that you'll have a dull ache somewhere in the bottom of your soul. Take an antacid, you'll be fine. Probably.

But what a week it has been, and we're not just talking about the NL East race. Roche has kept us all entertained with its bear-hug of Genentech and--as if to say, hey, its business as usual here in Basel--two further acquisitions: RNAi delivery play Mirus and the antibody screening platform company Arius.

We hope we've entertained you with our coverage here and elsewhere within the broad FDC-Windhover family of fine publications, and we've had a good response to our poll about the wisdom of Roche's $44 billion move: 54% of the nearly 200 responses we've had thus far think that the Roche/Genentech relationship wasn't broke and so Roche is stupid for trying to fix it. If you haven't voted, go ahead, the poll is still open. And don't forget to suggest other ways Roche could spend all that money: we've started a list here.

Of course this week hasn't been all hand-wringing about Roche's moves, other companies have been busy as well. GE bought Vital Signs for $860 million. Summit and Biomarin teamed up to develop Summit's Duchenne muscular dystrophy preclinical candidate. GSK pronounced its tie-up with the South African generics player Aspen a "transformative" deal. Sanofi-Aventis' Sanofi-Pasteur vaccines division today snapped up UK vaccine play Acambis. And Lilly decided to find an alternative way to finance its Alzheimer's pipeline with a deal involving Quintiles' NovaQuest division and the massive investor TPG-Axon (see their earnings release for more details).

We're tired just thinking about all that.

image from flickr user Derek Farr used under a creative commons license.

Schwan Song

Roche’s announcement that Severin Schwan, the head of its Diagnostics division, is set to succeed Franz Humer as CEO of the Roche Group next March came just hours after we’d filed a story for the upcoming issue of IN VIVO looking at Roche’s recent acquisitions, including its ongoing $3 billion hostile tender offer for anatomic pathology specialist Ventana Medical Systems. Given his recent history in diagnostics, the Schwan news would’ve made an excellent punch line to the article, which talks about the firm’s belief in diagnostics and its bet that personalized medicine--an area where innovative platforms and molecular test content will play significant if separate roles—will be key to its long-term growth.

This past Monday, the IN VIVO Blog also cited a rumor that Novartis could be grooming Joerg Reinhardt, the head of its vaccines and diagnostics businesses, as successor to CEO Dan Vasella.

Is it a coincidence that both firms are turning to Dx veterans? Novartis doesn’t have an in vitro diagnostics business anything like the scope of Roche’s, nor does it have a life sciences research tools unit. But Novartis knows blood banking, to which it has applied a nucleic-acid test (NAT) based platform for virology testing. And like Roche, Novartis has a significant investment in targeted cancer therapies, for which companion diagnostics are assumed to play a vital part. (Ventana, for example, markets a molecular test to gauge patients’ potential to respond to Novartis’ Gleevec).

So maybe it's a good time to examine Roche’s strategy.

Unlike other Big Pharmas (including Novartis), Roche has dedicated itself to the in-house development of companion tests. Its molecular diagnostics unit has developed know-how around adapting microarray technology to clinical diagnostics--one of the most complex aspects of the approval process for drug-diagnostic tandems--via a series of collaborations with Affymetrix, leading to tests for mutations in the p450 and cystic fibrosis genes. Roche is applying the same tools to developing its own drugs, including a p53 diagnostic for a cancer drug that binds wild type p53. And before Roche took rights to Plexxikon’s PLX4032 cancer program, which inhibits a gene mutation present in roughly two-thirds of melanomas, the two companies had begun a diagnostics collaboration around a molecular test for the mutation. Indeed, one reason Roche paid so much for the Plexxikon compound was that the companion diagnostic could dramatically expand its market into solid tumors by targeting the same mutation in those far more common cancers.

Roche has the free cash to invest in its diagnostics businesses and is clearly aiming at personalized medicine as a principal way to bolster them long term – and importantly, also support the development of targeted drugs on its pharmaceutical side. On the conference call discussing the Ventana tender offer Schwan said flatly that Roche wants it for strategic reasons relating to its drug business. The Ventana deal “is very much driven by the synergies we have on the R&D side, by the development of targeted medicines. The real value is that we can leverage the different capabilities across the entire Roche Group,” he said. “The earlier you start the exchange of ideas between pharma research and diagnostics, the better chance you have to come in parallel with the development of a companion diagnostic,” added Roche CFO Erich Hunziker.

It’s long been held that pharma holds all the leverage when it comes to drug-diagnostics partnerships. But the demand for innovative test content to run on molecular diagnostics platforms is increasing: witness the recent upswing in deal-making, along with renewed VC interest in diagnostics. It suggests that the area's potential to drive health-care innovation by directing therapy more efficiently is finally being recognized. Even Abbott Labs noted this when, in the wake of the breakup of GE Healthcare’s bid to acquire Abbott's diagnostics businesses, Ed Michael, Abbott’s newly appointed head of diagnostics, commented to us that there are synergies between all of its diagnostics divisions--especially between the molecular and point-of-care testing businesses.

So if pharma companies truly believe in the vision – and more to the point, the necessity -- of personalized medicine, and if the development of tandem drug-diagnostic combos is best started early in development, it makes sense they’d want their senior executives to have hands-on experience with the ins and outs of diagnostics development. Finally.

GE's Abbott Indigestion

Now that GE has pulled out of its proposed $8.13 billion all-cash deal for Abbott Diagnostics (ADD) and Abbott’s point-of-care testing business, will anyone else step up to the plate?

Perhaps the logical suitor is P&G, because from what we hear, only the makers of Pepto-Bismol could have treated the massive indigestion the parties were experiencing.

We believe the explanation that it fell apart because of the complexities involved in prying them—ADD, specifically—out of Abbott.

Some analysts have suggested that compliance issues and issues over the transfer of licenses also helped scotch the deal. But while there were literally thousands of transition services agreements that the parties were going to have to enter into, in the end, it appears that the degree to which ADD is integrated into the rest of Abbott, and how difficult it would therefore be to deliver it to a company that perhaps has a different culture, very much surprised both sides. And that pain was going to persist over a protracted integration period—“a lot longer than three years,” according to one insider.

What’s puzzling is that this would not be the first time such a diagnostics business was sold lock-stock-and-barrel to a health care generalist (Siemens, for example, managed to buy Bayer Diagnostics and immunoassay player Diagnostic Products last year). Nor is GE inexperienced at handling such moves (there's too many potential links to choose from for this one to even begin to know where to start).

So we have to ask: Were the cultures an obviously terrible mix? That’s very possible, and yes, it'd be interesting to contemplate what those differences may say about each company. We’ve also heard that the first marching order for Abbott now will be to improve the level of service to its diagnostics customers, which of course suggests GE may have uncovered something specifically troubling during its preparations.

In any event, the take-home is it’s unlikely that Abbott will be looking for another buyer for those businesses. And with the exception of Roche, which unlike Abbott, views diagnostics as intimately connected with its drug development ambitions and personalized medicine, there aren’t really any very large in vitro diagnostics (IVD) players left from whom GE could wring out efficiencies, exploit scale, and improve productivity in the IVD market the way it expected to with Abbott.

It may continue pursuing smaller, more targeted acquisitions in IVD and, like Abbott, certainly in molecular diagnostics. And with some of the premiums companies offered recently to companies with molecular content, like Biosite (63%, measured from the time of Beckman-Coulter’s initial offer for it before Inverness finally landed it), TriPath (58%, from Becton Dickinson), and Ventana (43% at the time of Roche’s recent hostile tender offer of $75 per share), an exit via acquisition is nearly impossible for those companies to resist at today’s prices, leading to a wave of consolidation that might only pick up more steam, now.