No More NICE by 2013?

Any drug developer who showed up at the Royal Society of Medicine in London this morning could have been forgiven for thinking Christmas has come early. By 2013, nice probably won't be doing cost-effectiveness analyses of individual drugs anymore, according to Lord Howe, Parliamentary Under Secretary of State in the Department of Health.

Speaking at the joint ABPI/BIA conference entitled "Our Vision for a New Decade" (where a few other worthy initiatives were announced), Howe declared that those highly visible, and controversial, opinions delivered by NICE on whether a particular new medicine should be reimbursed by the UK National Health Service "will probably be somewhat redundant" in a few years' time.

Don't get too excited: it's not that cost-effectiveness assessments are going away. It's just that, according to Howe's plan, by then the UK will have a spanking new value-based pricing system which will see a drug's value assessed and quantified during pricing discussions. That system will replace the current PPRS (Pharmaceutical Price Regulation Scheme, which caps companies' profits rather than drug prices directly) which expires at the end of 2013.

According to Howe, the new set-up will see "the price of a drug reflecting everybody's agreed perspective on the value it provides". We were unable to establish exactly who 'everybody' is, and how they might 'agree' on such a matter. But despite scant details, it appears that companies may in future discuss value with pricing authorities directly rather than have nice--usually post hoc--impose its judgment on a drug's cost-effectiveness.

So it's not quite Christmas. But it seems the industry associations have done a good job lobbying for greater influence in pricing and value decisions, and for nice's teeth to be blunted somewhat. (Perhaps the writing was on the wall in 2009 after Sir Ian Kennedy published his report on NICE's methodologies.) Plus a system wherein value is discussed at the same time as pricing is, arguably, simpler, and "anything that's simpler is better," says Roch Doliveux, CEO of UCB and a significant investor in the UK (largely courtesy of the 2004 Celltech acquisition).

No-one will admit outright that nice is about to take a back-seat in cost-effectiveness decisions. Universities and Science Minister David Willetts was quick to refute that there will be a "lesser" role for NICE, saying instead it would be a "changing role". A more "advisory" role. NICE will move away from single technology assessments (drug assessments) towards setting quality standards more broadly for public health and for care within the NHS, including in social care.

Here's the Department of Health's summary of where NICE will fit in:

"We respect the expert independence of NICE, and believe that it must be allowed to continue to issue guidance free from political interference. However, we believe that there are fundamental failings within the wider system for drug pricing and access. We are determined to address this and are clear that nice plays a vital advisory role."

Vital its advisory role in establishing a new drug pricing system may be, but a NICE focused on setting quality standards for public health will certainly be less controversial than in its existing form. And less powerful. Today, a NICE decision can--and quite often does--shatter a drug's commercial prospects in the UK. That power looks uncertain post-2013.

Piper Jaffray Exits Euro Stocks

Europe's biotechs have long suffered from a lack of decent analyst coverage; now there's even less. Piper Jaffray's six-strong European-based analyst team (led by Sam Fazeli) got the chop last night, victims of a 'restructuring of European operations' made public today by the Minnesota-based investment bank and securities house.

The bank says it wants to instead focus on 'two areas of strength: distributing US and Asian securities to European institutional investors' and providing M&A advice to European-based clients. In other words, its European-focused investment research operation--across health care (biotech/medtech), IT, software and consumer--wasn't driving enough lucrative deals to justify its existence; indeed it was dragging the overall Euro operation into the red. "Our goal with this change is to return our European operation to profitability," declared chairman and CEO Andrew Duff in the release.

Perhaps the news isn't so much of a surprise: whatever one thinks about the quality of European stocks (no worse, given careful selection, than anywhere else, we'd argue), PJ never really made the full commitment to the region that other banks like Jefferies International have, and as such,"it was a question of either investing, or chopping," says one insider. "We only covered three sectors; you really need five or six to make it worthwhile," the source continues. PJ's US coverage universe is far wider.

No doubt Fazeli and his colleagues will find pastures new, if they haven't already. The companies they covered, though--especially smaller fry like Germany's MediGene, or Ark, Antisoma or Vernalis in the UK--won't likely see many fresh analysts knocking at their doors. Not the traditional kind, anyway, that live within investment banks--too many questions are being posed more widely within the financial sector about their internal ROI.

Life's not much rosier for Europe's private biotechs, either: we hear that VCs including Atlas Venture and Alta Partners have also decided to throw in the towel in Europe. Roll on government grants and corporate VC.

image by flickr user billselak used under a creative commons license.

Do We Have the Right Managers for the UK Innovation Investment Fund?

The UK government yesterday announced that Hermes Private Equity and the European Investment Fund (EIF) had been selected to manage the technology-focused UK Innovation Investment Fund (IIF).

Science & Innovation Minister Lord Drayson reckons the 15-year IIF will grow to £1 billion within 18 months, making it the largest technology-focused fund in Europe and helping close the VC funding gap between the UK and the US. Thus far, we're about a third of the way there: the chosen managers have raised an additional £175m (mostly from UK institutions) to supplement the government's cornerstone £150m, making the fund worth £325m.

It's the EIF that we're interested in, since they'll take £100 million of the UK government's money in a £200 million technology fund-of-funds, covering life sciences, digital/ICT and advanced manufacturing. Hermes is slated to manage a £125 million low-carbon and cleantech fund-of-funds (which will receive the UK's remaining £50m).

So how much will UK biopharma companies see? The EIF choice is interesting given its clear European remit: EIF is a public-private partnership whose shareholders include the European Investment Bank, the European Commission, and various European banks (including the UK's Barclays). It already manages about €3 billion. Will £100 million from the UK government really make much difference--and more critically, will it trickle through to actually be invested in the UK?

Yes, says Drayson. For one thing, he and his team have stipulated (while trying to keep political interference to a minimum) that at least £25 million of the government's contribution must go to life sciences. According to his team, "EIF have indicated that it will be more than that," and they've also indicated that nearly all the £200 million will go into UK companies.

We should hope so. After all, why should UK money simply go into a European pot (which the UK is already contributing to, indirectly)? EIF has already signed individual biotech-supporting agreements with national institutions in other countries. In November it agreed to put €26.7 million into a co-investment fund with Sweden's Karolinska Development AB. A few years back it put €10.4 million into Danish VC Nordic Biotech's venture fund.

There's presumably nothing to stop UK venture funds from securing similar deals directly, although Drayson didn't answer our question as to why those hadn't yet appeared. He did say, though, that the IIF "is complementary to work done by university funds and other organizations" in the UK. The IIF is special, he continued, because of its (predicted) size and long-term structure, ideally suited to life sciences investments. That, he infers, should be enough to avoid an overall skew towards, say, cleantech which, with the ongoing Copenhagen Summit and all, is particularly fashionable right now.

UK biotechs, then, should in theory start to see a freer flow of venture capital by early 2010. It will be longer, however, before they begin to benefit from another pillar of the government's innovation-stimulation package: a flat 10% rate of corporation tax on profits generated from UK-rooted biopharma patents, confirmed in the UK chancellor's pre-budget report also announced yesterday. That won't come into effect until 2013.

Still, "we expect to see companies re-locating their IP to the UK in order to benefit from this," Drayson told IN VIVO Blog. The reduced rate (down from 28% and which will apply to UK-domiciled patents across all sectors) is apparently "very competitive" with the US rate (although it doesn't quite match Belgium's 6.8%).