Genzyme: Contents Under Pressure

Friday's announcement that bits of rubber and other detritus were found in vials of five different drugs manufactured at Genzyme's beleaguered Allston Landing plant was worthy of the satirical publication "The Onion"--except that it was true.

The picture grew murkier over the weekend, with the arrival of another Form 483 missive from FDA about ongoing manufacturing issues and a complete response for Lumizyme, Genzyme's enzyme replacement therapy for Pompe disease has been subject of more regulatory twists and turns than the plot of a Dan Brown novel. (Note this is the second time the Big Biotech has been dinged by regulators in the span of months. In September, FDA also shot down plans to expand the indicated use of pediatric leukemia drug Clolar to adults.)

The sad thing is the situation is entirely of Genzyme's own making. Don't think so? Let's review.

The origin of the problem goes back three years, to the original approval of Myozyme, basically the same drug as Lumizyme only manufactured on a much smaller scale, at a 160-liter scale facility in Framingham. Genzyme underestimated the demand for the drug, and plans to shore up capacity with a 4000-liter facility in Belgium were put in place. Only as a stop gap, the company also decided to devote 1/6th of its manufacturing capacity at Allston to the making of the drug.

And that decision has proved problematic. The stress of running an aging plant full tilt meant there was no time for necessary facility upgrades that might threaten the inventory of drugs manufactured at Allston, among them Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. Genzyme CEO Henri Termeer admitted as much in the Nov. 16 investor call, noting "the introduction of the production of Myozyme in Allston was a very significant factor in the complications we have experienced there."

Too bad that realization didn't happen one year ago. That's when regulators started sending warning letters outlining concerns related to what sound like bread-and-butter manufacturing issues: microbial monitoring, equipment maintenance, and process controls.

What's most amazing is that problems are ongoing. Recall that six-week interlude this summer when the firm took the entire plant offline to sterilize it after discovering yet another unrelated problem--several bioreactors contaminated with a non-lethal to humans but problematic Vesivirus.

On the company's Nov. 16 call to investors, management confirmed that the latest 483 letter relates not to a new problem created by Genzyme's decontamination efforts but arising because of "an older piece of equipment". As Genzyme's EVP of Therapeutics, Biosurgery, and Corporate Operations said during a Q&A session with analysts, "There was a number of issues there that they [regulators] highlighted and many of which we were very aware of and working to address."

Management's solution? Take the plant off line again for a few weeks to, as Meeker puts it, "allow us to move more quickly to address those issues." Does everyone feel better now?

In some strange way, the very minor nature of these gaffes is the most damning element of the story. It throws management's judgment into question and again casts doubt on the ability of the current team to resolve a situation that should never have escalated to this level. True, the most recent news has changed little for the company near-term. The complete response on Lumizyme was widely expected by analysts and, amazingly, the particulate contamination didn't provoke a demand from regulators that Genzyme recall the product.

But regulators' hands were likely tied, in part because of the life-saving nature of Genzyme's medicines and the current lack of approved therapies that could substitute for Cerezyme and Fabrazyme. By the middle of next year that won't be the case. Shire is clearly gunning to steal market share from Fabrazyme with its Replagel product, which has been approved in Europe since 2001. In October, Shire announced plans to submit a BLA for its medicine in the US before year's end.

And the potential competitive threat to Cerezyme is even greater. The FDA has already authorized the use of competing products from both Shire and Protalix despite lack of formal regulatory approval. To date, the headaches required to negotiate the administrative hurdles of the emergency access programs have limited the erosion to Cerezyme's market. But note that Shire filed its NDA for its Vela product in September; if the agency grants the drug a priority review, it could be on the market by March 2010.

That's only four months from now. Can Genzyme get its act together in the meantime? The firm is increasingly vulnerable; it can't afford another announcement like Friday's. The summer shut down already created an opening for competing products to cannibalize on one of Genzyme's main money makers. Another "Dear Health Care Practitioner" or Form 483 letter and the current rumblings of dissent will move from the fringe as patients and investors rightly demand to know: who's minding the store, and why didn't Genzyme execs ensure supply of its most important drug by building up reserves when they had a chance?

Moreover, the company's share price is under pressure, hovering perilously close to its 52-week low and Genzyme has cut its earnings forecast four times this year alone. According to Adam Feuerstein over at The Street.com, adjusted earnings are now expected to fall 43%, from $4.01 a share in 2008 to $2.27 a share this year.

Much as we were ridiculed for discussing a potential sale of the company three months ago, its impossible to deny that Big Pharma's love affair with hyper-specialist products continues unabated. Any doubts, look at the recent deal between GlaxoSmithKline and Prosensa in Duchenne muscular dystrophy.

Oh, and did we mention that Carl Icahn, who has a reputation for homing in on troubled biotechs and turning them around in time to sell them, disclosed a stake in the Big Biotech on Monday night? Coincidence, you say? (We have 1.45 million reasons to say that's not likely.)

Would GSK or that other convert to ultra-niche, Novartis, pony up the money to buy Genzyme before the biotech cleans its own house? It's unclear. But one thing seems obvious: if Termeer can't clean up the mess that's been brewing in Allston, someone else--either Icahn or another shareholder activist--will.

Image courtesy of flickrer massdistraction via creative commons license.

DotW: Yes We Can

As the US prepares for its last chance to check out of the office early on Friday, Dems converged this week on the Mile High Stadium in Denver to listen to ordinariness and outstanding oratory. The GOP will be hard pressed to match the rhetoric as they bear down on the Twin Cities for their own back-slapping event.

There was no shortage of rhetoric in our industry either. Amylin and Lilly finally decided to publicly address Byetta's potential role in pancreatitis in a late day conference call Tuesday. Clearly the speechifying--"Yes we can get through what ought to be a non-event"-- didn't convince a majority of investors. The stock prices of both companies continue to suffer.

Also on Tuesday came news from BMS and Pfizer that their eagerly anticipated Phase III clotting drug Apixaban--pitted in a head-to-head against Sanofi-Aventis's Lovenox for the prevention of venous thromboembolism in knee replacement surgery patients--just barely failed to show non-inferiority. The market reacted--but more modestly--with the share price of each company dipping slightly as Wednesday's trading began. For Pfizer it was a "Yes we can weather another round of negative news" moment. For Bristol, it was proof that the company's risk-sharing strategy makes sense.

Then there was Cell Genensys's announcement that it was stopping a Phase III trial of its prostate cancer vaccine GVAX due to potential safety concerns. Many believe the drug's future is in question, though a different pivotal trial of the product is still on-going. At least the Cell Genesys team has this consolation: "Yes we can ink a lucrative deal with a mid-size Pharma on limited data."

And having failed to partner its lead program, faropenem, Replidyne announced it was restructuring, reducing headcount to just 5 employees and taking a charge of $3.1 million. Undoubtedly the remaining staffers will have a "yes we can moment" that involves selling everything not already nailed down, including their investigational drug to treat C. difficile infection and additional anti-infective compounds. With nearly $61 million in cash on hand, they might even say "Yes, we can pull off a reverse merger."

We aren't going to call roll and ask readers to vote for their favorite weekly run-down of news. It's official. By acclamation, we bring you...


GlaxoSmithKline/Valeant: GSK made another valiant--er, we mean Valeant--attempt to add late stage, specialty focused products to its pipeline this week. On Thursday it announced a tie-up with Valeant for the specialty pharma's late stage epilepsy drug retigabine in a co-commercialization deal worth $125 million up-front and more than $500 million in potential milestones. In addition, the deal also involves earlier stage Valeant programs, and gives GSK world-wide rights to both its VRX698 as well as downstream potassium channel opening drugs. Milestones for these candidates could eventually reach $150 million. The two companies expect to file for approval in both the EU and US for retigabine in early 2009. As The Pink Sheet Daily notes, the deal shores up a looming gap in GSK's epilepsy franchise. The pharma's Lamictal, which will go off patent in 2010, posted global sales of $2.2 billion last year. But GSK will have to master the potentially tricky side-effect profile that comes with retigabine's first-in-class mechanism. In one trial of the drug, nearly 27% of patients withdrew due to problems that included dizziness, somnolence, headache, and fatigue. For J. Michael Pearson, Valeant's CEO, the deal validates his turn-around vision for the specialty pharma. Since coming on-board in February, Pearson has made partnering the company's retigabine and Phase II HepC drug taribavirin a priority.

Genzyme/Medicines for Malaria Ventures/Advinus: There’s a certain irony to a company that’s made its fortune finding treatments for rare diseases to go after a mega-disease and eschew all profits from it. But that’s what Genzyme is doing with the not-for-profit MMV – one of a growing number of groups, operating largely through virtual organizations, focused on just one or two diseases that can be attacked via collaborations with academics and companies. It’s likely Genzyme, along with help from MIT’s Broad Institute and Harvard, will do most of the discovery work while the Indian Advinus – a unique combination CRO and biotech firm – will do most of the development. And while Genzyme is doing its work gratis, the Advinus collaboration will also advance its nascent ambitions in India, where it is one of the few major biotechs with an R&D presence--Roger Longman.

Isis/Novosom: So many targets, so little time. As Isis and others grapple with that dilemma a variety of smaller biotechs are maneuvering to gain access to sequence- or target-specific IP from platform players to move from technology purveyors to drug development companies. Germany’s Novosom—which boasts a nucleotide-agnostic, charge-reversible systemic and topical delivery platform called Smarticles—this week exercised its option (which it lined up in an April 2007 deal with the antisense specialist) to develop antisense oligos targeting CD40, a target in B-cell cancers and inflammatory diseases. That deal lands it worldwide rights to Isis’ CD40 related IP and “non-exclusive worldwide and sublicensable access to certain aspects of Isis’ core technology patents.” Isis gets upfront and milestone payments and royalties on sales. Smarticles (animation here) should not to be confused with Nestle’s Smarties, the colorfully coated chocolate candies that taste delicious but are crap at delivering RNAi and antisense molecules to the inside of cells--Chris Morrison.

QLT/Reckitt Benckiser: Canadian biopharma QLT says "yes we can" continue to sell off assets, announcing the licensing of its Atrigel drug delivery technology to Reckitt Benckiser Pharmaceuticals for $25 million plus potential milestones payments of up to $5 million. (This should give Replidyne hope.) As part of the deal, Reckitt took some of QLT's infrastructure off its hands, acquiring 18 employees and a facilty in Fort Collins Co. QLT has been selling off assets since January, when it announced its intention to focus on its macular degeneration treatment Visudyne. The company has already sold its headquarters, cut staff, and offloaded its acne gel, Aczone, to Allergan for $150 million. Next up: the company will sell QLT USA in its entirety.

Photo courtesy of Flickr user davidhanddotnet via a creative commons license.

Deals of the Week: All Star Break

In a week when the AL (again) defeated the NL 4-3 in a marathon 15-inning All-Star game at Yankee Stadium (thanks, Billy Wagner, for blowing the save and losing home field advantage for the World Series-bound Phightin' Phils), there were a few all-stars in the pharmaceutical world as well.

The buzz word this week was diversification, with health-care behemoths Johnson & Johnson and Abbott Labs posting better-than-expected quarterly results. J&J was buoyed by its consumer products business and Abbott had both stents and Humira to thank for its performance. On the other hand Novartis--an increasingly diversified company--grew in spite of its non-branded Rx divisions: its consumer medicines and Sandoz generics business enjoyed only moderate success thanks to tough times in the key US market, but that didn't stop the Swiss company from posting solid second quarter numbers. (We'll have more to say on Big Pharma business models and the yin and yang of focus and diversification in an upcoming IN VIVO piece.)

Keeping with the baseball theme: we're not a blog to steal signs but we couldn't help but pick up on something earlier this week. On Tuesday we gave you all free access to the denosumab record from Elsevier's Inteleos database and noted that Amgen has suggested it would be open to licensing the project, at least for the primary care indication of post-menopausal osteoporosis (PMO).

The challenge? For all of you expert dealmakers out there to add your two cents regarding the value of the project and potential deal strategies for Amgen. We can only assume that the dearth of comments suggests that all of you are in preliminary or even final-stage negotiations with Amgen and therefore recuse yourselves from the prize-less competition. Wink wink, we get it. Slackers.

You know who hasn't been slacking off? Those intrepid dealmakers responsible for ...



GSK/Actelion: The week started off with a bang when on Monday Glaxo fronted CHF 150 million ($148 million) in a worldwide (ex-Japan) co-development and co-promotion pact with Actelion for the Phase III orexin receptor antagonist almorexant. The Big Pharma pledged an additional CHF 415 million in pre-commercial milestones for the drug’s first indication of primary insomnia and an absolutely filthy figure for total milestones in two additional indications. Reactions to this deal were varied, to say the least. One analyst called it "the largest-ever partnering deal in the history of the industry," while others pronounced themselves decidedly "underwhelmed." Certainly you can't please everyone. But allow us to be the voice of reason, the voice of moderation, the voice of baby bear, when we say that GSK's figure was probably "just right." Why's that? Well forgetting the non-insomnia terms and taking into consideration the fact that GSK will help Actelion get its primary care field force off the ground by paying it to promote an undisclosed GSK drug prior to almorexant, the upfront payment may have been low for a Phase III primary care drug circa 2000-2003, but not anymore. The few primary care drugs available for licensing in Phase III, with novel mechanisms of action designed to treat non-life-threatening diseases, come saddled with higher than ever clinical development hurdles and increased regulatory scrutiny. GSK’s ante for almorexant—though large enough to put the deal in the upper echelon when it comes to guaranteed money—might seem small were it not for those circumstances. The fact that the Big Pharma is only chipping in for a minority of almorexant’s pivotal development program (which aside from the ongoing RESTORA 1 study will include at least two more Phase III trials) is further evidence that GSK is hedging its bets here.

Genzyme/PTC: We'll spare you the "London buses" reference but suffice to say it's unusual to see one $100 million+ upfront licensing deal and to see two in a week--well, that's plain crazy. But score another one for the orphan drug seekers. On Thursday, Genzyme paid $100 million to PTC Therapeutics to enter into a global collaboration to develop and commercialize PTC124, PTC's novel oral therapy in late-stage development for the treatment of genetic disorders due to nonsense mutations. The drug is in Phase IIb trials for Duchenne muscular dystrophy and is scheduled to enter a Phase IIb in cystic fibrosis later this year. PTC will cover the cost of 124's remaining Phase II program--which is slated to include four trials--and from there the parties will split development costs 50/50. PTC is eligible for $165 million in development and approval milestones and $172 in sales milestones. PTC will commercialize in the US and Canada (where it is responsible for all commercialization costs) and Genzyme takes responsibility for marketing and associated costs for the RoW. In addition to Genzyme's up-front contribution PTC pulled in up to $25 million from the non-profit Cystic Fibrosis Foundation the day before the deal was announced to support development of '124 in CF.

ViroPharma/Lev: Specialty pharma outfit ViroPharma announced it was entering the hereditary angioedema (HAE) space with its $443 million acquisition of Lev Pharmaceuticals. The linchpin of the deal is Lev's C-1 esterase inhibitor Cinryze, a biologic that has been available in Europe for 35 years to treat this rare and life-threatening condition, which causes inflammation of the larynx, abdomen, face, and extremities. Lev filed a BLA for Cinryze in July 2007, seeking approval for both prophylaxis and acute treatment of HAE. The product faces competition from CSL Behring's C1 inhibitor Berinert and Jerini's Firazyr. Our sister publication Pink Sheet Daily has more on the HAE market and Cinryze's chances of success. For ViroPharma, the deal marks a shift away from the antiviral space, which has long been its focus, into the hospital/ transplant arena. And with the addition of a soon-to-be marketed product, it continues the company's trend of playing to an investor base attracted to fully-baked and largely derisked assets. Recall this is the company that made a tidy profit on Vancocin, a decades old product it inlicensed from Eli Lilly, to treat Clostridium difficile outbreaks. ViroPharma's timing on Vancocin was exquisite. It brought in the product just when very nasty strains of the bacterium were causing large scale hospital outbreaks of the disease; given the market forces, ViroPharma was able to raise prices of the drug considerably. It is currently working on a follow-on to Vancocin, NTCD. Meantime, there's little information available about ViroPharma's hepatitis C program: ViroPharma discontinued its HCV-796 program, partnered with Wyeth, earlier in the year. According to ViroPharma's website, the two companies continue to exlore follow-on molecules to treat the disease.--Ellen Foster Licking

MacroGenics/Raven: Raven Biotechnologies finally found a buyer in MacroGenics. Last November, Raven announced a tie-up with VaxGen worth about $39 million. But VaxGen's shareholders revolted and scuppered the deal this past spring. MacroGenics, in turn, has been working to build a fully integrated biopharmaceutical company (how quaint) around its Fc antibody engineering and dual affinity re-targeting (DART) programs. It has a large deal with Lilly to develop and commercialize its anti-CD3 mAB for use in the treatment of autoimmune diseases, icluding recent onset-type 1 diabetes. On July 17, MacroGenics and Raven announced their tie-up. Financial terms weren't disclosed but it seems unlikely that Raven got more than what VaxGen originally offered. For MacroGenics, the acquisition provides additional preclinical assets, including more than 1300 monoclonal antibodies that Scott Koenig, CEO of MacroGenics, claims can rapidly be developed using their optimization platforms. In addition, the deal gives MacroGenics access to a portfolio of proprietary cancer stem cells from many types of primary tumors that could be an important addition to MacroGenics R&D capabilities. --EFL

Teva/Barr: What's $7.6 billion buy these days? Maybe a top-five starting pitcher, but those are hard to come by. No, this week it was Barr Laboratories. This late-breaking deal of the week is the latest chapter in the ongoing consolidation of the generics sector, but the bigger story here is the combination of Teva and Barr's biologics programs. Teva also noted Barr's legal prowess and at-risk launch capabilities. Under the terms of the deal, each share of Barr common stock will be converted into $39.90 in cash and 0.6272 Teva ADRs and Teva will assume Barr's $1.5 billion in debt, to boot. In other generics news, Czech generics play Zentiva is now telling investors to reject Sanofi-Aventis' attempt to up its stake in the company, saying the $2 billion play is a lowball offer.

photo by flickr user mori claudia used under a creative commons license.

The Wisdom of Buybacks

Last week both Biogen Idec and Genzyme announced significant share buybacks. Wall Street was happy.

Biogen is buying back $3 billion worth of stock, or 57 million shares (16% of its outstanding share capital) via a dutch auction. Genzyme--which announced its buyback on the same day it said it would spend $345 million to buy Bioenvision--is buying back $1.5 billion worth (or 20 million shares) over the next three years.

Genzyme's efforts, the company said, are designed to reduce the dilutive effects of its share-based compensation programs and demonstrate that the company sees its shares as a good investment. Biogen too says that the move will return value to shareholders. Buybacks, according to people with more financial acumen than us, are a tax effective way of returning money to shareholders.

But IN VIVO Blog doesn't quite get it. Biogen Idec and Genzyme aren't banks, or fast food chains, or textbook suppliers. For companies aiming to generate medicines and the long-term gains that go with novel and effective drugs, buybacks seem to us a waste of money. Especially for biotech companies--who ought to be investing in R&D, alliances, M&A, basically any way that builds pipeline value (and whose investors should be in the game for a big return, not just the single-digit short term percentage gains that accompany a buyback announcement). Of course, Biogen and Genzyme maintain that they have ample free cash to both invest wisely in their pipelines and to buy back shares. Perhaps they do, and there's always debt ... though that can come back to bite companies whose share price declines before the convertible matures.

In any case it seems to us that buybacks provide investors with, at best, a short-term bounce in stock price and little long-term value. We're not financial gurus, of course, so tell us what you think. We'll talk to a few bankers and take a look at the buyback issue a little more closely in the next IN VIVO.

Genzyme Buys to Build in Oncology, Again

In a move reminiscent of its 2004 acquisitions of ImPath and Ilex Oncology, Genzyme is taking out Bioenvision, its biotech partner on the drug clofarabine, for $345 million in cash. The buyout is the Big Biotech's first move to create a global oncology business--Bioenvision launched the drug in Europe last year, where it is sold as Evoltra--and its first acquisition since its hostile takeover of Anormed last year for $580 million. Evoltra sales over the past nine months in Europe were just over $9 million.

The price represents a 50% premium over the 20-day average price of Bioenvision's shares, and is the latest in a long string of acquisitions of biotech development/marketing partners: see Genentech/Tanox, Lilly/Icos, Shire/New River, Amgen/Abgenix, etc. We expect more of these ally-to-buy scenarios: sometimes having a partner is just too expensive.

Genzyme's share of clofarabine comes via Ilex, which it bought for $1 billion in stock in February 2004 as an early step in building its oncology presence. The drug is marketed as Clolar for pediatric acute lympoblastic leukemia (ALL) since its FDA approval in December that year. The companies are aiming to expand the drug's remit into adult indications such as acute myeloid leukemia (AML).

Genzyme chairman and CEO Henri Termeer noted on a call a few moments ago to discuss the deal with analysts that the companies expect roughly $600 million in peak sales from clofarabine, and stressed the efficiencies of combining Genzyme's and Bioenvision's efforts under one global clofarabine program.