2009 M&A/Alliances DOTY Nominee: J&J/Elan's 18% Solution

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.
First up on our list of worthy candidates is a nominee for the M&A/Alliance category: Johnson & Johnson's July purchase of Elan's Alzheimer's immunotherapy program (AIP) via a stock purchase plan that gives the health care giant an 18.4% stake in the biotech.

Why is this interesting? For starters, the deal's complicated structure helps both J&J and Elan hedge against risk. In return for roughly $1 billion in capital (slightly less after Elan got into a tussle with BiogenIdec about a potential change of control to Tysabri), J&J is creating a new co focused on Alzheimer's immunotherapy, with a near-term focus on the interesting, but still very risky Phase III antibody bapineuzumab.

Elan benefits because it doesn't have to fork over all the upside to its Alz program, given the biotech retains a 49.9% stake in the newco and also has a 49.9% share in its profits or losses.

Elan also also gets significant help funding bapi's development with this deal. With J&J committing another $500 million to the antibody's Phase III trials that molecule will have to rack up $1 billion in costs before Elan has to pay another penny (Recall, Elan partner Wyeth (now Pfizer) pays the other half of the development costs.)

Most importantly Elan gets much needed capital to tackle the thorny issue of its ticking debt clock. Certainly a simple asset sale wouldn't have triggered the same boatload of money--with back-end loaded deals the preference, you can bet a significant amount of the cash tied to licensing bapi would hinge on FDA or EU approval, which is still years away. Thus, any other deal structure--except the whole-sale acquisition of Elan--would have left the biotech in need of cash to shore up its financial position.

But J&J would have had to fork over a lot more than $1.5 billion to take Elan in-house. And it would have ended up paying a pretty penny for additional infrastructure and programs it didn't really want. With this deal, J&J, which before this had only a modest R&D presence in Alzheimer's, brings an experienced group of some 70 development experts to a therapeutic area that it's pegged as being critical to its future. But by limiting the deal to AIP, J&J doesn't buy unwanted--and costly--excess capability. Moreover, given this newco (of which we still don't know the name) could easily be spun out of J&J, there's the potential for even more value creation not solely limited to bapineuzumab's success in the marketplace.

And should Elan's other Alz programs take off, that's okay, too. J&J's equity stake in the biotech means it will share in Elan's success, but as a financial investor, not as the owner of the technology.

Think of it as a new alternative to the Roche/Genentech structure. But because J&J is limiting its stake to 18%, it remains a minority shareholder so there aren't the thorny issues about board control and ownership that remained a constant source of friction for both Roche and Genentech.

The J&J biz dev team is clearly enamored with the clarity provided by The 18% Solution. Nearly three months after the J&J/Elan tie-up, the pharma cut a similar deal with Dutch player Crucell, taking an 18% stake in the company in exchange for building capacity in another hot therapeutic area: vaccines.

So why does J&J deserve the DOTY for the M&A/Alliance category? Because long before other Big Pharmas, J&J's realized that sometimes owning just a piece of the pie is more beneficial than paying too much for the whole thing. Mmm, pie.

Pie image courtesy of flickrer jacqueline-w used with permission through a creative commons license.

DotW: Damned If You Do, Damned If You Don't

Alliances are a necessary evil.

Despite all the verbiage around the softer virtues of collaboration, the fact is that most companies would just prefer to be left alone. Doing the tango, as the Argentian exhibitors at BIO demonstrated, takes too much work. And frankly costs too much.

Thus this week: Onyx is now suing its partner Bayer for double-crossing it on a next-generation Nexavar (see Ed Silverman's Pink Sheet Daily analysis). Naturally, Bayer would love to find a compound of its own that’s as good as Nexavar and which doesn’t cost it a profit-share. For its part, Onyx says the follow-own is a close chemical brother to Nexavar, discovered as part of the collaboration (well – legally, that is: anything discovered in the field by either company before January 31, 2000 counts as part of the collaboration).

Think about the big acquisitions – most of them are transformations of alliances that looked more expensive than they were worth. Pfizer’s acquisitions of Warner-Lambert and Pharmacia were most fundamentally about the larger company getting 100% of the jointly promoted products (respectively: Lipitor and the Cox-2 franchise, including the star player Celebrex). By our reckoning, Roche’s acquisition of Genentech was fundamentally a response to that extraordinarily successful alliance’s costs – in duplicate infrastructure, royalties, joint decision-making.

And to our minds, the most interesting alliances of the last few months aren’t really alliances but tactics to pool resources without having to actually do all that much ongoing collaboration. The GlaxoSmithKline/Pfizer joint venture in HIV creates an independent company which starts out buying its research from its parents – but can go its own way later. Meanwhile, the Purdue/Mundipharma/Infinity deal seems to be as much an anti-collaboration as an alliance: the funders (Mundipharma and Purdue) basically don’t interfere in any way with Infinity’s research or development or, for that matter, the registration process.

Even most of the option deals we’ve seen recently (and which will be the subject of an in-depth analysis from Ellen Licking in the coming issue of Start-Up) are anti-alliance alliances – the small company does a bunch of work independently; the big company then decides whether there’s enough evidence to buy the thing. Novartis just made that logic explicit – see below in our write-up of its re-arrangement with Elixir.

Novartis announced another variation of the non-alliance alliance this week in its re-structuring of its respiratory collaboration with Schering-Plough. Which is probably a good deal to start with in this week’s edition of ...

Novartis/Schering-Plough: Why share two pies, when you can have one each? Especially when each gets to eat the one it prefers. Novartis and Schering-Plough this week undid two previous co-development and co-commercialization deals around two respiratory combination drugs, each agreeing to instead take full rights to one.

In what’s essentially an un-deal, Novartis gets exclusive worldwide rights to develop and market QMF 149, a fixed-combination of its own indacaterol (a long-acting beta-2 adrenergic agonist) with Schering-Plough’s inhaled corticosteroid mometasone (un-doing this 2006 deal). Schering-Plough, meanwhile, gets similarly full rights to a combination of mometasone with Novartis’ formoterol, another long-acting beta-2 adrenergic agonist (un-doing this 2003 deal).

It’s certainly neat—no money changed hands according to Novartis’ CEO and Chairman Dan Vasella, who added that “we wanted to complete that disentanglement.” Indeed, history has shown that co-developments, co-promotes, co-anything is generally more complicated and likely to end in tears than a pure-play effort—particularly perhaps in this case with newly-enlarged Schering-Plough (though the parties had been discussing this divorce well before the Merck merger was announced, according to Vasella).

Behind what looks like a tidy sharing of the booty, we’re sure there’s some small print (or an awfully complicated equation around the sales-based royalty-sharing arrangement on the compounds). But by and large, it appears that Schering-Plough was happy to accept a later-stage compound (Phase III completed) with less risk and cost to come, in exchange for granting Novartis a combo that’s still in Phase II, but which uses Schering-Plough’s Twisthaler device.

Novartis is taking on more cost, then, but reckons it’s worth it to build up its own respiratory franchise around indacaterol (currently under review as a standalone, and a component of other development combos including one with a compound from UK biotech Vectura)—and to avoid the tangles of co-development and co-commercialization. – Melanie Senior

Shionogi-Sciele/Victory Pharma: And you thought the Chinese were financing the US economy. The Japanese have spent more than $18 billion buying US and European biopharmaceutical companies since 2007. And if you figure CV Therapeutics wouldn’t be part of Gilead had not Astellas launched its hostile bid, well, add another $1.4 billion to the total. Now some more deals – Takeda’s acquisition of IDM (see below) and Sciele’s $150 million acquisition of Victory Pharma, bankrolled by Sciele’s still brand-new owner, Shionogi. Essex Woodlands and Ampersand had committed $45 million to the company back in March – which means that, at least for Essex (Ampersand had been in the company longer, through an acquisition), its IRR on the deal has got to be pretty impressive (and its limiteds pretty happy with the new fund). Indeed, Essex is one of those venture funds sitting pretty right now -- $900 million in a new fund, mostly raised pre-crash, and half a dozen exits over the past year or so (most recently from Dow Pharma for Valeant’s $285 million plus earnouts and – ok, sort of an exit – its $100 million option-to-sell Ception to Cephalon). Essex has been focused on growth companies (revenue generating and close to, or at, profitability, like Victory). But with all that cash, a plethora of cheap deals, and most of the early-stage venture guys sitting on their hands, Essex is probably going to move further upstream and start bankrolling some of those discovery guys.

GSK/Oxford BioTherapeutics: Bankrolling discovery is exactly what GSK has been doing with its seemingly neverending string of option-alliance deals. But this one announced early in the week by Oxford BioTherapeutics has a bit of a twist: GSK will be doing some of the early stage work itself, generating antibodies to oncology targets provided by OBT. GSK will also get an exclusive option to license a monoclonal antibody that OBT will develop through to clinical proof-of-concept. OBT got an undisclosed up-front payment and will receive clinical, regulatory and commercial milestones plus a double-digit royalty on any sales for products OBT took to POC, and single-digit royalties on GSK mabs against OBT targets. If GSK opts out of any programs, OBT has the option to pick them up. OBT's target expertise comes from its Oxford Genome Anatomy Project database, which it calls the world's largest cancer protein database. OBT has one other antibody discovery deal, with Amgen, signed back in 2007 when OBT was still Oxford Genome Sciences.

Takeda/IDM Pharma: It's roughly a week until ASCO and--here's a surprise--cancer immunotherapy is back in the news. But even though Dendreon's positive Provenge results prove naysayers wrong (for now--the drug still isn't approved) Big Pharma is still in "show me the data'' mode when it comes to this novel form of therapy. The upshot? Companies can find partners--or even buyers--but those deals aren't likely to happen until there's been a major de-risking of the compound. That was the case this week for IDM Pharma.

On May 18, Takeda announced it would acquire the immunotherapy developer for $75 million. The Big Pharma waited until the biotech's novel therapeutic for osteosarcoma, Mepact, was approved by European regulators. That Takeda held off until there was regulatory approval shows that you can teach an old pharma new tricks. Recall that last year Takeda bet $50 million on a partnership with Cell Genesys for its GVAX vaccine for prostate cancer. Let's just say things didn't exactly work out as planned; by year's end the two parties had called off the realtionship, thanks to the failure of GVAX.

For IDM Pharma, the news couldn't have come at a better time. About a week ago, the struggling biotech disclosed first-quarter earnings, noting cash and cash equivalents of $7.4 million as of March 31, down from $12.8 million at the end of last year. To survive, IDM shut down all development programs except Mepact and slashed staff headcount from 80 to 15.

Cancer vaccine makers probably shouldn't expect partners to come courting just because the field's seen one small-ish deal. While Takeda's interest in Mepact was great, IDM's other products, which include a dendritic cell-based melanoma vaccine called Uvidem, were less appealing because of their risky profile, according to the deal's orchestrator, Anna Protopapas, SVP corporate development at Takeda's Millennium Pharmaceuticals unit.

Interestingly, this is the first deal Protopapas and her team have announced since Takeda purchased Millennium for nearly $9 billion one year ago. Thus far, the aim to run Millennium as a stand-alone biotech seems to be working. We aren't exactly sure if Millennium is the Takeda oncology company or simply a Takeda oncology company, however. A closer look at the Mepact arrangement has Takeda Cambridge, the drug firm's European outpost, handling the immunotherapy's commercialization, not Millennium--which also happens to be in Cambridge--Ellen Licking.

Novartis/Elixir Pharmaceuticals: Another week, another option based deal. On Tuesday, Elixir announced that it had granted Novartis the option to acquire the biotech in a deal worth more than $500 million. The acquisition is dependent on Elixir's ability to move it's preclinical oral diabetes drug--a ghrelin antagonist--through successful Phase IIa trials. The announcement was actually just one of two made by Elixir: in addition to Novartis staking a claim on the company, the Novartis/MPM side-fund, which was created in 2007 as an attempt to more closely align Novartis' corporate venture and business development efforts, participated in the biotech's $12 million Series D.

This is actually the second option style deal Elixir has done with Novartis. Back in 2007, Novartis/MPM invested in the biotech, with Novartis taking an option on a different program--a ghrelin agonist. As part of the agreement announced earlier in the week, the two companies have terminated their earlier pact, and all rights to the oral ghrelin agonist compound revert to Elixir.

The equity financing, plus the non-dilutive funding from the option (believed to be nominal--we couldn't identify the actual amount Novartis paid on top of the financing to acquire the company though we tried), put Elixir in a far more secure cash position. According to Elixir's CEO, Paul "Kip" Martha, the company was one of many in the industry operating with less than six months worth of cash. "This is a dramatic turn-around for us," he said in an interview with IN VIVO Blog.

This is the third option-style deal Novartis has done since the start of 2009 and its structure recalls almost exactly the March deal brokered for the rights to acquire Proteon, which is developing a recombinant human elastase designed to improve the outcome of arteriovenous fistula procedures in patients with end-stage renal disease. It used to be hammering out the terms for these kinds of arrangements was tough--traditional VCs and biotech CEOs worried that the option might cap a company's upside. That's less of a concern these days when cash is a biotech’s most important resource; thus, CEOs have accepted the hard reality that non-dilutive funding now and the greater certainty of a deep-pocketed partner or buyer in the future outweigh the potential reduction in overall deal economics necessitated by option arrangements.

Finally this tie-up highlights a potential advantage of the option structure--keeping a Big Pharma engaged and potentially deepening the relationship. In 2007, Novartis's option was much more limited--it was strictly a licensing deal. This latest announcement suggests Novartis is impressed enough with Elixir’s pipeline that it sees value in owning the company outright--Ellen Licking.

Johnson & Johnson/Cougar Biotechnology: Finally, we should note that this has been -- on the investment front -- a relatively good week for biotech. We haven't seen this many acquisitions for a while. And thus, last night, J&J provided us with a pleasant send-off for the Memorial Day Weekend: its $870 million acquisition of Cougar (for more in-depth comments, see this post from earlier today).

Image from Flickr user Mike "Dakinewavamon" Kline used under a creative commons license.

Harvard's Biederman: After Me, There Is Only God

Do you remember Joseph Biederman? (Hint: He's the guy pictured below left not the big man on the right.)

He's the Harvard University psychiatrist who is one of several prominent academics being investigated by the US Senate Finance Committee for allegedly failing to properly disclose payments from the pharmaceutical industry, while also conducting grants for the National Institutes of Health (see background).

In Biederman's case, he allegedly failed to fully report approximately $1.6 million in consulting fees from various drugmakers between 2000 and 2007, according to the committee. And court documents released late last year suggested he also pushed Johnson & Johnson to fund a research center at Massachusetts General Hospital that would advance J&J's commercial goals (take a look).

As a result, Biederman is currently enmeshed in litigation in the Superior Court of New Jersey, where three drugmakers - AstraZeneca, Eli Lilly and J&J's Janssen unit -are being sued in connection with risks associated with their antipsychotic medications. Attorneys for the families who filed suit fought to interview Biederman under oath because his work has been crucial to the widespread acceptance of the pediatric usage of antipsychotics.

Now, though, Biederman is hoping Superior Court Judge Jamie Happas will agree to have his deposition sealed, because he doesn't want the extent of his involvement with the companies publicized. However, we understand The New York Times is already gearing up for a story, which prompted Biederman's attorneys to write this letter to Happas.

What's in the deposition? Dozens and dozens of pages of detail relating to Biederman's activities, but we encourage you to peruse both sections of the document. (Please see here and here.)

One exchange in particular caused us to do a double take. On page 47, Biederman is quizzed about his professional ranking at Harvard. He notes that his resume is used for academic promotions.

Lawyer: "What does that mean?"

Biederman: "To move in the ranks from one rank, for example, at Harvard, there is instructor, from instructor you move to assistant professor, from assistant professor you move to associate professor, from associate professsor you move to full professor."

Lawyer: "Full professor?"

Biederman: "Hm...mmm."

Lawyer: "What rank are you?"

Biederman: "Full professor."

Lawyer: "What's after that?"

Biederman: "God"

Lawyer: "Did you say God?"

Biederman: "Yeah."

No mere key opinion leader is he.

Milk..Check, Eggs...Check, Corevalve...Check

Let the bidding begin.

You just know Medtronic's $1.03 billion buying spree is only the beginning, not the end, of the long-anticipated land grab around the percutaneous valve replacement field with its two major sub-markets: aortic and mitral valve devices. There has been a lag of several years since Edwards Lifesciences did the first major deal in the space, acquiring aortic player Percutaneous Valve Technology (PVT) in late 2003. But the promise of the market has continued to grow as investment remained active, technology improved, and the competition increaed.

Give Medtronic credit for the executing the old "shock and awe" routine with perfection, by picking up a pair of percutaneous players in quick succession CoreValve Inc. and Ventor Technologies Ltd., but battles aren't won with the biggest strike, no matter how impressive.

Consider the opportunities in the aortic market alone. Industry data suggests the cases of aortic stenosis will hit 4.6 million in the year 2030, almost double the cases in 2000. But the real growth comes in treating the roughly one-third or one-half of patients who currently couldn't survive an open-heart procedure.

It's that potential that's pulling Edwards Lifesciences, St. Jude, and now, most vigorously, Medtronic into building armamentariums of devices to tackle both percutaneous valve replacement markets. This was fantastic news for CoreValve and Ventor investors as the folks at Dow Jones Venture Capital Dispatch can attest.

For Medtronic, these deals represent not just an investment in technology building because in CoreValve, it is getting a company that is already competing aggressively in the European aortic market, where CoreValve's smaller-sized system is running neck-and-neck with long-time leader, Edwards.

But just as we saw in the atrial fibrillation market recently, additional acquisitions are the sincerest form of flattery. (Medtronic, once again, aggressively snapped up two of the more promising business, CryoCath and Ablation Frontiers.)

So we turned to our colleagues at Medtech Insight for the goods on what percutaneous aortic valve companies might be the target of future acquisitions and topic of future headlines. For the full story on these aortic players, please check out the January issue of Medtech Insight for the technical and operational challenges facing the percutanous aortic valve replacement field. (And for those eager to understand the potential in the percutaneous MITRAL valve replacement industry, feel free to check out Medtech Insight's cover story in the current issue here.)


And here's the field of potential acquisition targets...

Direct Flow Medical Inc. Direct Flow Medical's Aortic Valve Prosthesis expects to initiate first-in-human trials by May of this year and obtain a CE Mark by the end of this year, enabling it to possibly have a device on the market by 2010. The Aortic Valve Prosthesis consists of a trileaflet bovin pericardium valve encased in a tapered, conformable polyester fabric cuff. It contains no metal, making it unique among the offerings.
CAPITAL RAISED: $35 million
EXTREMELY HAPPY INVESTORS (EHIs): Foundation Medical Partners, EDF Venturers, New Leaf Venture Partners, Spray Venture Partners, Vantage Point Partners and ePlanet Ventures. Oh, and a little company called Johnson & Johnson Development Corp.

Sadra Medical Inc. Sadra recently completed first-in-human studies in Europe on its Lotus valve system., a repositionable, retrievable, self-expanding transcatheter aortic valve. The company expects to begin a European feasibility study in the second half of this year.
RAISED: $20 million since 2003.
EHIs: Oakwood Medical, Onset Ventures, Pequot Ventures, SV Life Sciences. Boston Scientific invested in 2006.

JenaValve Technology Gmbh JenaValve hopes to have a CE Mark for its foldable porcine valve by the end of this year.
RAISED: $20 million since the start of 2006.
EHIs: Atlas Venture, Edmond de Rothschild Investment Partners and NeoMed.

That's just a sampling, but keep an eye out for AorTech International, Heart Leaflet Technologies Inc., Cormove, and Advanced Bio Prosthetic Surfaces Ltd.

Image courtesy of flickr user lonelysandwich through a creative commons license.

Basilea to J&J: See You in Court

Johnson & Johnson might want to phone Philadelphia Phillies GM Ruben Amaro, Jr.

No, the diversified health care giant probably isn't looking for a utility infielder or a starting RHP. But it does find itself in a situation Amaro has quite a bit of recent familiarity with: dealing with players (in J&J's case, a partner) seeking arbitration.

This off-season the (World Series Champion) Philadelphia Phillies and GM Amaro have avoided arbitration proceedings with all ten players who were eligible--locking up stars like Cole Hamels and Ryan Howard to multi-year deals. Johnson & Johnson just has one arbitration hearing to worry about right now: Basilea Pharmaceutica's claim filed today related to delays in approval of the companies' ceftobiprole antibiotic in the US and EU. (Of course J&J has a little institutional experience with arbiters too ... with EPO.)

Basilea watchers woke up to a flurry of announcements today beyond its planned annual results--not least the news that the antibiotic's EU approval process has been delayed so that good clinical practice (GCP) inspections could be carried out by EMEA. The EU's committee for medicinal products for human use (CHMP) has already recommended the drug for approval, but that recommendation must now be revisited post-inspections, and the delay could put potential approval well into next year.

Meanwhile Basilea is burning through its roughly CHF293 million cash balance and the estimated CHF100 million payments related to EU approval are for now out of reach. Anticipating approval and gearing up for a commercial launch--it had planned to co-promote the drug in the US and areas of the EU--will further add to the firm's costs. Adding insult to injury on today's call management had to deal with disgruntled shareholders annoyed with the company's shares' precipitous drop.

This is just the latest delay in ceftobiprole's commercialization. In the US, where J&J is also the drug's sponsor with FDA, an NDA was submitted in May 2007. But in March 2008 the companies received an approvable letter and in late 2008 FDA's complete response letter identified further data integrity and study conduct issues, and requested a new audit plan for CRO monitoring.

Basilea has been careful to say that it is pleased with the data from the drug's pivotal studies, saying that the problems were instead related to monitoring and quality assurance, and that issues related to the data and the process of monitoring the data were distinct. "The issues that have been brought up ... indicated that [regulatory authorities] had questions about the monitoring of the trial, the quality assurance program ... these are questions about how the trials are monitored and run and this has caused a delay," said CFO Ron Scott on Basilea's earnings conference call this morning. "The mechanism we have to address that delay is the arbitration process."

Presumably the arbitration process isn't the first port of call when a dispute like this arises, indicating an unsurprisingly frazzled relationship between the partners. So what does Basilea want out of arbitration? "Certainly we have not received our milestone payments yet," and the value of the opportunity lost not having ceftobiprole on the market in Europe and the US, noted Scott. Essentially, "compensation for the impact of the delay on Basilea," he said.

That impact is far from fully measured right now--and Basilea declined to disclose when arbitration will begin, only saying that typically these types of arbitration procedures might take one to two years, regardless of what is stipulated in a contract about a timeline for the process. Barring a settlement, the ruling will be in the hands of the Netherlands Arbitration Institute.

Basilea's move to take J&J to court is rare, and should make for an interesting dynamic at joint steering committee meetings. But the ingredients for further disputes--higher regulatory hurdles, increased out-sourcing of clinical trials, and more biotechs than ever facing ostensibly life-or-death FDA or EMEA decisions--are abundant.

Hey J&J: Amaro's office is at Citizen's Bank Park, Pattison Ave., Philadelphia.

While You Were...Making History

Kudos to Michael Phelps for making it eight straight gold medals and setting a new record for olympic bling in a single games. And don't forget Dara Torres, darling of middle-aged weekend warriors everywhere, proving she's still got the goods to medal against women--I use that term loosely--young enough to be her daughters. Outside of Beijing and South Ossetia, it was a slooow weekend for news. Here's a look at some of the stories you may have missed while you were plugged into your neglectomat.

• The Pink Sheet Daily reports today that the Center for Drug Evaluation and Research's ability to review applications for new drugs and biologics within the timelines specified by the Prescription Drug User Fee Act has slipped a bit, dropping from 90% to 80%. But the drop has nothing to do with summer and those slackers at the FDA. Pink Sheet Daily notes that CDER's performance is better than might have been expected given the center's chronic staffing problems and increased workload.

• Addicted to Roche/Genentech news? The East Bay Business Times reports that a Reuters survey of industry analysts predicts Roche will boost its offer for Genentech to $53 billion, or $107.50-a-share. As colleague Jessica Merrill at Pink Sheet Daily noted in a piece last week, that kind of price tag could prove troublesome for Roche, which might have to cut research budgets or worse in order to wring necessary financial efficiencies out of the deal. Want the inside scoop on the deal? Check out our FREE coverage here.

• Investor's Business Daily has a review of the business strategy of The Medicines Co., which has eschewed blockbusters for more modest selling $200- to $300-million-a-year sellers instead, including the anticoagulant Angiomax and the high blood pressure drug Cleviprex. If the approach sounds familiar, that's because it's taken straight out of the little league manual. Get enough little hits--aka singles--and you score more runs than your opponent and win the game.

• The WSJ reports that Phelps isn't the only one commanding attention in Beijing. J&J, the maker of athlete's foot cream for half a century, has helped rescue one of China's most precious archeological treasures--its terracotta warriors--from a damaging athlete's-foot-like fungus. By nursing one of China's national symbols back to health, J&J hopes to get "a lot of lverage" in China, Alex Valcke, a European J&J exec told the WSJ.

• Finally, the NYT reports on the potential deadly side-effects associated with methadone. Once used mainly in addiction treatment centers to replace heroin, methadone is a synthetic form of opium being given out by family doctors, osteopaths and nurse practitioners for throbbing backs, joint injuries and a host of other severe pains. The drug, which is cheap, long-lasting, and powerful, has helped millions. But because it is also abused by thrill seekers and badly prescribed by doctors unfamiliar with its risks, methadone is now the fastest growing cause of narcotic deaths.
  

(Photo courtesy of Flickr user guano through a creative commons license.)

Amgen and J&J: Falling in Love All Over Again

With most of our bloggers on vacation, we haven't yet troubled ourselves to analyze the Bristol bid for ImClone (if imitation is the sincerest form of flattery, we trust Roche is feeling good). And we didn't jump on Sanofi's buyout of Acambis either. (Thank goodness our colleagues at "The Pink Sheet" DAILY actually work in August!)

But even the dog days of summer can't stop us from taking note of this one: Amgen is giving global rights (except for Japan) to a clinical stage neuropathic pain project to...(drum roll please) Johnson & Johnson.

Considering the companies have spent the past two decades in an endless series of disputes, arbitration and litigation over their last licensing deal, involving a little product called EPO, that is news indeed.

If there ever was a case of adversity bringing people closer together, this is it.

Amgen and J&J have both said that their working relationship has been improved by the all-out effort to save the EPO franchise from regulatory and reimbursement challenges. So much so that Amgen CEO Kevin Sharer told the JP Morgan conference in January that “I never thought I would say this, but this circumstance has made us and J&J quite effective partners.” That may not be much of a silver lining from everything that has befallen EPO--but it sure is hard to imagine the two companies reaching this agreement two years ago, when the only place their executives were likely to exchange confidential information was in court.

Amgen's willingness to deal with J&J also suggests that it really means business when it talks about winnowing down its pipeline. In fact, Amgen has already shown it means business, in fact; Japanese rights to the neuropathic pain compound were already sold as part of a large partnership with Takeda in Japan.

Now the terms. Amgen receives $50 million up front--or a refund of one-quarter of the $200 million Amgen paid to settle antitrust litigation with J&J over EPO last month. Amgen will also receive development milestones of up to $385 million. There are additional commercial milestones and a sales royalty too.

And, no, there is no copromotion agreement.

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?

Good News for Amgen and J&J on EPO—but not for the Rest of Pharma

CMS: The Other Drug Safety Agency

Amgen and Johnson & Johnson got some good news when the Centers for Medicare & Medicaid Services finalized its proposed policy on coverage of erythropoietin stimulating agents (ESAs) in cancer patients. The final policy is about as good as it could be for the companies under the circumstances—much better than the agency originally proposed.

CMS agreed to continue to cover EPO in a number of important chemotherapy settings and also dropped some of the toughest dosing restrictions in the proposed policy. So the worst may be over for darbepoetin (Aranesp) and epoetin (Procrit) in the cancer market. Both Amgen and J&J reported sharp revenue declines for their respective brands during the quarter in response to safety concerns—and especially payment changes—but both expect growth to resume from the new, lower baseline.

CMS may have backed off from the most draconian aspects of its proposed limits on EPO coverage, but the agency is not backing off from the position that it does not have to defer to the Food & Drug Administration when it comes to responding to emerging drug safety issues.

In that sense, the final coverage policy is not a change from the agency’s initial proposal—and that is a message that the rest of the biopharmaceutical industry cannot afford to miss.

The RPM Report has written extensively about the activist role taken by CMS in the EPO safety debate. Simply put, there are now two agencies—FDA and CMS—that manufacturers have to consider when thinking about regulatory responses to drug safety issues.

CMS made it abundantly clear in the proposed EPO policy that it does not intend to wait for FDA to finalize its review of the safety issues before acting. And in the final policy, CMS is sticking to that position.

“CMS and FDA are separate agencies with different statutory missions, and operate under distinct legal authorities,” the final policy notes. “We are encouraged that the separate and independent analyses of the FDA and CMS have raised similar serious concerns about the use of ESA treatment in patients with cancer and related neoplastic conditions.”

“FDA deliberations are not public and their timeline for making changes (if any are made) in the labeling for ESAs is unknown. We believe the safety concerns that we have identified in this document required CMS to act quickly to protect beneficiaries.”

There are still plenty of regulatory hurdles ahead for ESAs. FDA hasn’t finalized labeling changes for EPO in response to the safety issues—and both FDA and CMS are just getting started on reviewing use of the agents in the renal failure market.

But one thing is clear: CMS is not going to take a back seat to FDA when safety issues arise.

Big Pharma R&D Becomes Business Development …or at Least BD Now Runs Research

Lot of changes in business development recently.

In a management tiff, long-time Big Pharma dealmaker Tamar Howson rather unceremoniously left Bristol-Myers Squibb, where she’d been running worldwide business development, ending up at Bristol partner Lexicon Pharmaceuticals. Bayer-Schering, aiming again for top tier status, replaced veteran biz dev boss Chris Seaton with Michael Yeomans, ex-Aventis, via Biovail. A few weeks ago, Victor Hartmann, who in early 2005 had bailed on the top BD job at Novartis to take a flyer running BD at Vertex, left the biotech as unceremoniously as Howson left BMS; the IN VIVO Blog has got only hearsay reports on why, so we’ll leave well enough alone.

Look Out Below!

As far as our limited insight can tell us, none of these changes indicate much beyond the fact that grease coats the rungs of corporate ladders. But now news from Johnson & Johnson does reflect something we’ve long argued but which companies have been very slow to internalize structurally: Big Pharma R&D has become business development.

That’s why we’re so interested in the fact that J&J’s drug business has made its chief licensing honcho Tom Heyman head of discovery for the biggest R&D operation in its newly reorganized three-headed drug business. Heyman will be running discovery and early development for J&J's CNS/Internal Medicine Franchise, which incorporates its La Jolla, Pennsylvania/New Jersey and Belgian research sites.

Now, except for one fact, such a move wouldn’t be unprecedented. GlaxoSmithKline certainly gave its R&D organization a business development message when in 2006 it appointed its BD head, Moncef Slaoui, to run the R&D organization. But Slaoui at least had a research background; he's got a PhD. Heyman isn't a scientist at all: he’s a former patent attorney for Janssen.

Apparently this is just fine with Heyman’s new boss, Paul Stoffels, who most definitely is a scientist and one who understands the value of a business development--and an outsider's--perspective. Stoffels is the former Janssen researcher who turned some stagnating work at his former company, plus some new innovation, into a biotech called Virco. Virco in 2001 merged with fellow Belgian biotech Tibotec, and J&J purchased the combined company a year later, once Stoffels & Co. had proven its value, for some $320 million. Stoffels – following a J&J tradition – joined J&J, which hopes he can do what his predecessors clearly couldn’t.

And apparently one thing he wants to do is to make sure J&J’s discovery has a definite external spin. Heyman's certainly got the background to apply the spin; whether the organization accepts it -- from a non-scientist -- is another question.

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)