Well, not exactly love, but care more about them, at least? This is what Daniel O’Day, the newly installed head of Roche’s diagnostics division, asked an audience of analysts attending Roche's annual results meeting in London last week.
Appointed in September 2009, O'Day, of course, wants the answer to be 'yes'. But the analysts may have appeared less than enthusiastic.
O'Day has a point, though: with personalized medicine heralded as the holy grail of health care, someone has to inject enthusiasm and commitment into converting ideas into solid products.
Unlike most of his pre-decessors (including, most recently, Juergen Schwiezer), O’Day has apparently spent more years in pharma than in diagnostics. He has held various positions within Roche Pharma since 1987, before becoming head of Roche Molecular Diagnostics in the US in 2006. This dual background in both sides of the business means O'Day could be the man to raise the profile of Dx.
Critically, he also has the backing of other Roche execs, who believe the “pull” from clinicians demanding personalized-medicine tests will make it an attractive, i.e. lucrative, business to be in.
Okay, so many companies, including Roche, have said, or at least believed, that for years. But it probably helps that Roche's CEO Severin Schwan worked for a decade in the diagnostics side of the business (and before that in finance), before taking the top-spot in June 2008.
At the moment, the problem with diagnostics and instruments in general is their rapid commoditization, as laboratories continually demand higher-throughput screens at ever-lower costs.
Within Roche, having pharma working closely with diagnostics on personalized medicine can apparently pay dividends for the instrument guys--in the sense that pharma can help them get their way from the corporate powers-that-be. For instance, the company recently invested in a new technology platform because the pharma side wanted it. Diagnostics, meanwhile, was having difficulty justifying the expense.
That example says a lot about the current pecking order, however, even though it's admittedly a good sign for the future of Rx-Dx collaboration. Meanwhile, though, Roche is putting its money where its mouth is: it has up to 40 companion diagnostics in development with specific pharmaceutical products.
And indeed, starting parallel development of a drug and a companion diagnostic early on (rather than having drug firms clamor for a diagnostic once their product is close to, or on, the market) makes sense. It's something stand-along diagnostics firms like the UK's DxS (part of Qiagen since last year) have been calling for, unsurprisingly enough.
Rx-Dx tie-ups are happening, though. In July 2009, GlaxoSmithKline and Abbott announced that they would develop a companion diagnostic for GSK's investigational MAGE-A3 immunotherapy. In 2008, DxS partnered with Amgen to develop a K-RAS companion diagnostic to predict whether a patient with metastatic colorectal cancer will respond to Vectibix.
That said, no one--likely not even O'Day--expects a sudden flood of companion diagnostics to hit the market next week, though. But the signs are that we may soon have more than Dako's Hercep-Test (launched in 1998 to help predict who would repond to breast cancer drug Herceptin) and DxS's K-RAS mutation detection kit to talk about.
Having trouble this holiday season deciding what to get for the Big Biotech CEO in Your Life Who Has Everything? Join the bidding for Facet Biotech! The reserve may be quite high--higher than $17.50 per share, anyway--and it's not technically an auction (because Facet isn't necessarily going to sell, which would be sure to garner it some negative feedback on eBay). But is money really a problem when it comes to that special someone?
And don't worry about losing any of Facet's drug candidates if you're the winning bidder. "The Pink Sheet" DAILYnoted this morning that while Facet's top compounds are tied up in partnerships, including Biogen Idec's co-ownership of its most advanced drug, daclizumab for rheumatoid arthritis, none of the agreements will be affected by a change-of-control.
"In each of our three collaborations, the non-acquired entity would not have a right to terminate the collaboration," Facet CEO Faheem Hasnain told "The Pink Sheet" DAILY. "In fact, the acquiring entity would step right into Facet's shoes."
Whatever you do, though, just don't materially undervalue those shoes while overstating their liabilities. That approach has gotten Biogen Idec nowhere. Respect the shoes!
Meanwhile the rest of you biopharma dealmakers have had a busy week (makin' AND breakin' deals), so we oughta get to it. The following companies won't be trawling the malls on Christmas Eve, they're ...
GSK/Intercell: Not even Santa Claus himself could earn this much for delivery. This morning Austrian vaccines company Intercell said it licensed to GSK its patch vaccine delivery technology in a deal worth €33.6 million ($49.4 million) in up front cash. GSK also agreed to purchase up to €84 million worth of Intercell shares in a "staggered shareholding purchase option" that could reach a 5% holding in the biotech (€28 million u/f for 0.9mm shares at an 18% premium, other investments milestone-based). The development and commercialization deal will include Intercell's Phase III travelers' diarrhea vaccine, a Phase II pandemic flu vaccine, and future patch vaccines. Intercell will be eligible for a slew of milestone payments and profit sharing on the projects already in development, as well as milestones and royalties for future products that include its patch technology. GSK is now Intercell's second strategic investor--Novartis owns about 16% of the company through a 2006 deal for a Japanese encephalitis vaccine anda monster 2007 dealfor the biotech's vaccines for bacterial infections. Intercell has a variety of other partners, including Merck, Sanofi-Pasteur, and Kyowa Hakko Kirin. For more on Intercell and the market for adult vaccines, check out this recent IN VIVO feature.--CM
Novo Nordisk/ZymoGenetics: This is Novo/Zymo IL-21, the Sequel. In a second deal around the IL-21 cytokine, these two companies' long, entwined history continued this week when Novo Nordisk licensed from ZymoGenetics a preclinical anti-IL21 antibody for auto-immune and inflammatory diseases. The terms look good for Zymo: $24 million up-front, reflecting the value of IP around the target that was included in the deal. As Novo EVP and CSO Mads Krogsgaard Thomsen told "The Pink Sheet" DAILY: "we're buying all IP surrounding [the blocking of] IL-21 as a concept, and its utility in different disease areas." That move should provide the Danish firm with "a good degree of exclusivity on this target," he says. "We now have global patent rights to block cytokine IL-21; no one else can do that." (Competitors could block the IL-21 receptor, however, just not the molecule itself.) ZymoGenetics is eligible to receive $157.5 million in potential milestones, up to and including the antibody's regulatory approval in major global markets, and royalties on net sales. ZymoGenetics may opt to co-promote the biologic in the U.S., for a $10 million fee and a 15% contribution to Phase III trial costs. In this scenario, US royalty payments would increase from single to double digits. Novo is familiar with ZymoGenetics efforts in the IL-21 space; until last year when it retrenched into diabetes and opted out of the alliance, it was the biotech's partner on its recombinant IL-21 cancer project. Novo is confident that blocking the cytokine has broad applicability in immune disorders. Hence why it's snapping up that IL-21 IP. --CM/Melanie Senior
Celgene/Gloucester Pharmaceuticals: In a move that adds to its hematological cancer franchise, Celgene purchased privately held Gloucester Pharmaceuticals and its recently approved Istodax (romedepsin) for $340 million in upfront payments, plus potential milestones that could total another $300 million. The deal secures a nice exit for Gloucester’s five venture capital investors – Novo A/S, Apple Tree Partners, ProQuest Investments, Prospect Venture Partners and Rho Ventures – who backed the biotech with a $29 million Series D round in August. Over Gloucester’s six years of operations, the investors kicked in a total of roughly $100 million. Celgene predicts the Gloucester purchase will be accretive to earnings by 2011, in part because it would not need to add to its marketing and sales infrastructure since it already sells hematological cancer drugs Revlimid, Thalomid and Vidaza.--Joseph Haas
BMS/Tranzyme: In its first alliance with a Big Pharma company, Tranzyme Pharma will receive $10 million upfront plus two years of research funding from Bristol-Myers Squibb in a collaboration to discover potential new macrocyclic compounds, which have potential in a wide range of therapeutic areas, including oncology and metabolic disease. Announced Dec. 7, the deal is not Bristol’s first foray into the macrocyclic space – in April, it paid $5 million upfront plus $7.5 million in research and development funding to Ensemble Discovery to develop macrocyclic compounds called Ensemblins against eight undisclosed targets. It’s likely Bristol is trying to get ahead of the curve on what Tranzyme calls an underdiscovered area – no other Big Pharma companies are doing deals in the space and Tranzyme has thus far not partnered any of its clinical or preclinical assets. The new deal centers on Tranzyme’s MATCH (Macrocyclic Template Chemistry) drug-discovery platform. The biotech will perform early lead discovery against a range of undisclosed targets specified by Bristol, which will then be responsible for lead-optimization, preclinical and clinical development, and commercialization. Tranzyme will receive two years of research funding ranging between $3 million and $6 million and could earn regulatory milestones up to $80 million for each target program, as well as sales milestones and royalties.--JH
Mylan/Pfizer: Details are scant on the authorized generic agreement around the Wyeth antidepressant Effexor XR. But Mylan said early this week it had reached an agreement with Pfizer to sell the long-acting capsule formulation as early as June 1, 2011. Doses equivalent to Mylan's planned generic venlafaxine capsules racked up $2.9 billion in sales in the year to September 30, the company said in its release. Legislation that would curtail or even ban brand/generic settlements is winding its way through Congress these days (it may even catch a ride on the behemoth of health care reform) and we know where the FTC stands on these deals.--CM
Lilly/Isis: Lilly and Isis called it quits this week on their 5-year collaboration on LY2275796, a second-gen antisense compound targeting eukaryotic initiation factor-4E that recently completed Phase I trials in oncology. Isis is paying an undisclosed amount to take back the product, arguing that ‘5796 got lost in the shuffle after the big drugmaker’s 2008 ImClone acquisition. Is this spin control or honest truth? Data related to ‘5796 are sparse, with Isis failing to provide an update at its recent R&D day, leading Joseph Schwartz, an analyst at Leerink, to write in an investor note: “it’s logical to conclude that lack of anticancer activity and/or toxicity may be the reason why LLY [Lilly] is not pursuing it.” As Isis CEO Stanley Crooke points out in “The Pink Sheet” DAILY, Lilly has right of first negotiation to opt back in to the molecule’s development when—or if—it enters Phase III studies. (The two companies are also still partners on a Phase II antisense prostate cancer drug.) So, maybe for Lilly this is about curbing risk: with critical drugs coming off patent near-term (including Zyprexa and Cymbalta), Lilly needs late-stage assets to bolster its flagging pipeline, not early stage, highly risky products that are going to be a drain on resources. Better to let Isis carry the risk—and cost—but keep a just-in-case door open. The central question for many investors becomes will another partner, Genzyme, reach the same conclusion? Recall Genzyme and Isis announced a lucrative tie-up in January ‘08 on the CV medicine mipomersen, with Isis garnering $175 million in upfront cash and another $150 million in equity. Six months later, the two revised the deal terms, with Isis having to pony up more development money after data from a competing trial highlighted the regulatory risks associated with cardiovascular studies. Mipomersen is much further along than the Lilly cancer drug, and recently scored good data at the American Heart Association meeting, giving partner Genzyme some positive news to tout after a string of manufacturing and regulatory gaffes. But the Phase III medicine has also been the subject of questions, especially related to adverse liver side-effects and high clinical trial drop-out rate.--Ellen Foster Licking
GSK/Cytokinetics: Cytokinetics continues to phase out its oncology R&D and on Thursday announced it had scrapped a third and final cancer program with GSK (GSK decided not to opt into two others late last year). GSK will complete an ongoing Phase I trial of the compound, GSK-923295, in advanced, refractory solid-tumor patients. Then rights will revert to Cytokinetics, which says it is de-emphasizing its oncology work in favor of its core muscle-related R&D (which includes the Amgen-partnered cardiac contractility program discussed here). The three GSK-partnered programs were the company's entire clinical oncology portfolio.--CM
Genentech A Wholly Owned Member of the Roche Group/Seattle Genetics: As the Roche Pipeline Purge rolls on, the latest casualty is SeaGen. Genentech paid $60 million up-front for access to SGN-40 (dacetuzumab) in 2007 and at least $8 million more in milestones since then. But this morning the companies said that Roche was giving back rights to the anti-CD40 antibody in development for non-Hodgkin's lymphoma and multiple myeloma. The end of the SeaGen alliance follows Roche's decision this past week to drop partnerships with Actelion and GenMab. But you can't just blame Roche's re-org. Earlier this year a trial of SGN-40 in diffuse large B-cell lymphoma was halted when an interim analysis suggested the trial would not reach its goals. In any case, hold onto your hats, Genentech partners! --CM
In the immortal words of one Archie Bunker those were the days, weren’t they? Back when biotechs were biotechs (small and innovative—and usually cash poor) and pharma companies were pharma companies (big and blockbuster-focused and hugely profitable), everyone knew their place in the industry. But the disappearance of the DNA ticker symbol has made things so much more confusing. Should we think of Roche as pharma or biotech? Is Genentech a stand-alone biotech within Roche or the Swiss pharma’s future?
In one of their first appearances together since Roche officially took Genentech private, the two drug makers chose to make a big splash at the American Society of Clinical Oncology. (The Roche-Genentech business development dynamic duo of Joe McCracken and Dan Zabrowski also stepped out at BIO. Look for an indepth Q&A in a coming issue of IN VIVO.)
And what a splash they made. The newly consolidated Roche-Genentech oncology portfolio is soooo big that the industrious executives at the newly blended company couldn’t fit it into one night.
Indeed, the two organizations dominated ASCO, presenting 12% of the entire scientific content in various break-out sessions, plenaries, and posters. But it was the two-night event aimed at analysts—four hours of oncology updates—that illustrated what the future might look like for Rochetech (or is it Genenroche? It doesn’t have quite the same ring as Wy-Pfi, does it?)
The IN VIVO Blog couldn’t help but see the occasion as a wedding of sorts, with the requisite awkwardness and strained politeness of a rehearsal dinner on full display. (We aren’t revealing the identity of the drunk uncle.) The “head table” on stage was loaded 8 across with managers. And by night two, Roche felt compelled to put up nameplates—a move necessitated by the fact that analysts typically follow either Roche OR Genentech but not both and so might not have a sense of the cast of characters.
Much of the first night was spent rehashing the failed adjuvant colorectal cancer trial for Avastin, C-08. (There’s a slight possibility you’ve already heard about that, but see “The Pink Sheet” DAILY coverage here.) The firms also talked about new uses for old drugs – Herceptin’s move out of breast cancer with the ToGA trial in gastric cancer – and some new offerings from the early stage pipeline, like hedgehog inhibitor GDC-0449 and the BRAF-targeted PLX4032 partnered with Plexxikon. (Check back with the DAILY and “The Pink Sheet” in coming weeks for more coverage.)
But time was also spent addressing two particularly large elephants in the room: the on-going Roche/Genentech integration; and the impact the C-08 trial failure had on both the deal offer and the newly combined organization’s bottom line. Outgoing Roche head of U.S. pharma Bill Burns gave a finely orchestrated bit of messaging as he tried to dispel certain misperceptions.
“Since we are all sitting together as a united family now, and I know that this may be something in the back of many of your minds, I want to lay to rest two or three elements I think the mischief makers in the media were playing on in the run up to the family coming together.” (Us? Make mischief? Your Honor, in our defense, Roche made it fairly easy to categorize “the family” as dysfunctional.)
Burns delved first into continued questions about the ability of Genentech to remain an independent entity with its traditional characteristics of a quirky culture, high science, and individually-driven success. Ever since Roche announced its hostile bid for Genentech last July, that fear has been one of the brightest issues burning. Noting incessant references in the press to questions such as “Will people stay?” and “What will happen?” Burns emphasized the quick steps Roche took to establish a management team.
IVB cannot tell a lie. Roche did in fact move swiftly—within weeks of the disappearance of the DNA ticker came the April 14th announcement outlining changes at Genentech. But what Burns conveniently forgot to mention is that those changes included losing some of Genentech’s most talented leaders: Arthur Levinson and Susan Desmond-Hellman stepped down from their roles as CEO and Product development president, becoming mere advisors. A few weeks later Desmond-Hellman confirmed what media had speculated: she would be leaving Genentech to take the reins as UCSF’s chancellor, a position that starts in August.
Burns also pointed out that Roche has followed up on its intention to keep some of the innovation coming out of the Genentech labs operating “as is” in South San Francisco. (We are willing to bet however, that G’s researchers would have given up their iphones and their apple computers if it would have kept Levinson and Desmond-Hellman on board.) Moreover, said Burns, operations are continuing as normal under the leadership of Richard Scheller and his more than able assistants, Marc Tessier-Lavigne and Andy Chan.
“The team is fully in place and we have given them also the elements like business development that are required to make sure that accessing some of the bright new elements, either enablers in science or early programs, can continue,” he told investors.
Along with those tortured phrasings, Burns unveiled the creation of an internal acronym that describes Genentech’s function in the Roche family: “GReD”, for Genentech Research and early Development. IVB’s reaction? The “pharmafication” of Genentech is complete—it has its own nutty alphabet descriptor that is just one letter shy of the word greed. (Defn. Greed: (noun) the excessive desire to acquire or possess more—especially more material wealth—than one needs or deserves.)
Burns also tried to “put on the table and lay to rest” allegations that the then-pending C-08 trial results played a critical role in both the timing and the price of Roche’s even more hostile move in January, when it lowered its offer price from $89 to $86.50. Acknowledging that the potential for Avastin use in the adjuvant setting had “raised the rates” and was clearly “an inflection point for the then independent Genentech stock,” he maintained it was just one more data point Roche execs used to calculate their valuation. Acknowledging that the C-08 trial results were significant, Burns asserted “you do not go into a $46 billion privatization on the basis of one clinical trial.”
It was a slow week on the deal-making front, as industry watchers and biopharma types absorbed the Monday healthcare confab that included all the industry's players except BIO. As we wrote on Tuesday, the event, which was long on soft-focus pr shots and short on details was all about messaging. We remain impressed with Obama's Spock-like abilities to bring the various parties to the table (if, in fact, he actually did.), but admit that we try not to think too hard about the mind-meld with Merck's Dick Clark. (Some of us would rather focus on this.) As we prep for BIO, Amylin's shareholder meeting, ASCO and ADA, here's your weekly round-up of deal-making highlights.
Roche/Tekmira: On Monday Roche became the latest company to turn to Tekmira Pharma’s stable nucleic acid-lipid particle (SNALP, the best acronym we’ve heard in a while) technology for delivery of RNA interference candidates. Tekmira will get up to $18.4 million for pre-IND work and up to $32 million in clinical and commercial milestone payments and royalties spread over two undisclosed drug candidates—Roche’s first two siRNAs to approach human testing. Of all the RNAi delivery technologies out there (and there are a brazillion of them) Tekmira’s has to be counted among the few that the big players are taking quite seriously. Who else is working with the Canadian biotech? Alnylam is using SNALP for its first systemically delivered RNAi candidate, ALN-VSP for liver cancer, which entered Phase I only a few weeks back, and has a 3-year development and manufacturing deal with Tekmira. (Also Roche and Alnylam each hold a 4% stake in the delivery co, dating back to the merger of Tekmira and Protiva in March 2008 that created the company’s current incarnation.) Merck & Co. also has a license to SNALP, under a 2007 deal signed with Protiva. Takeda, BMS and Regulus (the Alnylam/Isis microRNA joint venture) each have access to Tekmira’s technology. All these R&D payments are helping Tekmira to advance its own set of drug candidates. The company says it will file an IND for its lead hypercholesterolemia candidate, ApoB SNALP, in the coming weeks.—Chris Morrison
Sanofi-Aventis/Antisoma: Antisoma sold US rights to its oral version of the oncology drug fludarabine to Sanofi-Aventis in a deal worth up to $65 million: $60 million up-front with another $5mm should the drug not face generic competition—unlikely considering its orphan status. The drug was approved by FDA to treat chronic lymphocytic leukemia in December 2008. The cash will give Antisoma a runway into 2011, and the breathing room necessary to take its two lead Phase III projects through key data-points, and in the case of one, partnership discussions. Antisoma's ASA404, a first-in-class tumor-vascular disrupting agent in Phase III for non-small cell lung cancer, is partnered with Novartis already, and the Big Pharma picks up the development tab going forward; Antisoma has kept a co-promote option in the US. The biotech's AS1413 (amonafide malate, formerly known as Xanafide) is a DNA intercalator in Phase III trials in secondary AML. Antisoma plans to retain US rights to that compound and partner in other territories. Sanofi was not seen as a front-runner for oral fludarabine, which Antisoma has been promising to jettison since before its approval. After Genzyme’s recent oncology pact with Bayer that Big Biotech was largely seen as the perfect home for oral fludarabine. Genzyme gained rights to the now-generic IV version of the drug in the Bayer deal; its interest in hematology products confirmed and the prospect of IV-to-oral switching likely, Genzyme was the obvious destination for the product. "It was a competitive process, there were many interested parties," Antisoma's general manager, autoimmune Mike Boss, PhD, who alongside VP business development Nick Adams ran the divestment process, told us earlier this week. As for the better-than-expected deal terms, Boss points to undisclosed competitors for the deal and also notes that there are few newly approved oncology assets up for sale. "Three new oncology drugs were approved by FDA last year, and this is the only asset that was available for purchase," he says. For Antisoma, beyond the cash the deal brings validation of its acquisition of Xanthus for $52 million in stock in May 2008. That deal brought both oral fludarabine and ‘1413 into the company. It has now paid for itself, and then some.—Chris Morrison
Sanofi-Aventis/Kyowa Hakko Kirin: It has been a sunny sort of week for Sanofi-Aventis. Thursday it bought worldwide rights from Kyowa Hakko Kirin to a pre-clinical monoclonal antibody that targets the LIGHT molecule, a novel member of the TNF superfamily thought to be a key mediator of inflammation. Sanofi hopes to create a first-in-class treatment for ulcerative colitis, Crohn’s disease and ultimately perhaps RA as well, providing an alternative to existing anti-TNFs such as Abbott’s Humira and more recent additions including J&J’s Simponi and UCB’s Cimzia. Unlike some of its Big Pharma peers, Sanofi-Aventis hasn’t relied on a single major biotech acquisition to jump-start its large molecule efforts; instead it has layered a series of licensing deals onto its existing insulin franchise and the vaccine capabilities of the Sanofi Pasteur division. Those deals include a long-standing collaboration with ImmunoGen granting Sanofi access to that company’s cancer-focused antibody platform, a $510 million agreement with Regeneron for a VEGF trap, and a cancer antibody alliance with Dyax from last February. It recently pulled out of a deal with Oxford BioMedica for cancer immunotherapy TroVax, paying $16.5 million for the privilege. The only number revealed in this latest deal is the next-to-meaningless $315 million biodollar figure—which includes the upfront (likely minimal) and milestone payments. But don’t despair, because in a release issued the following day, Sanofi announced the launch of sanofi-aventis tv, “a window on our company”. (Our question: will it become The Desperate Housewives of the pharma world?) We can look forward, then, to a new era of transparency at Sanofi-Aventis, which, to put it politely, wasn’t exactly renowned for its openness during the pre-Viehbacher era.--Melanie Senior
Celgene/GlobeImmune: When GlobeImmune Inc. was founded in the late 1990s, its premise certainly raised eyebrows: stemming from research coming from the University of Colorado, GlobeImmune has developed a genetically modified version of the yeast Sacchromyces cerevisiae (mmm, beer) designed to trigger an immune response specifically directed at a desired target, such as a virally infected cell or a cancer cell. So far the Colorado biotech has raised more than $90 million to advance its targeted molecular immunogen platform Tarmogens—for the treatment of cancer and infectious disease. But while the approach has garnered GlobeImmune investor attention, further enthusiasm—at least in terms of a validating partnership deal—was slow to materialize. "The response [was] 'Show me the data,'" GlobeImmune's President and CEO Timothy Rodell, told START-UPlast fall. Validation--to the tune of $40 million up-front and potential biobiocks in the half billion range--came Friday when Celgene announced a world-wide strategic collaboration with the biotech in the cancer immunotherapy space. The deal calls for Celgene to make an equity investment in the biotech, but specific financial details of the ratio of cash to equity weren't broken out in the press release. For the money, Celgene is getting an exclusive option to all of GlobeImmune's oncology programs, including GI-4000, a Tarmogen in Phase II pancreatic cancer. GlobeImmune will continue early development work on GI-4000 and the other drugs, taking them to certain pre-defined endpoints, at which point Celgene can choose to exercise its option--or not. Immunotherapy treatments in oncology--as in the hepatitis C space--remain controversial, Dendreon's apparently stunning Provenge data not withstanding. The novelty of the science likely had an impact on the overall deal price. We could quibble about whether this deal is the knock your socks off kind of partnership that will bring other pharmas to the table to talk deals around GlobeImmune's unpartnered Hepatitis C program. As one of GlobeImmune's backers, Celgene has certainly been an early believer in the technology and is a logical partner--and now, potentially, the most likely acquirer. Still, $40 million in this economy is still $40 million, and we are sure that GlobeImmune's investors, which in addition to Celgene include Wexford Capital, Biogen Idec, and HealthCare Ventures, are glad they aren't being asked to put in additional money.--Ellen Licking
If you haven't seen this video from the funny people at The Onion, you must check it out. Could Despondex, a drug designed to treat the irrationally exuberant, be a future blockbuster in the drastically reordered world of primary care?
This week's unprecedented deal activity--Merck's $41.1 billion buy-out of Schering, Gilead's white knight bid for CV Therapeutics, and Roche's rapprochement with Genentech--admittedly leaves this IN VIVO Blogger reeling--and more than a little tired.
But the Merck/Schering deal echoes many of the themes raised by Pfizer's bid for Wyeth: a desire for diversification beyond traditional pharmaceuticals; the need for late stage products that brigde the revenue gap associated patent expirations; and the belief that bigger is better in an age where reimbursement is a challenge and regulatory uncertainty is as least as great as R&D risk. Merck had already taken steps to push a new commercial model. The acquisition of Schering will likely only accelerate the shift though it's hard to know now what the final strucutre of the newly merged organization will look like.
In the meantime, it's hard not to wonder at the potential market size of a drug like Despondex. We guarantee the negative economic news of late means its much smaller than it might have been six months ago. And it's not like there aren't natural remedies for the disorder. Just mention the words "financial runway" to any small biotech exec or "down round" to venture capitalists.
Some other people who aren't good candidates for the drug include Xoma, Cadence, Synta, and Neose employees. Xoma received news this week that it's listing on the NASDAQ is at risk because of steep declines in the company's share price. Cadence, which diluted the hell out of itself with an $86.6 million private placement last month, announced Thursday that is was shelving work on Omigard, its late stage gel for catheter-related infections. Synta, meanwhile, revealed it was laying off 40% of its staffers in the wake of the high profile failure of its melanoma drug elesclomol. And it's the end of the line for troubled Neose, which is auctioning off the last of its worldy goods (preview date March 24). And what about members of "Friends of an Independent Genentech" (we call them FIGs) or sales and marketing reps for Big Pharma? (Have you heard about the layoffs?)
But there are a few people who might benefit from the drug. It stands to reason Jeff Kindler, CEO of Pfizer, might need a short course thanks to his 2008 compensation package. We emphasize "short" since he's probably not over the moon--his pay did drop 5% to a mere $13.1 million last year. And then there's Fred Hassan, who helped orchestrate Merck's take-out of Schering-Plough--just don't call it a change of control. As IVB reported earlier this week, Hassan stands to receive at least $37 million for brokering the deal with Merck, but his pay could jumpt to$60 million if powers that be believe change of control applies to ownership structure but not occupancy of the corner office. (IVB calls that having your cake and eating it too.)
So what if the drug only works for these two men? Hey, maybe that really is the future of primary care! And here's a solution to the marketing dilemma: just call it personalized medicine and charge a fortune for the drug. Does an overpaid, middle-aged white male suffering from excessive happiness count as an orphan indication? (Check out future twitter feeds from Mike, Ellen, Ramsey, and Chris to find out.)
Merck/Schering-Plough: It was hard to pick top honors for biggest deal of the week, but we are going with the Merck/Schering-Plough tie-up since Roche/Genentech (see below) has felt like a foregone conclusion for at least a week (sorry FIGs). We confess Merck's unexpected bid for its cardiovascular partner Schering had folks at IVB at a loss--we even told you last week we didn't think this deal was coming given the historic importance Merck has placed on R&D and organic growth. But Merck, much like Pfizer in its bid for Wyeth, is looking to the mega-acquisition to stem lost profits from its top-selling drug Singulair which loses patent protection in 2012. It also desperately needs to refill its pipeline following some high profile development setbacks. But if the cost-savings from the acquisition will elevate Merck's earnings growing as key drugs lose patent protection, it's less clear whether Schering will help or hinder the company's efforts to compete in a changing healthcare environment, increasingly focused on productivity, agility and specialized, targeted medicines. "The strength of the combination of Merck and Schering-Plough's pipeline, the complementary product portfolio with long periods of exclusivity, the strong commercial models, the expanded global presence, the sustainable cost savings for long-term growth go far beyond just one or two products," CEO Richard Clark said during a same-day conference call. A big positive of Schering's portfolio is that it is less vulnerable to generic competition than many other large pharmas; it's not expected to hit a patent cliff until 2014 and beyond, providing more time to bring pipeline drugs to market. Schering's marketed portfolio includes the tumor necrosis factor inhibitor Remicade, the allergy medication Nasonex, the brain tumor treatment Temodar, and the hepatitis C drug Pegintron. Schering is also relatively more diversified than Merck, bringing a larger biologicals business and substantial operations in animal health and over-the-counter drugs. Combined, Merck and Schering-Plough will have sales of nearly $47 billion based on 2008 sales. No one product, Clark said, will account for more than 10 percent of the combined company's sales. Just getting the deal done required some pretty fancy legal maneuvering, as Merck and Schering found creative ways to do an end run around a change of control clause related to Schering's partnership with J&J for Remicade. The complicated arrangement, dubbed“Project Solar” in SEC documents that reference Merck as “Mercury” and Schering as “Saturn,” involves structuring the deal as a reverse merger in which Schering remains the surviving company. Don't forget, however, that the lasting entity will be called Merck, headed by Merck CEO Richard Clark, and that Schering shareholders will own only a 31 percent stake.
Roche/Genentech: It's official. $95 is the magic number. (We thought it was 3.) Nearly 8 months after Roche launched its initial bid for Genentech, it has succeeded in obtaining the blessing of the biotech's Special Committee. The nearly $47 billion marriage, which assumes enough minority shareholders will tender their stock, may be off to a rocky start if Franz Humer and company can't convince high flying Genentech employees such as CEO Arthur Levinson, president of product development Susan Desmond-Hellman, and EVP for research and CSO Richard Scheller to remain with the company. Roche's patient wooing took a more urgent tone last Friday, when the Swiss pharma upped it's hostile tender offer from $86.50 to $93 a share. The gambit was enough to lure Genentech's special committee back to the bargaining table to address widely divergent opinions on the biotech's value. (Recall last fall $112 was the target price Genentech was vying to obtain.) The subsequent maneuvering hinged on debate over two key points - Roche argued Genentech's value was plunging due to worsening financial markets. Meanwhile, anticipation has continued to grow ahead of the results of the eagerly awaited clinical trial that could greatly expand the market for cancer treatment Avastin. Tellingly, SEC documents released on Thursday show that the Special Committee was increasingly worried about the current economic crisis. Not only has there been a "significant deterioration in financial markets," but the Obama administration's emphasis on reducing health care costs has added uncertainty to the outlook for pricing medications, according to documents Genentech filed with the SEC. In hopes of finalizing the deal, the two companies eliminated a provision in their long-standing affiliation agreement that allowed shareholders to receive a higher price than the tender offer during a so-called squeeze-out. That clause has long been a sticking point for Roche, providing shareholders with little incentive to tender at what might ultimately be a lower price. Moreover, the special committee noted in SEC filings that with this sweetened offer, "the company's stockholders will avoid the risks associated with a negative outcome in the Avastin trial, including potential declines in the trading prices of the shares, a determination by Roche not to purchase any shares, or should Roche determine to purchase any shares that it would do so at a reduced price."
Gilead/CV Therapeutics: What does it say about the week's deal flow that a $1.4 billion dollar white knight bid is third on the deals of the week hit parade? Not to be outdone by the likes of Big Pharma and its Big Biotech cousin, Gilead made news with its $20-per-share offer for CV Therapeutics, which has been fighting off a hostile $16-a-share bid from Astellas. With $3.24 billion in cash and equivalents on hand at the end of 2008, Gilead has the resources--and apparently the moxie--to do the deal. While its focus has traditionally been on antivirals - it markets the HIV therapies Atripla and Truvada - it has also built a budding cardiovascular franchise centered around its pulmonary arterial hypertension drug Letairis and a Phase III drug for resistant hypertension called daruesentan. There's a strategic fit argument, therefore, when it comes to Gilead's buying CVT: the Palo Alto-based biotech provides the company with some additional diversification in a bulked up cardiology franchise--CVT already markets Ranexa and Lexiscan--as well as a ready-made sales force to market the products. "Gilead is essentially buying a sales force for darusentan via Ranexa, but they only get 10 percent of Lexiscan," noted Leerink Swann analyst Joseph Schwartz in an interview with "The Pink Sheet" DAILY. That's because in the U.S., Lexiscan is already partnered with Astellas, with CVT receiving a 10% royalty on sales. Although some analysts have called the price Gilead is paying for CVT excessive, questions about the true ownership of Lexiscan may have nudged Gilead into shelling out the extra $4-a-share. That's because the original 2000 deal between Astellas predecessor Fujisawa and CVT included a "standstill" agreement voiding the deal if Fujisawa or an affiliate tried to buy stock in CVT beyond that specified in the deal. And what happened on Feb. 27? Astellas turned up the heat on CVT, turning its spurned offer into a tender to CVT shareholders, while also filing a lawsuit in Delaware Chancery Court seeking to overturn both the "standstill" and a poison pill that CVT's board extended for one year just before it was set to expire this February. It remains unclear whether Astellas' actions have placed it in breach of the 2000 contract, which could mean full rights to Lexiscan return to CVT. If they do, outright ownership of Lexiscan will certainly boost Gilead's bottom line.
MedImmune/Micromet: Perhaps it isn’t fair to lump this evolving situation into the ‘No-deal’ of the week category, but Micromet’s co-development deal with MedImmune for its lead bi-specific T-cell engaging antibody blinatumomab has definitely been downsized. And, as CEO Christian Itin repeated several times on a conference call that doubled as an explanation of the new arrangement with MedImmune and Micromet’s 2008 results, that isn’t necessarily a bad thing. MedImmune opted out of its US development role for blinatumomab (a.k.a. MT103), a BiTE antibody in development for hematological cancers, but it hasn’t washed its hands of the project entirely. MedImmune will complete development of a commercial scale manufacturing process for the candidate on its own dime. It will also retain an option to regain commercial rights to blinatumomab upon first US approval, at pre-defined but undisclosed terms. And the two companies announced they were pursuing—from scratch—a new BiTE program in hematological cancers as well (the geographic split—MedImmune gets North American rights and Micromet RoW—is the same). To date MedImmune has not put blinatumomab into the clinic in the US, though an IND was approved in early 2007. Micromet has taken blinatumomab into the clinic in Europe, where in Germany the candidate is in a Phase II study in adult patients with acute lymphoblastic leukemia (ALL) and a Phase I study in relapsed non-Hodgkins Lymphoma (NHL). Interim data for both trials will be presented in June at the European Hematology Association meeting in Berlin, according to Itin. So why did MedImmune opt out? Itin declined to speculate beyond suggesting that the companies’ focus so far on rare malignancies might not be a broad enough opportunity for MedImmune parent, AstraZeneca. It’s “not too unusual that the path isn’t at the center of focus for a large pharma company,” he said. Furthermore there have been no disappointing data out of any trial, Itin said, and “the trial is recruiting at higher speed than we predicted.” Micromet now has global rights to develop the drug, at a cost made more palatable by MedImmune’s commitment to funding both manufacturing process development. Blinatumomab isn’t the first MedImmune project that AZ has given back to a partner on pretty good terms. Late last year the Big Pharma handed back to Infinity Pharmaceuticals IPI-504 an Hsp90 inhibitor in Phase III, as well as an oral back up in Phase I. The difference for Micromet is that it cannot turn around and partner US rights or global rights to blinatumomab so long as MedImmune/AZ’s option remains outstanding--Chris Morrison.
At least on the East Coast, March has apparently lived up to its reputation and come in like a large cat. Here at IVB we're not so much concerned with the way it begins and ends, but instead would rather focus on the Madness in between.
Speaking of madness: while you were making snowmen ...
Roche scheme to enhance Pulmozyme compliance probably needed a little more thought, don'cha think? The company has now been censured in the UK for giving out Toys R Us gift certificates to children on the drug, reports the FT.
Actelion's application to expand Tracleer's use into PAH patients with less severe disease greeted with a complete response letter from FDA. FDA says Actelion's REMS first needs to be finalized and approved before it can finish its review of the sNDA.
Have higher regulatory hurdles affected investment in early-stage Type-2 diabetes companies? VCs weigh in at The Pink Sheet.
Offenses across the NFC East are breathing easier. Sadly, Brian Dawkins, no longer an Eagle, signs 5-year deal with Denver Broncos.
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 Dailyreports 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 Timesreports 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 WSJreports 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.)
But there’s still plenty of strategic dust obscuring the view. The Genentech/Roche model – the most admired relationship in industry history -- seemed almost uniquely able to solve two enormous challenges: biotech’s ability to access capital and Pharma’s to feed its pipeline.
We don’t believe that Roche's move to acquire its junior partner means the structure can't work elsewhere. Roche simply figured Genentech’s run of innovation was close to the an end, and that the deal’s cost of accessing further innovation (royalties, milestones, geographic limiations) was simply not worth the candle.
But the fact is that the model has been rarely attempted. Here’s why. Thanks to a unique confluence of partnering requirements, Roche and Genentech both got something they needed from this deal without insisting on getting more (until Roche did by announcing its bid for Genentech). That set of circumstances has rarely occurred in the past -- and will rarely do so in the future.
To review these circumstances: Genentech wanted to fund R&D at what it believed was the requisite level – but couldn’t without killing its share price and thus closing off its access to capital. Not so rare a situation, by any means.
So it convinced Roche to offer Genentech stockholders a generous put on their shares: if the stock began trading too low, Genentech shareholders could force Roche to buy them out. That meant that Genentech’s shares could only fall so far while its competitors in the game of attracting capital could make no such reassuring promise. Many had to – still have to -- overdose on dilution.
But that put cost Genentech something few biotechs would be willing to pay today: a fixed-price option for ex-US rights to its pipeline. The option, which secured Roche some of the most successful biotech drugs, was based on deal prices from the mid-90s. Now, no one could really forecast the extraordinary inflation in deal values consequent upon the equally extraordinary lack of R&D productivity in Big Pharma (not excepting Roche). But it’s hard to believe that anyone today, knowing now what we’ve learned about biotech dealmaking over the past decade, would agree to that kind of fixed-priced option.
The option didn’t turn out to be all that bad for Genentech either. As we could not forecast inflation in deal prices, we could not have forecast the ability to regularly charge $50,000 for a course of therapy applicable to hundreds of thousands of people. Genentech, in short, limited itself to the US market at precisely the moment the US market was at its most lucrative for the kinds of products Genentech was selling.
And one other thing: Roche was getting something it could not develop on its own or easily find on the outside: large-molecule discovery, development, production and marketing capabilities. Roche couldn’t duplicate Genentech’s pipeline. That means that there were relatively few entrenched interests at Roche who would see Genentech as duplicating their own efforts -- and therefore competition. Moreover, because Genentech had actually created three approved products (and developed and sold two of them – TPA and human growth hormone; Lilly developed and sold the third, human insulin), Genentech’s pipeline didn’t look like a pipe dream.
So: a rare set of circumstances. There are several companies, like Genentech, with a platform for producing a new kind of drug. But few of them would be willing to sell a fixed-price option to their entire pipeline. The pressures on US pricing (compounded by the likely advent of biosimilars) will force companies to be stingier in parceling out ex-US rights all at one go. Moreover, there aren’t many companies like the Genentech of 1995, which had successfully developed and commercialized products -- but which still needed help in accessing capital. Celgene, for example, certainly doesn’t need Big Pharma’s guarantee to wring money out of Wall Street; nor does Genzyme; nor does Gilead.
The two closest recent examples of a Genentech/Roche-like model – the Idenix/Novartis transaction from 2003 or the Theravance/GlaxoSmithKline deal of 2004 – don’t exactly shine as examples of successful development organizations. Moreover, neither of those companies provide their would-be acquirors any special new platform. Theravance, in fact, is all about me-better small-molecule drugs. And the fact that GSK chose its own long-acting beta agonist to work on, rather than Theravance’s, does at least call into question the acquisition value of Theravance’s platform – indeed, last year GSK formally decided not to acquire the additional Theravance shares it could have.
So, granted the rarity of candidates, who might fit? Which companies with unique or at least important R&D platforms have produced an approved but only marginally successful drug … and who thus would be willing to pay a price similar to the one Genentech paid in order to access capital at a reasonable rate?
RNAi platforms are certainly hot. But none of the independent RNAi players (like Alnylam or Silence) has actually developed a drug let alone proven that the platform actually can produce them. Too early for the 60% solution.
Aptamers haven’t generated huge partnering buzz but there’s at least one on the market (Macugen, from Eyetech/Pfizer) so Archemix, granted it can push its pipeline along, might be a good candidate for a 60% deal (the VCs in that company which have been unable to get it public would be happy with such an outcome).
Isis Pharmaceuticals’ antisense platform has attracted various partners; it’s got a late-stage program in development, mipomersen, that it pushed through on its own. But the market likes Isis now; the stock has dramatically outperformed the biotech index. So if we were CEO Stan Crooke we might insist on a bit more valuation than most Big Pharmas would be willing to tolerate – particularly since the company already sold Genzyme the rights to mipomersen. So: better candidate than Alnylam (would Genzyme’s Termeer do a 60% deal for Isis? We think he’d consider it) but not so good, or as inexpensive, as Archemix.
Exelixis has managed to put together a pretty fair set of targets and chemistries; has gotten a few products into pivotal trials, albeit none further than that. But it sure hasn’t secured the unalloyed confidence of investors. That combination of scientific quality and market skepticism has made Exelixis attractive to, and attracted by, innovative financiers like Symphony Capital and Deerfield – and which probably would attract them to a 60% acquirer, were one to come along. But it’s not clear to us that an acquirer would be as interested: small molecules are Pharma's bread and butter, too close to what they think they already know.
And a few ideas a bit further afield.
Big Pharma is increasingly interested in generics, particularly of the large-molecule variety. Might make sense for investor-poor, technology-rich Momenta to stay quasi-independent but let a Big Pharma sell its biosimilars as part of a push into emerging markets.
And then there's China; could Pharma tap into that increasingly attractive and rapidly transforming market by teaming with a service play like WuXi Pharmatech or a still-small and home-grown biotech play like Hutchison China-Meditech's recently emancipated MediPharma subsidiary?
So another Roche/Genentech is possible. Likely? Not so sure. Because there was one other element to that we haven't discussed: strategic courage. And that may be the rarest element of all.
Image from flickr user Steffe used under a creative commons license.
Expect posting to return to its normal erratic schedule as of next week, and enjoy this dog days of summer deals-of-the-week post as you gear up to watch what is sure to be an unintentionally psychedelic opening ceremony for the 2008 Summer Games in Beijing.
We may have missed a few interesting tidbits over the past couple weeks--such as CytoChroma's alliance with Mitsubishi-Tanabe, GSK's layoffs, and probably a whole lot more (the logical conclusion to the BMS/Imclone saga trundles along though, so i'm sure we'll have a chance to chime in later).
And we'll make it up to you: be sure to check in next week for a complimentary PDF of our coverage (to date) of the Roche/Genentech situation ... for now you'll have to make due with:
Lilly/Covance: Read our earlier post on Lilly's leadership in creative financing of R&D, here (or just scroll down).
The Medicines Co./Curacyte: In a play to get its hands on Curacyte Discovery's lead CU-2010 serine protease inhibitor, The Medicines Co. has acquired the German biotech for €14.5 million up front plus a potential €10.5 million milestone should the drug move into Phase II (a royalty and commercial milestone payment enter the mix should 2010 hit the market). The move is unusually early-stage for MDCO, and as our colleagues at The Pink Sheet DAILY point out, driven by the uncertain fate of the patent situation around the company's Angiomax franchise.
Roche/Metabasis: Liver specialist Metabasis announced on Thursday a deal with Roche to give the Big Pharma's HCV nucleoside drugs better liver-targeting properties. The tweaking will cost Roche $10 million up-front for the two-year research collaboration and up to $193 million in milestones plus a royalty should a development candidate be selected. Though it might seem like the liver is the organ most drugs will find even if blindfolded and spun around three times, Metabasis' technology is designed to allow for lower dosing of drug, and therefore better side-effect profiles--a welcome scenario in a space where nucleoside HCV polymerase inhibitors have failed thanks to more problematic risk/benefit ratios than expected.
Celgene/GPC: It has been a rough road for GPC ever since the next-generation oral platinum chemotherapy satraplatin hit the skids last October. On Wednesday, the biotech's European commercial partner, Celgene, which inherited the deal from Pharmion, pulled the plug on the firms' collaboration and approval anywhere seems unlikely without a new clinical program. Celgene had yanked the drug's European MAA last week, and the writing was on the wall. GPC continues to evaluate M&A opportunities.
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.
Roche's offer to acquire Genentech in full has got everybody talking. The most frequent subject of discussion in conversations we've had with biotech and pharma leaders is culture. What impact will Roche's deal have on Genentech's biotech roots and culture? To read our initial take, click here.
One former head of R&D at one of the largest pharmaceutical companies in the world who now works at a biotech weighed in.
"Roche and Genentech have for a very long time said that one of the key to the success of Genentech is Roche’s ability to leave it alone and continue to function in a biotech model. So, I think there are two questions," he says.
"One, is that Genentech has now grown into the size of any respectable major pharma company. Is it really still functioning in a biotech model at all? Second, will Roche have a different level of control over Genentech when it owns all of it than when it had when it owned a majority stake?"
The implicit answer to the first question is a clearcut, no.
"That second piece is in Roche’s control. They can either choose to change how they govern or just leave it alone. Frankly, I think the success of Genentech has been simply outstanding and I hope that Roche allows them to function [as they always have]."
Please keep your comments on the deal's impact on culture coming as this will be a major theme as an increasing number of biotechs get snapped up by large pharmaceutical manufacturers.
There have been a number of interesting angles to come out of the most recent proposed Genentech/Roche combination.
One theme that intrigued us in the wee hours of the morning when the deal was first announced was the nationalistic/protectionist angle of a large Swiss company taking full control of an American company, which serves as the model for the biotech industry. We've written a little about this before. To read our previous stories, click here and here.
We even wondered whether this deal triggered a formal national security review (remember Dubai Ports?) by the Committee on Foreign Investments in the US (CFIUS). The committee is made up of representatives from the State Department, Homeland Security, the Office of Science & Technology Policy, the Department of Defense, the Justice Department, the Council of Economic Advisors, and the US intelligence agencies.
We asked one of the foremost experts on the issue if it does? He says it doesn't. The only way the deal would require approval from the committee were if Roche was "gaining control through acquisition." Roche already owns 56% of the company.
Nevertheless, the patriotic angle shouldn't be altogether discarded. For example, when Roche was readying to launch it's follow-on EPO Mircera (the courts eventually had something to say about that plan), Amgen quickly built a case that a Swiss company was going to be entering the US market with a higher priced product, which would gouge Medicare and American taxpayers. To read about it, click here.
Even though the deal won't trigger a national security review, Genentech could use the protectionist argument to defend itself in a public relations fight if it decided to get down and dirty.
Do you think there is a legitimate nationalistic defense in this case? Or is this just globalization at its finest?
We've given you our thoughts on why Roche wants to spend so much money ($43.7 billion to be exact) to buy out Genentech, a company it already controls. Of course, a key part of analyzing the deal is to consider other ways Roche could spend the money. So, herewith, we start a recurring discussion:
How else could Roche spend $44 billion?
A few initial ideas to get your creative juices going...
(1) Buy Bristol-Myers Squibb instead (current market cap=$44 billion). Why not get access to oncology/specialty products you don't already own?
(2) Buy Genzyme and Celgene (combined market cap=$50 billion). Two for the price of one! (3) Buy majority stakes in Genzyme, Celgene, Biogen Idec, and a dozen small-to-mid-cap biotechs. If, as we keep insisting, the Genentech relationship was the most successful partnership in the history of the industry, why not repeat it on a grand scale? (4) Buy Fannie Mae and Freddie Mac. Roche is a banker, after all, and these two depressed assets are surely a good value. Best of all (believe it or not) Roche could buy them both and still have over $20 billion left to shore up their cash reserves. America is saved! (5) But a $16 Terrace Level ticket for dollar dog night at Citizen's Bank Park. Take in the Phillies vs. Marlins in a critical September showdown. Purchase 43,699,999,983 hotdogs. Tip the guy a buck.
If a generic competitor was waiting in the wings with an improved version of Genentech’s Avastin, how much less would the company be worth in the eyes of Roche?
Probably a lot, you’d say. Probably a lot less than $44 billion, which as everyone on the planet knows by now, is what Roche bid to acquire the remaining 44% of Genentech earlier this week.
We’re not suggesting there is anyone waiting in the wings to undercut Avastin at this very moment. And when it comes to analyzing Roche-Genentech, FOBs probably isn’t the first thing that jumps to mind. (Which is why, incidentally, we’ve already blogged on the deal here and here. And why we’re planning all kinds of great coverage in this week’s issue of “The Pink Sheet.”)
Indeed, there are lots of other questions: Does Roche’s price justify the quality of the R&D portfolio it would acquire? Is the timing of the deal more about financial strategy than innovation, as Roche claims? And does any of that matter if the acquisition results in a massive walkout in South San Francisco?
But given where follow-on biologics are headed these days—and how much money is at stake for a company like Genentech—the impact of follow-on biologics on the timing of the deal is worth considering. So here’s our take:
There’s no doubt these are hard times for pharmaceutical companies—low approval rates, a stalled R&D engine, payor pressure and the risk of health care reform. And while that’s hit across Big Pharma and Big Biotech, biotechnology companies have enjoyed one major upside: infinite product exclusivity.
That honeymoon is about to be over.
We’re just not talking about Congress authorizing a regulatory pathway for follow-on biologics. Or even competition from generic companies. The biggest threat to the biologics industry may come from within Big Pharma itself—a group that is incredibly experienced in manufacturing products, has money to invest, and is desperate for a few more dollars on the bottom line.
As we’ve written in The RPM Report, Big Pharma companies haven’t been shy about their interest in developing “me-betters” that get around IP issues with existing follow-on biologics.
Indeed, some of the biggest names in Big Pharma have acquired technology platforms that could be used create ther own versions of existing large molecules: GSK (Domantis); Bristol (Adnexus); Wyeth (Haptogen); and Teva (Cogenesys). And some executives (like JP Garnier and Jeff Kindler) have acknowledged plans to do just that.
So what does that all have to do with Roche-Genentech?
It’s clear FOBs are a major threat to biologics IP. Even if Congress doesn’t pass legislation authorizing a follow-on biologics pathway, FDA will continue to approve “me-too” large molecules on a case-by-case basis. And if the technology platforms Big Pharma has been snapping up lately is any indication, we’ll start to see the March Of The “Me-Better” Biologics—and the pricing pressure that follows.
For Roche, staying ahead of that curve means finding a way to make biologics faster and cheaper. And the best way to do that is through post-merger synergies. So contrary to the message Roche is sending to investors, the timing of the deal probably has less to do with “innovation” and more to do with squeezing out savings.
At the very least, it’s another sign that that Big Pharma companies are thinking about follow-on biologics in dealmaking—either by acquiring companies with the technology to make me-betters, or by positioning themselves in a way to compete with any competing large molecules that may come down the pike.
It's one more pressure that will make biologics less profitable in the long run—and one more reason for Roche to head it off at the pass. Genentech created Roche’s pipeline—and propelled the company to the number-one growth stock despite what is arguably the worst R&D in the industry. Now it needs to protect that investment.
Well, not exactly love, but care more about them, at least? This is what Daniel O’Day, the newly installed head of Roche’s diagnostics division, asked an audience of analysts attending Roche's annual results meeting in London last week.
