While listening to last week's presentation by BMS on their pipeline, one slide in particular caught my attention:
Source: BMS
Now, it wasn't the fact that BMS were second in their table of Total Shareholder Return (TSR) that was interesting to me, but that Abbott were first, and by a long way, according to the chart above. Of course, shareholder return is only one measure of performance and says nothing at all about putting customers and patients first, but that is another story/blog.
Recently, Abbott has been in the news with the acquisition of Solvay, a generics company, which added $3B to their revenues and last night it was announced that the company are also acquiring Facet Biotech, which was being pursued by Biogen Idec. The Biogen deal clearly fell apart after the company declined to raise their offer beyond $17.50/share. Abbott offered $27/share and thus a white knight was found. Interestingly, the Facet CEO, Faheem Hasnain, is a former employee of Biogen Idec.
The acquisition is a hot one, so to speak, and many of us in the industry have been speculating in vain on who the partner might be, so you would think that going on CNBC's Pharma's Market with Mike Huckman would be a nice coup for a small company. I thought it was odd though, to see that they seem a little publicity shy, as this tweet shows the company's rather gauche immaturity:
What do Abbott get from acquiring Facet?
Well, first we need to think about where Abbott is coming from. Most companies with either build on existing platforms and franchises or add new products in areas where they want to expand. Abbott is probably best known for it's immunology franchise, with adalimumab (Humira), its TNF inhibitor for rheumatoid arthritis and psoriasis.
Several companies, including Abbott and BMS, have embarked on a race to develop the next generation of Hepatitic C drugs and vaccines. Infectious diseases are not something that are going away fast, so this is seen as an attractive market segment by many.
Looking at the Facet acquisition, the pipeline is thus interesting because they have also been developing monoclonal antibodies but in different diseases including immunology and cancer. The lead compound is daclizumab, which is in phase II development for multiple sclerosis in partnership with… Biogen Idec. Facet own the exclusive rights to the asthma indication though.
There are also several anticancer antibodies such as volocizumab (solid tumours) and elotuzumab (multiple myeloma) in Facet's R&D. Oncology is an area where Abbott has been relatively weak, although they have some interesting compounds in development for liquid and solid malignancies. In 2009, a joint venture with TAP was concluded, adding Lupron, one of the best selling drugs for hormone-sensitive prostate cancer to the portfolio of currently marketed products.
Abbott may well see topline growth from it's cancer franchise in the future… if the pipeline products from their own labs or Facet's deliver. If those from Facet fail, Biogen Idec will be breathing a sigh of relief that their offer was turned down.
We spend a lot of time researching biotechs in the oncology space and thus it occurred to me that many of them are located around the San Francisco bay area as a hub, in a landscape dominated by Genentech, now part of the Roche empire. San Francisco has good logistic connections, a lot of roomy office space, active research in several universities and provides a pleasant haven for science, academia, research and industry to all flourish.
There are far to many to mention in one blog post, but here is a quick update on some of the companies we’ve been following over the last couple of years in the cancer market (in no particular order):
Sunesis ($SNSS): Got off to a rocky start with the early development of voreloxin, but have refocused the clinical trial designs with some interesting phase I and II results to date in AML. The compound, a quinolone derivative that acts as DNA damaging agent, is also being developed in platinum resistant ovarian cancer. I’d like to see some comparative data in AML at some point, or at least a study with just a standard chemo in it compared to the standard + voreloxin, otherwise it will be hard to see exactly what the agent actually adds.
Poniard ($PARD): Poniard are developing a new generation platinum agent, picoplatin, that seeks to offer equivalent efficacy as existing platinums, but with less neuropathy that is common to existing treatments such as oxaliplatin.
Picoplatin got off to a good start with trials starting in small-call lung cancer (SCLC) and colorectal cancer (CRC). Early results looked promising. However, results from the pivotal Phase 3 SPEAR (Study of Picoplatin Efficacy After Relapse) trial of in the second-line treatment of SCLC did not meet its primary endpoint of overall survival. The analysis, based on 320 evaluable events (patient deaths), showed a hazard ratio of 0.82 with a p value of 0.089. The company felt that the main reason for the discrepancy lay in pateints in the placebo arm receiving more chemotherapy than the picoplatin arm after relapse occurred.
A randomised, controlled Phase 2 trial of picoplatin in metastatic CRC patients is ongoing. The study recently met its primary objective. Picoplatin, in combination with 5-fluorouracil and leucovorin (FOLPI regimen), was associated with a statistically significant reduction in neurotoxicity (p <0.004) compared to oxaliplatin given in combination with 5-fluorouracil and leucovorin (FOLFOX regimen). The results also suggested that FOLPI had similar efficacy to FOLFOX. More data is expected at ASCO in June.
Nodality: Is an interesting technology company that is developing next generation diagnostics by characterising cell signalling pathways. The concept is based upon proprietary flow cytometry technology, originally developed in the laboratory of Professor Garry Nolan and licensed from Stanford University.
Flow cytometry has been widely used to characterise cell surface markers on hematologic cells. Nodality are now utilising advanced quantitative flow cytometry to define the signalling networks within individual cancer cells, in order to enable biologically-driven clinical decision making for cancer treatment. Essentially, this technology can be used to determine changes before and after cancer treatment, eventually leading to the identification of appropriate biomarkers for treatments.
BiPar Sciences: Are developing BSI-201, a PARP inhibitor for the treatment of triple negative breast cancer and ovarian cancer. They signed a deal with sanofi-aventis last year and are now a wholly owned subsidiary. It looks to be a promising agent, albeit with a short patent life. The race to market against KuDos/AstraZeneca will be an interesting one to watch over the next couple of years. How will the two PARP inhibitors stack up? Time will tell. They also have a follow on PARP inhibitor (BSI-401) in development, and an anti-tubulin compound.
Exelixis ($EXEL): Have been in the news frequently over the last few years as they license out their in-house compounds to companies such as BMS, GSK, sanofi-aventis and Genentech. Their stated goal is to develop first in class or best in class compounds through their own discovery and clinical programs. The pipeline runs an interesting gamut of targeted agents to various pathways, including MET, VEGF, PI3-kinase, IGF-1R, MEK, RAF and others.
The most advanced agent (XL184) is in phase III development for metastatic medullary thyroid cancer (MTC) with BMS (aka BMS-907351). This is a very slow growing cancer, so a rapid development is unlikely. The compound is a multi-kinase inhibitor of VEGFR, MET and RET. It is also being tested in phase I/II trials for recurrent glioblastoma (GBM), non-small cell lung cancer (NSCLC) in combination with erlotinib and a phase I trial in advanced malignancies is also ongoing.
BMS probably have the biggest investment in Exelixis, having licensed at least 5 of their compounds in cancer. Time will tell if this proves to be a smart decision or not.
Plexxikon: Are a private Berkeley based company who focus on the discovery and development of small molecules in several therapeutic areas including cardio-renal disease, CNS, inflammation, metabolic disease and oncology. They are most known for their BRAF inhibitor, PLX4032, which is being developed for the treatment of malignant melanoma. BRAF is thought to be mutated in approximately half of melanomas and may be one of the drivers of the disease.
Plexxikon signed a deal to develop the agent with Genentech, now Roche, and phase III trials in melanoma were announced last month. This is definitely a promising agent to watch out for.
Facet Biotech ($FACT): have been in the news recently after Biogen Idec tried to purchase the company, but offers have been repeatedly rebuffed and dismissed as inadequate. The company was launched as a spin-off from PDL BioPharma, Inc in December 2008.
Facet are developing several compounds in the multiple sclerosis and cancer markets, including volociximab (solid tumours) and elotuzumab (myeloma). The MS agent in phase II, daclizumab, has received most attention but the oncologic agents are too immature to determine how effective they might be yet. Definitely one to watch out for though, if a white knight in the form of a big pharma with cash descends in the near future. The most obvious companies with cash and a declared growth by acquisition strategy are BMS and Celgene, but I’m not sure Facet would be a good fit for either. On paper, Biogen Idec was probably a better option.
There are plenty of other interesting cancer companies in the Bay Area, but these are a few that I’ve been watching. More will be covered in the next update of the cancer market in the area. New data will no doubt be presented at the forthcoming American Society of Clinical Oncology (ASCO) meeting in June.
Earlier this year, we were deep into a consulting report on general trends in the Pharma industry and were struck by data in different yearly reports from PhRMA, the industry body in the US. Basically, when we pieced the data together, it was clear that the market share of generics was not only growing but also likely to get worse in the next 2-3 years with major expiries expected.
Take a look at this chart we put together from PhRMA reports:
In the last 8 years, the share of generics has increased by an amazing 21% and the future growth may well increase to 9-10% per annum in the near term.
We were therefore not in the slightest bit surprised to read this report in The Economist last month predicting that a huge drop in branded sales revenues is to be expected in 2011, which is very much in line with our own analysis and predictions:
In case you're wondering what's happening in 2011, think blockbusters such as Lipitor, Plavix, Seroquel and Zyprexa to name a few and some of those will experience patent challenges before then. Interestingly, between 2009 and 2011 Pfizer (Lipitor), Lilly (Gemzar and Zyprexa) and sanofi-aventis (Eloxatin, Taxotere and Plavix) will all see major losses in revenues due to patent erosion as they scramble to make up for the losses with various approaches.
In addition on the oncology front, Taxotere, Doxil and Gemzar are all due to expire next year, so the biggest impact in overall revenues will likely be seen in 2011 when multiple generic entries will further drive the price down significantly.
It's no wonder, then, that Pharma and Biotech companies are starting to rethink their future strategies given the dearth of new products coming through the pipeline at a rate that isn't fast enough to replace the blockbusters going generic.
What options are out there that can be considered?
a) License late stage or 'hot' products from smaller pharma or biotech companies at a premium. Many oncology companies are racing to do this such as J&J with abiraterone, Astellas with Medivation and Celgene with romidepsin, for example.
b) Creative life cycle management such as new formulations, branded generics or own-label medications (eg Novartis has successfully tried combinations of these with Voltaren, Sandogobulin and lactulose)
c) Expand into generics in emerging countries such as China, Brazil, Russia and Asia where their is a rapidly growing middle class demand for new medicines to treat lifestyle and aging diseases (eg sanofi-aventis, Pfizer, Novartis, Merck and GSK)
d) Consolidate therapy areas and have a narrower focus with increased licensing ties or acquisitions in specialty areas of interest (eg BMS, Genentech)
e) Greater focus on rarer diseases with a strong focus on rationale drug design and efficacy, leading to higher per patient prices (eg Genzyme, Novartis, Allos Therapeutics)
The recent round of mergers is unlikely to be the last for a while as others are already happening or being worked on. The rate of licensing deals has begun to pick up significantly lately, driving up the asking price in the process, as Biogen IDEC found recently when Facet Biotech tartly declined their $17.50/share offer for the company.
Overall, I think the general trend for utilising more creative strategies with generics, emerging markets and better life cycle management strategies are here to stay. There will always be new products coming onto the US market, but with an increasing focus by the Obama Government on pharmacoeconomics and cost effectiveness of new medicines, the Pharma industry must either innovate, diversify or struggle as patent expiries focus everyone's attention on the bottom line.
It will be interesting to see who comes out stronger and better positioned for the future and who dies. The difference between winning and losing is sometimes very small, as Vion found this year with Onrigin. Others may well follow suit and seek bankruptcy protection in 2010 if their Russian Roulette strategy doesn't come up trumps.
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