Cephalon Joins The Corporate Venture Party

For the start-up community --and increasingly certain distressed VCs -- the birth of a new fund devoted to early stage biopharma investing is an event to be celebrated. And, as we've noted before, pharma, through so-called corporate venture divisions, is increasingly the cause for the celebration.

With deep-pocketed parents to ensure available follow-on funding, these groups can invest where traditional VCs have curtailed their efforts, while simultaneously giving pharmas an inside track on pipeline programs of interest as the competition for outside innovation increases. It's the perfect alignment of strategic intent and financial return, and the impetus for a wave of new CVC starts from the likes of Shire to Merck Serono to Abbott (though that's mostly device-oriented.)

The latest pharma to join the corporate venture party appears to be Cephalon, a one-time specialist in neurodegenerative diseases that’s diversified considerably over the years. In a regulatory document filed last month, Cephalon announced the retirement of executive vice president of technical operations Peter Grebow, but indicated he would continue to work for the specialty pharma as a consultant, during which time he would “assist with the establishment of Cephalon Ventures.” (Bolding courtesy of IN VIVO Blog.)

Grebow's "retirement" -- hey, it's kind of like a staged acquisition-- kicked off yesterday. And, according to the SEC docs, his consulting career -- with the ability to bill $750 per hour, with a maximum of 1,000 hours over the course of a year! – began today. (Like many contractors, he doesn't get benefits--and healthcare is expensive.)

This is the first concrete reference to Cephalon Ventures, but it's likely the division has been in existence for for several months. Grebow’s online bio lists him as EVP of Cephalon Ventures, although a previous reference to the organization’s existence beginning in April 2010 in an older bio has been stricken from the official version. An attachment to the filing adds that Grebow “shall make himself available to the Company to assist with respect to Cephalon Ventures, including advice with respect to the formation of N-Versx Pharmaceuticals and the review and selection of Cephalon and third party compounds for licensing.”

Cephalon’s 10-K, also released last month, doesn’t mention N-Versx, and an afternoon of intrepid reporting (including the requisite Google search) turns up nothing linked to the start-up beyond the filing.

Adding to the intrigue, Cephalon is also listed (pdf) as one of the lead investors in SymBio Pharmaceuticals' new $24 million Series E funding, although nothing in SymBio's announcement suggests that the investment came from Cephalon Ventures versus the corporate parent. Moreover, the company already held a stake in SymBio based on an existing licensing agreement for oncology drug bendamustine hydrochloride.

We’ve reached out to Cephalon for clarification, seeking not just confirmation of the venture group's existence but additional information regarding important details like the size of the fund, its investment thesis (a strategic imperative or a financial return--or both?), and whether the unit will also be creating newcos with existing Cephalon assets. We haven't yet received a definitive response, but we promise to report back when we do.

In the interim, it seems like a bit of good news for early stage biotechs --especially those developing therapies in areas of strategic interest to Cephalon. It's also potentially good news for Cephalon, a company that's logged a strong 2010 with $2.8 billion in sales, but nevertheless faces challenges.

CEO Frank Baldino passed away in December, leading to a management transition, and the company is set to lose patent protection for sleep disorder drug Provigil (modafinil), its top seller. Since the beginning of 2010, Cephalon has inked a number of acquisitions and alliances, giving it rights to branded generics (Mepha), a stem cell therapeutics program (Mesoblast) , and pipeline drugs for leukemia, asthma and back pain.

At the risk of being a bit premature, IVB offers its official welcome to Cephalon Ventures. May your party be just beginning.

Image courtesy of flickrer calsidyrose via a creative commons license.

DotW: J.P. Morgan Redux--UPDATED

It's common wisdom that the J.P. Morgan conference is the sole reason many in our industry get their flu shots. (We point you to the CDC website for other, far more important stats on why that annual vaccine is important.) Not too surprisingly, deal-making flurry continued apace, as companies small and large sought to garner valuable positive press to balance out the increasingly negative economic news.

Even as Cephalon, BMS, and Wyeth announced new deals (see below), another theme this week was shareholder activism.

On Jan. 14, Deerfield Capital continued to press its case that NitroMed investors stand to lose out if the troubled specialty pharma merges with privately-held aptamer-focused Archemix. In an effort to woo investors, the firm sweetened its black-knight offer from $0.65-a-share to $0.75-a-share in a deal roughly valued at $34 million. The New York-based private equity firm objected to the reverse merger in December because existing NitroMed stockholders would be apportioned only 30 percent of the new entity despite contributing between $35 million and $40 million to a company with no late-stage clinical programs.

Meanwhile, the tussle between Avigen and its largest stockholder, Biotechnology Value Fund, continues to play out on the public stage. On Jan. 15, BVF offered to buy all of Avigen's outstanding stock for $1-a-share, a 35% premium over the biotech's closing price on Jan. 8, the day before BVF announced a plan to replace Avigen’s board with four “stockholder-focused nominees.” BVF, which has nearly a 30% stake in Avigen, wants the biotech to accept a merger offer from MediciNova, while Avigen management has said it plans to seek a new direction in 2009 after its stock price crashed following the failure last year of its lead candidate in multiple sclerosis spasticity.

The economic crisis is sure to force a number of biotechs to make the hard decisions execs at NitroMed, Archemix, and Avigen now face. That realization was an obvious undercurrent in the meeting halls and evening soirees this week, with many adopting a mantle of "been here before" bravado tempered with gallows humor. Being able to actually walk through the lobby of the Westin St. Francis with arms akimbo on Tuesday afternoon only added to the feeling that this year our industry is in a very different place than it was just 12 months ago.

Suffering from post J.P. Morgan letdown? (It's a real syndrome, though unlikely to make it into the 2012 edition of the DSM-V. Please resist the temptation to utter the phrase "let me give you my card" to your spouse. He or she won't appreciate it.) Instead, we're here to continue to pound the industry drum with another packed edition of ...


Wyeth/Santaris: Established as one of Big Pharma’s strongest players in biologics, Wyeth has lagged behind its competitors in the RNAi space. A strategic alliance announced Jan. 12 with Denmark’s Santaris Pharma brings Wyeth the opportunity to develop and commercialize microRNA and mRNA therapies in up to 10 targets. And Wyeth gets the opportunity at what looks like an economical price - $7 million up-front plus a $10 million equity investment to access Santaris's technology platform. Wyeth will also fund the research collaboration for three years – annual amounts haven’t yet been set according to Santaris CEO Soren Tulstrop– and will pay milestones up to $83 million apiece for each target, plus worldwide royalties on any products that reach the market. While not talking specifically about this deal during his JPM presentation Jan. 14, Geno Germano, president of Wyeth's U.S. and Pharmaceutical Business Units, noted that more than 60% of the company’s 2008 revenues derived from “non-traditional pharma sources,” such as biologics and vaccines. Such revenue is expected to increase to 75% of the Big Pharma's business by 2012, he said. One critical product: Xyntha, a Factor VIII plasma product approved for hemophilia A in the U.S. last February. Combined with the pharma’s existing hemophilia drugs, ReFacto and BeneFIX, Germano said the three products represent Wyeth’s next blockbuster franchise--Joseph Haas.

Novartis/HHS: At JPM, Germano also talked up Wyeth’s success with Prevnar, a conjugated pneumococcal vaccine and the industry’s first blockbuster vaccine, which brought in about $2.7 billion last year. While Wyeth is looking to broaden its vaccine franchise with a planned purchase of Crucell, giving it entrée to hepatitis A, hepatitis B and typhoid fever competition, it also has to keep an eye on Novartis, which flexed its muscles in the vaccine world this week. The Swiss pharma announced it had been awarded a $486 million grant from HHS to help fund a new pandemic flu vaccine manufacturing facility on Jan. 15. While acquisition of the Dutch Crucell, the sixth biggest vaccine company in the world, would make Wyeth more competitive in pursuing vaccine contracts with other countries, Novartis is already there and HHS’ help in funding the Holly Springs, N.C., facility should only add to its advantage. HHS will provide the money over eight years to support design, construction, validation and licensing of the facility, which will make cell-based vaccines. Under the agreement, Novartis will provide a pre-pandemic supply of vaccine and ensure capacity to manufacture 150 million doses within six months of the declaration of a wide-spread outbreak. HHS also gets the option to purchase additional flu vaccine over 17 years--Joseph Haas.

Cephalon/Ception: In what is emerging as an ever more common method of getting assets cheaper--if not on the cheap--Cephalon announced this week its $100 million down-payment for privately-held Ception, which was founded by a group of former GSK execs in 2004. The payment gives Cephalon the option to purchase all outstanding stock in Ception for $250 million should the start-up's Phase IIb/III anti-interleukin-5 antibody, reslizumab, make good in the clinic. Reslizumab is targeted as therapy for pediatric eosiniphilic esophagitis, a rare inflammatory disease that has seen a ten-fold increase in diagnoses over the past decade. The deal also gives Cephalon a potential biologics platform that it can bolt onto its existing infrastructure. This increased capability is one reason the down-payment for Ception is so generous. Large molecule platforms have been commanding far higher price tags, and with this deal, Cephalon has signaled its interest and capped the ultimate expense it might owe down the road. This is the second option-type arrangement Cephalon has entered into in recent months. Last November, Cephalon did its first option deal, paying UK biotech Immupharma $15 million for license rights to Lupuzor, a CD4 T-cell modulator in Phase IIb for lupus--Shirley Haley.

The Medicines Company/Targanta: Facing the strong possibility that its franchise antibiotic Angiomax will lose patent protection in 2010, The Medicines Company hewed to its strategy of acquiring late-stage assets – this time through the acquisition of Targanta Therapeutics for $42 million. It's the second major acquisition for MDCO in recent months. In December, the company announced a riskier move: the buy-out of Germany’s Curacyte Discovery, whose lead program is Phase I serine protease inhibitor CU-2010, a candidate to fill the antifibronolytic gap created when Bayer had to pull Trasylol from the market. For its $2-per-share offer, MDCO will get the IV antibiotic oritavancin, stalled in Phase III for complicated skin and skin structure infections after receiving a “complete response” letter from FDA requiring additional trials in early December. Cambridge, Mass.-based Targanta netted $53.5 million in an IPO in late 2007, and has more than $40 million in cash on its balance sheet. Still there's no denying the oritavancin delay--and the cost of an additional pivotal trial--was a significant blow for the biotech. Phase II trials reportedly cost Targanta $40,000 per patient, and a larger Phase III study to better demonstrate the drug’s efficacy in patients with MRSA would be even more costly. Noting the growing U.S. market for gram positive infection therapies, estimated at $1.1 billion in 2007, MDOC stepped in, offering shareholders potential regulatory and commercial milestones payments, which could reach roughly $4.55 per share, in addition to its up-front offer. Cowen and Company’s Ian Sanderson called MDCO's move “a savvy deal” in a Jan. 14 note. In addition to Targanta's cash, MDCO also picks up an experienced antibiotic development team.--Joseph Haas.

Bristol-Myers Squibb/ZymoGenetics: With disappointing sales from its surgical bleeding drug Recothrom (topical recombinant thrombin) - just $1.8 million during third-quarter 2008 – and November’s change at the top, as then-President Douglas Williams succeeded retiring CEO Bruce Carter, ZymoGenetics appears fortunate to have gotten $85 million up-front for its Phase Ib Peg-interferon lambda candidate in hepatitis C from Bristol. At the JPM conference, Bristol Chief Scientific Officer Elliott Sigal said the deal fits with that pharma's strategic focus on antivirals and offers the potential of adding a “special type of interferon” with improved tolerability and targeting to the current standard of care in HCV. Adding a little spice to the transaction, which Williams says should bring ZymoGenetics $200 million total this year, including a $20 million license fee, is that the two companies were engaged in a two-year patent-infringement lawsuit related to Bristol’s rheumatoid arthritis drug Orencia that only was resolved last October. Bristol paid ZymoGenetics $21 million to settle the dispute over two patents held by the latter firm. This latest tie-up greatly strengthens ZymoGenetics' cash position and continues Bristol’s “string of pearls” strategy as the pharma attempts to transform into a next-generation biopharma--Joseph Haas.

Novartis/Peptimmune: Novartis and privately-held Peptimmune agreed on a pair of technically separate deals Jan. 15, with the pharma optioning exclusive rights to PI-2301, a peptide copolymer in Phase Ib for multiple sclerosis, while the venture capital fund Novartis formed with MPM Capital made an undisclosed equity investment in Peptimmune. Back in 2007, the Novartis/MPM fund took a $10 million equity stake in Radius Health, while a separate deal optioned Radius’ Phase II osteoporosis drug, BA058, in what was the first sign of corporate venture's ability to do biz dev. Few terms of the Peptimmune deal have been disclosed, although the biotech says it could realize more than $500 million in development, regulatory and commercial milestones if Novartis options ‘2301. If Novartis does elect its option, it will take over global clinical development, manufacturing and marketing of the drug. Meanwhile, the in-house venture capital model looks to be thriving. Thanks to their big pocketed Pharma sugar daddies, these groups can afford to be a little more generous in the terms they set than traditional VC firms, many of whom are drip-feeding companies as they go out on the fund-raising circuit--Joseph Haas.

Medtronic/Ablation Frontiers: If you’re actually wondering whatever possessed Medtronic to pay $225 million for Ablation Frontiers we’d like to introduce the company’s CEO Keegan Harper, with an excerpt taken from our November profile on the atrial fibrillation company. "Today, more than ever, that is a formula for success in medtech because by shortening procedure times or simplifying a surgical procedure, you enable doctors to treat more patients and that is generally a winning combination." Bingo. Medtronic CEO Bill Hawkins said it himself during his company’s presentation at the J.P. Morgan conference this week: Ablation Frontiers' “very unique set of anatomically correct catheters” will “democratize the atrial fibrillation procedure” by shaving considerable time off of a procedure that takes six hours or more at other companies. The purchase, if approved, would complement Medtronic’s earlier acquisition of CryoCath Inc., giving Medtronic a broader offering of atrial fibrillation products in its battle with Boston Scientific Corp. and Johnson & Johnson Corp. for the hearts and minds of electrophysiologists everywhere. It’s this pursuit that’s turned atrial fibrillation—a one-time black hole for device investors—into one of the sector’s brightest lights--Tom Salemi.

Merrion/Novo Nordisk: Irish oral delivery specialist Merrion Pharmaceuticals has inked another deal with Danish diabetes powerhouse Novo Nordisk to work on an oral formulation of a Novo GLP-1 receptor agonist. A deal to develop oral insulin analogues was signed back in November 2008. The Friday Jan. 16 deal is worth up to $58 million in up-front and milestone payments associated with a theoretical first-product approval and sales hurdles, plus an undisclosed royalty. Novo will also buy 300k Merrion shares at €3 apiece. Though there’s not a lot of granularity in the deal terms it’s worth noting that they’re very similar to the November insulin deal. Also remarkably similar and to us, more amusing: Merrion CEO John Lynch’s photo accompanying the release. Today’s picture of Lynch involves a photographer apparently lying on the floor in order to take a photo of the CEO upwards through a pill-strewn glass table. November’s picture is the same, except the pills are strewn in a slightly different pattern, and Lynch is accompanied by Ireland’s Minister for Enterprise, Trade, and Employment, Mary Coughlan. Now before you all write in to point out that Lynch is wearing the same suit/tie combo and therefore the photos were probably taken on the same day, answer us this: where’s Coughlan? Why is the photo on the second release dated today? Why the different pill formation? Are the photos Photoshopped? Are they a metaphor for the state of Irish biotechnology—nay, for biotechnology the world over? Or is the photo-through-the-glass-table all the rage now? We’re no conspiracy theorists, but something is afoot on the Emerald Isle (and/or rotten in Denmark, we’re not sure where the photos were taken …)--Chris Morrison.

Abbott Laboratories/AMO: The ophthalmic industry has traditionally been in its own club, with specialty device and pharmaceutical companies exclusively selling products marketed to ophthalmologists. So the announcement on Jan. 12 that diversified giant Abbott Laboratories would acquire Advanced Medical Optics for nearly $3 billion in cash was as astonishing as the hefty premium Abbott ponied up. According to the terms of the deal, Abbott will pay $22 per share or a 149% premium to the ophthalmology company’s Jan. 9 closing price of $8.85. Despite the hefty price tag, Abbott is getting a business that many predict will continue to grow by double digits because of aging demographics and improved markgins on products like intraocular lenses. The predicted increased incidence of cataracts, age-related macular degeneration, presbyopia, and glaucoma mean this market could expand from $700 million globally today to $1 billion by 2020. Currently AMO holds the number one spot in refractive surgery, through its LASIK franchise, which accounts for one third of AMO’s overall business. It’s also the second player in cataract surgery, a recession-proof sector that treats the leading cause of blindness in the growing elderly population, and the number three player in eye care with a number of popular consumer brands. Indeed, it is this troublesome environment that caused AMO’s valuation to be depressed enough to make it a prime takeout target. At the November 2008 meeting of the American Academy of Ophthalmology in Atlanta, the talk was all about the deteriorating state of the refractive surgery market as consumers pulled-back on discretionary spending, especially high cost, elective surgical procedures like LASIK. As the S&P 500 fell, so did laser vision correction procedures. With a high debt load in a hard-hit market, AMO’s stock price had fallen from $24 in June 2008 to $10 by the end of December. But with the backing of Abbott, AMO will have the financial resources it needs to make sure it’s in a good position when the financial storm abates--Mary Stuart.

DotW: Broken Record

The news just keeps getting worse: the economy is bleeding jobs and the band-aid that is interest rate cuts will likely do little to stop the hemorrhage of foreclosures and late mortgage payments. While executives from the Big 3 drove to Washington in their green cars to beseech Washington for a bail-out, reports from biopharma land were equally depressing. (So much for a recession proof industry.)

Your broken record, bad news round-up sounds something like this: Sanofi Aventis announced it was cutting hundreds of sales reps in the US (the ax fell in France some months ago), adding to the growing list of pharmas scaling back on their commercial organizations. Meanwhile BMS laid off workers at its Dewitt manufacturing plant and the outlook for Merck remains...murky after this week's guidance update. (Maybe the company should team up with Schering-Plough to find a way to use Zetia as an alternative fuel source. Now that's innovation--and a way to get rid of excess inventory.)

As Big Pharmas struggle with their lack of research productivity, Goldman Sachs offers a ray of hope, according to the Financial Times: the London firm is apparently in talks to provide hundreds of millions of dollars of funding to a large pharmaceutical company--and it's not AstraZeneca--to create a hybrid R&D model built around the co-development of certain medicines. Hmm, could this be a step forward in the evolution of pharma's business model?

It's not just pharma that needs a new business model. Trouble appears to be brewing in the VC kingdom as well. Rumors continue to abound that limited partners--hit hard by redemptions--have asked various venture firms to delay capital calls while they right their alternative asset allocations. Meantime, Venture Wire is reporting that Sofinnova Partners, which managed to raise a significant portion of its 6th fund, did so with an increased number of LPs, suggesting that even when investors could be swayed to part with their money, they weren't willing to ante up as much as in prior years.

Tired of this monotonous drum beat? We are too. Thankfully it's time for...


J&J/Mentor: J&J is buying aesthetics leader Mentor for $31 per share--or $1.07 billion. They win this week's award for biobucks and curry favor for their recessionista outlook, as they aim to snatch up good assets on the cheap. Since September '08, Mentor’s stock has declined from around $28-per-share to just $16.15 the day before the Dec. 1 announcement. The tie-up makes a lot of sense, given that 90% of Mentor’s revenues come from its breast implant business, and the current plan is to incorporate Mentor firmly within J&J's Ethicon surgery division. Even before the effects of the sub-prime mortgage crisis were fully felt, aesthetic (and other elective, out-of-pocket) procedure volumes had begun to drop. In a depressed economy, Mentor’s large, diversified parent cushions it from the downturn, allowing it to build up its portfolio of office-based products for plastic surgeons and dermatologists—dermal fillers, skin care products, and lipoplasty products. J&J gets into a business that’s adjacent to other core skill sets—surgery and wound care—with good long-term growth prospects. Consolidation in the industry had already begun in early summer—when the industry saw the takeout of LipoSonix by Medicis Pharmaceutical, and the merger of Thermage and Reliant. Now, while shoring up Mentor’s defenses, the J&J acquisition removes a major consolidator from the aesthetics field, at a time when small companies in the space will have a tough time weathering the financial crisis--Mary Stuart.

Novartis/Evotec: Not every Big Pharma is going to Chindia to outsource its R&D. This week comes news that Novartis has teamed up with the Germany-based biotech player Evotec in an early stage research collaboration to identify and develop small molecule therapeutics. As part of the collaboration, which will run for three years, Evotec will be responsible for programs up through preclinical development, with Novartis taking over responsibility--and cost--for the project once the molecules enter human testing. The money certainly isn't huge--for it's cutting edge science, Evotec garners an undisclosed milestone payment and preclinical and clinical milestones that could exceed a whopping $28 million. (Novartis will also pay royalties on sales of any marketed products resulting from the collaboration.) But in these straitened economic times, that's not chump change either, providing the German biotech with important non-dilutive funding to drive forward its four clinical programs--including EVT 201, a partial positive allosteric modulator (pPAM) of the GABAA receptor complex for the treatment of insomnia. Jorn Aldag, president and CEO of Evotec, positively bubbled in a press release announcing the news: "We are excited to be leveraging our drug discovery expertise with such a world class company."

Cephalon/Alkermes: Cephalon and Alkermes parted ways on the future prospects for Vivitrol, a monthly injection for alcohol dependence launched in 2006. Alkermes announced Monday that it had acquired full commercialization rights to the extended-release injectable suspension formulation of naltrexone. The deal was nearly a wash for both parties: Cephalon will pay Alkermes $11 million to cover losses related to the product over the next 12 months, while Alkermes will transfer $16 million to the Bristol, Pa., firm to purchase manufacturing equipment. With its strong cash position--Alkermes has nearly $426 million in cash and cash equivalents currently--the company says it plans to continue marketing Vivitrol on its own, with a 12-month commercial strategy of increasing utilization among doctors who already prescribe the drug, streamlining product access and reimbursement, and enhancing continuity for patients transitioning out of the treatment setting. But driving adoption has been difficult, in part because historically the problem has not been recognized as a treatable disease. Alkermes' VP of Corporate Communications Rebecca Peterson puts it this way: "Standard operating procedure was not to use medication [to treat alcohol dependence]; that is changing over time." But even if doctors and payers are more willing to entertain the idea that alcohol addiction can be treated with a pharmalocologic agent, it's likely Alkermes will need every person on the 70 person Vivitrol commercial team it now controls--especially the 55 sales reps--espousing the message at detox centers in order to boost prescription sales. In "The Pink Sheet" DAILY, Peterson admitted that Vivitrol sales have not been "as robust as maybe we had originally expected," adding that the product's main challenge was not in the areas of reimbursement and payer acceptance.

NitroMed/Archemix: To be fair, this really ought to be characterized as a "No Deal?". News surfaced this week that Deerfield Management aimed to scupper Archemix's proposed reverse merger with struggling NitroMed by launching it's own bid--at a whopping $0.50-a-share-price--for the troubled Lexington, MA-based company. In donning the mantle of "black knight," Deerfield's managing partner James Flynn made of point of telling NitroMed shareholders that it has not been one to "wage contentious public debates." But he also insisted that the proposed NitroMed/Archemix tie-up, which basically exchanged NitroMed's cash and NASDAQ listing for a 30% stake in the newly merged entity, placed Deerfield in an "untenable position." "NitroMed shareholders have been allotted a scant 30 percent of the combined company in exchange for NitroMed's cash," he wrote in a letter filed with the SEC. By Deerfield's calculations, the $0.50-a-share price on the table represents a 200 percent premium to NitroMed's closing share price on Dec. 3. It's also approximately double the price of NitroMed's shares in late October, when the company announced the sale of BiDil to JHP Pharmaceuticals for $24.5 million in cash plus additional payments for product inventory. Deerfield's proposed price for NitroMed represents its own calculation of what the biotech would be worth if it continued to sell off the combo heart medication BiDil as planned and then wound down the company, distributing the cash to existing shareholders. Certainly, the news comes at a time when many private biotechs are looking at potential shell companies such as NitroMed as attractive acquisition candidates in order to access non-dilutive cash. Remember Replidyne? But as we've argued in previous posts, even successful companies such as Infinity and MicroMet have been hard pressed to pull off a successful reverse merger event. It's hard to say what's next for Archemix--the company is saying nada publicly about the news. Certainly it could face a tough and very public battle, one that leaves its new investor base less inclined to stick around in a turbulent market. It's possible the company could try the reverse merger route again, with a different troubled entity (We hear Cell Genesys has a lot of cash and little in their pipeline after the official termination of its deal with Takeda). Or maybe Archemix will opt to stay private--there's really no benefit in being public these days anyway--pushing onward with the roughly $20 million it has on hand.

Photo courtesy of Flickr user william kunz through a creative commons license.

Cephalon Learns Some Old Tricks to Protect Old Products

You can’t teach an old dog a new trick. But some recent product lifecycle management strategies by Cephalon suggest that you can teach a maturing company some old tricks to save old products.

It is probably a sign of Cephalon’s advancing age (passing the 20-year milestone in 2007) that the company is now at the stage where strategies to combat loss of exclusivity are as important as new product development.

It is employing some clever strategies: not exactly new but aggressively executed.

The first strategy uses pricing to create niches for new products and to lengthen the tail of a franchise. Specifically, Cephalon is using high, pre-expiration price hikes to create attractive slots for follow-on compounds and, intriguingly, for its own generics. (See here).

Two examples demonstrate Cephalon’s approach: Provigil (modafinil), the company’s current flagship product heading toward loss of exclusivity in April 2012; and Actiq, which began facing generic competition in the third quarter of 2006.

Cephalon has begun taking big price increases on Provigil (12% in August). The company’s investor relations VP, Chip Merritt, told an investment meeting earlier this month that that increase is just the start. “You should expect that we will raise Provigil prices to try to create an incentive for the reimbursers to preferentially” move to the next generation product, Nuvigil (armodafinil), which has been approved by FDA but not yet launched.

Similar price increases on Actiq in the two quarters prior to the start of generic competition for the fentanyl lozenge created room for another oral dosage form, Fentora.

But it also, created an opportunity for Cephalon to introduce its own "authorized" generic at a price that the company found attractive. Having three products in the oral fentanyl field (Actiq, Fentora and a generic) has permitted Cephalon to maintain a franchise at about $120 million per quarter since Actiq lost exclusivity. That’s higher than the quarterly sales that the company had from Actiq alone prior to its pre-expiration price hikes.

The second strategy of Cephalon’s young adult period is to find alternative exclusivity protections for a recently introduced product. That may, technically, be more of a product development strategy than protection of an aging product, but in Cephalon’s case, it was a way to take an old product (with thirty years of experience in Europe) and make it a new product with five to seven years of exclusivity (See "Wacky World of Generics: Treanda Edition").

The product is Treanda (bendamustine). Approved earlier this year for the first time in the US, the product treats an orphan indication (chronic lyphocytic leukemia – 15,000 new cases per year). The orphan indication gives it seven years of exclusivity for that use. But Cephalon has other plans for the product, so the company has found another form of exclusivity – and this is the clever part. As an old compound, it does not have a listed patent in FDA’s Orange Book. That means that there is nothing for companies who want to challenge the patent to challenge. That could lead to up to six and a half years of effective protection for the product.

Cephalon is performing its tricks well. The company just needs to pay attention to the patients using its products and regulators and payers who may develop an attitude towards the company that could come back to haunt it. When the company took the aggressive Actiq price increases, the web began to fill up with plaintive accounts of cancer patients trying to afford the medication. Too much of that and it won’t matter how long the company is able to stretch the life of products.

The Fentora Rejection (Part II): Primacy of Postmarket Plans

Cephalon’s tough advisory committee review on May 6 for the expanded indication to non-cancer breakthrough pain for Fentora (fentanyl buccal tablets) illustrates the new realities of FDA's postmarket controls and the need for drug sponsors to present a clear picture of the future use for their medications–or face the reality that there won’t be future use.

Cephalon's drive for the Fentora added indication was rejected by the advisory committee; the company hopes to have another shot by working with FDA to effect an acceptable risk management program.

Cephalon went to the advisory committee well armed to defend the product 's use in a new patient population. The company had data on four Phase III studies in non-cancer breakthrough pain encompassing 941 patients with that type of pain.

The company pointed out, in fact, that a noticeable gap exists in approved treatments for this category of breakthrough pain; and, that prior to their development work, there was a paucity of studies specifically aimed at the indication. “To date,” the company told FDA, “no medication has been systematically evaluated in clinical studies or approved by the FDA for the management of breakthrough pain in patients with chronic persistent non-cancer-related pain.”

Yet, the combined FDA advisory committees (Anesthetic & Life Support Drugs and Drug Safety and Risk Management) did not want to hear about the clinical trials. They wanted to focus exclusively on the postmarketing controls for the product: current and proposed.

And when the committees looked closely at Cephalon’s postmarketing controls, they found Cephalon’s current controls wanting (permitting about 80% of current use to occur off-label). The committees further found recent and proposed improvements to postmarketing controls not convincing.

The focus on postmarketing controls (aka risk management/minimization plans) provides a clear picture of the extent of interest that FDA is likely to show about postmarketing plans for products coming to the agency for initial approval, for significant label extensions (like Fentora) and, in the near future, for approved products forced back to the agency after approval for postmarketing re-reviews.

According to FDA’s new authority from the FDA Amendments Act (FDAAA), the agency is scheduling specific dates for checking back on the success of post-marketing controls on approved products.

That’s part of the “evaluation” process in the new Risk Evaluation and Mitigation Strategies process called for by the new act--the next generation name for risk management programs. This form of re-review is essentially what happened in the case of Cephalon’s non-cancer pain indication, making Cephalon's experience a good advance lesson in what these look-backs will be like.

FDA has begun setting look-back deadlines for a number of recent approvals: GlaxoSmithKline’s Treximet, UCB’s Cimzia; Biovail’s Aplenzin, and a new indication for GSK’s Advair. (See “The REMS Era Begins: FDA Applies Soft Touch with New Drug Safety Tools”.)

These scheduled reviews of real-world experience with approved products generally will begin to occur about a year-and-a-half after approval. Mark your calendars: a lively season for these FDA look-back reviews on drugs is set to begin about the end of 2009, just when the next administration's FDA will be comfortable and settling in to full stride.

One of the scary points from Cephalon’s May 6 experience is that the company is not a novice in the risk management field. If any company should have been ready for an advisory committee focused on risk management. Cephalon should have been it.

The company has had experience with formal risk management plans for almost ten years since the approval of Actiq (fentanyl lozenge) in 1999. Cephalon even avows the mantra of risk management: that it is an ongoing and always changing process. Good risk management plans, according to that view and Cephalon's espousal of the language, entail controls and evaluation and then further controls and further evaluation. Good risk management is a repetitious process of refining and improving product control programs.

FDA described the analysis of Cephalon's risk management plans for Fentora as the clear focus of the May 6 meeting. The agency advised the Fentora committees that the key decision it was seeking was assurance that Cephalon had workable plans to “prevent, monitor and intervene” in cases of misuse or abuse.

Because the company already has first-generation risk management programs in place for Fentora, the discussion naturally turned to how those plans are working as well as how likely they will be to succeed with a larger pateint population.

Cephalon CEO Frank Baldino attempted to put the post-market focus of the May 6 advisory committee meeting in the best light possible. He maintained that the meeting focus on post-marketing controls indicated that the efficacy of Fentora is not an issue.

“I was very pleased,” Baldino said after the meeting, “that there was no discussion with the agency or even the panel for that matter regarding the registration studies that were submitted for approval. Clearly the designs of the studies were sufficient from a registration perspective.”

But as pleased as Baldino professed to be with the status of clinical work, the company faces an uphill climb to the new indication. And the rest of the industry should worry with Cephalon about that challenge, watch closely how Cephalon responds, and learn from it. (See “The New World for New Drug Approvals: Evolution in Strategies for Getting FDA Drug Approvals”).

Cephalon apparently could see problems coming in advance of the May 6 meeting and actually made some drastic last-minute revisions to its plans to demonstrate an increased seriousness and commitment to restricitng the use of Fentora.

In the weeks before the advisory committee meeting, the company cut back on the proposed physician market for the product substantially.

In briefing materials prepared well in advance of the meeting, Cephalon said it would commit to restrict detailing to about 17,000 physicians and limit promotions to 30,000. That would limit commercial efforts to doctors who specialize in serious pain management, the company said.

“These physicians regularly prescribe both long-acting and pure short-acting opioids, and treat a significant number of the subgroup of patients with chronic pain and breakthrough pain for whom Fentora would be indicated.” The company was ready to track the product, collect information and “ensure that growth is managed” for the first 18 months after approval of the expanded indication.

By the time of the meeting, however, the company was ready to tighten those restrictions. The company told the advisory committees that it would restrict detailing for one-year after the approval of the new indication to the 6,000 physicians who have already been prescribing the drug (to approximately 20,000 patients).

The company’s chief medical officer Lesley Russell made the commitment in a presentation on May 6. If, after a year, “no issues are identified, we will, in consultation with FDA, expand the detailing to an additional 6,000 patients and repeat the exercise. We will not expand the detailing of Fentora to beyond the maximum 30,000 physicians,” Russell said.

That’s a significant tightening of control over the product: one that would clearly make it tough for the company to meet previous predictions to the investment community about 15% growth for the product.

During a post-mortem conference call after the May 6 meeting, one analyst asked whether the company still had hopes for the 15% growth based on the advisory committee rejection. The tougher question is whether Cephalon could have produced the growth from the product if their voluntary restrictions are approved. Baldino skipped answering the status of previous growth projections and told the analyst that the company would be discussing the risk management plans and controls with FDA.

But even the eleventh-hour proposal to be more aggressive with its limitations on detailing and promotion was not immediately acceptable as a route to the expanded indication.

The problem: the company has not shown very much success to date controlling use of the product by those same 6,000 prescribing docs. Those are the docs who have been using the product off-label up to 80% of the time.

As part of its efforts to convince FDA to permit the extra indication, Cephalon also submitted a revised program called COVERS (Controlled Voice Enrollment Registration System) about one-week before the advisory committee. It was too late, however, in reaching the agency to get a thorough review by the advisory committee.

FDA took a harsh view of the company’s success with the initial risk minimization program from September 2006. “Based on our review of the post-marketing experience with Fentora,” the agency wrote in advance of the advisory committee meeting, “we do not believe the RiskMAP has been effective in minimizing the risks it was developed and implemented to minimize.”

FDA further does not feel that the company has followed up adequately on its original RiskMAP commitments. The company has “never submitted information that interventions and/or adjustments were proactively considered or instituted to address RiskMAP goal failures.”

Cephalon got a thorough review of its experience with Fentora because the company wanted to parlay off-label use into a new indication. One advisor to the company, University of Utah anesthesiology professor Perry Fine, MD, noted the high off-label use as evidence of the medical need and called the absence of the indication for non-cancer patients “not sustainable.”

The company, however, found out that the high off-label use can be a damaging piece of evidence if a prerequisite for getting FDA approval is actually showing that you can control your product in the postmarket.

That highlights at least one message that other sponsors should take from the initial Fentora rejection: be careful about using current use patterns as evidence for more favorable labeling. Those arguments can just as easily backfire.

There is a second, broader message: be prepared for FDA reviewers and advisory committees that are focused on the specifics of limiting real-world use of a product to proposed patient populations. Not every company will face it to the same extent as Cephalon; but every company should be aware of the new barrier to approval.

Cephalon's Fentora Rejection: The Challenging Environment

Cephalon CEO Frank Baldino’s characterization of the May 6 FDA advisory committee review of Fentora (fentanyl buccal tablets) as “challenging” is a masterpiece of understatement.

Here is the crux of Baldino’s post-mortem on the failed attempt to get a major label expansion for the pain control product from the current limitation for breakthrough cancer patients to more generalized breakthrough pain patients: Cephalon was not surprised by the 17-3 vote against an expanded indication in the current cautious approval environment at FDA, according to Baldino.

Although we're disappointed,” the CEO declared, “we're not surprised in the results.” Cephalon recognize[s] that it faced a panel “at this challenging time with the FDA” with an application for a “challenging subject.”

How “challenging?"Well, the fundamental dichotomy between the company’s interpretation of current use patterns for the drug and FDA’s is about as far apart as any sponsor can expect to face.

Cephalon felt that extensive off-label use of the product in the marketplace (up to 80% of the drug use going beyond approved patient populations) would convince FDA of the real-world demand for different labeling. Cephalon’s application embodied the logic of those advocates who believe that the medical community and a lightly controlled medical market will get the best medicines to the appropriate patients.

Showing how far the regulatory system is moving away from those arguments, FDA said that the existing prescription patterns for Fentora do not indicate demand; instead they demonstrate that the company cannot control appropriate use of the product—a drug which relies on an active ingredient with a very tricky, narrow therapeutic range.

The agency’s internal reviewers had harsh words for the company about its existing attempts to control use of the product. A new risk management system based on spoken acknowledgments of risks and appropriate use to permit prescribing (by physicians) and receiving prescriptions (by patients) was submitted too close to the date of the advisory committee for FDA or its advisors to give it full consideration.

How’s this for FDA’s introduction to a request for expanded use? The agency told its advisory committees (two were combined for the Fentora review) that fentanyl can quickly be lethal in kids and the elderly, so it will demand an effective risk mitigation program.

And, the agency is changing the environment in some other important ways. Its advisory committees are getting tougher.

To judge the Cephalon request for an expanded indication, the agency assembled a group of advisers who were anything but sympathetic to the drug sponsor and wider use of the product.

When the Cephalon team got up to support the expanded indications, they faced a committee that included Public Citizen’s Sidney Wolfe, MD (right), as a “temporary voting member” of the Drug Safety & Risk Management Committee, which met with the Anesthetic & Life Support Drugs Advisory Committee on Fentora on May 6.

For Cephalon and the rest of the industry, the recruitment of Wolfe creates, as Baldino so gently puts it, a “challenging” time.

Wolfe is legendary in the drug industry and has embodied persistent and effective attacks on the industry for over 30 years in Washington as the indefatigable voice of the Nader movement in health care from the 1970’s. Now the agency has brought him into the fold to act as an official advisor. Wolfe was a “temporary” member at the May 5-6 meetings.

The word among FDA observers is that industry will be seeing Wolfe more frequently on the agency side of the table at advisory committees.

Wolfe has been a frequent public speaker at advisory committees as an outside commenter over the years. Politically, he would be an astute selection as a permanent member. He would bring immediate credence and credibility to the first wave of the agency’s risk management decisions following the new FDA Amendments Act. As part of FDA’s advisory committee team, Wolfe can push the agency to use its new tools aggressively. If his opinions are built into the standard risk management reviews, then his concurrence should shield the agency (and drug sponsors) from further criticism.

And Wolfe performed right to form at the Fentora meeting. He engaged a top FDA official in an unofficial colloquy at the advisory committee meeting on how the agency can and should use its new post-marketing powers to correct prescribing practices: for current drugs and future uses. (For further coverage see "The Pink Sheet").

The agency clearly intends to take the development of more effective post-market control programs more seriously. They are not going to be shy about demanding tighter control of products in the post-market. And they are going to get advisory committee members who agree with them on that authority.

Baldino calls the situation “challenging.” It may be more accurate to call it a sobering look at the future for drug sponsors.

Ouch. The Pain of Pain

The wheels grind slowly but they sure do grind.

After four years of legal wrangling, this morning, Purdue Pharma--one of the biggest private drug companies in the US--and three top executives pled guilty in Virginia court to mishandling the pre-2001 promotion of Oxycontin, the company's blockbuster pain drug. The punishment: $600 million.

Purdue can afford the settlement; it won't lay off anyone, apparently. Except its own top management--the company's president Michael Friedman, one of the executives pleading guilty--is getting the boot and, according to the New York Times, an $18 million fine; likely to follow is chief legal officer Howard Udell, who also pleaded guilty (and, says the Times, is on the hook for $9 million). The final misdemean-er--former research head Paul Goldenheim--left Purdue in 2004 for Transform Pharmaceuticals, which was sold soon after. He'll owe $7.5 million.

The settlement is bad news--potentially really bad news--for other companies in the pain space, in particular Cephalon and Endo. Both of these public companies are being investigated for over-aggressive promotion. If those two companies end up with a settlement anything like Purdue's--and federal and state attorneys are likely to feel pretty good about their chances, given the success of the Virginia US attorney--the picture won't be pretty.

Purdue itself, leaderless now, will drift. The company's hired Russell Reynolds to do a CEO search, but no one's looking forward to that one. Friedman, the first non-Sackler to run Purdue, had spent 20 years building up the trust of the family, hardly an easy group to work for. Indeed, talk about an insider board: Purdue's has members: the 90-plus year old founding brothers, Mortimer and Raymond Sackler; their wives; and the founders' four adult children.

They could bring in an internal candidate--like Ed Mahony, the current CFO, a savvy finance guy who's managed to keep enough cash to pay the fines. Or they could bring on someone from one of the international affiliates. Possibles: John Stewart, a long-time employee who manages the Canadian, New Zealand and Australian businesses, or--less likely given his shorter tenure--Ake Wikstrom, the GM of Munidpharma in Europe.

But no Sackler is likely to step in and settle all this hash. None of the 2nd generation Sacklers have ever managed the company. When times were good, the family rejected many offers to buy the business, or take it public. Now that times are really bad--and now that the family doesn't have a CEO they can depend on--they may just decide enough is enough.

In fact, the whole scandal could really be laid at the doors to the family's often empty offices at Purdue's headquarters: though they approve decisions, they let others watch what is a deceptively simple business. In selling addictive pain drugs, there are lots of complex details to follow. For too long, Purdue's management didn't recognize them; neither did its board.

That complexity colors the benefits of the whole pain strategy. Purdue, like Cephalon and Endo, are in the pain business because they can minimize R&D risk with high-margin reformulations of old and effective pain drugs. But there's no free lunch: the risk they avoid in development they run in the marketplace selling opiates.

Already, many pharma companies--AstraZeneca and Pfizer being two recent examples-- are being roasted for promotional improprieties. With Purdue's blood in the water, the legal sharks aren't likely to grow any less hungry.