DotW: The Rumorville

Pssst! Did you hear that Elan is up for sale? Probably, since it's hardly a secret that the company has been up for grabs since the start of the year, when the Irish biotech hired Citigroup to conduct a review of its business.

On Wednesday, CEO Kelly Martin added fuel to the rumor fire when he spoke at a Goldman Sachs healthcare conference, suggesting a strategic transaction "in the near term" was in the offing. "A lot of people are interested in talking to us," Martin said.

But as we all know talk is cheap. And talk certainly hasn't resulted in a deal with either BMS or Pfizer to date--two pharmas that have in recent weeks been rumored buyers of the perpetually troubled company.

Has Martin's bravuro performance assuaged investors or Elan's board? It doesn't look like it. On Thursday, Reuters reported Elan decided to forgo the proxy fight and nominated two dissidents to the board. (Perhaps Elan's board learned something from the recent experiences at Amylin and Biogen Idec?)Interestingly, Jack Schuler, cofounder of Crabtree Partners and a vocal critic of Martin, is one of the candidates. The annual meeting, scheduled for July 16, promises to be very interesting doesn't it?

What other rumors surfaced this week? Sanofi board members may have nixed a big acquisition according to Les Echos, after major shareholders rejected the planned purchase as too risky. Or maybe not. A Sanofi-Aventis spokesman said the company "formally denied" that a major acquisition project in the U.S. had been presented to the board. (Denial is a river in Egypt, right?) Wasn't it just one week ago that Sanofi's stock was on an upswing as people speculated the company had its eyes on partner Merck's shares of the animal health biz Merial?

And now that the FTC has come out against the 12-14 year exclusivity period for follow-on biologics, rumors are, of course, flying about what's actually feasible. Still think it's possible to get a proposed pathway for FOBs into the healthcare reform legislation happening this summer? According to "The Pink Sheet" DAILY, FDA is likely to be a critical player in this ongoing drama's next act. Will the agency testify before Congress or write a letter supporting a FOB approval pathway? Alternatively, will the agency adopt a cautious tone, much the way the Bush FDA chief medical officer Frank Torti did last September when he warned in a letter to Congressman Pallone of serious questions associated with the approvability of follow-on biologics? (Washington types, what are you hearing through the grapevine?)

Do you have Clorox wipes, Purell, and surgical masks handy? (For you DIY types, eHow.com notes that while pre-fab surgical masks exist, "sometimes it’s more fun to make your own." Somebody has got to get out more.) After weeks of rumors, the WHO finally pulled the trigger and raised the pandemic alert level to 6 (on a six-point scale), the first time in 41 years. What does the new alert level mean? Nothing radically different in the US, where public health specialists and the CDC put pandemic preparations on the front burner some time ago. (I know. You were secretly hoping for an updated color coded warning system ala the Homeland security threat notices weren't you?)

As you mull the events of the week, here are some items that are far from rumor. Your "just the facts, ma'am" analysis, courtesy of IVB's resident Sgt. Friday and...

Merck/Xenon Pharmaceuticals: So much for being distracted by its take-out of Schering-Plough. This week, Merck announced a small deal with privately-held Xenon Pharmaceuticals in the CV space. In what is now becoming de rigueur in the industry, this pact is a low money down (but certainly better than no money down), option-style arrangement that initially provides Xenon with research funding related to the development of its small molecule compounds. Xenon will perform validation studies using its clinical genetics platform, as well as drug discovery for those targets selected by a joint steering committee. Under the terms of the agreement, Merck has the option to exclusively license targets and compounds from Xenon for development and commercialization. In return, the biotech also stands to receive option-exercise fees, and milestone payments tied to research, development, and regulatory progress. Unlike other biobucks deals, milestones aren't sky-high: totaling up to $94.5 million for the first target and up to $89.5 million for each subsequent target selected for drug discovery. In addition, Merck will pay Xenon undisclosed royalties on sales of products resulting from the collaboration. Of course, Xenon retains the right to develop and commercialize certain compounds for which Merck does not exercise its option. Simon Pimstone, CEO of Xenon, waxed poetic in an over-the-top statement announcing the news. "We are very excited to be collaborating with Merck to define new therapeutics in the area of cardiovascular diseases," he said. "With this deal, Xenon is continuing its strategy of risk mitigation by select partnering, while retaining ownership of other programs." (What else was he going to say? "We wanted more money upfront, but we couldn't get it." That would have gone over well with Xenon's existing backers, which include MX Associates, LipoteRx, and Invesco Private Capital.) In truth, the deal probably is a big step forward for Xenon, which hasn't raised money since it pulled in $31 million in private financing in 2006, and hasn't inked a deal since late December of the same year, when it signed a pact with Roche worth $7 million up-front for its anemia inhibitors. Merck, of course, could use an infusion of innovative CV medicines. The drug maker suffered a major setback last week when it announced that preliminary results from the Phase III study of its highly touted rolofylline for acute heart therapy failure did not meet primary or secondary efficacy endpoints. In a note to investors, Sanford F. Bernstein analyst Tim Bernstein noted the setback represented a "psychological negative for Merck." (You think?)

Genentech/Bayhill Therapeutics: Genentech announces a deal and the whole world sneezes. Not really, but we do sit up and take notice. Genentech is definitely not one of the most active deal-makers in the industry; it's focus is typically on access to new technologies or compounds that bolster it's on-going work in cancer. For examples, recall last November's arrangement with Thermo Fisher Scientific for RNAi design and the October 2008 pact with GlycArt. Moreover, this is the first in-licensing deal announced since Roche took the big biotech private, providing an early glimpse in what to expect from Genentech biz dev now that it is a wholly owned subsidiary. (You'll be able to glean even more if you read the upcoming June IN VIVO.) As is typical for most BD deals involving Genentech (unless it's Genentech being bought), there's not a lot of money on the table: just $25 million and that includes an equity stake in the smaller biotech. (There are, of course, the requisite bio-bucks, which could bring privately-held Bayhill another $325 million in the product hits certain sales and regulatory milestones.) Interestingly the deal, which is focused around a Phase I/II compound called BHT-3021, seems to move Genentech into a new direction: type 1 diabetes. '3021 is a DNA-based immunotherapy designed to protect against an inappropriate immune response that triggers the destruction of insulin-producing islet cells. In an interview with "The Pink Sheet" DAILY, Genentech's head of business development, Joseph McCracken explained why the Big Biotech was interested in the compound: "The mechanism of action suggests that it could actually impact the underlying cause of type 1 diabetes, truly be disease-modifying, [instead of] just treating symptoms," he said. Under the deal, Bayhill will complete ongoing clinical work with '3021, to be reimbursed by Genentech. At that point, Genentech will assume all development, manufacturing and commercialization work for the compound, advancing '3021 through Phase II before handing the program over to a joint global development organization that will be managed by execs coming from both Genentech and Roche. Apparently Genentech had been interested in Bayhill's technology for quite some time--long before Roche's bid for the company came to fruition. McCracken's team brought the deal to Roche, explained why it was excited about the science behind '3021 and made the case that Genentech was in position to close the deal. The money should help Bayhill fund the rest of pipeline, including lead program, BHT-3009, a Phase III candidate for multiple sclerosis, and may spark additional deal-making. (If Genentech thinks the immunotherapy technology is a "go" will other Big Pharmas comes to the same conclusion?) That's important--the small company tried to go public last year but ultimately pulled its IPO due to market conditions. To date, it's raised an estimated $63 million in venture funding from backers including, Morgenthaler Ventures and Lilly Ventures.

GlaxoSmithKline/Shenzhen Neptunus: How many buzz words can we include in the write-up of this deal? This week's joint-venture with China-based Shenzhen is noteworthy despite its modest deal size because it seems to bolster the Big Pharma's vaccine distribution network in an important but opaque emerging market at a time when there is renewed fear about the global spread of swine flu. (How's that?) In addition to a cash infusion totaling roughly $30 million, GSK will provide the joint-venture with leading-edge vaccine technology and equipment. Stephen Rea, a spokesman for GSK, told sister publication PharmAsia News that the J/V should be operational by next year. "It might take a couple of years to begin producing vaccines at the joint venture," he explained, noting that the initial focus will be to produce a seasonal flu vaccine, but the outpost could also be used to generate a defense against swine flu. The J/V seems likeley to become a lifesaver for Shenzhen Neptunus, which produces vaccines, and recombinant human proteins, including interferon and interleukin-2. The firm has been fighting to stay afloat, hit hard by earnings losses, and the halt in March of production of its influenza vaccine. In a report submitted to securities regulators at the Hong Kong Stock Exchange--where the firm's shares are listed--Neptunus execs stated that the biotech outfit posted a loss of RMB 5.089 million for the first quarter of this year, compared with a loss of RMB 1.498 million for the corresponding period of 2008. Neptunus also revealed in the report that the Good Manufacturing Practices certification for its interleukin-2 facility had expired, and that to meet higher regulatory standards established by China's State FDA in 2008, they would be forced to make a significant investment into upgrading production.


CSL/Talecris: Ever since the Federal Trade Commission filed a complaint in late May to halt the proposed $3.1 billion deal between CSL and Talecris, a break-up has seemed in the cards. Realizing it didn't have the requisite hand to call FTC's bluff, CSL folded this week, shelving its planned acquisition of P-E backed Talecris, saying it was not worth the money and time to battle the agency in court. In early June, CSL's CEO Brian McNamee offered strong words in protest to the FTC's complaint that the proposed tie-up, which would have created the largest maker of blood plasma products, was not anti-competitive. But despite initially signaling that it would challenge the commision in court, CSL had a change of heart in the intervening week, announcing June 8 that it would pay Talecris a $75 million break-up fee. "CSL's Board of Directors did not believe that entering into a protracted litigation process with the FTC, with its inherent risks, substantial costs and lengthy distraction of CSL management and staff from planning and running our businesses would be in the best interest of our shareholders," said McNamee. That $75 million is likely cold comfort for Talecris and its private equity backers, Cerberus Capital Management and Ampersand Ventures. Back in 2005, Cerberus and Ampsersand put up the capital necessary to buy Bayer's plasma business and found the company, which was originally known as NPS Biotherapeutics. Talecris, which has roughly $1.4 billion in revenues, markets Gamunex, an intravenous immunoglobulin. The company was in the throes of attempting to go public when it pulled its IPO because of CSL's lucrative $3.1 billion offer last August. Because of the specialty pharma's lucrative revenue stream, the company is still a viable acquisition target but the question is who might be interested in picking it up. Bayer and Baxter, the other major players in the plasma market, are out of the running since they would generate the same FTC concerns as CSL. We suppose another private equity group or a big pharma company looking to diversify might make a bid. Alternatively, the company could be one of the first to test the IPO waters.

Image by flickrer Pricklebush used with permission through a creative commons license.

How Close Avastin Really Came To Adjuvant Colorectal Cancer Use

Six events. Six additional cases of recurrence out of the 2,710 patients being treated in the C-08 trial of Roche/Genentech’s Avastin in adjuvant colorectal cancer, and there would have been an entirely different outcome.

Six more cases at the interim look and everyone would be using Avastin in adjuvant colorectal cancer patients. That’s how close the study was to meeting the early-stopping rule at one year, lead investigator Carmen Allegra said at Roche/Genentech’s on-site ASCO analyst event.

To be sure we hit this home hard enough: if just an additional six events had occurred at the one-year interim look, than the trial would have been stopped early. As the full analysis of data presented at ASCO made clear, at one year (not coincidentally, the time period that patients received bevacizumab), there was a significant benefit for the drug. A 40% advantage, to be precise. Lots of zeroes in the p-value to make the statisticians happy. More than enough benefit to drive utilization even before FDA approval.

Contrast that to the actual end of the study. At the pre-specified three-year endpoint, when there were 603 events, disease-free survival had dropped out of significance. The end result for Avastin was 77.4% versus 75.5% for chemo alone. But the eventual failure is old news, previewed in April and heard round the world.

The study investigators, and Roche/Genentech executives, were very keen on the one year results in unveiling the full dataset from C-08, stressing that the drug was extremely effective while being given and it was only after bevacizumab was stopped that the benefit diminished. Their take-away was that more study was needed with a longer duration of treatment with bevacizumab.

That’s not to say there wouldn’t have been valuable and appropriate questions raised about long-term tolerability and about the level of benefit versus alternatives and about the cost-effectiveness. However, it’s awfully close to taking what was ultimately a negative trial and finding it instead to be a runaway success based on an interim peek.

What the experience does show is exactly why long-term follow-up is important (both to see whether there’s a spike in hypertension, or hey, that benefit seems to disappear pretty quickly). It also underscores the value of designing a trial for a more clear-cut look at overall survival, which wouldn’t leave us with the potential variability from the disease-free surrogate. It’s also much harder to make a cost-effectiveness argument when you have data in hand to show that lives are saved.

For more on the implications of the C-08 data release, including the potential to establish Avastin as adjuvant therapy in other cancers (and possibly still colorectal), and the potential need for caution given tolerability and cost concerns, check out this week’s “The Pink Sheet” here and here.--Mary Jo Laffler

image from flickr user Shovelling Son used under a creative commons license

Deals of the Year Nominee: Infinity & Purdue/Mundipharma

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

Absent irrationally exuberant markets or dilution-friendly capital structures like the R&D Limited Partnerships and SWORDS of the 1980s, it’s virtually impossible to build a self-sustaining biotech without a Big Brother, contends Infinity CEO Steve Holtzman.

There’s thus a certain satisfying continuity in the fact that just a few months after Roche decided to end the most successful Big Brother relationship in pharmaceutical history by bidding to buy out Genentech, Infinity signed the latest incarnation of that legendary idea: a tie-up with the two Sackler-family owned private companies, US-focused Purdue Pharma and European-focused Mundipharma (see the transaction record here and our “Pink Sheet Daily” write-up here).

In return for what could be nearly 38% of its stock and the vast majority – ex-US – of its pipeline, Infinity bought probably five years of freedom from worrying about Wall Street -- enough money for both its discovery and clinical programs -- while retaining, like Genentech, the entire US market in which to create a commercial presence.

The most advanced compound in this enterprise: Infinity’s Phase I hedgehog cell-signaling pathway inhibitor, originally developed in a deal with MedImmune, then returned following MedImmune’s acquisition by AstraZeneca, which was developing a competing hedgehog program. (A few weeks after it signed the Purdue/Mundipharma deal, Infinity improved its position even more by bringing back from AZ its latest stage program, the Phase III injectable HSP-90 inhibitor IPI-504, as well as that drug’s younger brother, a Phase I oral compound, IPI-493 – drugs to which Infinity now owns all rights.)

But we don’t expect this deal to be much copied. The spec-pharmas Purdue and Mundipharma have no discovery programs to protect and Mundipharma has only a single cancer product in its portfolio: there should be no significant jealousies from internal R&D; no desire to interfere. Indeed, the deal is specifically not a collaboration, Infinity CSO Julian Adams points out: as Genentech has been with Roche, Infinity will remain a completely separate operation from its new affiliate.

That’s a rare situation for most companies that can afford a deal of this size (up to $75 million in equity by early 2009; another $200-400 million in R&D support; and a potential $72.5 - $100 million in warranty conversions). Indeed, one reason Roche is buying out Genentech is because it feels it can now do pretty much what Genentech can do – so why pay the royalties and other costs of maintaining an independent R&D and commercial infrastructure? Moreover, the Sacklers have no need to show investors regular profit growth – at Purdue and Mundipharma, they’re the only investors that matter, and they’d prefer the tax breaks from the R&D expense to a nicely upward sloping EPS line.

That’s because the Sacklers know Purdue is living on borrowed time. It was granted an almost magical but limited-term respite from generic attack after first losing exclusivity on its most important product, Oxycontin, and then regaining it in an utterly unexpected judicial reversal of the original ruling (See an in-depth “Pink Sheet” review here). But the drug will go generic again – no later, and possibly earlier, than 2013, just in time for the first of its Infinity products to hit the market.

So who else -- absent a Big Pharma's sudden and shocking conversion -- could do deals like this? Other private companies (or companies who act like them) – in particular mid-sized European firms and maybe even a Japanese company or two. They’d certainly accept the regional aspects of this deal and – unlike the Big Pharmas – wouldn’t necessarily feel the urge to tell Little Sib how to do its job.

Big Brother, Little Sister by Flickr user Onion and used under a creative commons license.

While You Were Advancing

Despite Saturday's game three hiccup the Fightin' Phils advanced to the NLCS this weekend with a 6-2 win over Milwaukee to cap a 3-1 NLDS victory, taking the sting out of another Iggles loss at the Linc. (Celebrate while you can, Ramsey, St. Louis is tough coming off the bye week ... OK maybe not.)

It's nearly enough to take one's mind off the economic crisis--now spreading even further--and the potential impact that broader financial malady might have on the health care world. For those of you keeping score at home more than two out of three of our respondents agree that the industry universe is shrinking.

While you were dusting off your Beat L.A. signs from 1983 ...

• We get a lot of crazy ideas (support of Philadelphia sports teams can do that to blogger) so we're not normally ones to throw too many stones. But we simply can't get our heads around this 'fast track IPO' proposal described in this Guardian article from last week. Please, anyone, explain it to us. Does this make any sense whatsoever?
• OSI and Genentech report that Tarceva plus Avastin didn't improve survival in advanced non-small cell lung cancer patients better than Tarceva alone, though there was a clear improvement in progression-free survival.
• Genome sequencing is getting cheaper. Harvard's George Church, an adviser to Complete Genomics, the company that this morning announced it could lower the cost of sequencing your As, Ts, Gs and Cs to a cool $5k, called the price "shockingly low." In this economy, George? Call us when we can buy a kit at the Dollar Store.
  
• Biolex this morning bought OctoPlus's 50% commercial rights to the companies' Locteron interferon alfa, which is in Phase II in HCV. Octoplus gets $11mm upfront and up to $138mm in milestones. Meanwhile Biolex also said it raised $60 million in Series D funds in a round led by Clarus Ventures.
  
• Oh yeah. It seems Lilly is buying Imclone. You may have heard about this one. But why do we feel like there's going to be a some sort of Scooby-Doo-esque plot twist at the end of this too-long drama? As of 5a ET still no official word from the companies nor any last minute rubber mask reveals or muttering about getting away with it if it weren't for those meddling kids. Yet. [UPDATE: 7am, and it's official. the deal values Imclone at $6.5bb, or $70/share.]
  

game 2 photo from flickr user nickhall used under a creative commons license.

“Standstill” Agreements Limit Potential Buyout Deals

A month ago, everyone had the same question: which Big Pharma will be the next to buy-out a biotech partner. First, Roche/Genentech. Then Bristol/ImClone. Who would be next?

So far, the answer is: no one.

It turns out that there just aren’t all that many partnership out there where a buyout is in fact an option. We looked at 12 partnerships cited by analysts and other business media as potential partner-turns-into-prey stories, and it turns out that eight of them involve contracts that prohibit one partner from making an unsolicited offer for the other. (The complete list is published in “The Pink Sheet” this week.)

We got the idea thanks to a sharp-eyed reader of the IN VIVO Blog who responded to one of our posts on Byetta. In a discussion of the disconnect between what struck us as a relatively restrained safety alert by FDA and a hyperbolic panic among Amylin investors, we wondered why Lilly doesn’t just buy out its partner if it believes Byetta is safe.

It ain’t that simple.

As we should have known (since our reader helpfully pointed to the citation in our own database), the Lilly/Amylin agreement includes a comprehensive “standstill” provision that prohibits Lilly from trying to buy its partner.

Similar provisions are included in most of the other deals we looked at.

Most, but not all. It turns out Genzyme can buy out BioMarin any time it chooses, and Genentech is free to bid on either OSI or Biogen Idec—though somehow we don’t think that is a high priority for Genentech right now. And Biogen is free to buy its Tysabri partner Elan—presuming it doesn’t mind triggering the change-in-control provisions in Elan’s Alzheimer’s partnership with Wyeth. (And change-of-control provisions, of course, are a story unto themselves though that particular provision isn't one of the industry's most onerous.)

Nor are all standstill provisions created equal. Lilly is prohibited from buying Amylin for as long as the Byetta partnership lasts—and beyond (unless, of course, Amylin decides to negate the standstill). In other cases—like Bristol/Gilead and Wyeth/Progenics—there are expiration dates that come up soon (as in, during 2009). Other partnerships (J&J/Vertex, Wyeth/Elan) also have standstills that expire—but in those cases the dates are tantalizingly undisclosed.

So if you expected a flurry of Bristol/ImClone style deals to keep you entertained this fall, think again.

Thank goodness ImClone thinks it has another bidder. Its much more fun to watch companies running in place than it is to see them standing still.

PS. Click here for a free copy of all of our coverage of Roche/Genentech...

Avastin for Breast Cancer: Progress for Progression-Free Survival?

Most of the American Society of Clinical Oncology annual meeting is a blurry whirlwind of posters and presentations, but one thing is certainly clear: people are still puzzled by FDA’s approval of Genentech/Roche’s Avastin for first-line treatment of metastatic breast cancer.

The approval came in February. Although Genentech had been seeking full approval for additional bevacizumab indication based on the strong progression-free survival results of the E2100 study, FDA took the more traditional option and cleared it under its accelerated approval mechanism. The agency requested the results of the AVADO and RIBBON-1 studies as post-marketing commitments.

ASCO provided the first real look at AVADO. Roche’s study, which used Avastin in combination with docetaxel instead of paclitaxel, showed a modest improvement in PFS. Survival data are not yet mature. (You can read more in “The Pink Sheet” DAILY.)

The data, though, aren’t what people are talking about.

The Saturday press briefing on the highly anticipated, late-breaking study turned into a chance for some of the investigators and breast cancer thought leaders to vent on FDA approval standards.

Progression-free survival (PFS) versus overall survival is a perennial issue for regulators, who are tasked with upholding standards and always keep precedent in mind. PFS is commonly used for approvals in second- and third-line settings, but FDA clings to the gold standard of overall survival for first line indications.

The issue is clearly different for practitioners.

“As a practicing physician,” AVADO lead investigator David Miles said he views PFS as a reflection of the period of time where the disease is controlled and the patient remains relatively well. There is an expectation that the patient is “doing better than if their disease is not controlled,” he told the press briefing.

“We have studies where PFS does reflect overall survival and studies where it doesn’t,” Miles observed. “I think when you have a patient whose disease is well-controlled, there is benefit to that, there is utility to that. Particularly when studies are not powered for overall survival.” None of the Avastin breast cancer studies have been designed for a full survival analysis.

He suggested there are “recurrent problems … in recognizing utility in trials, and perhaps that’s why there is this ambivalence or perhaps uncertainty about what things should be approved on.”

“I don’t think any of us have any question that improvement in overall survival is worth more than an improvement in PFS in the end,” Dana-Farber Cancer Institute’s Eric Winer added. “We are all trying to help people live longer, and a drug that achieves that goal is a drug that we are going to use that much more frequently and has that much more reason to be approved quickly.”

Since it seems unlikely that AVADO will go on to prove a survival advantage, Winer stood by the position that there is intrinsic value in PFS, even if it is only improving quality of life. “With that in mind, I think that it’s fair to say that bevacizumab in treatment of metastatic breast cancer is an advance, but it’s not as big of an advance as it would be if in fact it had changed overall survival,” he stated.

The debate only escalated when the study was presented on Sunday. Breaking from the script of reviewing only the study data and its application, Kathy Albain – a former ODAC member and CDER consultant who filled the role of discussing the AVADO findings – used her time slot to focus on FDA and the approval standards.

She was a staunch advocate for PFS endpoints. “Assuming that there is a real treatment benefit for whatever agent you are testing, I believe that PFS should be accepted as a proper surrogate,” Albain maintained. She pointed out that in metastatic breast cancer in particular, it may never be possible to prove surrogacy for overall survival, given the thousands of patients that would be needed.

Albain took it upon herself to conduct a survey, sending out a questionnaire to a sample of 47 experts. She was overwhelmed by the volume and vehemence of the replies. The clear consensus was that PFS should be considered a meaningful approval endpoint. Getting to “the crux of the matter,” Albain’s group suggested PFS should be used in Phase III trials, but maybe it should be prospectively determined how large a benefit is desired. For full approval perhaps two trials should be required, or perhaps there should be a mandatory cross-over design.

Concluding on a high note, Albain issued a charge for the oncology community and for FDA: to challenge the current methods of study design and approvals. “There is no time like the present,” she said.

-- Mary Jo Laffler

While You Were Proven Wrong

Before we get to the weekend's industry news, a quick correction: Yes, yes, the Flyers-in-5 prediction went down in flames on Saturday, which no doubt gave great pleasure to our colleagues in Washington. But although Flyers-in-6 (or, if needs be, Flyers-in-7) lacks that authoritative margin-of-victory and alliterative mojo that our original prediction had in spades, that's fine by us. And hey, the Sixers' come-from-behind upset of the Detroit Pistons yesterday takes a little sting out of Saturday's loss.

• Distribution of specialty therapies is an increasingly important source of revenue for pharmacy benefit managers like Express Scrips, the New York Times reported on Saturday. But even as employers hire PBMs to get access to lower priced medicines for their benefit programs, the cost of some specialty drugs are going through the roof.
  
• Genentech reported that Avastin in combination with cisplatin and gemcitabine as first line therapy improved progression-free survival in non-small cell lung cancer patients, but did not extend overall survival; that Phase III AVAil study was sponsored by Roche. A separate first-line Phase III test of Avastin in combination with paclitaxel and carboplatin (E4599) showed a statistically significant improvement in overall survival in a similar group of NSCLC patients. Meanwhile, Reuters reports on the challenge that Avastin is getting from Imclone's Erbitux; according to analysts from Morgan Stanley, Erbitux is winning.
  
• Vernalis has monetized a majority of its European Frova royalties in a deal with Paul Capital that has net the UK biotech 18.4 million euros. Our recent take on Vernalis and its Frova-induced coma is here.
  
• Novartis beats the Street, as Diovan and Gleevec bring home the bacon. The Big Pharma's net was up 6.8%. WSJ reports.
  
• And finally ... Pharmalot. Your destination for pharmaceutical-Passover humor.

image from flickr user xhtmled used under a creative commons license.

Genentech Gets Tough: Who is the Target?

How do you crack down on compounding labs without adversely affecting your key customers? That is the tricky question Genentech is grappling with as it tries to shut off the primary source of supply for bevacizumab (Avastin), for ophthalmologic use against neovascular macular degeneration.

An October 11 letter from Genentech to “retinal community” members makes the compounding pharmacies the clear target. “As of November 30, 2007, Genentech will no longer allow compounding pharmacies to purchase this product directly from wholesale distributors,” the company declared.

In response to questions about potential limitations on supply to hospital pharmacies, the company emphasizes that is not taking any action to limit that source of supply. A Genentech spokesperson says there will be no allocations to hospital pharmacies to try to restrict spillage from the use of VEGF in oncology to the ophthalmic markets.

If ophthalmologists want to get Avastin from hospital pharmacies, that route will remain open, a company spokesperson explains.

That makes the October 11 announcement appear to be a surgical strike by Genentech against one class of trade – a class that the company argues has raised quality control issues. Genentech points out that it has the Food & Drug Administration on its side in questioning use of compounded Avastin: a December 4, 2006 warning letter from the agency to the New England Compounding Center; and FDA inspection observations at Genentech which note continued off-label ocular use of Avastin.

But is Genentech really restricting this fight to compounders? By cutting off the supply of the inexpensive ($17 - $50 per shot) Avastin, the company will be moving more of the ophthalmologists to the $1,950 per moth (ranibizumab) Lucentis.

Genentech is shifting a large inventory risk to its customers: the wholesalers and ophthalmologists. The firm says it is not changing payment terms from its current 85-day dating for the product. It could have extended the payment terms to soften the blow of forcing more doctors to the higher-priced version of anti-VEGF treatment. The higher priced product also puts the eye doctors in the uncomfortable position of trying to collect average co-pays in the $400 per month range.

The tough approach to its customers is exacerbated by the context of the extended argument that the company has been having with segments of the ophthalmologic community over the potential for Avastin and the effort from the specialty community to support a comparative trial of Avastin and Lucentis. Genentech has helped to make that trial difficult for the eye doctors and the government to undertake. In the fight, the company has created bad feelings among a number of opinion leaders in the small customer class of ophthalmologists.

The move against compounders also shifts liability risks as well as carrying costs. One close observer of the field says Genentech is making this move to isolate the company from liability and make ophthalmologists fully liable for any adverse events that could arise from using Avastin in the eye.

The observer notes that there is an ongoing study of Medicare macular degeneration claims at Duke (the AWARE study under Scott Cousins) to try to pick up the frequency of untoward events from excessive anti-VEGF from injection in the eye. The study uses date from the Chronic Condition Warehouse database, managed by a Medicare contractor, the Iowa Foundation for Medical Care (IFMC), a Medicare contractor. Genentech claims that Lucentis has been designed as an antibody fragment to bind more specifically in the eye and avoid appearing systematically.

If Genentech can shift Avastin ophthalmic sales to Lucentis, the investment community will be impressed, but the cost might be forcing more financial and liability risk on its customer base.