(Final) Deals of the Year Nominee: Lilly/TPG-Axon/NovaQuest

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.

Aaand, last but not least: It's not just cash-poor biotech firms that need the occasional helping hand to finance their drug development efforts. Even for the likes of Eli Lilly (and, say, Bristol-Myers, which has blazed this particular trail among larger companies), hedging pre-market risk is part of the game plan when cash is becoming more expensive and clinical development and regulatory affairs more uncertain.

In July, Lilly announced an agreement with TPG-Axon Capital and Quintiles Transnational Corp.'s NovaQuest partnering group under which Lilly's partners will pay up to $325 million in development funding for its two lead Alzheimer's disease compounds, a gamma secretase inhibitor and an A-beta antibody, each ready to begin Phase III testing.

In exchange, TPG (which provides the bulk of the capital) and NovaQuest (10% of the funding and strategic development advice) will receive success-based milestone payments and mid-to-high-single-digit royalties on future sales of the two compounds. Quintiles CRO arm will act under a traditional fee-for-service contract. Finally, to sweeten the deal and hedge the risk shouldered by TPG and NovaQuest, those partners will also receive an additional undisclosed royalty on a third, unidentified product that Lilly has out-licensed to a third party. (See our coverage of the deal here.)

Not to show you how the sausage is made, but there was some internal dispute here at IVB over what this deal signifies within pharma, if not its overall importance.

See, on one hand, the deal is forward-thinking and increasingly necessary in a difficult R&D climate; with the cost of capital increasing even for the likes of Lilly and its Big Pharma brethren it allows Lilly the flexibility to take multiple shots on goal in Alzheimer's or other diseases. It's also the first publicly announced deal (we've heard rumors of deals signed but still private) in which a private equity player takes a big financing role in a Big Pharma's development program -- something they've done in small and mid-sized companies (e.g., Symphony Capital) but which Big Pharma has always shunned.

There will now likely be further variations on this theme: former AstraZeneca CFO, now Goldman-Sachs partner Jon Symonds says he's working on putting together a pool of PE capital for developing Phase I and II Big Pharma (and maybe other) compounds, which could be pulled together as soon as January. That structure, incidentally, addresses one of the big problems for PE players (and probably one of the big sticking points of the Lilly/TPG negotiations, which apparently took about a year and a half): how do you put together a marketbasket of enough develop-able compounds to offset the awful odds facing any single on of them. The drug company wants to put as few as possible in the basket; the PE investor wants as many as it can get.

On the other hand, there is something odd about offering deal-of-the-year honors to a Big Pharma company for creative financing to mitigate risk during the year when a lot of people who are supposed to be the experts in this kind of thing are bankrupt, unemployed--or begging the taxpayers for assistance.

And it is especially odd, given that (as we wrote here) Lilly is a model of a Big Pharma company that is focusing on innovative products--rather than diversifying into OTCs or related business like some of its peers. The logic of focusing--that investors want to diversify for themselves, rather than turn their money over to Novartis management to diversify for them--seems to apply here too. Shouldn't Lilly's investors just hedge for themselves, rather than have Lilly management do it for them?

Still, everyone agrees that the deal allows Lilly to shed risk (in return for a smaller reward) in this notoriously difficult therapeutic space in a creative transaction that could prove to be a model for private equity/pharma deals going forward. It's just that we don't agree about whether that's a GOOD THING.

So there you have it--your last IN VIVO Blog Deals of the Year! Nominee. Got it in just under the wire. Why Lilly/TPG/NovaQuest? For the new-model dealmaking, for the sexy private equity angle. For the Controversy!

We'll see you later, at the ballot box.

image by flickr user jacob.theo used under a creative commons license.

Genzyme/Isis’ Mipomersen Development Hits A Snag

Talk about bad timing. You could almost feel sorry for Genzyme signing a $1.9 billion development and commercialization deal with Isis for mipomersen just days before ENHANCE data shook up the long-held belief that lower LDL equals better cardiovascular outcomes.

Mipomersen is based on the same lower-is-better lipid theory, after all. In fact, the drug targeting apolipoprotein B-100 has been shown to reduce cholesterol and other atherogenic lipids by more than 40 percent beyond reductions achieved with current standard lipid-lowering drugs.

Given the uncharted regulatory environment post-ENHANCE, we weren’t surprised to hear that Genzyme and Isis are pushing back their development timeline for mipomersen. IN VIVO speculated as much in February, and sure enough FDA is requesting more data to support an NDA filing than the firms had originally banked on.

The revised development plan calls for filing in 2010, not 2009, for an initial indication in homozygous familial hypercholesterolemia – a rare, orphan drug indication. It is the planned filing for a broader indication in patients with high cholesterol at high risk of cardiovascular events, including heterozygous FH, that could face a more significant delay, until 2012 or potentially beyond.

While FDA has guided Genzyme and Isis that reduction of LDL-cholesterol is an acceptable surrogate endpoint for accelerated approval for patients with hoFH, the agency is requesting two carcinogenicity studies to be included in the filing, rather than the one the firms had been planning to have completed in time for the submission.

For the broader indication, FDA is requesting a cardiovascular outcomes trial, three words that would send a tremor through even the most deep-pocketed big pharma. Outcomes data means long, expensive trials. Take for example Merck/Schering’s ongoing outcomes trial for Vytorin, IMPROVE IT, which is enrolling 18,000 patients with data anticipated in 2012.

Genzyme and Isis management are assuring investors that they can run a significantly smaller outcomes trial given the high-risk patients that will be enrolled, but that remains to be seen.

The one outcome that is clear is that the cost of developing mipomersen just went up.

And that leads to yet another snag: the transaction hasn’t officially closed. It’s expected to this quarter, but before the door shuts on the deal, there may still be an opening for Genzyme to re-negotiate. Both chief execs were less than forthcoming when asked about re-negotiating, which makes us think some changes are likely.

One line item Genzyme might look to gain an edge on is the development costs. Under the original agreement, Genzyme is responsible for paying all but $75 million of the development costs, meaning it would bear the brunt of the outcomes trial.

The deal also includes a pretty hefty upfront payment - $325 million – but the bulk of the regulatory and commercial milestones hedge Genzyme’s risks. Only $50 million of the $825 million in development and regulatory milestones are related to the homozygous FH indication, with the rest of the allotted payments falling to a heterozygous FH indication, a non-FH indication and approval of a follow-on product.

Read more about mipomersen and the latest regulatory setback at “The Pink Sheet” DAILY.

by Jessica Merrill
The Pink Sheet Daily

Investigating the Investigators: Another Headache for Drug Sponsors

This would be a good time for biopharma companies to review their ongoing clinical trials to determine whether any investigators involved in the study are vulnerable to potential disqualification proceedings by the Food & Drug Administration.

All signs point to a crackdown coming from the agency, likely to take the form of a spate of proceedings to disqualify individual investigators from participating in clinical trials.

That in turn means a big headache for any drug sponsors that relied on those investigators in pivotal trials of their drugs—any trial those investigators participated in, not just one that prompts a fraud investigation.

What tea leaves are we reading? How about these comments by the Center for Drug Evaluation & Research’s Office of Compliance director Deborah autor, who told the Food & Drug Law Institute’s annual Enforcement & Litigation Conference yesterday that the Division of Scientific Investigations is “becoming more activist. I think that they are really gaining momentum in what they do from an enforcement context.”

The agency is working on “streamlining” the process involved in disqualifying clinical investigators when FDA uncovers fraudulent or violative practices, Autor said. She acknowledged that the process currently is “Byzantine” and slow-moving—a fact that works to the benefit of investigators facing potential disqualification.

“The agency is working to clean up those procedures,” she told the audience, adding the wry observation that “I’m not so sure this is good from your standpoint.”

Autor’s comments verify the observations of two attorneys sharing the dais with her—Douglas Farquhar of Hymen Phelps & McNamara and Philip Katz of Hogan and Hartson—who sense greater urgency and a tougher stance from the agency in cases involving clients potentially facing disqualification.

A crackdown on investigators accused of fraud would hardly be surprising, given the recent round of hearings and Congressional reports focusing on claims that FDA failed to take action quickly enough to respond to allegations of fraud in clinical trials of the antibiotic Ketek.

We won’t rehash all the allegations here. Suffice it to say that there is bipartisan concern that FDA is not sufficiently vigilant in overseeing the conduct of clinical trials. The debate on the Hill focuses on whether FDA needs new enforcement powers (the subject of the most recent Ketek hearing in the House) or simply needs to use its current enforcement authority more aggressively (as recommended in a report by Republican Representative Joe Barton).

Any move by FDA to step up disqualification proceedings against investigators means headaches for industry.

It's not just the individual accused of fraud or that investigator's clinical center that suffers in a disqualification proceeding, Katz pointed out. “What you then quickly get to is: what do we do with the data that this disqualified clinical investigator has been involved with?”

And it “is not just the data in the study that was the subject that led FDA to the disqualification proceeding,” Katz said, “but also other data with which that investigator was affiliated. That becomes suspect as well.”

In some cases, there may be nothing sponsors can do to avoid the taint—except hope that their clinical trial findings are robust enough to support safety and efficacy even if the investigator’s site is excluded from the analysis of the trial.

But sponsors can also prepare by double checking whether their investigators have been cited by the agency in public inspection documents (known as FDA 483 reports) or, even more critically, in warning letters from the agency. Those are warnings signs that an individual may be vulnerable in an enforcement crackdown.

Autor added that the agency is not relying on enforcement alone, but is working to modernize its overall regulatory approach to clinical trial monitoring.

“The regs, as everybody knows, are outdated and don’t really fit the way trials are done today,” she said. “Hopefully, over time you will see that changing so that clinical trials will really be subject to appropriate regulation for how they are conducted today.” The goal will be “putting the onus on sponsors and monitors to ensure quality in clinical trials.”

That may sound like yet another regulatory burden on drug development (and it is), but if the alternative is a series of enforcement actions that knock out individual trial sites from multiple applications at a time, this may be a case where industry has a lot to gain from moving to a new regulatory model.

"Consensus is not our goal": A Conversation with FDA's Top Drug Reviewer

Drug companies aren't the only ones worried about the sinking rate of new drug approvals. Food & Drug Administration officials are equally concerned over the innovation drought. After all, the number of new drugs making it to market is at its lowest since 1983.

FDA's Office of New Drugs Director John Jenkins, who oversees all new drug applications within the drug center, is especially preoccupied with the lack of results from the drug development process. "We agree that it’s very disheartening that despite the rather massive expenditure of research dollars, we’re not seeing a growth in the number of NMEs submitted to the agency for review," Jenkins says of new molecular entities getting aproved by the agency. "We are seeing a continued growth in the number of new commercial INDs submitted, so there still seems to be a lot of innovation. It’s a question of how to get them out the other end of the pipeline."

Jenkins also addressed other issues ranging from drug safety to how FDA plans to prioritize implementing the new drug reform regulations under the FDA Amendments Act. In particular, he addressed the public disagreement between the drug review and drug safety groups during the Avandia advisory committee meeting last July.

"Consensus is not our goal," Jenkins says. "That strikes some people as odd when they first hear me say that, but I think that if you’re in a regulatory organization and people think that consensus is the goal, that leads to a subtle pressure to conform to the prevailing viewpoint even though you may not agree with the prevailing viewpoint and you may in fact be right."

You can read the whole interview in The RPM Report by clicking here. Free registration for non-subscribers is on the left side; subscribers should just log in.

I would love to hear your comments on Jenkins' views on FDA, drug companies and drug development.

How to Improve Drug Development? Fail Fast!

In this morning’s PSA panel on “Development Dilemmas and Opportunities,” Michael Clayman, MD, VP of Lilly Research Laboratories at Eli Lilly & Co., presented a unique option for optimizing clinical pipeline success. Perversely, it depends on failing fast. Clayman heads Lilly’s Chorus division, an organization that is trying to create a new model for drug development built on not reducing attrition but increasing the chances post-clinical proof of concept that a drug will make it to market. We took an in-depth look at Chorus in May in IN VIVO.

Clayman estimates that 90% of drugs in development will fail anyway, so why devote the time, the resources—the dollars—driving a product forward if it’s not going to make to market? The goal of his group: cut costs, and dramatically narrow the time to a decision point—typically proof of concept in man, what Clayman jokingly refered to today as “pull out your checkbook”—down to as little as twelve months.

It’s a goal Clayman claims Chorus is well on its way to achieving. To date, the company has shown that it can shave 12 to 18 months off the time it takes a drug to reach proof of concept and reduce the R&D dollar spend from $30 million to $3 million.

But, outside these metrics, there aren’t obvious ways to measure the group’s success. It’s not as if the company can use drug approvals as a measure, since the goal of Chorus isn’t to get drugs on the market, but to de-risk them as much as possible. Indeed, it’s an organizational tool to manage Lilly’s vast portfolio of drug products so that the bias is on the ultimate winners. And while nearly 80% of Lilly molecules might be pushed forward according to this program, to date the strategy has been applied to just 10.

According to Clayman, one critical component of the strategy is that Chorus is compound agnostic. No one on the 24-person team has a driving loyalty to a molecule that might sway him or her to push one project forward over another. The group also operates as an autonomous division within Lilly so that it is not hide-bound by the operational infrastructure of the larger organization. “Once a molecule is transferred to us, it’s no longer worked on by Lilly scientists. We outsource the experimentation,” he says.

That level of outsourcing is likely to be troubling to most other major pharmas. It seems unlikely that many outfits would be willing to adopt such a strategy unless there were significant proof that it improves R&D productivity. Until such time, expect the refrain to remain simply Lilly’s chorus.

FDARA: Changing Drug Development in the Guise of Safety Controls

The Food & Drug Administration Revitalization Act is famously the “drug safety law”—the once-in-forty-years major overhaul of FDA authority to bring the agency’s drug safety activities back up to par with the agency’s focus on drug efficacy.

But don’t overlook the fundamental changes that the new law will impose on the drug development process. It is likely to change drastically how companies seek FDA approval and how they support marketed products with further research. Some previous analysis of incentives in FDARA can be found here.

The separate versions of the law passed overwhelmingly in the Senate (S1082) and House (HR2900) over the last four months are being forged into one bill in active pre-conference discussions.

Two former FDA commissioners see fundamental changes stemming from the FDARA tools. They pointed out two of the major changes during a September 12 briefing on drug safety in Washington, DC, hosted by American University.

Phase IV--no longer the unchallenged province of drug sponsors: Mark McClellan, MD, says Phase IV, strategic research will never be the same again. The new public-private post-marketing surveillance project that is featured in FDARA will change the dominance of Phase IV by drug sponsors.

The “post-marketing period will move out of the control of the pharmaceutical industry,” McClellan declared. McClellan was the first FDA commissioner in the George W. Bush Administration (2002-2004). He currently heads the Engelberg Center for Health Care Reform at the Brookings Institution.

Faster NDA/BLA approvals for narrow, precise indications: David Kessler, MD, stresses the need for the agency and drug sponsors to act more creatively in the initial approval process.

Kessler sees an opening for FDA to encourage sponsors to study smaller patient populations in return for faster approvals and FDARA may provide the right tool for making that implicit deal occur. FDARA offers a form of tighter safety controls through risk management plans and post-marketing surveillance that could represent a new version of conditional approval. Kessler, vice chancellor of medical affairs at the University of California-San Francisco was FDA commissioner under George H. W. Bush and Bill Clinton (1990-1997).

The impact of FDARA on Phase IV cannot be under-estimated. For over two decades, pharma has lavished resources onto Phase IV to support extended indications, improving ties to medical thought leaders, generating cost data and justifications and gaining access to large user groups. The industry has also made commitments to FDA to carry on work on issues raised by FDA during premarket review.

After the American University event, McClellan was asked by Alicia Mundy (author of Dispensing with the Truth, a book on the Fen-Phen drug interactions) about the likelihood that FDARA would increase corporate compliance with FDA Phase IV requests. Asking whether the industry would still be able to use “stall tactics” to delay Phase IV regulatory commitments, Mundy expressed the general skepticism that has grown around the FDA-agreed Phase IV work.

McClellan chose to answer the question from a broader perspective: looking more at who controls Phase IV rather than whether companies meet or don’t meet FDA commitments. He noted that the new law will jump-start a big effort in post-market surveillance and increase that amount of research on commercially marketed products. The law’s encouragement of a public-private partnership and the $25 million initial funding for the program will start a separate effort—beyond the funding and control of pharma.

McClellan looks to other stakeholders in drug treatments to provide competing funding for post-marketing research: primarily health insurers, academic centers and employers. If those groups feel that post-marketing surveillance will help to cut down unsafe or unnecessary drug use, they clearly would have an economic and quality stake in supporting studies.

While pharma’s dominance of Phase IV appears to face a FDARA challenge, another part of the new law appears to provide a surprising boost to the effort to shorten drug trials and achieve faster initial approvals.

Kessler stated the opportunity for changing drug development in a call for a deal between industry and FDA to adopt smaller trials based on genotyping and a target of smaller patient populations. “The industry is in a conundrum,” Kessler said, is it “willing to narrow the number of patients it sells the drug to?” He believes FDA may soon be in a position to create incentives to get sponsors to aim at the smaller populations.

FDA could tell sponsors, for example, that one, redesigned trial incorporating genotyping information could suffice, Kessler suggested.

Kessler, who still frequently slips into the first person pronoun when describing FDA options, said: “Let’s say we are going to allow you to do one trial and we are going to ask you to genotype everybody in that trial.” The sponsor could use data from the first half of the trial to identify a predictive gene panel. The sponsor could then apply that genetic profile to the second half of the trial to determine whether the drug has a “high degree of effectiveness.” That type of development trial could be used toward a conditional or tightly controlled approval.

FDA is already moving in that direction, asking for information on very specific patient populations and then turning that information into very tight risk management plans.

That tailored market approach, in essence, is an updated version of a conditional approval. It is likely to be used more frequently following FDARA when the agency explicitly receives authority to create risk management plans for each approved product through the REMS (Risk Evaluation & Mitigation Strategies) provisions of the law. Kessler recognizes the potential larger role for REMS.

Risk management plans under the REMS procedures “could be no more than what the agency does now or it could be a drastic change in the way the agency controls drugs,” the former commissioner said. But he predicted that FDA will use the authority expansively and REMS will be applied to a “wide array” of products.

Sponsors will be required to submit information on the level of REMS program that they believe fits their product. A clear definition of the target audience will be an important part of those submissions and are likely to become a fulcrum for future FDA approval decisions. If a sponsor can show a well-defined population and a way to make sure that the product is used on that population, the route to approval will be much faster.

(Originally posted at The RPM Report.)

Another Co-Promote Bites the Dust

When Merck and partner Neuromed yesterday pulled the plug on Phase II chronic pain treatment NMED-160/MK-6721, another co-promote bit the dust, too.

More proof, then, that most co-promote options built into today’s biotech-pharma licensing deals are just window-dressing—comfort cushions for biotech investors dreaming of drug revenues and spec pharma success. Earlier this year we laid out in IN VIVO some of the reasons why fewer than 10% of co-promotes actually turn into market-place reality.

That statistic reassures the Big Pharma partner—most of which hate the thought of sharing their commercial spoils with inexperienced biotech, even if some of them say otherwise. But the main reason co-promote promises don’t often become reality is product discontinuation, as in this case, which helps no-one.

Luckily for Neuromed, the aborted program, an N-type calcium channel blocker, wasn’t its lead. Not since April 2007 anyway, when the biotech licensed US rights to a Phase III extended-release opioid analgesic OROS Hydromorphone from Johnson & Johnson’s Alza.

This deal means Neuromed may yet fulfil its dream, shared with most other biotechs, of setting up its own specialist sales force. And Neuromed may yet get to co-promote products with Merck, since the 2006 deal granted the biotech the option to co-promote to US specialists any N-type calcium channel blockers emerging from the collaboration—and the partners say they’ll keep looking for others.

But with NMED-160/MK-6721 gone, at least in pain, Neuromed will miss out on at least $202 million in milestones, and possibly more. It also paid $30 million up front for OROS. That product had better make it onto the US market (it's approved in Europe, but still not in the US, seven years after an approvable letter ). Otherwise private Neuromed may be in danger of biting the dust, too.