Mega-Mergers: Are Pharma Turning into Zombies?


Published on

Biotech consolidation through acquisition was the primary
trend in 2007 for the big pharma and the global financial
crisis in 2008 has driven the pharmaceutical industry towards
adopting a short-term myopic M&A approach. The Innovation
Gap for new drugs has widened to a cavern. In 2009, the
industry has some interesting questions to answer. How to
close this innovation cavern and how will the pharmaceutical
industry manage short-term perceived benefits at the expense
of long-term woes in building sustainable drug pipelines?

Over the past two years, big
pharma has strived to achieve
revenue growth and pipeline
stocking through M&A. In 2007, the
pharma industry mainly targeted latestage
biotechnology acquisitions to
consolidate some drug development
platforms, namely those with disease
franchises and drug class expansion.
Then came the ever-worsening financial
crisis during 2008 that rapidly spread
to become a global recession. This has
put many big pharma companies into a
holding pattern exacerbated by difficulties
of accessing finance and the need to
satisfy investors for the short-term.
One interesting observation is that at
the time of writing this article, more than
40 per cent of the biotech companies
in the US had less than a year of cash
on hand. Does this serve as a once-ina-
lifetime-opportunity to build value by
rapid M&A of biotech companies that
could stock various stages of development
for big pharma?

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Mega-Mergers: Are Pharma Turning into Zombies?

  1. 1. Issue 10 2009 £12 €18 $25 Rs.300 Published by Verticaltalk The B2B Division of Ochre Media A member of CII Mega Mergers New Patents for Old Drugs Preclinical Research Accelerating in Big Biotech Central Nervous System Trials Are they turning pharma Label-based strategies in the companies into zombies? United States Vertical integration is the key Neurophysiological approaches
  2. 2. Foreword Personalised Medicine What next? An innovative approach to overcome the risk factors and stem the failure of drugs which are often developed on a trial and error basis, the concept of personalised medicine comes with its own share of benefits and challenges. W Though the benefits are immense, challenges hile mergers and acquisitions, partnerships abound. Optimising the drug development for target and collaborations still offer avenues for patient populations—usually small—at low cost while growth for the pharma industry, many feel satisfying the tough regulatory guidelines and reim- that the concept of personalised medicine, if used bursement procedures is a daunting task. Many health- intelligently, will set the industry on the right path. care payers now demand evidence-based medicine By enabling highly-customised therapies to treat to avoid unnecessary costs and low-yield interven- diseases based on the patients’ genetic makeup, tions for patients. However, most reimbursement personalised medicine offers companies alternative procedures tend to fix a ceiling for tests. Developing avenues for growth in terms of niche markets often the tests, an important element of the personalised left unexplored because of feasibility issues. It also medicines concept, is a costly and unfeasible affair provides an opportunity to eliminate unfavourable with the ceilings. products much earlier in the development stages, save investment by testing medicines on targeted Enough support from healthcare insurers is sub-populations and avoid failures by eliminating paramount for the growth of personalised medicine. inappropriate patients whose genetic makeup does Experts, however, hope that realising the long-term not suit the medicines. savings in treating a disease or preventing it will offer enough incentive to payers to support personalised Right drug for the right patient and benefits with- medicine on a greater scale. out toxicity offers a viable business model to the industry. Personalised medicine effectively tackles At the moment, its greatest advantage lies in its the issues of toxicity, side effects and medical errors capability to maximise the effectiveness of medicines due to wrong dosages or incompatibility while offering used to treat diseases affecting a specific population patients effective therapies. The industry has a lot with documented cases of toxicity and side effects. to benefit by leveraging the rapid developments in The cover story “Future of Medicine - Personalised” biomarker usage strategies for personalised healthcare. discusses some important issues: how targeted thera- Experts opine that the biomarkers used to optimise pies can offer a sustainable business model, the clinical study designs could be eventually used to changing business models and how biomarkers are conduct smaller trials and allow a combination of leading the way in the development of personalised medicine to be prescribed based on the outcome of medicine. a specific diagnostic test for the patient. Additionally, personalised medicine can help create and enhance product differentiation and potentially extend the life cycle of drugs. Aala Santhosh Reddy Editor
  3. 3. Contents Strategy 05 Indian Pharmaceutical Industry On the cusp of a great opportunity Ranjit Shahani, Novartis India Limited 08 Mega Mergers Are they turning pharma companies into zombies? Neil Campbell, Mosaigen, Inc. 15 Pharma and Biotech Collaborative models Bruce Pratt, Genzyme Corporation 20 New Patents for Old Drugs Label-based strategies in the United States Ned Israelsen, Knobbe Martens Olson & Bear LLP 24 Innovation The key growth mantra Sasikant Misra, Confederation of Indian Industry reSearch & Development 26 36 Biosimilar Medicines Understanding the challenges Targeted Therapies Cecil Nick, PAREXEL International A sustainable business model? 40 Drug Discovery in Academia Erik Tambuyzer, Genzyme Corporation An evolving model Edward Holson, NovoNordisk A/S 44 Preclinical Research in Big Biotech 30 Vertical integration is the key David R Webb, Celgene Corporation Personalised Medicine 46 Computerised Cognitive Function Assessment Changing business models Coming of age Bruce Quinn, Foley Hoag LLP Keith A Wesnes, Steve Satek, Andrew C Embleton, Rianne E Stacey Cognitive Drug Research Ltd. 34 36 44 60 Personalised Medicine and Drug Development Biomarkers leading the way Michael Lutz, PGxHealth
  4. 4. manufacturing 51 Lyophilisation Process Development Yves Mayeresse, GSK Biologicals Industrialisation 53 OEE Systems and Software Enhancing operational efficiency Pala Bhushanam Janardhan, HCL Technologies Ltd. clinical trialS 57 Clinical Trials in Oncology Some sense and simplicity Iman El-Hariry, GlaxoSmithKline 60 Accelerating Central Nervous System Trials Neurophysiological approaches Larry Ereshefsky, Malek Bajbouj PAREXEL International 65 Optimising the Site Selection Process Assessment of investigator motivation Benjamin Quartley, Clinical Development Services, Covance 70 Developing Benefit-Risk management programmes Best practices Axel K Olsen, Quintiles, Inc. 74 Clinical Trials in China and Japan Dynamic opportunities for sponsors and CROs Nick Wright, Tufts University 68 Innovation for Growth Glenn Saldanha, Glenmark Pharmaceuticals 74 26
  5. 5. Advisory Board Senior Product Manager and editor Aala Santhosh Reddy alan S louie aSSiStant Product Manager Research Director, Health Industry Insights, Bhamoti Basu an IDC Company, USA editorial aSSociate and coPy editor Prity Jaiswal christopher-Paul Milne art director Associate Director, Tufts Center for the Study of M A Hannan Drug Development, Tufts University, USA Senior deSigner Ayodhya Pendem SaleS Manager Rajkiran Boda douglas Meyer Senior Director, Aptuit Informatics Inc., USA SaleS aSSociateS Kunal Ahuja Murali Manohar John Milton Kirtana John frank a Jaeger Director, New Business Development, aSSiStant Manager – coMPliance Solvay Pharmaceuticals, Inc., USA P Bhavani Prasad crM Yahiya Sultan SubScriPtionS incharge georg c terstappen Vijay Gaddam Chief Scientific Officer, Siena Biotech S.p.A., Italy it teaM Ifthakhar Mohammed Azeemuddin Mohammed Sankar Kodali Kenneth i Kaitin Thirupathi Botla N Saritha Director and Professor of Medicine, Tufts Center for the Study of Drug Development, Tufts University, USA chief executive officer Vijay Chintamaneni Managing director Ashok Nair laurence flint Associate Director, Clinical Research, Schering-Plough Research Institute, USA Pharma Focus Asia is published by A member of neil J campbell CEO, Mosaigen Inc. and Partner, Endeavour Capital Asia Ltd., USA Confederation of Indian Industry Ochre Media Private Limited, Media Resource Centre, 6-3-1219/1/6, Street No. 1, Uma Nagar, Begumpet, Hyderabad - 500016, Andhra Pradesh, India Phil Kaminsky Tel: +91 (0) 40 44855000 Founder, Center for Biopharmaceutical Operations, Fax: +91 (0) 40 44855140 / 41 University of California, Berkeley, USA Email:|| rustom Mody Director, Quality and Strategic Research, Intas Biopharmaceuticals Limited, India © Ochre Media Private Limited. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, elec- tronic, photocopying or otherwise, without prior permission of the publisher and copyright Sanjoy ray owner. Whilst every effort has been made to ensure the accuracy of the information in this Director, Technology Innovation, publication, the publisher accepts no responsibility for errors or omissions. Merck Research Laboratories, USA The products and services advertised are not endorsed by or connected with the publisher or its associates. The editorial opinions expressed in this publication are those of individual authors and not necessarily those of the publisher or of its associates. Copies of Pharma Focus Asia can be purchased at the indicated cover prices. For bulk order reprints minimum order required is 500 copies, POA. Sasikant Misra Printed at Kala Jyothi Process Private Limited. City Office: 1-1-60/5, RTC X Roads, Deputy Director, Hyderabad - 500 020, Andhra Pradesh, India. Confederation of Indian Industry, India
  6. 6. Strategy indian pharmaceutical industry on the cusp of a great opportunity leading research-based indian pharmaceutical companies spend less than 10 per cent of their sales on research. in the interest of overall public health, india should allow patents for incremental innovation. incremental innovation, or innovation by sequential steps, is essential to pharmaceutical development of new and improved medicines and public health and is indeed the major way in which medical science has progressed. Ranjit Shahani, Vice Chairman Managing Director, Novartis India Limited, India T he pharmaceutical industry in need to keep a keen eye on research Newer, more effective products at lower costs India is on the cusp of a great costs and look at the various avenues opportunity—the opportunity The pharmaceutical industry is under to partner with others so as to deliver to innovate and create novel medi- growing pressure from multiple stake- newer and more effective products at cines to meet unmet medical needs of holders to keep delivering blockbuster lower costs. today and the future, thus making a products providing fair return to inves- positive impact on global health. It is tors while at the same time ensuring India on its way to become a pharmaceutical powerhouse imperative to capitalise on the enor- that prices are affordable. Currently, mous wealth of creative and scientific it takes at least eight to ten years to Looking back at history, much of the resources that our country has been bring a compound from an idea to a progress of civilisation in various fields blessed with for the benefit of the usable medicine. During that time, including mathematics, physics, chemis- patient by discovering medicines for pharmaceutical companies spend up try, astronomy, medical science and the unmet medical needs. to US$ 1 to 1.7 billion in researching, arts can be attributed to India. There As we go forward, India is tipped to developing and testing to create a single is ample evidence to show that vari- become a pivotal player in the global drug. Sources show that while US$ 100 ous kinds of surgeries including plastic economy and the country’s pharmaceuti- billion worth of drugs will be going off surgery, ophthalmic surgery and dental cal industry stands on firm ground both patent by 2010, clinical development surgery were being done in India long as a provider of authorised generic drugs time has actually doubled since 1982 before they were even known in other as well as the seat of pharmaceutical to an average high of 68 months. parts of the world. research. This position however is only Boxed in as it is from all corners, The world has long since changed attainable if India aggressively nurtures pharmaceutical companies have to rely and India has lost ground relative to innovation and is seen as a country that on their innate skills to deliver products some other economies in the area of respects intellectual property rights while that meet not only the medical needs of pharmaceutical innovation. However, tackling the twin issues of health and today but also that of the future. While today the world has moved to become education. doing so, pharmaceutical companies a knowledge economy and India with
  7. 7. Strategy its vast intellectual capital has an advan- the Indian pharmaceutical industry can If drug discovery is perforce required tage over many other nations. With a be called truly world-class. to go back to the drawing board in its prodigious knowledge pool, expertise The law as it stands today does not quest for new medicines, the kind of in process chemistry and proven leader- recognise incremental innovation or inno- time and money that would be required ship in IT, India has all the ingredients vation in sequential steps. It is important would not only be mind-boggling but necessary to become a developed country to recognise the tremendous value that would also significantly delay the deliv- in the pharmaceutical field. In addi- incremental innovation has made to ery of new medicines to patients. As tion, the pharmaceutical industry is a the progress of modern science. It is in a global pandemic becomes a reality, mature industry with a strong manu- the interest of overall public health for biological weapons become a threat facturing base. It is also well developed India to allow patents for incremental and preventable diseases continue to as an ancillary industry and has the innovation. Breakthrough innovations take lives, we should work to shorten technological capability to manufac- in all fields are rarer than we imagine. the amount of time it takes to bring a ture Active Pharmaceutical Ingredients The invention of the wheel was a break- product to market, not unnecessarily (APIs). India has the largest number of through innovation in transportation. lengthen it. US FDA approved plants outside the What came later by way of the bicycle From improving a medicine’s US and the recent development of the where two wheels, pedals and gears were safety and side-effect profile to find- US FDA setting up a base in India is put together, completely revolutionised ing a solution for unmet medical needs of great significance for the country the way people travelled over land and and increasing a country’s productiv- and her capabilities. Besides being a practically did away with horse-drawn ity, incremental innovation provides net foreign exchange earner, exceptional value for patients the pharmaceutical industry and society. Over 70 per cent has shown skills in being cost- of medicines on the market The pharmaceutical industry is under competitive throughout the today are the result of incre- value chain. Above all, India mental improvements on a base growing pressure from multiple has the third largest English- molecule. stakeholders to keep delivering speaking scientific and technical The central role played blockbuster products providing fair manpower in the world and its by incremental innovation in return to investors while at the same people have shown significant medical progress must be recog- time ensuring that prices are affordable. entrepreneurial spirit. The nised and failing to do so would industry has a well-deserved mean a disregard for the way in reputation for producing low which healthcare has progressed. cost / high quality medicines. Granting patents to incremental transportation. The discovery of the innovations is critical for India to not steam engine offered transport an alter- only encourage national pharmaceutical Need for world-class IPR As the world ushered in the New Year native source of power. Once a suitable companies to increase their research on January 01, 2005, India ushered in gas-powered engine was perfected, this focus but also to ultimately bring better product patents. However, there were innovation replaced the earlier steam medicines to the people of India no fireworks to mark the defining engine, creating the first automobile and It must be stated that incremental moment of the Indian pharmaceuti- changing the way people and goods were innovation is not “evergreening” which cal industry. transported. is an attempt to extend patent protec- With the advent of a new era in At no time in this process of invention tion for a product by making minute product patent law, the Indian pharma- did an innovator go back to the drawing changes to a drug just before patent ceutical industry began the important board to reinvent the wheel. What an expiry. Changes made for evergreen- shift toward research and development. innovator did do was build on the existing ing purposes do not represent medical Leading research-based Indian phar- knowledge base and by using additional advancement and often do not bring maceutical companies spend less than creative thinking and going through a additional therapeutic benefits while 10 per cent of their sales on research. process of further research and trials so changes made to convert a compound While this figure seems abysmally low that he could come up with a better into a better medicine provide clini- as compared to what the large pharma- and more efficient means of transport. cal efficacy and exceptional value for ceuticals companies of the world spend, One base technology—the wheel—has patients and society. it is a good beginning. However, the been continuously modified to make Patients are the ultimate benefici- law needs to see some changes before transportation as we know it today. aries of pharmaceutical research and P h A r mA F o c u s A s i A issuE - 10 2009
  8. 8. Strategy development. An important part of global and national companies operating in the US and EU. Secondly, India has the research and development jigsaw in India and encourage them to increase huge genetically diverse patient pools is data gathering on the safety and investments in the country, especially in who are “drug naïve”, not having taken effectiveness of drugs. Lack of data pharmaceutical research and enter into any drugs for their condition. Thirdly, protection, an integral part of intel- partnerships where appropriate. the country has a significant number of lectual property rights, acts as a barrier As eminent scientist and Director qualified doctors who have the exper- to research. Pharmaceutical companies General of the Council of Scientific and tise to conduct and supervise clinical generate significant amounts of data Industrial Research (CSIR), India, Dr. trials as per global standards. And it while conducting research and this data R A Mashelkar said not long ago, “the is not just in the area of clinical trials goes to government by way of a dossier process of globalisation, corporatisation that India has fair opportunity to be a while seeking marketing approval for and privatisation of research has shifted strategic partner but also in the areas a new drug. Unfortunately, this data the dynamics of knowledge production of contract manufacturing, custom is used by makers of generic drugs in and dissemination dramatically just as synthesis, biostatistics, bioinformatics India to get regulatory approval for their issues of Intellectual Property Rights and technical services among others. medicines without conducting clinical (IPR) and proprietary information and trials. There is a fear, unsubstantiated knowledge have begun to open up new Partnering to win I might add, that protecting this data dialogues on public good versus private Collaborations will be the way forward will lead to higher drug prices. There profit. New models of the innova- and are a win-win situation offering is no reason to believe this as history tion chain and new paradigms of the Indian companies an opportunity to tap shows that there is no correlation science-society contracts have begun into the world’s largest global research between data protection and the pric- to emerge.” networks and providing access to new ing of drugs. Data protection exists in It is heartening to know that India technologies. The industry also serves many countries including China, Egypt, actually has the highest intellectual capi- as a platform for Big Pharma to tap Mexico, Columbia, Korea, Brazil and tal available per dollar anywhere in the into the huge scientific talent available Taiwan for a period ranging from 5 to world. In fact a publication of the stand- in India. 6 years. Market forces including limi- ing of The Far Eastern Economic Review India has the potential of becoming tations of purchasing power help keep had remarked that India ranked number a hub for drug discovery programmes. prices down. one as the source of knowledge work- While there are some concerns with ers—ahead of all other countries in Asia regard to IPR particularly with regard to including China, Japan and Singapore. enforcement and these clearly continue, Innovation nurtures creativity and productivity CSIR to date has 302 patents in the field the framework is in place. An environ- Investments to grow our capacity for of medicine alone. In chemistry it has ment where innovation and research research and to create intellectual capital 1799 patents, 221 in biological science, are encouraged will only serve to raise in the pharmaceutical space will not 90 patents in analytical techniques. the level of interest in the country as help if we as a country refuse to respect Estimates indicate that it costs over an investment destination. intellectual property rights. US$ 1.2 billion to get a single New There is therefore little doubt that as Indian pharmaceutical companies Chemical Entity (NCE) into the market. time moves on, India will quickly emerge must be geared to nurture innovation as Multinationals can outsource much of as a leader in the world pharmaceutical it leads to greater productivity, higher their RD clinical activity to India market. Will the 21st century belong economic growth and better standards lowering their overall costs. Conducting to India? Will India, the land of milk of living. There are various ways to preclinical and clinical trials in India and honey, go back to realising as in achieve this including public funding has three-fold advantages. Firstly, the ancient times that “Prajnam Brahma” of research, collaboration with academia, cost of such trials in India would be in or Knowledge is God? Why not? I have funding via surpluses of large corpora- the range of 30 to 50 per cent of costs every reason to believe it will. tions involved in traditional businesses, venture capital funding and the like. Our country has a glorious past Ranjit Shahani is a strong proponent of ipr and a thought author and there is every reason to believe we leader in the pharmaceutical industry. he was president of the organisation of pharmaceutical producers of india (for an can achieve in pharma what we have unprecedented three terms). managed to achieve in IT. A strong patent regime will instill confidence in innovation, research and creativity in
  9. 9. Strategy mega mergerS ARe they tuRning phARmA CompAnieS into Biotech consolidation through acquisition was the primary trend in 2007 for the big pharma and the global financial crisis in 2008 has driven the pharmaceutical industry towards adopting a short-term myopic ma approach. the innovation gap for new drugs has widened to a cavern. in 2009, the industry has some interesting questions to answer. how to close this innovation cavern and how will the pharmaceutical industry manage short-term perceived benefits at the expense of long-term woes in building sustainable drug pipelines? neil J Campbell, CEO, Mosaigen, Inc. and Partner, Endeavour Capital Asia Ltd. USA P h A r mA F o c u s A s i A issuE - 10 2009
  10. 10. Strategy O ver the past two years, big great value that this upcoming Pfizer- pharma has strived to achieve Wyeth mega merger would provide. revenue growth and pipeline What is interesting here is that in all stocking through MA. In 2007, the his interviews Jeffrey Kindler was overtly pharma industry mainly targeted late- promising that the past failures to inte- stage biotechnology acquisitions to grate value into the past MA would consolidate some drug development not be repeated. As a result, many large platforms, namely those with disease pharma companies are still going for franchises and drug class expansion. mega mergers. The latest being Pfizer- Then came the ever-worsening financial Wyeth mega merger for about US$ 68 crisis during 2008 that rapidly spread billion in stock and cash. to become a global recession. This has The Pfizer-Wyeth deal, if consum- put many big pharma companies into a mated, would be the fourth largest holding pattern exacerbated by difficul- MA deal ever and would give Pfizer ties of accessing finance and the need to the distinction of having made the first, satisfy investors for the short-term. fourth and fifth largest pharmaceutical One interesting observation is that at deals in history. Pfizer is still trying to the time of writing this article, more than integrate the Pharmacia acquisition of 40 per cent of the biotech companies 2000 which was the fourth and now in the US had less than a year of cash is the fifth largest deal ever (Table 2). on hand. Does this serve as a once-in- The deal will merge two major pipelines a-lifetime-opportunity to build value by with patent expiry falling in the period rapid MA of biotech companies that 2011-2013. Lipitor alone constitutes 35 could stock various stages of develop- per cent of Pfizer’s annual sales accord- ment for big pharma? ing to the latest IMS studies and Pfizer press reports. Putting two anaemic pipelines The latest pharma rage – Mega mergers together with no innovative system in The forcible merger of two big compa- place doesn’t make one great pipeline for nies that lack innovation doesn’t future growth. In fact, Jeffrey Kindler necessarily result in forming a good repeatedly stated on news interviews that company. There have been academic this deal would unlock value for both and industry studies that have shown companies and solve the short-term prob- that this strategy had failed time lems facing Pfizer. He repeatedly stated and again to create any value for that past MA mistakes that destroyed shareholders, drug pipelines and ulti- value will this time provide value. Time mately patients beyond a few years. The alone will reveal the truth, but the analy- past 12 months have witnessed many sis of the combined pipelines seems to such deals in the pharma industry. be making a bigger issue and is expected (Table 1). to affect investors and value. The mega merger of Pfizer and It can take years to integrate the Pharmacia in 2000 illustrates how a RD and corporate cultures following merger, which lacks long-term value, has these mega mergers—business develop- huge dilution and which is not properly ment groups can be taken off task for integrated, fails. The Pfizer CEO, Jeffrey up to two years while trying to manage Kindler, was on the airwaves touting the the integration. Big pharma companies
  11. 11. Strategy Biggest health care buys – The last 12 months Deal Size (US$ Buyer Buyer Home City Acquiree Acquiree Home City Deal Announced bn) AstraZeneca PLC London MedImmune Gaithersburg, Md. 13.8 April 24, 2007 Novartis AG Basel, Switzerland Alcon Vevey, Switzerland 10.5 April 8, 2008 Takeda Osaka Millennium Pharmaceuticals Cambridge, Mass. 8.8 April 10, 2008 Hologic Bedford, Mass. Cytyc Marlborough, Mass. 6.3 May 21, 2007 Siemens AG Munich Dade Behring Holdings Deerfield, Ill. 6.2 July 26, 2007 Warburg Pincus New York Bausch Lomb Rochester, N.Y. 3.6 May 17, 2007 Eisai Co., Ltd. Tokyo MGI Pharma Bloomington, Minn. 3.3 December 11, 2007 Medtronic Minneapolis Kyphon Sunnyvale, Calif. 3.3 July 28, 2007 Roche Holding Basel, Switzerland Ventana Medical Systems Tucson, Ariz. 3.1 June 26, 2007 Celgene Summit, N.J. Pharmion Boulder, Co. 2.5 November 19, 2007 Source: Mergerstat via Factset Systems • The top 10 acquisitions of life science firms over the past 12 months came at a total purchase price of US$ 48 billion. • Five of the acquisitions were of U.S.-based companies by bigger companies in Europe or Asia. • These buyers spent US$ 35 billion, or 73% of the total. Table 1 are scared and have started reacting to the industry woes. These woes are being Largest pharma MA deals driven by a slowdown in growth as reve- Target Acquirer Deal Value (US$ bn) nues come under threat from expiry of patents of blockbuster drugs, shrinking Warner-Lambert Pfizer 111.8 pipelines from original science programmes and the ever-increasing SmithKline Beecham Glaxo Wellcome 79.6 reach and breadth of generic drug Aventis Sanofi-Synthelabo 71.3 competition. Are there alternatives to this mega merger mania? Well, you have Wyeth Pfizer 68.3 (Pending) Astellas, the Japanese Pharma (Fugisawa and Yamanouchi consolidation) moving Pharmacia Pfizer 59.8 towards acquiring Small to Mid-size Genentech Roche 42.6 (44.1% Stake) Biotech (SMBs); could this be a better place to put money, time and longer- Astra Zeneca 39.9 term focus? (Table 1). Hoechst Rhone-Poulenc 33.8 Global financial credit crisis – Pharmacia Upjohn Monsanto 31.9 A silver lining for the big pharma? With so many biotech companies short Ciba-Geigy Sandoz 27.0 of cash and in mid to later stages of clinical development, does this provide Schering Bayer 19.3 (92.4% Stake) a buying opportunity for low-cost drug Sources: Dealogic, Company News pipeline stocking? It sure seems that way. Table 2 P hA r m A F o c u s A s i A issuE - 10 2009 10
  12. 12. 11
  13. 13. Strategy If big pharma can muster a strong busi- Industry trends driving the mega mergers bandwagon ness development and licensing effort, they can merge or acquire a succession Industry Trends Driving Mega-Mergers Effect on Growth Strategies of smaller biotech companies and fill the Big Pharma focus is on sales and marketing No drug pipeline development, push limited life gaps in drug pipelines from late preclini- to secure sales at longer term benefits of building cal / pre-IND to phase III / NDA. This sustainable businesses thought is probably causing big pharma Big Pharma spending more on marketing than Misaligned priorities to innovation, reward now, not heartburn, but what are the alternatives: RD for new drugs later, bad trend to start mega mergers? There are many prob- lems that mega mergers won’t address Consolidate with like-minded large companies Mind-set to find other Big Pharma, Stunt long-term growth potential, missed opportunities with smaller (Table 3). Three interesting deals at the biotechs moment are the GSK-Attack Strategy, the continuing saga of Roche’s attempt to Blockbuster legacy drug patent expiry in next Short-term stocking MA at risk of finding medium several years and longer term synergies buy the remaining shares in Genentech and the Astellas-CV Therapeutics replay Cost to development increasing-failure rates Regulatory shift since Vioxx to safety over efficacy, from the fall of 2008. increasing need better balance reviews There are many benefits to an aggres- Generic drug growth / biogenerics coming For smart companies, this is portfolio sive biotech MA roll-up approach. Let’s Other drug strategies such as Nutriceuticals, management; for myopic ones, knee-jerk reactions look at the three scenarios in reverse Cosmeceuticals, Therapeutic medical devices to save businesses, currently mega merger mania order. Table 3 Astellas and CV Therapeutics – Potential benefits that biotech MA provide Hostile takeover attempt Astellas is moving in on a hostile take- Aspects of Biotech MA Potential Benefits to Big Pharma over with a second attempt at CV Could pull MA together quicker for impact to Short of cash, less than year Therapeutics. The first attempt was in the short to medium term fall of 2008 with CV Therapeutics turn- Lowest company valuations in 25 years Ability to quot;shopquot; and buy many ones ing away from any deal. As the market has moved downwards and cash reserves Build medium to longer term value for drug portfolio, Biotechs, historically, have science platforms dwindled, Astellas feels that the addi- have potential revenues, but platforms for innovative that built their drug portfolios development tion of CV Therapeutics would provide growth into new areas and potential Big Pharma add-ons could be diseases, drug Some biotechs could provide new franchises revenue paths for the medium future. classes, or operational capabilities Being a Japanese pharma company and If selected properly, big pharmas could stock concerned with long-term growth pros- More biotechs have Big Pharma partnerships- pipelines and force big pharma to big pharma pects along with a willingness to build drive interesting options collaborations / MA with the biotechs who have out new franchises in both diseases and big pharma partnerships drug classes and shouldering some of Provides many more variables for deal-making Financial crisis has tightened up credit, this could the risk, Astellas is bucking the trend of and out-licensing monetisation strategies allow for more original deal-making Wall Street pressures, quarter-to-quar- ter financial performance and western Table 4 big pharma. The deal that formed Astellas—putting together Yamanouchi drug pipelines. The first deal acquired Roche and Genentech – Remaining share buyout and Fujisawa—built a sustainable foun- a 44.1 per cent stake in Genentech at dation to grow from. It is predicted that Another interesting potential trend- a cost of US$ 42.6 billion making it Astellas will make more smart acquisi- setting deal involves the buyout of the sixth largest deal to date (Table 2). tions in the next couple of years and remaining Genentech shares by Roche. This time around, it could cost Roche take advantage of the current financial Roche is driving hard to purchase the double that sum. Genentech, one of crisis. Table 4 presents a summary of remaining stake of Genentech to form the two largest biotechs in the world, drivers providing advantages to larger the largest biopharmaceutical company could very well rebuff the Roche deal pharmaceutical companies with their with broad research platforms, core and start its own biotech MA strat- biotech brethren. capabilities, preclinical and clinical egy. An approach that can be more P hA r m A F o c u s A s i A issuE - 10 2009 12
  14. 14. Strategy make a difference in how they build Strategies for drug development value into their drug pipelines. The crisis has plummeted company valu- ations to their lowest level in 25 years Drug Development Approval Process (the life of the biotech industry is almost that old) and it is estimated that more Postmarketing - Phase IV “Co-Promote” Approaches than a third of the over 3,500 biotech companies that exist in the US have Preregistration - FDA/EMEA “Co-Development” Approaches less than a year of cash on hand. With File NDA at FDA most pundits predicting that financial “PDC” Development Approaches problems would continue till mid- Clinical Trial - Phase III 2010, you have a lot of companies with Clinical Trial - Phase II potentially great science and pipelines “Foster” Development Approaches in clinical development on the verge Clinical Trial - Phase I of extinction. “Sponsored” Research Approaches File IDA at FDA Enter GSK. Although some are predicting the Pfizer-Wyeth deal could Preclincal Testing help Pfizer with short-term revenues and give a little breadth from the Wyeth pipeline, most are pointing towards Figure 1 GSK as the company and MA trend to watch more closely. To date, GSK The pharma innovation gap – has avoided any mega merger in favour Increased RD spending yielding lesser drug approvals of mobilising its cash on smaller, more asset-building type of deals. The goal is an obvious one: to address long-term $60 50 problems instead of adopting a myopic blockbuster-drug-only strategy and build $50 Pharma RD ($Billions) New Drug Approvals 40 both drug classes and drug portfolios Pharma $40 in focussed disease franchises. Over the Innovation 30 past 24 months, GSK has aggressively Gap $30 bought an accretive, sustainable and 20 potentially expansive diverse set of drug $20 assets—such as UCB’s late-stage drug 10 assets and Biotene’s dry mouth drug $10 treatment—in both established and 0 $0 emerging markets. It is also rumoured 1992 ‘96 2000 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 that GSK is looking at more targeted diversified healthcare companies and Pharma RD Investment BioPharm RD Investment New Drug Approvals by US FDA this approach could provide for more portfolio management across healthcare Sources: Pharmaceutical Research and Manufacturers (PhRMA) Annual Report 2007; Burill Company Figure 2 systems. Report 2003; PhRMA Annual Member Survey, 2007: US Food Drug Administration Databases. Adopting new development strategies accretive for Genentech shareholders and ily a bad thing. We would like to see a better fit with the corporate culture him in a more expansive role helping Johnson Johnson, Abbott Laboratories in California. A Roche takeover could more biotechs grow to become future and Novartis are just a few to deploy kill the remaining innovative juices that Genentechs. this approach with repeated success. Genentech has. One thing is probably Companies like OSI Pharma, Celgene, for sure, the co-founder and current Amylin are just a few who are still inde- Aggressive MA strategies of GSK CEO, Levinson may leave his position The global financial crisis has provided pendent and could provide great buys if the deal goes through; not necessar- an opportunity for big pharma to really for big pharma. Combine one of these 1
  15. 15. Strategy companies with smaller biotechs and you Predictions for 2009 and 2010 could build a strategy around developing GSK, Roche and Novartis represent some drugs yourself, co-developing with some of the best possible examples of other partners (possible future acquisi- building a diversified and scientifically- tion targets), co-promoting late-stage rich big pharma and could very well use assets to free up resources for creative the multiple biotech MA model. As development strategies like fostering Roche eventually acquires the remain- drug programmes. AstraZeneca is ing shares of Genentech it will have a very good at this. License a drug to a fairly balanced small molecule portfolio company, have that company develop / pipeline with advanced biopharma the asset in close ties with it and at some capabilities. Genentech, one of the two pre-determined point in the future, it largest biotech leaders worldwide, has gets the rights back if requested. If not, both short-term goals combined with the biotech / pharma partner has rights long-term visions. Amgen should be to development or share a range of busi- seeking targets for MA, not being ness development options. acquired. Astellas might lose out on this Another approach is the bid with CV Therapeutics, but they can Pharmaceutical Development Company have a short list for MA. Companies (PDC) option. One of the best compa- like Abbott Labs and Celgene provide nies to create and lead with great success great add-on revenues, deep pipelines using the PDC model is DeBiopharm, and sound scientific platforms. S.A in Lausanne, Switzerland. In the Those companies seeking growth PDC model, a company acquires the only through the mega merger approach drug asset which is generally at a Pre- will have limited success, take them- IND or phase I stage and takes owner- selves out of contention during one of ship. It then develops it through phase the most opportunistic times we’ve seen II, phase III or NDA. In return, the in decades and could spell potential PDC gives milestone payment, royalties disaster for the big pharma seeking to and / or sales kickers to the original grow revenues in the medium to long source of the drug asset. Most PDCs term. don’t promote the products, they usually Pfizer-Wyeth in the end won’t be any sell or out-license the asset to a larger better than its previous mega merger company. The PDC and fostering deals and hopefully they will see this models are great strategies for shar- and push along with vetting and closing ing resources, risk and allowing larger a few biotech MA deals before the companies to leverage a stockpile of good ones are gone. In the end, these drug candidates on their shelves that purge cycles are good because they force may never be developed. Figure 2 the crème de la crème to the top and depicts the overall strategic approach this is what we need to bridge the gap to drug portfolio development and in innovation among the Big Pharma management. companies. neil J Campbell is currently chairman ceo for mosaigen®, inc., a global life Science development corporation, and partner with endeavour capital ltd., an asian venture capital fund. author During his career, he has successfully developed and introduced over 200 products in healthcare, life sciences and information technologies. he earned his mBa and ma in management Systems from Webster university, mo and his BS-Ba from norwich university. he is also adjunct professor at carey graduate School of Business – Johns hopkins university. P hA r m A F o c u s A s i A issuE - 10 2009 14
  16. 16. Strategy pharma and Biotech collaborative models collaborations are a common business practice within the pharmaceutical and biotechnology industry. this article discusses both the strategic and tactical drivers for engaging in collaborations as well as some of the distinguishing features of the various types of collaborations used in this industry. Bruce m pratt, Vice President, Science Development, Genzyme Corporation, USA C ollaborations are the voluntary, However, within that outcome lie the joint actions of two or more two fundamental reasons for engag- parties to achieve a common ing in collaborations. First, the belief goal. This is a straightforward concept that the apportioned, and anticipated in principle, but often more complex return on investment from the shared in the real world. outcome will exceed that which might Within the pharmaceutical and be achieved independently. The second, biotechnology sectors, one can easily and equally important driver for identify at least six major classes collaborations, is the recognition, by of stakeholders, viz. private indus- each party, that they have insufficient try, academia, regulatory agencies, internal resources, e.g. cash, expertise, governments (policy and legislation), time, infrastructure or intellectual patient advocacy groups, and payers property, to independently achieve the (public / private). Each of them can desired outcome. Within the pharma- be involved in collaborative activities ceutical and biotechnology sector, two with one or more organisations in their fundamental objectives underlie much own or other stakeholder categories. of what we do: First is the need to On a purely numeric basis, a single get effective therapies and service to stakeholder could be involved in as patients with unmet medical needs; and many as 32 different kinds of collabo- second is the necessity to create and rative interactions with organisations maintain sustainable economic models from their own or other stakeholder which allow for the continuous crea- categories. tion of needed products and services. Begin at the beginning… When discussing collaborations as Collaborations are, in the broadest sense, and go on till you come to a class of business transactions, it may tools which can be used to achieve these the end: then stop. be useful to consider why a corpora- objectives. tion should engage in collaborations at In this context collaborations are Lewis Carroll all—after all, the typical outcome of classified into three categories—non- Alice’s Adventures in Wonderland any collaboration involves the sharing competitive, pre-competitive and of the upside with an outside party. competitive. 1
  17. 17. Strategy discussion / negotiation between the two of collaboration, and consider their Non-competitive collaborations The first group, non-competitive parties. Such differences in valuation are match (or mismatch) with some essen- collaborations, is best exemplified by to be expected. Each party is striving tial aspects of the business model of private industry-academia collabora- to maximise their return on investment the sector. The essential hallmark of tions. Within the US, this model of (money, personnel and infrastructure), pre-competitive collaborations is the industry-academia collaboration, with while simultaneously working to reason- focus on the development of tools and its concomitant flow of innovation from ably reduce / limit their costs. standards, and not the development academia to industry has its basis in the of products and services. This aspect Patent and Trademark Act Amendments of pre-competitive collaborations is Pre-competitive collaborations of 1980 (University and Small Business The second major class of collaborations, exemplified by one of the earliest and Patent Procedures Act), more commonly pre-competitive collaborations, also have most often cited NCRA collaborations, known as the Bayh-Dole Act. Under the a legislative underpinning within the US, Sematech. It was initially established as provisions of this act, universities, non- in this case, The National Cooperative an industry / government collabora- profit organisations and small businesses Research Act of 1984 (NCRA), and tion for the development of advanced can obtain and retain ownership of, and the National Cooperative Research and manufacturing methods for the US patents on, inventions funded by the Production Act of 1993. These laws were semiconductor manufacturing sector, federal government. Additionally, the enacted to enhance the competitive- and was created in direct response to act requires that the universities actively ness of the US-based industries in an the perceived domination of this manu- engage in the commercialisation of these increasingly competitive international facturing sector by Japan. patented assets. With this legal founda- marketplace. The 1984 law clarified the Table 1 is a sampling of pre-competi- tion, American universities have, over the application of anti-trust law to co-opera- tive collaborations in the pharmaceuti- past 28 years, become increas- cal and biotechnology sectors. ingly important and currently Several points are notable. First, essential sources of innovation as mentioned above, all of these The essential hallmark of pre-competitive for the pharmaceutical and collaborations are focussed on collaborations is the focus on the biotechnology sector. the development of information, In non-competitive collabo- tools and standards, putting development of tools and standards, and not rations, such as those of indus- them clearly in the pre-competi- the development of products and services. try and academia, the desired tive space. Second, five of the outcomes by each party are seven are dedicated to generating generally non-overlapping. For massive data sets from various example, the industrial partner may be tive research ventures, and eliminated “omes”, genome, proteome, kinome seeking novel product / service oppor- the treble damage awards associated etc. and analysing these data sets for tunities to develop within their own with anti-trust violations. These benefits relatively sparse information which, by pipeline, or access to the specialised accrue to the members of a collabo- itself, may have minimal competitive analytical or preclinical expertise of an rative research consortium, provided value. This general information, however academic laboratory. In a complementary that the consortium complies with the when combined with proprietary and fashion, the academic partner may be mandated disclosure of all participants drug-specific information belonging to seeking to commercialise an asset devel- and the purpose of the collaboration. the individual participating companies, oped within the university or to generate The 1993 amendment extended similar will be expected to provide a compara- new scientific observations (publications) provisions to joint production activities. ble, but unique competitive advantage by evaluating the activity of a novel Although more than 900 groups have to each participating corporation. The pharmaceutical agent in a preclinical registered under NCRA since 1984, remaining two consortia, Aerosol and model which is well established within registered collaborations in the phar- Enlight, are also focussed on problems the academic laboratory. maceutical and biotechnology sectors whose solutions are likely to provide Although the qualitative distribu- represent substantially less than 5 per significant competitive advantages only tion of outcomes, e.g. de-risked prod- cent of the total. when combined with additional propri- uct / service opportunity, scientific To begin to probe why this collabo- etary, drug-specific information. This publication(s), is relatively straightfor- rative model is apparently not favoured synergistic linkage of commonly held ward, the quantitative prediction of the by the pharmaceutical and biotechnol- and proprietary information is a second value of these outcomes can sometimes ogy sector, we can examine some of defining criterion of pre-competitive be a critical point of disagreement / the main characteristics of this type collaborations. P hA r m A F o c u s A s i A issuE - 10 2009 1
  18. 18. Strategy Sampling of pre-competitive collaborations in pharmaceutical and biotechnology sectors Group Name Activity Participants Start Year Pharmaceutical Aerosol Identification of CFC-free propellant gases for Private Industry 1990 Consortium aerosol delivery of drugs Research on kinases and phosphatases for drug Private Industry, Academia, Dundee Kinase Consortium 1998 discovery Government Identification of Single Nucleotide Polymorphisms Private Industry, Non-profit SNP Consortium / HapMap (SNP) and haplotypes associated with human organisations, Governments, 1999 Project disease states Academia Predictive Safety Testing Identification of biomarkers to predict preclinical Private Industry, Academia, 2006 Consortium safety of drugs Regulatory Agencies Identification of biomarkers for risk assessment, Government, Private Industry, Biomarkers Consortium 2006 diagnosis and treatment of human diseases Not-profit organisations Identification of SNP’s associated with drug-related SAE Consortium Private Industry, Academia 2007 Serious Adverse Events (SAE) Enabling technology incubation – first program: Private Industry, Venture Capital Enlight Biosciences 2008 non-invasive imaging Fund Table 1 To return to the possible reasons for too massive and “drug-relevant” data too collaborations may be related to the the relative paucity of pre-competitive sparse to be cost-effective as intramural extraordinarily long product develop- collaborations within the pharmaceuti- projects, and consequently, albeit slowly, ment life cycle which is unique to the cal and biotechnology sectors; although are becoming the foci of pre-competi- pharmaceutical and biotechnology information / tools can be the subject of tive collaborations. sectors. Any strategic initiative in the pre-competitive collaborations, they can Two additional factors may be pre-competitive space is unlikely to have also provide a competitive advantage to contributing to the historically low a significant impact on a corporation their owner. If an individual corporation numbers of pre-competitive collabo- until 8 to 10 years in the future. Given has the resources and infrastructure to rations. Until relatively recently, the the shorter-term revenue and expense create a proprietary data set, extract standard pharmaceutical drug devel- pressures which the pharmaceutical and useful information from that data set, opment model was inward focussed, biotechnology sectors currently face, the and protect that information as trade with the belief that internal research allocation of scarce resources to highly secrets or patents, they will certainly and development could provide a speculative, pre-discovery activities may do so. As noted earlier, a corporation is sufficient number of commercially not be viewed in a favourable light. A only going to collaborate in this effort successful drug to sustain the growth final factor in this matter may be simply when they have insufficient internal of the corporation. Under that model, one of cultural inertia. The sector as a resources to complete the task on their pre-competitive collaborations would whole has much more experience and own. Until recently, the complexity of have been unnecessary and perhaps familiarity with other kinds of trans- problems, and size and complexity of the unwanted. In recent years a more exter- actions, e.g. mergers and acquisitions, resultant data sets which were tackled nally focussed drug development model product in-licensing and joint ventures. by pharmaceutical or biotechnology has emerged, in which pharmaceutical Even if pre-competitive collaborations companies were generally manageable companies have engaged in increasing offer some theoretical advantages, in the as intramural projects, providing little numbers of non-competitive collabora- absence of clearly documented examples impetus for pre-collaborative collabo- tions with academia. It remains to be of strategic or financial benefit deriving rations. However, with the arrival seen if this trend towards utilisation from participation in pre-competitive of “omes”, genome, transcriptome, of external resources will extend to the collaborations, there may be a degree proteome, metabolome, lipidome etc., pre-collaborative space. An additional of reluctance to be an early adopter of some projects at this scale have become factor working against pre-competitive this strategy. 1
  19. 19. Strategy Competitive collaborations Competitive collaboration landscape Collaborations between competitors are also regulated by large bodies of antitrust or competition law in all juris- dictions. Within the US, the Sherman Minimal In / Out- overlap Ant-Trust Act of 1890 briefly states, licensing Joint “Every contract, combination in the Strategic venture / form of trust or otherwise, or conspir- alliance Merger acy, in restraint of trade or commerce Acquisition among the several States, or with foreign Skill sets / IP nations, is declared to be illegal”. Within / Market this legal framework, the underlying need for competitive collaborations is Co-marketing the same as that of other collabora- tive types, i.e. the need to achieve an Anti-competitive outcome which cannot be accomplished Strong Anti-trust overlap alone. To solve this need, a wide spec- trum of collaborative activities between competitors (business-to-business trans- Equal Not equal actions) has evolved. Valuation / Size One way to structure and view the Figure 1 relationships between these different types of collaborations is to consider lack of overlap in market to avoid anti- only be achieved by the combination them in the context of a two-dimen- trust / anti-competitive issues. Finally, of resources from two or more parties, sional space as described in Figure 1. the “buy your competition” business and 2) the mutual expectation that the The first axis is the relative valuation strategy, in which a large entity may joint outcome will provide a positive and size of the two entities with respect wish to acquire a smaller party operat- benefit to each party that exceeds what to each other and the second axis is ing within the same market segment, might be achieved by proceeding inde- the degree of overlap of skill sets, or may run afoul of anti-trust / competi- pendently. intellectual property or infrastructure tion laws. Refinements of this schema Disclaimer: The opinions expressed in this between the participating entities. are clearly possible. Nevertheless, this article are personal opinions of the author Utilising these axes, it is possible to approach, even in its current form, may and do not necessarily represent the opin- place most competitive transactions provide some clarification or ration- ions or positions of Genzyme Corporation within this space. For example, joint alisation of the type of collaborative or its senior management. Likewise, ventures and mergers are usually formed transaction chosen to achieve a desired the identification of specific products, between entities of roughly comparable outcome. or organisations does not constitute an size and complementary skill sets or In summary, collaborations involving endorsement of those entities by Genzyme intellectual property. Licensing deals the pharmaceutical and biotechnology Corporation or its senior management. and strategic alliances are character- sector, non-competitive, pre-competitive The commentary on, and summaries of, ised by a minimal overlap in skills or and competitive, may differ in their legal laws of the United States do not represent IP (depending on the subject of the underpinnings, structure, complexity legal opinions on these laws. transaction) and are not particularly and value. However, all of these inter- dependent on the relative size of the actions are driven by: 1) the mutual full references are available at two parties. Co-marketing arrange- recognition that some objectives can ments tend to be done between part- ners of roughly equal size, with a strong overlap in market, but some moderate Bruce m pratt works for Genzyme Corporation on identification author degree of separation in call point or and evaluation of early stage product opportunities, proactive outreach to academic and biotechnology sectors, and works geographic coverage. Acquisitions are with corporate Development on issues related to product devel- typically asymmetric transactions where opment. the larger partner takes control of the smaller party and there is sufficient P hA r m A F o c u s A s i A issuE - 10 2009 1
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  21. 21. Strategy new patents for old Drugs LABeL-BASeD StRAtegieS in the uniteD StAteS P hA r m A F o c u s A s i A issuE - 10 2009 20