Medical Publication by Paul Streeto

january 2011

Elsevier Business Intelligence www.ElsevierBI.com

Vol. 29, No. 1

Biopharma & Device

stories of 2010 A Frustrating Year Of Transition

Biogen Idec Charts A New Course â&#x20AC;˘ 510 (k) Face-Off

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JANUARY 2011 2 Deals In Depth An overview of biopharma, medical

The Top Stories Of 2010 Biopharmaceuticals

device, and in vitro diagnostics dealmaking in November 2010

A Look Back At 2010: In Search Of New Biopharma Models 2010 was a year of transition. Health care reform hinted at short-term pain and long-term gain while investment, R&D and commercial challenges combined with a heightened sense of industry desperation to bring out biopharma’s creative side.

6 2010’s Top Biopharma Dealmakers

EBI’s Biopharma Team

Amanda Micklus and Beth Detuzzi

Medical Devices

Top Device Stories Of 2010: Waiting For The Other Shoes To Fall

Around The Industry

For much of the device industry, 2010 also felt like a transition year, breeding uncertainty in a number of important areas, including the economy, health care reform and impending changes to the 510(k) process.

Mark L. Ratner....................................................................10

EBI’s Medical Device Team Diagnostics

J&J Snaps Up Rare Cell Capture And Analysis Technology From Mass General A Management Shake-Up At Pfizer Raises Questions Wendy Diller.......................................................................12

Hologic Buys Interlace Medical, Acquires Missing Link In Gynecology Surgery

Personalized Medicine In 2010: Welcome To The Establishment

Mary Stuart........................................................................14

Dealmaking in 2010 suggests that the potential of personalized medicine to improve health care delivery was more widely recognized in a variety of ways.

NPS Pharmaceuticals Stages A Second Act

Mark L. Ratner

Emerging Company Profiles

Putting The Pieces Together Again: GSK Creates End-To-End Business Units After breaking down R&D into small biotech-like drug performance units, GSK is now using these as building blocks for larger, fully integrated business units spanning discovery to approval.

Melanie Senior

510(k) Face-Off: CDRH’s Foreman Debates Reform Plans With Industry Reps Changes to the 510(k) review program are coming. FDA says not to worry. Should you? The agency’s top device reviewer squares off with two industry representatives at the recent IN3 Summit.

David Filmore

Biogen Idec Charts A New Course

Jessica Merrill.....................................................................16

Out of the Blocks Aarden Pharmaceuticals, Civitas Therapeutics, ImmuVen, IXO Therapeutics, Mobisante and Vedanta Biosciences

START-UP Previews: This Month’s Profile Group: Benlysta May Lead Wave Of New Approvals For Lupus Drugs Profiles of: Azano Pharmaceuticals, Resolve Therapeutics and SuppreMol Start-Ups Across Health Care Profiles of biocrea, e(ye)BRAIN, MiCardia and Omthera Pharmaceuticals

Thanks to a November restructuring that refocused the company around its historic strength in neurology, and the hiring of two critical executives, Biogen believes it can grow beyond its warhorses Avonex and Tysabri.

On The Move

Ellen Foster Licking

significant recent job changes.........................80

In Vitro Diagnostics: The Quest For Growth The quest for market growth is taking manufacturers down a number of avenues, as they seek to counter the effects of the economic downturn. Anne Staylor and Mary Thompson

Personnel database featuring

dealmaking Deals from November and December................84

executive summaries

of feature stories..................................................97

deals

In Depth:

November 2010

Our monthly overview of dealmaking in the biopharmaceutical, medical device and in vitro diagnostics industries. November 2010 dealmaking highlights: • Alliance values were relatively low in November. Surprisingly no Big Pharmas or top biotech companies were party to the biggest alliances. Instead German drug maker Grunenthal won out, selling its oral contraceptives portfolio to Gedeon Richter for $331 million.

• Both valued at $800 million, Lilly’s acquisition of Avid ($300 million up front plus $500 million in earn-outs) and Medtronic’s takeover of Ardian tied for the top spots in the M&A category. • It was a big month for follow-on public offerings: FOPOs were the most lucrative vehicle in pharma and device fundraising, with each industry bringing in over $200 million from this financing type. – Amanda Micklus

Exhibit 1

Top Alliances For November 2010 Headline

Summary

Potential Deal Value ($ millions)*

Biopharmaceuticals Richter gets rights to Grunenthal’s oral contraceptives

Gedeon Richter PLC acquired a WW license to Grunenthal GMBH’s oral contraceptive portfolio. Terms: Gedeon paid €236.5mm ($331mm) in cash. The alliance excludes Latin America, where Grunenthal retains rights.

Meda pays $80mm for three Norgine OTC products

Norgine BV has sold Meda AB three over-the-counter drugs – Pyralvex (salicyclic acid/rhubarb extract) dental anesthetic, Spasmonal (alverine citrate) for smooth muscle spasm, and Waxsol (docusate sodium) ear drops. Terms: Meda paid $80mm in cash.

Archemix sells hemophilia program to Baxter

Archemix Corp. has sold its hemophilia assets to Baxter International Inc. Terms: Baxter paid $30mm up front and potentially $285mm in total milestones. The deal includes Phase I ARC19499, a subcutaneous tissue factor pathway inhibitor that enhances blood clotting and serves as a substitute for replacement factors for hemophilia A and B patients.

Valeant gets exclusive rights to sell Kadmon’s ribavirin

Kadmon Pharmaceuticals LLC licensed Valeant Pharmaceuticals International Inc. exclusive rights to sell all dosage forms of ribavirin – 200mg, 400mg, and 600mg capsules and tablets – in Poland, Hungary, the Czech Republic, Slovakia, Romania, and Bulgaria. Terms: Kadmon received $7.5mm up front and will source the products to Valeant.

3SBio pays EnzymeRx $6.25mm for pegsiticase

EnzymeRx LLC has sold 3SBio Inc. WW rights to pegsiticase for $6.25mm. Pegsiticase is currently in Phase I for refractory gout and tumor lysis syndrome.

*Potential Deal Value is the sum of up-front fees plus pre-commercialization money. SOURCE: Elsevier’s Strategic Transactions

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

331

Deals In Depth: NOVEMBER 2010 Exhibit 2

Top Mergers & Acquisitions For November 2010 Headline

Summary

Price-to-Sales (ratio)

Potential Deal Value ($ millions)

800

290

6.49

Biopharmaceuticals Eli Lilly to buy Avid for $300mm up front plus earn-outs

Eli Lilly & Co. has agreed to pay $300mm up front to acquire privately held Avid Radiopharmaceuticals Inc., a developer of molecular imaging agents that detect and monitor various diseases. Lilly could also pay up to $500mm in regulatory and commercialization earn-outs based on the progress of Avid’s lead radiopharmaceutical florbetapir F18.

Nycomed takes 51.34% ownership in China’s Techpool

Nycomed International Management GMBH has paid €210mm ($290mm) for 51.34% interest in the Chinese biotech Guangdong Techpool Bio-Pharma Co. Ltd., taking over the majority stake from Shanghai Pharmaceutical Group, which now holds 40.8% of the shares.

LFB takes GTC Biotherapeutics private in $18.3mm transaction

Developer of plasma-derived drugs LFB Biotechnologies SAS has agreed to acquire the 30% of public GTC Biotherapeutics Inc. (recombinant proteins) that it doesn’t already own. Through their four-year-old collaboration, LFB already owns 70% of GTC’s outstanding common stock. The French firm will now buy an additional 61.1mm shares at $0.30 (a 6% discount) through a PIPE totaling $18.3mm. LFB’s next step will be to conduct a short-form merger in which it pays all of GTC’s minority stockholders $0.30 in cash for each of their shares, amounting to an additional $2.7mm.

SOURCE: Elsevier’s Strategic Transactions

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BIOPHARMACEUTICAL INDUSTRY INTELLIGENCE AND ANALYSIS

www.InvivoBlog.Blogspot.com

Deals In Depth: NOVEMBER 2010 Exhibit 3

Late VC (7 deals) $115

Biopharma Financings By Type

17%

Early VC (6 deals) $94

($ millions)

Debt (1 deal) $5 1% FOPO (5 deals)* $273

14%

November 2010 SOURCE: Elsevier’s Strategic Transactions

*Includes FOPOs from Cadence ($86.2mm), Avanir ($83.2mm), and Micromet ($70.5mm)

41%

PIPE (5 deals) $63

16%

Other (2 deals) $19 3%

TOTAL RAISED IN NOVEMBER 2010 = $678mm

IPO (2 deals) $109

VC (5 deals) Debt (1 deal) $115 Exhibit 4 $5 1%

Medical Device Financings 17% By Type FOPO (5 deals)*

Late VC (4 deals) $103

FOPO (6 deals)* $246

$273

27%

($ millions)

*Includes FOPOs from 41% November 2010Cadence ($86.2mm), Avanir ($83.2mm), and Micromet ($70.5mm) SOURCE: Elsevier’s Strategic Transactions

16%

*The follow-ons from NxStage Medical($73.3mm) and MAKO Surgical ($59.2mm) represented over half of this total.

65% Early VC (2 deals) $15

4% 4%

PIPE (2 deals) $15

TOTAL RAISED IN NOVEMBER 2010 = $678mm

TOTAL RAISED IN NOVEMBER 2010 = $379mm

(2 deals) $109

Exhibit 5

Six-month Snapshot Of Private And Public Financings In Biopharma And Medical Devices June – November 2010 Public Private

1,500 1,352 One-third of the public Rx money is from Sihuan Pharmaceutical’s IPO on the Hong Kong Stock Exchange

1,000

$ millions

889

500

429

440

413 307 15 146

382

279 80

248

262 200

101 139

296

246 133

0 Rx

Device

June

Device

July

Device

August

SOURCE: Elsevier’s Strategic Transactions

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Device

September

Device

October

Device

November

Early

COMBINING OUR STRENGTHS SHARING OUR SUCCESSES Merck is passionate about our commitment to partnering. Our strengthened company provides even more opportunities for collaboration. Let’s explore the possibilities of combining our strengths to deliver novel medical breakthroughs that save and improve lives. – David Nicholson, PhD, Senior Vice President and Head Worldwide Licensing and Knowledge Management

YOU’VE DISCOVERED SOMETHING SIGNIFICANT. NOW DISCOVER US! Please contact: Barbara Yanni, JD, LLM Vice President and Chief Licensing Officer Merck & Co., Inc. • One Merck Drive • PO Box 100 Whitehouse Station, NJ USA 08889-0100 Phone: 908.423.4350 Email: barbara_yanni@merck.com

Biopharmaceutical Dealmaking

2010’s Top Biopharma Dealmakers By Amanda Micklus and Beth Detuzzi

enerics, emerging markets, orphan diseases and earn-out heavy M&A were the recurring dealmaking themes in 2010. Notable examples include Teva’s $5 billion acquisition of ratiopharm; the Pfizer/Biocon biosimilars tie-up; GSK’s license to Fabry disease candidate Amigal; and Celgene’s tradable CVR-driven takeover of Abraxis. Stem cell technology, however, proved to be one of the most lucrative: Cephalon and Mesoblast’s $2.1 billion alliance contributed

to the high potential deal values in cancer, neurology and immune disorders. For our comprehensive review of the year’s top biopharma trends, see “A Look Back at 2010: In Search Of New Biopharma Models,” in this issue. Meanwhile, we focus here on the dealmakers, showing which companies dominated the dealmaking landscape in terms of deal volume and value, as well as the therapeutic categories that grabbed the most attention.

Exhibit 1

2010’s Top Five Most Active Pharmaceutical In-Licensers Lists below each company show top three deals by potential value* Statistics include deals by parent companies and their subsidiaries

Those highlighted were nominees for IN VIVO Blog’s 2010 Deal of the Year.

Novartis

2009

activity

change

Date

Licenser

Subject of License

Potential Deal Value and Terms

October

ImmunoGen

ImmunoGen's Targeted Antibody Payload technology for anti-cancer antibody drug development

$45mm: $45mm up front, $200.5mm in MS for each target resulting in a cancer compound, and royalties.

April

Array BioPharma

Array's small-molecule MEK inhibitors: Phase I ARRY162 for cancer and its back-up compound, ARRY300

$45mm: $45mm in up-front and MS money upon signing; $422mm for reaching clin., reg., and commercialization goals; and double-digit royalties for ex-US sales and a "significantly" higher rate for US sales.

Proteus Biomedical

Organ transplant drugs that incorporate Proteus' sensor-based technologies, plus the option to use the IP for cardiovascular and cancer indications

$24mm: up-front cash payment and equity investment in Proteus totalling $24mm, plus royalties.

January

2010 activity

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Biopharmaceutical Dealmaking

Sanofi-Aventis

2010

2009

activity

change

55%

Date

Licenser

Subject of License

Potential Deal Value and Terms

June

Ascenta Therapeutics; Univ. of Michigan

Small-molecule drug candidates that inhibit a crucial protein interaction and restore apoptosis in cancer patients

$278mm: $8mm up front, $270mm in dev. and reg. MS; $120mm in sales MS; and tiered royalties.

June

Vivalis

Vivalis' Humalex monoclonal antibody production platform

$45mm: $3.6mm up front and $41.8mm in dev. MS per indication, plus sales royalties.

Sept.

Pieris

Pieris will use its Anticalin technology to discover new drugs against multiple targets for Sanofi

$40mm: $4.7mm up front and committed research funding for the first two projects; for the first therapeutic application of each new compound, $35.7mm in dev. and reg. MS and $24mm in sales MS, plus tiered royalties. Additional MS will be paid if the same product is developed in other therapy areas.

GlaxoSmithKline

-20%

Date

Licenser

Subject of License

Potential Deal Value and Terms

March

Cellzome

Cellzome's Episphere epigenetics platform for development of immuno-inflammation therapeutics

$563mm: $45mm up front in cash and equity; $647mm in total MS, the majority of which (Elsevier Business Intelligence estimates 80%) are pre-commercialization monies; plus tiered sales royalties.

February

Regulus

MicroRNA drug candidates against miRNA122 for all therapeutic areas, initially HCV

$150mm: $150mm in up-front and early-stage MS payments, plus tiered double-digit royalties on global sales.

October

Amicus

Phase III Fabry disease candidate Amigal (AT1001; HG3310; migalastat)

$61mm: $30mm up-front in cash; $31.5mm equity investment (6.9mm shares at $4.56 (a 15% premium), a 19.9% stake); $170mm in dev. and sales MS; and tiered double-digit royalties on WW sales.

Roche (including Genentech)

Date

14%

Licenser

Subject of License

Potential Deal Value and Terms

January

Digital Biotech

Alzheimer's disease program DBT066

$290mm: $290mm was the purchase price.

October

InterMune

HCV protease inhibitor danoprevir

$175mm: $175mm was the purchase price.

August

Aileron

Stapled Peptide drug candidates against five targets in cancer, virology, inflammation, metabolic disease, and neurology

$25mm: $25mm for R&D funding and access to Aileron's technology; $1.1bn in disc., dev., reg., and sales MS should drugs succeed in all of the targets (MS payments for each product are about the same amount); and royalties.

Pfizer

-19%

Date

Licenser

Subject of License

Potential Deal Value and Terms

October

Biocon

Biosimilar versions of the recombinant human insulin analogs glargine, aspart, and lispro

$350mm: $200mm up front; $150mm in dev. and reg. MS; and payments tied to Pfizer's sales of the biosimilars.

December

Akorn-Strides

16 ANDAs and six filed ANDAs

$63mm: Strides gets $28.2mm in cash and Akorn receives $35mm.

October

**Ablexis

AlivaMab Mouse for antibody discovery

$55mm: Each licensee will pay a seven-figure nonrefundable up-front (at least $1mm); when mouse strains are delivered, Ablexis will receive a minimum of $10mm (an eight-figure payment) from every partner.

*Potential Deal Value is the sum of up-front fees plus pre-commercialization money. **Pfizer and four other undisclosed Big Pharmas were licensees on this deal. SOURCE: Elsevier’s Strategic Transactions

Biopharmaceutical Dealmaking Exhibit 2

Top Ten Pharmaceutical Acquisitions Of 2010*

Acquirer

Acquired

Primary assets gained through the deal

March

Teva

ratiopharm

Significant share of the European generics market

4,989

June

Grifols

Talecris

Plasma-derived therapeutics

4,000

July

Reckitt Benckiser

SSL International

Personal care products, plus opportunities for expansion into Asia

3,961

June

BASF

Cognis

Specialty chemicals, dietary supplements, APIs , and drug delivery agents

3,823

May

Abbott

Piramal

350 branded generics; the deal makes Abbott the largest drug producer in India

3,720

Oct.

Pfizer

King

Specialty pharmaceuticals with a focus on pain management

3,561

June

Celgene

Abraxis

Cancer drug Abraxane (paclitaxel formulation) and nab nanoparticle delivery technology

March

Astellas

OSI

EGFR inhibitor Tarceva for pancreatic and non-small cell lung cancers; oncology pipeline

3,519

June

Valeant

Biovail (reverse merger – Biovail has a 50.5% stake in the combined company, which keeps the Valeant name)

Neurology and dermatology drugs and expanded presence in North America and emerging markets

3,272

Sept.

Johnson & Johnson

Crucell

Infectious disease vaccines and monoclonal antibodies; the deal makes J&J the sixth-largest vaccines producer

2,167

Those highlighted were nominees for IN VIVO Blog’s 2010 Deal of the Year. *List includes biopharma and OTC/personal care companies; excludes Research/Analytical companies. SOURCE: Elsevier’s Strategic Transactions

Potential Deal Value ($ millions)

Date

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

3,559 (consists of $2.9bn in cash and Celgene stock, plus $650mm in tradable CVRs tied to Abraxane)

Biopharmaceutical Dealmaking Exhibit 3

2010’s Top Dealmakers: Cancer, Neurology And Immune Disorders 40

5,000 Cephalon's December stem cell deal with Mesoblast, worth $2.1bn, contributed significantly to the totals for Cancer, CV, Immune, and Neurology

4,500 4,000

No. of deals

35 30 25

3,000

2,500 2,000

# of deals

$ millions

3,500

Potential Deal Value

1,500 10 1,000 5

500

y, N lo g eu ro N

SOURCE: Elsevier’s Strategic Transactions

C er v o a nc us er m un Sys te M e m et ab Dis or ol de ic rs D i s Ca or de rd io rs G va yn sc ec In u f ol og lam lar m ic al a , U ti o n ro Re Re log sp ic na ira l S al t o M y ry us , P ste cu m In u lm fe lo ct Blo sk o od na io el et us ry D al & i so & V r d ira Co l D ers nn G is ec as tiv tro eas es e in Ti te ss s ue ti n a D iso l O to r de la ry ng rs D ol en D og e ta y l & rm at O ol ra og lP y ro d u O Po ph cts t iso ha l n (A mic n ti d He o pa tic te) (L iv er )

Alliances that covered multiple theracats were counted more than once. SOURCE: Elsevier’s Strategic Transactions

aroundtheindustry Drug-Device Convergence

J&J Snaps Up Rare Cell Capture And Analysis Technology From Mass General Massachusetts General Hospital (MGH) has signed a five-year, $30 million deal with Johnson & Johnson’s cancer diagnostic device unit Veridex LLC to develop a third-generation microfluidics-based system for capturing and analyzing circulating tumor cells (CTCs). The program will be jointly managed at J&J by Veridex and Johnson & Johnson Pharmaceutical R&D LLC’s Ortho Biotech Oncology Research & Development (OB-ORD) as part of a two-year-old drug-device convergence initiative within J&J. The collaboration aims to develop and obtain regulatory approvals for a standardized diagnostic platform that will be able to conduct biomarker analysis on DNA, RNA, or protein from tumor cells collected noninvasively – and presumably collected repeatedly during the course of cancer therapy. Veridex currently sells a system, CellSearch, which counts CTCs in a blood sample, for use in cancer prognosis. But CellSearch has only a rudimentary capability for analyzing molecular abnormalities of tumor cells. J&J’s rationale for seizing on this opportunity now is two-fold: the technology for analyzing rare cells is emerging to a point where it can provide additional relevant clinical information from very small numbers of tumor cells isolated from the blood; and a significant number of targeted molecular therapies are emerging in clinical testing and onto the market that invite such monitoring before and during treatment. “What we are looking for now is [a system that can] present the material isolated from the tumor cells in a simpler way,” says Nicholas Dracopoli, PhD, VP, biomarkers for OB-ORD. “It’s an issue of increasing the sensitivity and specificity to have a purer collection of cells with reduced background of hematological cells, and present them in a way that enables the downstream biomarker analysis,” he says. CellSearch only captures a few cells, even in the blood of patients with metastasized cancer. The biological noise level from other cells in the blood is too high for it to be clinically useful from the diagnostic perspective, which is why Veridex focuses on prognosis. Interactions with the pharma side of J&J gave Veridex a better understanding of where it needed to go with respect to characterizing tumor cells. CellSearch, launched in 2004, is already long in the tooth. “There are some 20-plus technologies developing around us trying to get into CTCs,” says Robert McCormack, PhD, head of technology innovation and strategy at Veridex. “To maintain our leadership position, it was time 10

to get started.” From the start, the goal of the convergence program was to continue to drive new applications of CellSearch and also go after a partner for a next-generation

Having antibodies in solution makes the system more versatile and will greatly simplify manufacturing.

CTC system. The convergence partnership jointly went out and identified an external partner. Discussions with MGH began a little over a year ago. The technology of interest to J&J is earlier in development than MGH’s other CTC initiatives. The new technology uses antibodies tagged with magnetic beads that can be mixed in with the blood sample. In earlier versions, antibodies are affixed to a post on the surface of a chip or on a V-shaped herringbone surface, which creates more active contact at the surface. The conjugated antibodies capture the tumor cells as the blood sample pours over it. Having antibodies in solution instead makes the system more versatile and will greatly simplify manufacturing. It also should improve specificity by allowing a purer collection of the CTCs, with reduced background noise from the capture of normal hematological cells. Both the herringbone and first-generation post chips are 10-100x more sensitive

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

than CellSearch, says CTC chip inventor Mehmet Toner, PhD, of MGH. He expects the third-gen system will be even better. The collaborators say it will take two to three years for the new system, anticipated to be in the form of a benchtop analyzer, to be ready for clinical validation. J&J plans to run prospective clinical trials, first at MGH and then expanding to multiple centers. Veridex plans to take the current indications for CellSearch – metastatic breast, prostate and colorectal cancer prognoses – and migrate them to the new platform. In the meantime, it will continue to grow CellSearch. Although the magnetic bead concept is not new – CellSearch uses iron particles conjugated to antibodies that fish out CTCs – MGH has intellectual property, presumably around methods for flowing bead-conjugated antibodies through a microfluidics system, that drove the deal. “That’s why we decided to move forward,” says McCormack. “We didn’t go after any particular technology per se,” he adds. In fact, until recently, J&J was contemplating licensing the current MGH herringbone chip technology, which was published in October 2010 in the Proceedings of the National Academy of Sciences. That technology is still in active development, supported by NIH and other grants and sponsorship from Stand Up 2 Cancer (SU2C), a research funding group organized by Hollywood celebrities. (Toner and Daniel Haber, MD, PhD, director of the MGH Cancer Center, lead one of SU2C’s five scientific “Dream Teams.”) Given that the third-generation technology hasn’t been reduced to practice, the parties were not sure of what should – or could – be revealed with the deal announcement. That actually caused considerable confusion in the initial coverage. (See “What DOTW Didn’t Say about Veridex/MGH,” The IN VIVO Blog, January 10, 2011.) And both J&J and MGH say they were surprised by the amount of interest the announcement engendered, given the pursuit of CTC chip technology over the years. For whatever reason, “it went viral,” said one insider. [A#2011800018]

– Mark L. Ratner

rt n

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Pharmaceuticals

A Management Shake-Up At Pfizer Raises Questions About Future Strategy 2011 is likely to be a defining year for Pfizer Inc. and the Big Pharma has hit the ground running. In early December, the board of directors announced a management shake-up, as 55-year-old CEO Jeff Kindler resigned unexpectedly and the board simultaneously elected veteran Pfizer executive Ian Read to replace him. The announcement had the marking of a coup d’état, given the abruptness and the critical juncture of the drugmaker’s fortunes. (See “Pfizer Turns To Insider Ian Read To See It Into Post-Lipitor Era,” “The Pink Sheet” DAILY, December 6, 2010.) In the ensuing weeks, the board also named a new non-executive chairman, George Lorch, former chairman and CEO of the diversified conglomerate Armstrong Holdings. In addition, it consolidated leadership of several business units and appointed some of those leaders to its executive committee. Pfizer named David Simmons, who had been president of the company’s Established Products business unit, to also head its Emerging Markets unit and submerged the twoyear-old oncology business unit into the larger Specialty Pharma business unit, under Geno Germano’s direction. In addition, two top Pfizer R&D executives, Steve Yang, PhD, and Martin Mackay, PhD, both left to join rival AstraZeneca PLC. Yang, who led post-merger integration of Wyeth and Pfizer R&D, has also been instrumental in creating Pfizer’s Asian R&D strategy; until May 2010, Mackay co-led R&D alongside Mikael Dolsten, MD, PhD, who came from Wyeth. Pfizer isn’t saying much about the reasons for these sudden changes. They came almost exactly one year to the date before its key drug Lipitor (atorvastatin) loses exclusivity and nearly two years after it entered into a controversial agreement to buy Wyeth for $68 billion. Whether the timing was coincidental or a response to deal with accumulating pressures, November 2010 was the symbolic start to the one-year countdown to Lipitor’s loss of exclusivity and Pfizer’s odds of managing through – if not beating – its patent cliff. Clearly, the company hasn’t made as much progress as it needs to in order to offset pending lost Lipitor revenues – and Wall Street is concerned. Its stock has barely budged in the past two years, closing January 12 at $18.37, essentially the same as January 26, 2009, the day

it announced the Wyeth deal. And it fell 36% from 2006, when Kindler became CEO until his unexpected resignation on December 5 to “recharge his batteries.” His successor, Read, has yet to make public his strategic vision for the company and until he does, the stock is likely to continue to languish. The Wyeth deal is Kindler’s biggest legacy and was controversial from the start. Investors questioned Pfizer’s ability to manage growth as a mammoth organization. By several measures, the company appears to be struggling to meet some of the financial targets it set out when it announced the Wyeth deal in January 2009. At the time, it argued that the transaction would generate $70 billion in revenues in 2012, or essentially the same as the combined companies’ pro forma 2008 top line, and adjusted diluted EPS of $2.42. But as of late 2010, it had reduced the top-line guidance for 2012 (twice to $65.2 billion to $67.7 billion and had an adjusted diluted EPS range of $2.25 to $2.35. (See “Pfizer Lowers Targeted Revenues for 2012: Wall Street Remains Skeptical,” “The Pink Sheet” DAILY, February 3, 2010.) The adjustments irked Wall Street, which was already put off by a highly controversial 50% cut in Pfizer’s generous dividend, also announced at the time of the merger, and lingering qualms about the benefits of massive M&A. The company had started to raise the quarterly dividend incrementally, even before Kindler left, but critics argue it could be moving much faster, given the amount of cash it has on hand and its healthy $20 billion in annual free cash flow. Pfizer executives insist that the company remains on track, despite these setbacks. They say the Wyeth integra-

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

tion, unlike prior acquisitions, has gone smoothly, and the company expects to achieve cost reductions totaling $4 billion to $5 billion in 2012, reaching 50% of that figure in 2010, 75% in 2011, and 100% at year’s end 2012. Beyond reorganizing R&D under the sole control of Dolsten, other strategic initiatives are underway, including unifying marketing and clinical development functions in the US and Europe. Interestingly, even as it seeks to consolidate certain commercial functions, the company is also decentralizing its US sales force organization in order to achieve greater flexibility to respond rapidly to changes in local markets. But pipeline is still key, and plans to build a stable of Lipitor replacements have met mixed results, with recent clinical trial failures of several high-profile late-stage new drug candidates. (See “Pfizer Clears Out Pipeline: After Oncology Disappointments, Talks Up Diabetes,” “The Pink Sheet,” October 4, 2010.) In the past 18 months, Pfizer has halted most development programs of its flagship oncology drug, Sutent (sunitinib), outside of its core indications in metastatic renal cell carcinoma and gastrointestinal stromal tumors; the discontinued programs focused on breast, hepatocellular, prostate and lung cancers. (“Pfizer Halts Sutent’s Phase III in Hepatocellular Carcinoma,” “The Pink Sheet” DAILY, April 26, 2010.) Figitumumab’s limitations also became clear last year, when it disappointed in non-small cell lung cancer. Outside of oncology, the company also has put on hold development of Dimebon (latrepirdine), for Alzheimer’s disease and dropped work on most indications of tanezumab, a pain medication being studied in osteoarthritis, lower back pain and diabetic neuropathy. That molecule was a driver in Pfizer’s 2006 high-profile $500 million cash acquisition of Rinat Neuroscience Corp. As a result, Pfizer’s hopes for near-term organic growth now rest on a limited number of products, including three drugs in late-stage development: Prevnar 13 (diphtheria CRM197 protein) for adults (the vaccine received FDA approval for young children and infants in early 2010),

aroundtheindustry

which has been submitted to FDA; tasocitinib, a janus-associated kinase (JAK-3) inhibitor, now in Phase III against rheumatoid arthritis, with potential to treat other inflammatory conditions; and crizotinib, a targeted therapy for lung cancer. While tasocitinib and crizotinib seem promising, both are still in clinical trials and limited data are available. The crizotinib program in particular has moved with incredible speed; although the company first publicized the Phase I data in June, it started simultaneous Phase II and III studies last fall and, as of January 12, has begun a rolling submission based on accelerated approval. If a key intent of the Wyeth merger was to prop up Pfizer’s pipeline and revenue base, it also aimed to diversify Pfizer’s portfolio, which was heavily concentrated on small molecule, primary care drugs and drug candidates. By promising that no drug would represent more than 10% of the new Pfizer’s revenues, the company hoped to deflect risk and reduce impact of patent expirations of any one product. (See “Pfizer/Wyeth: Industrializing Pharma?” IN VIVO, February 2009.) Within pharma, the company is certainly more diversified, geographically, by therapeutic area, and by platform. It now has a presence in vaccines and biologics, as well as in generics, whereas before it had little or none. Its Specialty Pharma business unit, which includes infectious diseases, CNS, and inflammatory diseases, accounted for 25% of sales as of the first nine months of 2010, compared to 14% year on year. And its Primary Care business unit, which was more than half of Pfizer’s revenues in 2009, was 40% of revenues in the first three quarters of last year. Pfizer is still overwhelmingly a pharmaceutical company, however, deriving 85% of its revenues for the first nine months of 2010 from prescription drugs, compared to 91% for the first nine months of 2009, prior to the merger’s close. After Lipitor goes generic, the ratio, obviously, will be more balanced, but, given everything else staying equal, pharma will still account for roughly 75% of revenues. Some argue that its diversified businesses – consumer health, animal health, and nutritionals –may not have critical mass they’ll need to outperform in highly competitive markets. Bristol-Myers Squibb Co.’s

successful strategy of focusing on innovative drug research, building the pipeline through deals, and divesting non-core businesses hasn’t escaped investors’ and executives’ attention; Jami Rubin, an analyst at Goldman Sachs, argues that Pfizer would see much better returns to investors if it split off its non-biopharma divisions. Based on a sum-of-the-parts analysis, she

Pfizer is still over whelmingly a pharmaceutical company, deriving 85% of its revenues for the first nine months of 2010 from prescription drugs.

suggests spin-outs theoretically could result in up to 16.5% accretion to 2010 EPS. And while she currently sees an 11% upside potential to the $19 12-month price target, that target could increase significantly to $24, or 40% upside, based on current prices, if individual segments were valued as stand-alones against brand peers. Health care spin-offs have historically almost all yielded significant value for the shareholders, she wrote in a recent industry note, citing Bristol’s splitting off of Mead Johnson Nutrition Co. in December 2009, as well as other successful transactions made by Abbott Laboratories Inc. (Hospira Inc.), Eli Lilly & Co. (Guidant Corp.) and Merck & Co. Inc. (Medco Health Solutions Inc. Bristol’s December 2009 split-off of Mead Johnson unlocked more than 80% in trapped value that accrued between the subsidiary’s initial partial IPO and the close of the split-off, Rubin noted. And, by structuring the transaction as a split-off, Bristol took advantage of tax-free proceeds to buy back 269 million shares, leading to an estimated $0.05 accretion to 2010 EPS and $0.07 accretion per share in 2011, she said. Mead Johnson’s stock was up 35.3% as of September 2010, since it split off of Bristol in December 2009. “The non-pharma Pfizer businesses, while

embedded with Pfizer, are undervalued by the market, on an EBITDA basis and should have multiples of between 8.8 times sales and 14.9 times sales,” she wrote. Indeed, even before Kindler’s departure, the company announced it is reviewing strategic alternatives for Capsugel, a business unit within Pfizer that creates innovative dosage forms for the pharma and nutrition industries. Although it has comparatively small revenues of $740 million, some investors envision such a move could signal a shift in management’s approach to diversification. If Read is thinking about spin-offs, he certainly isn’t saying so; the 57–year-old Pfizer veteran hasn’t spoken publicly since the appointment, eschewing major industry events, such as the JP Morgan HealthCare conference, which took place in early January. Analysts seem uncertain as to what direction he will take the company – although they welcome his deep knowledge of Pfizer and apparently nononsense attitude. Indeed, his credentials are strong. Prior to assuming the helm, he headed Pfizer’s worldwide pharmaceuticals group, which included oversight of Pfizer’s international pharma operations, experience that will help as Pfizer looks to emerging markets to make up some of the shortfall in revenues expected as drugs go off patent. George Lorch also looks to be a no-nonsense leader. Although he has a low profile and comes from outside the industry, he led Armstrong through a bankruptcy in 2000, to resolve its massive asbestos litigation. Overall, the jury is still out on the industry’s two mega-deals in the past two years. While Merck’s stock has performed well, especially compared to its peers, Pfizer’s stock has lagged. Merck’s pipeline setbacks, especially an independent Data Monitoring Board’s decision, announced on January 13, to halt trials of Merck’s anti-platelet drug vorapaxar, could change sentiment about that company’s megamerger. However, despite the additional risks, many analysts still consider Merck’s pipeline promising; Pfizer’s prospects on the other hand, seem murkier. This won’t change until Read lays out a clear strategy for growth that investors can live with. [A#2011800019]

– Wendy Diller Additional reporting by Jessica Merrill

aroundtheindustry

Medical Devices

Hologic Buys Interlace Medical, Acquires Missing Link In Gynecology Surgery that process through Hologic’s large sales force. At a time when many device companies wait for a significant sales ramp-up before plunging into an acquisition, Hologic moved early. Interlace was known to be in talks with other strategic partners, and in the fibroid market there essentially is no other technology with MyoSure’s poSure has an oscillating cutter within a tential to serve a growing interventional tube that cuts and removes morcellated gynecology market. fibroid tissue from the body. Unlike many Hologic already had identified its energy-based modalities in development GYN Surgical division as a source of that are designed to use high frequency growth. Speaking at JP Morgan’s SMid Cap Conference in New York on December 2, CEO Rob Cascella saw strong growth for Hologic’s existing products. He described At a time when many NovaSure as a multibillion dollar device companies opportunity in which the company had barely scratched the surface. wait for a significant He said that currently, 300,000 to sales ramp-up before 350,000 women are treated for some form of abnormal or dysfuncplunging into an tional bleeding each year, but that acquisition, Hologic five to seven million women in the US suffer from those conditions. The moved early. company plans to launch a directto-consumer campaign for NovaSure next year, an effort bound to increase sales for MyoSure as well, since fibroids are also responsible ultrasound, microwave or other forms of for abnormal bleeding. energy to non-invasively shrink fibroids, Hologic clearly had reason to buy, and MyoSure definitively removes the growths presented Interlace investors with enough and makes tissue available for biopsy. The product thus serves three goals in incentive to sell. Interlace had raised an emerging interventional gynecology $32.5 million in three rounds with a group specialty; it offers an in-office procedure of investors that includes Baird Venture providing work flow efficiencies for doc- Partners, HLM Venture Partners, H&Q tors, convenience for patients, and a Capital Management, Aperture Venture uterus-sparing procedure. (See “Building Partners, New Leaf Ventures, and Spray Interventional Gynecology,” START-UP, June Venture Partners. Michael Liang, PhD, a partner at Baird Venture Partners, notes 2010.) MyoSure is designed to remove sub- that Interlace had only been in the Baird mucosal fibroids, a condition that affects portfolio for a year and a half before the approximately five million women in the company got to enjoy this nice exit. US. The device was cleared by the FDA [A#2011800016] – Mary Stuart under the 510(k) process in October 2009. Interlace unveiled a limited launch last year but will now be able to accelerate

Gynecologists generally have the opportunity to perform in-office procedures for three indications: abnormal uterine bleeding, permanent contraception and uterine fibroids. Hologic Inc., had supplied its 460 medical device reps in the US – the largest force in women’s health – with the tools to perform two of these procedures, NovaSure for women experiencing heavy bleeding, and an implantable contraception product called Adiana, both products acquired when it bought Cytyc Corp. in 2007. But Hologic reps couldn’t offer the third piece of the puzzle, an in-office treatment for fibroids, a gap which, until now, hasn’t been filled by any product on the market. Hologic is filling in the missing piece with the acquisition of privately held Interlace Medical Inc., a start-up developing MyoSure a minimally invasive resection device for submucosal fibroids. Hologic has agreed to pay $125 million plus future earn-outs based on revenues for the venture-backed start-up. Interlace set out, in 2006, to design a device for interventional gynecologists to meet the rising demand for minimally invasive outpatient procedures for the physician’s office. Existing devices for the treatment of fibroids fell short. Ultrasound-based procedures required significant capital and several hours per procedure. Hysterectomies, in the eyes of many doctors, went too far to treat most benign pathologies plaguing women, and hot loop resection was a procedure requiring such a high degree of skill to avoid its risks that it was only done in small volumes. A newer option was uterine artery embolization, but that procedure required angiography and the services of an interventional radiologist. After polling gynecologists, Interlace came up with a product that could work with ionic distention fluid, would mechanically cut and remove the tough and fibrous tissue, provide safety advantages to avoid collateral tissue damage, and keep the working site free of morcellated tissue. The result was MyoSure (it’s probably no coincidence that the so-named product sounds like a nice companion to Hologic’s NovaSure). Interlace, which has adopted the slogan “Life Uninterrupted,” describes a procedure that can be done in the familiar environment of the office of a patient’s Ob/Gyn. Myo14

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aroundtheindustry Pharmaceuticals

NPS Pharmaceuticals Stages A Second Act Five years ago, NPS Pharmaceuticals Inc. received an FDA “approvable” letter for its osteoporosis candidate Preos (parathyroid hormone), a regulatory action that sent the company into a tailspin of cost cuts and downsizing. Now the Parsippany, NJ-based specialty pharma is gearing up for a second shot at the commercial market. Unlike in 2006, when NPS was focused on therapies for big primary care indications, however, the company believes success will come from a focus on niche gastrointestinal and endocrine disorders. N PS’ tale is as old as the biopharma industry, but rather than pushing ahead with the development of Preos in osteoporosis or in-licensing a new molecule in that same area of therapeutic expertise – or for that matter becoming a mere royalty shell, as it could have – the company saw an opportunity to reinvent itself by focusing on rare diseases. To eventually become profitable marketing drugs for niche indications, however, the entire business had to be reorganized and, importantly, reduced. Switching gears to rare diseases isn’t altogether surprising. The rare disease business model – proven to work by biotechs and specialty pharmas like Genzyme Corp. and Shire PLC – is attracting more attention from drugmakers faced with increased market fragmentation, payor pushback, heightened regulatory hurdles and growing generic competition. Even Big Pharma is taking interest, though large organizations like Pfizer Inc. and GlaxoSmithKline PLC may or may not have the skills or receive the necessary payor acceptance to sell expensive drugs to small patient populations. (See “Orphaned No Longer: Big Pharma Embraces Drugs for Niche Markets,” IN VIVO, February 2010.) Except for its name, virtually nothing about NPS, which got its start in the early 1990s and went public in 1994, is the same as during the Preos days. Most of the employees, including president and CEO Francois Nader, MD, who took the helm from N. Anthony Coles in March 2008, are new to the firm. Only about six employees remain from the company’s former incarnation. The company has shifted primarily to an outsourcing model, employing only 63 people versus the 400 it once had on staff, although it has two drugs in late-stage development. And importantly, the company is developing drugs for rare diseases, rather than large therapeutic areas like osteoporosis. NPS has managed to bring two drugs into Phase III testing since the disastrous regulatory decision on Preos in 2006. It is planning regulatory filings for both in 16

If NPS is able to get the two drugs to market as planned, the company will be able to return value to shareholders, making up lost ground by repurposing its existing pipeline.

the next 18 months: Gattex (teduglutide) for short bowel syndrome and what was once Preos, now known as NPSP558, for hypoparathyroidism. Both indications affect only a few thousand patients in the US, with the company projecting peak sales of $350 million and $250 million, respectively. If NPS is able to get the two drugs to market as planned, the company will be able to return value to shareholders, making up lost ground by repurposing its existing pipeline. The company still has a lot of ground to cover, however. NPS was trading at around $14 back in 2006 ahead of the Preos “approvable” letter. The stock plummeted in the days following the news, and then hovered around $5 – with a few exceptions – until April 2010 when successful financing initiatives and late-stage pipeline progress started to pay off with investors. Since then, NPS’ share

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

price has steadily crept up, opening the new year at $8 January 3. To create NPS anew, the management team, including Nader, who joined the company in 2006 as executive vice president and chief operating officer, took a hard look at the portfolio and reprioritized the development programs. “I saw an opportunity and saw that the pipeline could be very interesting, but it had to be thought through differently,” Nader says. The company ultimately opted to close discovery operations, shutting down facilities in Salt Lake City and Toronto. Then it shuffled the pipeline, pushing Gattex, a drug that had been in early clinical development for short bowel syndrome, to the front burner, and repositioning parathyroid hormone as a treatment for a serious rare disorder, hypoparathyroidism, rather than osteoporosis. “We got to rare diseases by design,” Nader says, when explaining the logic behind the company’s decision to pivot. Management came to the conclusion that it was wiser – and almost certainly more cost-effective – to leverage programs already under development that had apparent utility in smaller indications with high unmet medical need. “We wanted to be different,” he says. “We wanted to run a development program with limited competition and most importantly, we wanted to be in an area where the patients needed the product.” To fund NPS’ reincarnation, the firm took several steps in 2007 that together raised more than $275 million. In addition to divesting non-core assets and facilities, it licensed ex-US rights to Gattex to Nycomed International Management GMBH for $10 million up front. Nycomed is also partnered with NPS on NPSP558. It also partially monetized the 10% royalty it receives from Amgen Inc. for the hyperparathyroidism drug Sensipar (cinaclacet), which generated around $650 million in sales in 2009. That drug netted NPS $96 million, which went to pay down debt. (The Sensipar royalty stream is expected to return to NPS in 2013, offering another important mid-term revenue opportunity.) Finally, NPS completed two additional

aroundtheindustry financings in 2010 through the sale of common stock, netting $97.7 million combined, though the transactions were dilutive in that they added to the share count. The company also sold its royalty stream from Regpara (cinacalcet HCI), marketed in Japan by Kyowa Hakko Kirin Co. Ltd. (a division of Kirin Holdings Co. Ltd.), for $38.4 million to a fund managed by DRI Capital, Inc. The company had received $3.5 million from the Regpara royalties from its launch in Japan in the first quarter 2008 until it the stream was monetized in March 2010. The upshot? NPS ended the third quarter of 2010 with $154.2 million in cash and equivalents, a runway Nader says will take the company out 18 to 24 months, and at least through the filing of Gattex, expected in the third quarter of 2011, and perhaps to the filing of NPSP558 as well, targeted for mid-2012. The real test for NPS, however, will be commercializing the drugs profitably. Given that the two drugs represent unique opportunities in indications for which FDA approved treatments don’t exist, they represent opportunities for the resurrection of NPS. Gattex is a recombinant analog of human glucagon-like peptide 2, a protein involved in the rehabilitation of the intestinal lining that works by growing the absorptive area of the gut and slowing the transit of nutrients. It’s being developed for people who have had a short bowel resection and thus rely on parenteral nutrition (PN), a population numbering just 15,000 patients in North America. The Phase III clinical trial, STEPS, which measures the ability of Gattex to reduce PN in patients, is now fully enrolled with 86 patients; data from the trial are expected in the first quarter of 2011. Earlier data have shown the ability of Gattex to reduce PN by 50%, and some 10% of patients were able to come off PN altogether. Thus, Nader believes Gattex treatment represents a compelling pharmacoeconomic story too. That’s important because it will be priced at a premium given the orphan nature of the disease. PN alone can cost upwards of $100,000 a year, and patients are often hospitalized with central line infections and eventually face liver disease. “The value is relatively straightforward,” Nader said. “Our health economic story is much easier than for someone who is developing the twelfth anti-diabetic drug.”

Hypoparathyroidism also is a rare disorder affecting about 65,000 patients in the US, in which the body produces insufficient levels of parathyroid hormone, according to NPS. Parathyroid hormone is important to maintain normal calcium levels in the blood, and absent or low calcium causes hypocalcemia, which can cause serious muscle cramping and convulsions. “When we received the approvable letter for Preos, it hit us, there is a condition called HPT, where patients lack the hormone and we happen to have one,” Nader said. “Put one and one together and all of a sudden you have a hormone replacement therapy in a rare disease where there is no other treatment.” FDA’s issue with Preos for osteoporosis was incidence of hypercalcemia, in which patients have too much calcium in the blood. That, however, turned out to be “a blessing for the second indication,” Nader pointed out. Patients with HPT are currently treated with vitamin D and calcium supplements, with some having to take up to 50 pills a day, the company said. NPSP558 is being studied for HPT in the REPLACE study, enrolling approximately 110 patients, with data expected in the fourth quarter of 2011. “Today, the priority of our teams is to get these two drugs to the finish line. That is priority one, two, three, four and five,” Nader says. The company plans to commercialize both drugs on its own in North America, given the narrow patient and prescriber populations, while Nycomed retains rights in other territories. The next aim for NPS will be to expand Gattex to additional indications. According to Nader there are about half a dozen additional gastrointestinal indications that could be explored, such as chemotherapyinduced mucositis. If NPS can successfully transition into a drug marketer with two commercial products, the company’s grander ambitions call for in-licensing additional clinical-stage assets that fit the same profile, drugs that address rare diseases in GI and endocrinology. But NPS has a ways to go before hitting that phase of its life cycle. Getting two drugs to market is the main show for now. [A#2011800017]

– Jessica Merrill

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Top Stories of 2010: Biopharmaceuticals

biopharmaceuticals:

A Look Back At 2010: In Search Of New Biopharma Models by The EBI biopharma Team

2010 was a year of transition, filled with the exploration of new industry models. Health care reform hinted at short-term pain and long-term gain while investment, R&D and commercial challenges combined with a heightened sense of industry desperation to bring out biopharmaâ&#x20AC;&#x2122;s creative side. But as with any experiment, there is ample risk of failure.

S tories

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| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Top Stories of 2010: medical devices TK

medical Devices:

Waiting For The Other Shoes To Fall For much of the device industry, 2010 also felt like a transition year, breeding uncertainty in a number of important areas, including the economy, health care reform, and impending changes to the 510(k) process. by The EBI Medical Device Team

Of 2010

Device companies often talk about the challenge of developing technology that is safe and effective enough to convert so-called watchful waiters – prospective patients who have chosen to forego existing therapy while hoping for a new, improved approach to become available. In 2010, many device industry executives themselves became the watchful waiters on several key fronts. Most notably, areas such as the gradual improvement in the economy, the passage of health care reform, and the much-discussed prospective changes to the 510(k) process are all examples of trends that will significantly impact the industry; the only question is when?

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Top Stories of 2010: Biopharmaceuticals

a Look back at 2010: in search of new biopharma models

he dealmaking trends of 2010 solidified patterns that first surfaced in 2009 (minus the megamergers): risk-sharing deal structures, an emphasis on diversification and emerging markets, and earlier access to new products and technologies. CVRs became a household acronym and – as Sanofi-Aventis’ continued attempts to buy Genzyme Corp. clearly demonstrate – have moved well beyond acquisitions of private biotechs. Options were once again de rigueur. Aside from the increased familiarity with an important deal structure was greater awareness of reimbursement issues and a renewed emphasis on the kinds of innovation that can find lower tier formulary placement. Perhaps as a direct extension of that awareness, companies continued to emphasize their ambitions to focus on unmet medical need – in some cases drawing industry’s largest companies to build up presence in niche or rare diseases that had previously been attractive markets only to small biotechs. The passage of health care reform in the US in the form of the Affordable Care Act – setting aside for the moment the possible legal challenges to that law and the stated goal of the Republican party to overwrite or repeal the legislation – as well as the specter of price controls in Europe directed attention to emerging market deals. Stacks of un-repatriated overseas cash didn’t hurt either. (See “Health Care Reform: For Biopharmas, There Is Much To Like,” IN VIVO, April 2010.) Pharma also continued to experiment with new R&D models in 2010 as several large companies embraced the same smalleris-better ethos that GlaxoSmithKline PLC previously pioneered with its CEDDs and now even smaller DPUs. (See “Putting The Pieces Together Again: GSK Creates End-to-End Business Units,” this issue.) AstraZeneca PLC– now led by former Pfizer Inc. research chief Martin Mackay – has its iMEDs. Further afield of the mainstream, Eli Lilly & Co., with ex-AZ’er Jan Lundberg running research, is tapping into the start-up zeitgeist via collaboration with three venture funds while seeking reinforcements in diabetes via an interesting tie-up with Boehringer Ingelheim GMBH. (See “Lilly/BI Eye Diabetes Leadership In Expansive Risk-Sharing Collaboration,” “The Pink Sheet DAILY,” January 11, 2011.) And Pfizer – now led by Wyeth’s Mikael Dolsten – at the end of the year became the big pharma on campus at an already industrybesieged UCSF. It has also hinted that there is much more to come from its university partnership strategy. (See “As Pfizer And UCSF Tighten Ties, More Deals With Academia Could Follow,” IN VIVO, December, 2010.) The coming year will be in many ways the end of a pharmaceutical era as Lipitor (atorvastatin), Zyprexa (olanzapine), and Plavix (clopidogrel) lose patent exclusivity in the US. The R&D experiments of 2010 won’t yield data to ease the industry into a post-cliff world of greater innovation or better R&D productivity, a reason so many companies are doing deals that hew closer to industry’s increasing interests in diversification into generics and emerging markets. What’s perhaps most interesting to watch for is whether companies will stay the course, or evolve further in the face of investor discontent and post-cliff revenue realities. Some observers like Morgan Stanley’s Andrew Baum have already suggested pharma

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Continued from>> 18

is no longer fit to conduct their own research and should leave that task to the better-suited biotechs the larger companies are trying so hard to emulate. Certainly pharma’s stated willingness to out-license assets is a step in that direction. Will 2011 be the year that pharma backs up its out-licensing rhetoric with more than a handful of alliances and spin-outs? There are plenty of companies and funds ready to line up for those assets. (See “With Pharma Ready To Pare Portfolios, Project Financing Funds Make Their Pitches,” IN VIVO, June 2010.) Here IN VIVO recaps some of last year’s defining trends that continue to shape the industry in 2011.

When Sharing Risk Means The Risk Is Yours When it came to dealmaking in 2010, it felt like biotech was getting the short end of the stick. To be sure, there were some impressive outliers. Abbott Laboratories Inc.’s $450 million up-front payment to Reata Pharmaceuticals Inc. for ex-US and ex-Asia rights to the chronic kidney disease candidate bardoxolone will likely remain at the top of the heap for some time. AstraZeneca paid $100 million up front for worldwide rights to then-Phase II oral syk inhibitor from Rigel Pharmaceuticals Inc. in February 2010 and has already made one $25 million milestone payment to the biotech. Looking at these deals and a few other recent data points and headlines, it’s tempting to suggest overall deal up fronts are on the rise – but the reality is more complex and less buoyant. (See “Reata’s $450 Million Up-Front Haul Sets A Record But Remains An Outlier,” IN VIVO, October 2010.) In general terms, pharma is largely attempting to push more risk back onto its biotech partners, and to a large extent, it is succeeding. And this has translated into a tighter grasp on pharma dollars, and declining up-front payments for earlier-stage products. (See “Pharma: Serious About Change?” IN VIVO, October 2010.) Evidence of belt tightening is most obvious in acquisitions of private biotechs: VCs are seeing lower-than-ever down payments for their portfolio companies (at least as measured by multiples of dollars invested) while the real value of these acquisitions is increasingly tied up in earn-out payments, or Contingent Value Rights. This isn’t new. IN VIVO has harped on the CVRs-in-biotechdeals trend going back as far as Pfizer Inc.’s 2005 acquisition of ophthalmology play Angiosyn. (See “Pfizer/Angiosyn: Building Biotechs for Device-style Early M&A,” IN VIVO, February 2005.) But the once now-and-then phenomenon has become the norm. In 2009, ten of the 15 private acquisitions we tracked involved a CVR component – at 67% the highest ever percentage. In 2010 that figure rose again: at least 19 out of 25 private biotech buyouts (76%) included an earn-out. (See “Biotech Backers Are Learning To Live With Exit-By-Earn-Out,” START-UP, March 2010.) The trend is also spreading to larger deals – Celgene Corp.’s $2.9 billion acquisition of Abraxis BioScience Inc. sports a tradable CVR payable after the solid-tumor drug Abraxane hits certain milestones.

VCs Go For The Sure(r) Thing What does this “enhanced risk-sharing technique” mean for the VC model? Certainly fewer venture funds have been able to

Top Stories of 2010: Biopharmaceuticals TK

Average Up-Front ($M)

raise cash as the long tail of the financial meltdown takes a toll. lion and $10 million respectively, bare minimum the consortium What’s more, even those VCs with dry powder thanks to freshly deal should pull in $55 million for Ablexis. raised funds and a penchant for investing in big science have And when it does, investors can head for the exit sign. As looked to creative new models designed to provide quicker exit Larry Green, CEO of Ablexis said in an interview “the back-end opportunities. At the same time, companies have been happier obligatory payments by licensees provide a very attractive return to forgo extra development cash (or forego development enfor our investors.” In other words, Green and company aren’t tirely) to return cash to venture investors ahead of a traditional waiting for a traditional “exit” event to disburse investors’ cash, liquidity event. but will return the money based on investors’ relative ownership Exhibit A in this regard happens to be the newly minted IN VIVO stakes. Such is the reason for the company’s LLC structure – a tax Blog Exit/Financing deal of the year, which involves an intriguing advantageous arrangement for the company’s investors that has consortium partnership arranged by the next-generation antibody been embraced by Adimab as well and will likely become more discovery play Ablexis LLC, which counts as one of its backers commonplace among new biotechs. Third Rock Ventures, which raised its $400 million second fund Companies pursuing the more traditional development route in September 2010. have also wangled ways to return cash to shareholders before a As the emphasis within the industry on capital efficiency traditional liquidity event. Knopp Neurosciences Inc. (a divistrengthens, finding mechanisms to cut the biotech burn rates sion of Knopp Biosciences LLC) received $80 million (one part while building enough value to move a company to that highly cash, three parts equity) as an up-front payment from partner elusive “inflection point” has in some part replaced big bets on Biogen Idec Inc. for worldwide rights to the ALS candidate big science. For VC-backed companies that certainly means do- KNS-760704 (dexpramipexole) and returned an undisclosed ing more with less, and making hard choices early on. (See “In amount to its venture backers. Incline Therapeutics Inc. The Midst Of A Shakeout, Biotech VCs Must Embrace New Partners, drew a dotted line to its own investors’ exit on the day it was New Math,” START-UP, September 2010.) In some cases, this has founded. The company, which is making improvements to an led to what can only be called a heretical choice: eschewing drug approved-but-never-marketed pain patch originally developed development in favor of cutting platform-related deals. Ablexis by Alza, sold to Cadence Pharmaceuticals Inc. an option to (alongside fellow antibody discovery play Adimab Inc.) falls into buy the company at two points between now and 2013. (See this very select group. The problem, of course, is the value of “Cadence, VCs Relieve J&J’s Pain, Map Out A Clever Exit In The platform deals has been steadily falling since the heady days when Process,” START-UP, July 2010.) Alnylam Pharmaceuticals Inc. was inking RNAi deals with the likes of Roche and Novartis AG. (See Exhibit 1.) That certainly makes Pharma M&A: Innovation And Reality it tough to build a viable revenue stream. But it’s an even bigger In 2010 there were no mega-mergers per se (though as IN VIVO problem for venture-backed companies. Indeed, the absence of a goes to press Sanofi-Aventis is reportedly wooing Genzyme with a healthy IPO market and the shift in deal making from acquisitions CVR-enabled $76 per share offer), but pharma acquirers (including to alliances means providing investors with the opportunity of a large biotechs and large specialty players) still managed to spend near-term exit is nearly impossible for these so-called platform- more than $25 billion in disclosed acquisition dollars. Perhaps only, no development (POND) companies, making Ablexis’ feat for the first time ever, according to data from Elsevier’s Strategic most impressive. Exhibit 1 Ablexis, which is developing a next-generation antibodyAverage Up-Fronts For Platform, Preclinical And Phase I Products discovery platform around its From 2007 To 2010 proprietary AlivaMab mice, was founded in December 2009 and raised a $12 million Series A from 60 Third Rock and Pfizer Venture Investments in June 2010. (See “The A-List,” START-UP, January 50 2011.) An evolution of the Abgenix strategy, Ablexis aims to be a 40 technology provider, making its 2007 souped-up mice available to all 30 2008 comers, regardless of the specific antibody target of interest. To 2009 20 enter the consortium, participat2010* ing drugmakers had to pay an undisclosed and non-refundable 10 seven-figure fee just to get in the door. Furthermore, once Ablexis 0 delivers the mice, each pharma Platform Preclinical Phase I co owes an additional eight-figure sum. Even if the up-front and *Through October milestone payments were $1 milSource: Elsevier’s Strategic Transactions

Top Stories of 2010: Biopharmaceuticals

Transactions the total cash these companies spent on companies with primarily generic product offerings roughly equaled their spend on companies marketing novel therapeutics. (See Exhibit 2.) This shift is largely due to pharma’s continued embrace of emerging markets and the related realization that brand recognition – even and especially for off-patent products – can mean that more dollars can be wrung out of mature products in these emerging economies. If R&D experiments don’t pan out, some pharma are positioning themselves as broad-based health care plays in emerging markets and doing what they can to improve their margins in these territories. That non-US and non-European markets were Big Pharma’s focus is unsurprising – the land grab in Asia and Latin America began well before 2010 and was a trend we highlighted last year. (See “Biopharma Trends: Nowhere To Go But Up,” IN VIVO, January 2010.) Pharma’s willingness to sacrifice margin for volume – at least in terms of where it spends its acquisition dollars – is a strategy that both reflects the difficulty these companies face in their traditional strongholds (European price controls and health reform and worldwide patent cliffs) as well as a dearth of mature, innovative assets. Of 2007-2010’s 18 deals that fit into this category, half were done by either Sanofi or GlaxoSmithKline. Perhaps the biggest splash in 2010 however belonged to Abbott Laboratories Inc., whose $3.7 billion May 2010 acquisition of Piramal Healthcare Ltd. made it the largest pharmaco in India. Pfizer, meanwhile, inked a $200 million up-front deal around biosimilar insulins with India’s Biocon and added to its presence in Brazil via a $240 million down payment on the eventual acquisition of the generics firm Laboratorio Teuto Brasileiro SA. Even as pharma deal dollars were focused on emerging economies and off-patent branded generics that are the basis of success in many of those markets, several large companies aimed to prove they could make a business out of high-priced niche markets at home, too. (See “Orphaned No Longer: Big Pharma Embraces Drugs For Niche Markets,” IN VIVO, February 2010.) This newfound focus on orphan or even ultra-orphan diseases by some of industry’s Exhibit 2

What’s Pharma Buying? Total Acquisition By Development Stage 2007-2010

Generics Marketed Novel Tx Phase III/ NDA Phase II Phase I Preclinical

SOURCE: Elsevier’s Strategic Transactions

biggest players is one attempt at tapping into payor-friendly innovation, and perhaps a belated recognition on some companies’ parts that small populations can drive blockbuster profits. GSK – an ‘early’ mover among big companies here if there is one – neatly embodies the trend via its October 2010 deal with Amicus Therapeutics Inc. around the Phase III Fabry disease candidate Amigal (migalastat). The deal was the Big Pharma’s fifth in the rare disease space in just over 12 months. Meanwhile those companies that have digested large mergers turned their attention to rationalizing pipeline and infrastructure (for example Roche’s “operational excellence” initiative). Eli Lilly, busy digesting clinical and regulatory disappointments from 2010 rather than a larger merger, has shown signs of creativity at both ends of the R&D spectrum. In September the company announced it would put $150 million to work backing three traditional venture funds to build companies around Lilly assets. (See “Lilly’s Evolving Corporate Venture Model,” START-UP, October 2010.) And in early January Lilly announced it was teaming up with private German pharma Boehringer Ingelheim in diabetes. The two companies are swapping co-development rights across four compounds in a complex deal that effectively merges the companies’ late-stage metabolic disease pipelines. Each company has stated its distaste for large scale M&A and this alliance allows Lilly and BI to spread late-stage risk.

Pharma Goes Back To School

Pfizer’s five-year, $85 million commitment to fund academic research at University of California, San Francisco is the company’s latest and largest push into the so-called Valley of Death that lies between the university laboratory and the commercial sector. The struggle to translate academics’ novel research into viable, life-saving medicines is one that’s captured the imagination of many in Big Pharma. In a trend that started in 2009 and gained traction in 2010, drugmakers are increasingly looking to partner with academia in hopes of injecting innovation into their pipelines. Think Sanofi/Harvard University, AstraZeneca/University College London, or Genentech/UCSF. But those tie-ups pale in comparison with Pfizer’s alliance with UCSF, itself just the opening gambit in a much broader attempt to tap into university research early, in the process cutting out venture-backed Spend biotech start-ups. Like other Big Pharmas, Pfizer has inked deals with universities before, and even established a presence on UCSF’s campus 2010 when it launched its Biotherapeutics & Bioinnovation Center in 2008. Still, the UCSF deal and those IN VIVO has learned will follow are more expansive, closer-knit arrangements. For Pfizer, the agreements offer access to research at the point of creation, joint ownership of drug candidates (thought to be split 50-50 with UCSF), and options to develop compounds internally after Phase I trials are completed. The university will receive royalties or other payments as the drugs march bravely toward commercialization, while also receiving a view into Pfizer’s library of antibodies, reagents and other compounds.

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Top Stories of 2010: Biopharmaceuticals TK

In conjunction with the UCSF deal, announced November 16, Pfizer appointed former AstraZeneca exec Anthony Coyle to lead its newly created Global Centers for Therapeutic Innovation, which will marshal troops into various academic centers around the world. Coyle promised more on-campus deals, including collaborations in Europe and Asia over the next couple of years. With regard to UCSF, about 20 Pfizer employees will set up in a private office on the UCSF campus. The school, in turn, will hire additional management to oversee the collaboration and bring in postdocs and other researchers as needed. A steering committee of four members each from Pfizer and UCSF will distribute funds and resources. While it may focus primarily on large molecules, the collaboration isn’t limited to any therapeutic area, nor is UCSF obligated to steer clear of additional agreements that could create competition among pharma partners for projects within its halls. Researchers can still opt out of Pfizer’s grasp, and if the company declines its option on a drug, UCSF is free to negotiate with others. But Pfizer’s influence will be strong on campus, and if the partnership succeeds – which it will if it produces a single marketable compound – other pharmas will surely follow. And Pfizer isn’t the only

pharma in town; Bayer set up shop next to UCSF’s Mission Bay campus in late 2010 and Sanofi struck a deal with the university in January 2011.

Not Just Drugs As new discovery and early development strategies take hold in 2011 (and old strategies are reinforced: Amgen Inc. said at this year’s JPMorgan meeting that it would “meaningfully” expand discovery research in 2011) it’s worth noting that for many companies, small molecules and biologics are increasingly just part of the offering. Sanofi-Aventis’ efforts to bolster its metabolic disease and specifically diabetes franchise is not just about drugs, not just about building a medicines portfolio to support Lantus and its upand-coming GLP-1. (See “Personalizing Patient Care: Sanofi Recasts Its Diabetes Efforts,” IN VIVO, July 2010.) The company also aims to be an end-to-end solutions provider, supplying new tools and services, such as blood glucose monitoring, in an effort to help patients better manage their disease. And so the March 2010 tie-up with AgaMatrix Inc. to codevelop blood glucose monitoring devices adds a new dimension

Exhibit 3

2010’s Top Dollar Biopharma Acquisitions Acquirer

Target

Price

Description

Merck KGAA

Millipore

$7.2 billion

Merck boosts its laboratory business and US presence through the acquisition of Millipore, a leading bio research products, services and manufacturing firm.

Teva

ratiopharm

$5 billion

The blockbuster generics deal significantly bulks up Teva’s presence in Europe, especially Germany where ratiopharm was the number two generics player.

Grifols

Talecris

$4 billion

Creating the third-largest plasma products company in the world, Talecris, the ex-Bayer plasma products business, is bought by Spain’s Grifols only a year after the smaller company’s IPO.

Abbott Labs

Piramal Healthcare

$3.7 billion

In a deal that makes Abbott India’s largest pharma player, the Big Pharma is significantly boosting its established products business with the acquisition of India’s Piramal Healthcare.

Pfizer

King

$3.6 billion

Pfizer paid a 42% premium to wrap up King, a purveyor of pain therapies, injection devices, and animal health products.

Celgene

Abraxis

$2.9 billion plus earn-outs

The price Celgene is paying to acquire Abraxis and move into solidtumor therapies with that company’s Abraxane therapy could increase significantly based on that drug’s future regulatory and commercial success.

Astellas

OSI Pharma

$3.5 billion

After an initial friendly and then hostile bid, OSI held out for a $3.5 billion deal that sees Astellas make a big move in bulking up its US oncology presence in landing OSI’s Tarceva.

Biovail

Valeant

$3.3 billion

This merger of near-equals builds on each company’s specialist CNS presence builds on each company’s specialist CNS presence and branded generics business.

Johnson & Johnson

Crucell

$2.2 billion

J&J finishes what it started when it took a 17% stake in the European vaccine maker Crucell in 2009.

Endo

Qualitest Pharmaceuticals

$1.2 billion

In a move that epitomizes specialty and large pharma interest in generics plays, Endo takes out Qualitest, the sixth largest private generics player in the US.

Top Stories of 2010: Biopharmaceuticals

2010’s Notable Drug Launches After several years of either niche or me-too drug launches, 2010 brought an encouraging wave of new molecular entities and novel biologics to market, including several first-in-class drugs addressing large therapeutic areas. Among the year’s promising new first-in-class drugs are Novartis AG’s Gilenya (fingolimod), a sphingosine 1-phosphate receptor modulator that is the first oral treatment for multiple sclerosis; Dendreon Corp.’s Provenge (sipuleucel-T), the first cancer immunotherapy approved for prostate cancer; Boehringer Ingelheim GMBH’s Pradaxa (dabigatrin), a direct thrombin inhibitor and the first new oral anticoagulant in more than 50 years; and Amgen Inc.’s Prolia/Xgeva (denosumab), the first RANK ligand

inhibitor, approved for osteoporosis and skeletal-related adverse events in patients with solid tumor bone metastases. But 2010 also saw the launch of second-in-class or follow-on drugs that have gotten off to a decent start. Interestingly, some of the year’s strongest launches, based on the few months’ data available, have been follow-on opportunities: Pfizer Inc.’s pneumococcal vaccine Prevnar 13, Sanofi-Aventis’ chemotherapy Jevtana (cabazitaxel) and Novo Nordisk AS’ once-daily GLP-1 inhibitor Victoza (liraglutide). Despite the failure of some recent second-in-class drugs to gain early traction, these drugs offer efficacy or convenience benefits that could be driving faster uptake. Sales of certain new drugs are tracking at a blockbuster trajectory, with some

to a broad dealmaking endeavor in the space designed to “look beyond the molecule and focus on the full algorithm of diabetes. We are aiming at comprehensive, integrated solutions that provide flexibility and choice,” according to Pierre Chancel, SVP and diabetes franchise head. And Sanofi isn’t the only company aiming to build this type of end-to-end solution. Endo Pharmaceuticals Holdings Inc. is another company that is building service offerings and non-pharma solutions around a particular point-of-call. Thus a transition away from selling drugs toward selling pelvic health. The company’s May 2010 acquisition of urology services company HealthTronics Inc. epitomizes the approach. At the outset of 2011, by and large the industry’s larger biopharma firms have set in motion their latest attempts to transform their business models. But whether it’s radical transformations of R&D, waking up to the potential of biosimilars, expanded externalization efforts, broad risk-sharing commercialization pacts or newfound emphases on collaboration with payors, it’s impossible to see these campaigns bearing fruit in the short span of twelve months. And so 2011 will be a year of tea-leaf reading by R&D watchers, the year we wait, probably in vain, for data on pharma’s latest business model experiments. And perhaps for a few more to start. Sanofi started its own experiment in 2009, and in mid-December 2010 named former NIH director Elias Zerhouni as its new chief of R&D. Thus, at this January’s JPMorgan Health Care Conference, CEO Chris Viehbacher promised a “radical” reorientation for Sanofi research. “We’ve done an awful lot on ‘D,’ taking costs out and executing well on clinical trials,” he said. Alas, “‘R’ is completely different,” he noted, before posing a question to the industry. “Has the entire science community gone down the wrong path? Just because it works in mice doesn’t mean it demonstrates proof-of-concept. Yet the scientific community is focused on mice. While we are in animal health, the mouse market is limited.” Promising that “we need a completely different approach to R&D,” it appears that

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

already outperforming initial sales of the 2009 blockbuster hopefuls (Eli Lilly & Co. and Daiichi Sankyo Co. Ltd.’s blood thinner Effient (prasugrel), Johnson & Johnson’s Simponi (golimumab) for rheumatoid arthritis, Bristol-Myers Squibb Co. and AstraZeneca PLC’s Onglyza (saxagliptin) for type 2 diabetes and Sanofi’s antiarrhythmic Multaq (dronedarone), all of which got off to a slow start and still have a long way to go to reach blockbuster status. By approval numbers, the statistics are lower, though some of the 2010 drugs seem to address larger markets. FDA approved 16 new molecular entities and 12 novel biologics and vaccines in 2010, down from the 34 novel drugs and biologics approved in 2009.

some of the biggest news coming out of Sanofi in 2011 may be additional changes to the R&D organization to get at that squishy but important metric of building an innovation culture. [A#201180004] comments:

Email the editor: C.Morrison@Elsevier.com

related reading Putting The Pieces Together Again: GSK Creates End-to-End Business Units, IN VIVO, January 2011 [A#2011800007] The A-List, START-UP, January 2011 [A#2011900003] Lilly/BI Eye Diabetes Leadership In Expansive Risk-Sharing Collaboration, “The Pink Sheet DAILY,” January 11, 2011 [A#14110111003] As Pfizer And UCSF Tighten Ties, More Deals With Academia Could Follow, IN VIVO, December, 2010 [A#2010800196] Lilly’s Evolving Corporate Venture Model, START-UP, October 2010 [A#2010900216] Pharma: Serious About Change? IN VIVO, October 2010 [A#2010800157] Reata’s $450 Million Up-Front Haul Sets A Record But Remains An Outlier, IN VIVO, October 2010 [A#2010800163] In The Midst Of A Shakeout, Biotech VCs Must Embrace New Partners, New Math, STARTUP, September 2010 [A#2010900180] Cadence, VCs Relieve J&J’s Pain, Map Out A Clever Exit In The Process, START-UP, July 2010 [A#2010900175] Personalizing Patient Care: Sanofi Recasts Its Diabetes Efforts, IN VIVO, July 2010 [A#2010800119] With Pharma Ready To Pare Portfolios, Project Financing Funds Make Their Pitches, IN VIVO, June 2010 [A#2010800099] Health Care Reform: For Biopharmas, There Is Much To Like, IN VIVO, April 2010 [A#2010800072] Biotech Backers Are Learning To Live With Exit-By-Earn-Out, START-UP, March 2010 [A#2010900061] Orphaned No Longer: Big Pharma Embraces Drugs For Niche Markets, IN VIVO, February 2010 [A#2010800023] Biopharma Trends: Nowhere To Go But Up, IN VIVO, January 2010 [A#2010800005]\ Pfizer/Angiosyn: Building Biotechs For Device-Style Early M&A, IN VIVO, February 2005 [A#2005800027] Access these articles at our online store: www.windhover.com/article

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Top Stories of 2010: medical devices

Top Device Stories Of 2010: Waiting For The Other Shoes To Fall

Continued from>> 19

From that perspective, 2010 could be seen as a year when the accounted for 19% of the total. That 12% share matched 2009’s glass really was half full. Signs of an improving economy appear figure. A stronger sign of improved confidence is the number of to have carried over to a rebound in device M&A activity. Stock acquisitions topping $1 billion – six deals in 2010 versus just two market gains have left many large companies flush with cash that in 2009 – while overall deals and dollars also increased. they increasingly appear willing to spend on acquisitions, including To the good, none of the $1 billion-plus acquisitions threaten some major ones. to choke the acquirer. Instead, buyers aggressively built their exist Certain key therapeutic areas also enjoyed a banner year. In ing product lines and, in some cases, bolstered flagging current interventional cardiology, transcatheter heart businesses. In November, Stryker Corp. valves have clearly arrived as the next major paid $1.4 billion to acquire the neurovasdevice market after years of promise, and in cular business of Boston Scientific and St. the process, have supplanted drug-eluting Jude Medical Inc. spent $1.3 billion for A stronger sign of stents as the hot topic in the interventional structural heart disease company AGA improved confidence community. Interest in diabetes/metabolic Medical Holdings Inc. (See “Stryker And St. disease has also remained strong, while inJude Acquisitions Signal Year-end Uptick In is the number of vestors appear to have renewed interest in Device M&A,” IN VIVO, November 2010.) acquisitions topping areas that not long ago had fallen out of favor The two deals also reflected the increased $1 billion – six deals in such as abdominal aortic aneurysms (AAAs) pressure health care costs are putting on and atrial fibrillation devices. Yet, for other device companies. Both buyers struck the 2010 versus just two sectors, 2010 was a disappointing year, most deals at least partly to secure less invasive in 2009 – while overall notably orthopedics and spine. alternatives to existing surgical procedures The resurgence in M&A activity doesn’t to capture the advantages such advances deals and dollars also mean that the economic landscape was all generally provide to payors, providers and increased. rosy, however. The IPO market remains pretty patients. Additionally, the two deals also firmly closed to device companies, which focus on life-saving therapies like stroke, continues to limit exit opportunities. rather than elective procedures, the latter The greatest upheaval in 2010 occurred in the legislative and languishing in the current economy. The deals are also intended regulatory arenas. The passage of health care reform legislation set to bolster the core businesses of both companies: orthopedics, the stage for a number of changes to be implemented in the coming in the case of Stryker, and the structural heart disease business years, while on a parallel track, Republicans gained control of the of St. Jude, which are now growing by only low single digits. House in the November elections, opening the door to potential Covidien Ltd. is enjoying the strongest growth rate among revisions to that legislation. large companies, but it, too, followed a similar diversification Perhaps the darkest clouds that hovered over the industry in 2010 path to earn its spot as the buyer that spent the most in 2010. are the impending changes to the 510(k) review process that will be The bulk of Covidien’s $2.8 billion in acquisitions went to implemented by the US Food and Drug Administration with many acquire peripheral vascular company eV3 Inc. for $2.5 billion, new faces in key senior positions, with a similar changing of the delivering depth to Covidien’s own growing vascular business. guard at CMS and other important health care government agencies. (See “Covidien Runs Familiar But Different Plays to Build Vascular Industry executives are hoping that this year of transition leads to an Franchise,” IN VIVO, June 2010.) environment of greater regulatory clarity, but only time will tell. Medtronic Inc. continued to be an aggressive acquirer, committing $1.7 billion to acquire four companies including publicly Device M&A On The Rebound held cardiac surgery company ATS Medical Inc. and Osteotech In a year of uncertainty, device M&A activity fueled optimism. Inc., a biomaterials company. Medtronic also bolstered its cardiolThe improving economic landscape was reflected in a gentle ogy business, particularly for peripheral vascular disease, with the uptick of mergers and acquisitions, a modest level of growth as acquisition of Italy’s Invatec SPA for what could amount to $500 medical device executives clearly remained cautious as a result million. Medtronic continued to show interest in earlier-stage deals of the tenuous economy and the still-as-yet-unknown eventual with large potential market opportunities. Just as with its earlier impact of health care reform (along with its controversial excise acquisitions of transcatheter heart valve companies CoreValve tax). Still, most of the major players were active acquirers and (now Medtronic CoreValve LLC) and Ventor Technologies Ltd., 2010 marked the re-entry of Boston Scientific Corp. to the M&A Medtronic last year acquired Ardian Inc., which is developing a market. (See sidebar, “Boston Scientific Is Back In The Game.”) As novel catheter-based system to control drug-resistant hypertension a result, large company business and development efforts con- and other conditions, including diabetes, through renal denervacentrated on manageable (and occasionally sizable) tuck-in deals tion. With milestones, this is a potential billion-dollar deal for a that could deliver positive growth without risk of swamping the company that has not yet entered the US market. ship. In 2010, deals in excess of $500 million accounted for only Overall, however, strategic buyers in 2010 were still generally 12% of all mergers and acquisitions, according to data collected looking for companies that were generating revenue and preferfrom BMO Capital Markets, a drop from 2007 when such deals ably approaching profitability, in an effort to minimize the amount

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Top Stories of 2010: medical devices TK

of risk they were taking on. Thirty-nine percent of the device companies acquired last year reported at least some revenue, with the largest group (18%) reporting between $25 million and $100 million in sales. The percentage of acquired companies without revenue has been dropping over the past three years, according to BMO, suggesting that buyers increasingly are looking for companies that add to their bottom line immediately.

Is A First-Mover Advantage Emerging In Medtech?

because physicians would readily switch their allegiance to new technology that was better than what they were currently using. But will such a dynamic be true going forward? Some of the newer dynamics in the device industry may challenge the historic ability of new technology to overtake existing devices. Regulatory reform and pushback from payors could make the introduction and adoption of new technology more difficult as both regulators and payors question the value of incremental enhancements. In an era of health care reform – an increasingly uncertain initiative – and comparative effectiveness, customers, too, both physicians and hospitals, may begin to push back against technology innovations that don’t appear to offer meaningful advances over existing technology. If companies are willing to pay more for more established devices, they may look more cautiously at follow-on technologies in certain spaces. And the domination of the sales and distribution channels by the big companies increases the likely success of these

The recent spate of high-priced, high-profile deals for medtech companies seems to reinforce a dynamic in the device world that start-ups and their investors love to believe in: that promising technology with a major clinical impact will be rewarded with high acquisition prices. And certainly, for all of the struggles that the start-up device community is facing, the willingness of Big Device to pay up for promising companies seems unabated. One corollary of this rule has Boston Scientific Is Back In The Game been an almost total absence of first-mover advantage in medical technology. But Boston Scientific came out of its shell in 2010, establishing itself once again as some are wondering whether, due to the a player in the buyers market. Having been quiet on the acquisition front and doconflation of a variety of factors – many ing more selling than buying recently, having sold much of its minority-investment related to health care reform and the inportfolio as well as its neurovascular business as noted above, the company acquired creased role of health care economics in two companies with which it was quite familiar, having had equity stakes in both product selection – a first-mover advantage Sadra Medical Inc. and Asthmatx Inc. Boston Scientific already owned 14% of Sadra is emerging in devices. Medical and agreed to pay up to $386 million for the rest of the transcatheter aortic Because of the absolute value of even valve company. Asthmatx was a company in which Boston Scientific had once held incremental advances in technology in shares, but it divested the equity along with dozens of other strategic investments the eyes of most doctors, the thinking as part of a streamlining plan. (See “Boston Scientific Shuffles and Sells in Bid to Right goes, holding on to top market share is Ship,” IN VIVO, December 2007.) Boston Scientific went back and acquired Asthmatx difficult and almost exclusively a function after the company had secured FDA approval for its interventional tool to treat drugof a company’s ability to continue to inresistant asthma. (See “Asthmatx Acquisition By Boston Scientific Is Source of Many novate, rather than holding a dominant Happy Returns,” IN VIVO, October 2010.) For Sadra Medical, the acquisition by Boston market position. Perhaps the best example: Scientific marked the next step in a continuing trend: large cardiovascular giants, Johnson & Johnson’s Cordis Corp. owned most notably interventional device companies, staking their claim in percutaneous 90% of the coronary stent market in 1997 heart valves. (See “Device M&A Rebound Continues: With Ardian, Sadra Deals Show and lost most of that with the entry into Appetite for Big, Early-Stage Acquisitions,” IN VIVO, December 2010.) Meanwhile, the the market in the next year by Guidant and acquisition of Asthmatx represented Boston’s effort to diversify into what the comArterial Vascular Engineering (AVE). And pany believes is the promising interventional pulmonology market. With a portion the willingness of payors and hospitals to of a $3 billion credit line established last year being dedicated to new acquisitions, pay a premium for technology advances analysts expect Boston Scientific will continue to be a buyer in 2011. again reinforced the notion that companies can leapfrog established companies if they later-stage deals. Increasingly, in a stark difference from years past, have a device physicians deem is better. That’s not to say there aren’t entrenched market share positions big prices paid for novel companies and technologies may make in high tech devices or that there’s no value to strong sales and dis- follow-on deals look less, rather than more appealing. tribution relationships. But for the most part, medtech companies earn those entrenched positions and strong relationships by their Early-Stage Deals In Decline ability to continually iterate new technology. That’s why many Whereas M&A overall appears to be on the rebound, early-stage senior device executives don’t put much value on being number deals appear to be the exception. It’s the long-time lament of one in a given technology: those who are on top today may find entrepreneurs: no one’s funding early-stage investments any more. themselves trailing the newest innovator tomorrow and vice versa. But what if they’re right? Some early-stage deals will always get For that reason, smaller rivals often cheer when a company signs done, but the number of Series A device deals continues to slide an early deal for a lot of money. And because of the absolute value down what must be considered a dangerously slippery slope. of technology advances, being first – either to market or to exit – For the third consecutive year, there has been a drop in Series A has historically been meaningless; having the right design, often investments in medical device companies, with only 21 companies by virtue of watching what went wrong with the first-generation securing rounds in 2010. (See “The A-List: 2010’s Trend-Shaping devices, is all that matters. Thus, follow-on developers of promis- Series A Financings,” in this month’s START-UP.) Terms weren’t ing technology could count on deals of similar or nearly similar available for all of the investments, but the 16 that reported terms size. Being second or even third to market was no disadvantage raised only $140 million, an 18% drop from last year’s total (which

Top Stories of 2010: medical devices

was then considered paltry compared with previous years). In terms of deal volume, the total of 21 companies raising Series As was a steep drop from the 35 securing first rounds in 2009 and the 44 that raised Series A rounds in 2008. Over that span, dollars invested dropped from $289 million in 2008, the high water mark over the past six years, to $167.5 million in 2009 to last year’s low point. What’s causing the slowdown? In a word, everything. Venture capitalists interviewed say there are too many reasons not to invest in early-stage companies, creating a level of paralysis among earlystage investors. Too many venture capital funds are running out of capital, so they’re preserving whatever dollars they do have for their own portfolio companies. Those with dollars to invest are steering them toward later-stage investments with the hope of securing a quick and easy (or quicker and easier) exit that will bolster their portfolio’s performance. In both cases, venture capitalists have one eye on raising their next fund, so their immediate goal is short-term gratification for their limited partners rather than funding the next generation of medical device companies. To be clear, the one reason to make an early investment remains viable: a first round investment gets an investor in on the ground floor of a potentially ceiling-shattering technology. NinePoint Medical Inc. represents such a potential opportunity, with Third Rock Ventures and Prospect Venture Partners committing $33 million to a company developing novel, new pathology tools that can diagnose dysplasia in tissue without a biopsy. The potential for such a technology is huge, and the capital enabled the company to license the promising technology from Massachusetts General Hospital where it was developed. But stories like NinePoint were hard to find in 2010. Venture capitalists – at least the optimistic ones – see signs of improvement in the new year, but that will only come if venture capitalists find funding for themselves first.

The Future Of Medtech: Where Private Investment Dollars Are Flowing Overall in 2010, caution was the watchword for private investors, who placed fewer dollars in fewer medtech deals compared with 2009. A total of $1.86 billion in private money was raised by medical device companies in 2010, a big drop from the $2.86 billion placed in the industry in 2009. Deal volume was down commensurately; there were 139 private medical device financings compared with 207 in 2009. Investment dollars were apportioned, for the most part, in the usual fashion, with the largest proportion going into 21 cardiovascular deals. (See Exhibit 1.) In 2010, heart valve deals were again hot, which wasn’t surprising after Medtronic Inc.’s acquisition last year of transcatheter valve companies CoreValve (now Medtronic CoreValve LLC), with that device now entering US pivotal clinical trials, and Ventor. (See “Medtronic Catapults into Transcatheter Valve Market with Billion Dollar Buys,” “The Gray Sheet,” March 2009.) Heart valves will continue to remain at the top of investors’ minds, given the acquisition of Sadra Medical by Boston Scientific for $386 million, noted above, and the impressive clinical trial results reported by transcatheter valve companies at the two largest cardiology meetings in 2010. (See “TCT 2010: TAVI Takes Center Stage,” Medtech Insight, December 2010.) Leading up to its acquisition, Sadra Medical raised $4 million in its Series D round, and four other heart valve companies (Symetis SA, Guided Delivery Systems Inc., JenaValve Technology GMBH and Valtech Cardio Ltd.) together raked in a total of $103.2 million in funding in

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

2010. Stents also stayed strong. Investors were particularly interested in companies working in some of the more difficult applications, bifurcated lesions, for example. Five stent companies raised $87.3 million, almost all of them at the Series C stage or later, many of them having made the list of the eight stent companies funded in 2009. Atrial fibrillation is another category that was popular in 2009 and remained so in 2010, on both the diagnostic and therapeutic sides of the field. Six deals accounted for $58.2 million in funding, including late-stage rounds for nContact Inc. and CardioFocus Inc. Several newer companies were funded in 2010, including Rhythmia Medical Inc., IRhythm Technologies Inc., Corhythm Inc. and Voyage Medical Inc., the latter with backing from Abbott Laboratories Inc. One new sector came to the top of the list in cardiovascular disease: four companies developing treatments for the endovascular repair of abdominal aortic aneurysms (AAAs) received funding. There is a great unmet clinical need in this space, but investors have shied away from it in recent years because of the perceived high odds – and the risks – of failure. First-generation devices that caused deaths were withdrawn from the market, casting a pall over the space. Devices for the repair of AAAs also fall into the category of high-cost PMA products. But Boston Scientific’s spin-off of TriVascular Inc. has given some positive attention to the category. (See “TriVascular’s Sequel Could Be a Blockbuster,” IN VIVO, April 2010.) TriVascular raised a $60 million series C round in July 2010. TriVascular is far along in its clinical trial, giving others a sense of what will be required. As for the spine industry, despite some concerning signs (See “Spine’s Downturn,” below.) there still is money flowing to this sector. In 2010, eight spine companies received $134.6 million in funding. The concern, however, is that only two were at relatively early stages, including SI-Bone Inc., which was spun out of Wright Medical Group Inc. to develop a minimally invasive implant to treat the sacroiliac joint in the lower back, and Ortho Kinematics Inc., which raised a series B round in support of the development of its vertebral motion analyzer. The majority of spine deals gave continued support to later-stage spine companies. In 2010, a couple of sectors saw deal volumes swell. Underpinning a future trend in connected health or patient-centric care, monitoring technologies were popular investments. Investors bought into 11 monitoring companies, raising $88.5 million. Of note, St. Jude Medical was an investor in the $10 million Series B round of wireless monitoring company IRhythm. Neurology is also offering future growth, as evidenced by 13 financings, six of them in the area of stroke. Stryker’s late-2010 acquisition of the neurovascular business of Boston Scientific gives some of these companies a new, potential exit strategy. While private medtech investing overall sank well below 2009 levels, one trend hinted that perhaps the economy is recovering. Aesthetic companies made a comeback in 2010, especially those offering devices enabling noninvasive procedures. It turns out that consumers are still willing to pay out of pocket for procedures that enhance their looks. According to the American Society of Plastic Surgeons, 12.5 million cosmetic surgical and nonsurgical procedures were performed in the US in 2009. That’s down 1% from 2008, but up 69% from the start of this decade. (See “Noninvasive Body Contouring Begins to Take Shape,” START-UP, December 2010.) Five companies reducing fat, restoring hair, and rejuvenating skin raised $83.7 million.

Top Stories of 2010: medical devices TK

Exhibit 1

Medtech’s Most Active Private Investment Areas, 2009–2010 Number Deals 2010

Sector (and active sub-categories)

Total Private Money Raised 2010 ($ millions)

Number Deals 2009

Total Private Money Raised 2009 ($ millions)

$350.8

$632.0

Heart Valves

103.2

103.0

Stents

87.3

88.0

Atrial Fibrillation/Arrhythmia

58.2

Heart Failure

36.4

Peripheral Vascular

89.2

N/A

AAA Repair

98.0

N/A

224.05

506.0

Cardiovascular

Orthopedics

N/A 6

N/A 98.0

Spine

134.6

161.0

Orthopedic Biomaterials

12.0

101.0

79.16

N/A

Neurology (including stroke, epilepsy, brain monitoring, neurosurgery)

13 6

Stroke

45.8

N/A 123.0

Monitoring Technologies

88.45

N/A

Ophthalmology

142.15

23.0

N/A

Neuromodulation (obesity, swallowing disorder, incontinence, GERD, impairment from stroke or brain injury, pain)

57.41

141.0

Respiratory (including interventional pulmonology)

139.8

64.0

67.2

54.0

Cancer (both therapeutic and diagnostic devices)

95.64

159.0

Diagnostics

37.6

92.0

Aesthetics Market

83.7

N/A

Women’s Health (including breast care, and including one outlier – $151 investment by Devicor, which has bought breast care business of Ethicon)

225.7*

China

36.4

N/A

Surgical Sealants/Surgical Anti-adhesion

51.75

N/A

Obesity

36.3 (both from private investments in public company Enteromedics)

Renal, Cardiorenal

14.5

Gastroenterology

18.1

26.0

Diabetes

9.3

32.0

Glaucoma

Sleep Apnea

N/A

N/A 319.0

N/A

114.0

138.0

N/A

SOURCE: Elsevier’s Strategic Transactions

Top Stories of 2010: medical devices

Transcatheter Valves Take Center Stage

Small companies may not be the only targets of large com In interventional cardiology, 2010 saw the continuation of a panies looking to capitalize on the TAVI enthusiasm. Edwards, shift in the device spotlight away from drug-eluting stents and onto which shares the lead in this market with Medtronic in Europe and transcatheter heart valves. Transcatheter valves have been attracting holds a distinct edge in US clinical development, may find itself increased clinical and commercial attention over the past few years, in an enviable but uncertain position. Ten years ago, following but this past year really saw them take center stage at major inter- its spin-out of Baxter International Inc., Edwards built a strategy ventional clinical conferences such as TCT and EuroPCR. Edwards that focused on late-stage coronary patients and structural heart Lifesciences Corp., which shares leadership in transcatheter aortic disease to capitalize on its expertise in valves and ties to surgeon valve interventions (TAVI) with Medtronic CoreValve, was a major customers. This strategy also helped Edwards avoid the highly presence both on the podium and in the exhibit hall at meetings competitive interventional cardiology market where a handful that just a few years ago the company would not even have at- of large companies were battling over the first true blockbuster tended. Indeed, Edwards’ successful US PARTNER clinical trial was cardiovascular device: the drug-eluting stent. Fast-forward a decade and Edwards probably the most significant device study finds itself the leader in what looks to announced this past year. be the next potential interventional All of this focus on transcatheter valves as The fact that blockbuster, transcatheter valves, and the next major interventional product innoin the process is likely to be competing transcatheter valves vation comes at a time when these devices head-to-head with the large cardiology are still several years away from entering the are still a few years players the company had previously been US market. Although product sales remain away from US trying to avoid, a major shift in strategy. strong in Europe for both Edwards and Beyond that, an even greater challenge commercialization has Medtronic CoreValve, the release of the US to Edwards may come from the attention PARTNER trial data marked the first major not deterred large that it is attracting from other large cardioUS valve study, with Medtronic just begindevice companies from vascular companies looking to enter the ning its US trial. The fact that transcatheter TAVI space. Cordis/J&J has been rumored maintaining serious valves are still a few years away from US to be interested in acquiring Edwards, commercialization has not deterred large interest in this market, and at TCT there was talk that Abbott device companies from maintaining serious resulting in continuing, was preparing a bid for the company interest in this market, resulting in continurobust M&A activity in to complement its existing mitral valve ing, robust M&A activity in this space. platform. If the company’s transcatheter this space. On the heels of Medtronic’s recent acvalve accomplishments result in a takeover quisitions of CoreValve and Ventor, Abbott by a bigger player, notwithstanding the Laboratories Inc.’s buying mitral valve piovalue that would bring to shareholders neer Evalve Inc., and Edwards’ earlier deal for Percutaneous Valve Technologies Inc., 2010 saw a new major and company executives, Edwards could end up being the victim player enter the TAVI space with Boston Scientific’s acquisition of of its own success. (See “Edwards: Transcatheter Valve Leader Proves Sadra Medical, as noted. The deal marks an incredible turnaround You Can Go Home Again,” IN VIVO, November 2010.) for Sadra. Not long ago some had given the company up for dead, but its fortunes were revived by new investors, making it among the most promising of several next-generation aortic valve companies. These other second-generation TAVI start-ups, which include Direct Flow Medical Inc., JenaValve, and Symetis, also have to be heartened by the premiums that large companies continue to be willing to pay for innovative valve technology; in this case, Boston Scientific paid $225 million up front for Sadra with the possibility of doubling that through certain key milestones. (See “Device M&A Rebound Continues: Ardian, Sadra Deals Show Appetite For Big, Early-Stage Acquisitions,” IN VIVO, December 2010.) As noted, Boston Scientific’s interest in transcatheter valves is not new; the company has long held a minority stake in Sadra, and several years ago, when Boston divested much of its portfolio of minority investments, it maintained its interest in Sadra, a reflection of the promise of the TAVI market. That optimism still holds, which is good news for small companies in this space. Large cardiology players who are not currently in the game are likely to be eager to gain a foothold in what looks to be the next major interventional market, including companies like Abbott, which may be looking to add aortic devices to its mitral products, and Cordis/J&J, which announced it has discontinued its internal TAVI program, perhaps increasing the likelihood that the company will enter the market through an acquisition. 30

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Spine’s Downturn For much of the 2000s, the booming market for spine devices – and, from an investor’s perspective for investments in spine companies – seemed to capture all that was best of device opportunities: a fast-growing market with a wide variety of technology options, and eager investors, looking to cash in on the growth of a promising market. Over the past year or so, however, the spine market has, in a very different sense, seemed to embrace all that has become most challenging for device companies: reimbursers who are reluctant to pay for procedures they deem unnecessary, technology that provides less than compelling clinical value, and investors who have grown skittish about the once-glowing prospects of the market. There was no single event this past year that signaled spine’s continuing struggles. But there were some telling signs. First, while the segment remains a major market for device sales – revenues in 2010 were projected by some to be $6 billion – growth was virtually flat for the first time; according to a presentation at this year’s North American Spine Society (NASS) meeting by Sanford Bernstein analyst Derrick Sung. Second-quarter growth was only 1%, compared with 10% for the same quarter the previous year – this for a segment that has historically shown strong double-digit growth annually. (See “Future Growth of

Top Stories of 2010: medical devices TK

Spine Industry ‘At Risk,’ Investor Panel Says,” “The Gray Sheet,” October 2010.) Sung cited many of the challenges device companies as a whole are facing to explain the flat spine market: a general economic recession that is causing folks to delay procedures and a tougher regulatory environment – most notably, the concerns surrounding 510(k) reform – combined with tougher clinical data requirements, both of which are delaying the launch of new technology. But one other factor behind spine’s slowdown that surfaced in a large way this past year has been the increasing reluctance of insurers to pay for spine procedures they deem unnecessary. There has been, for quite a while, significant debate within the medical community about whether much of the new spine technology has been over-used. Even surgeons who are aggressive device implanters often begin treatment with a long period of watchful waiting. But part of the slowdown in growth this year seems almost certainly attributable to reluctance on the part of payors to underwrite procedures they believe of dubious clinical benefit. At best, this is delaying procedures as surgeons have to provide more documentation; at worst, it will result in an outright reduction in procedures performed. That reluctance on the part of payors is fast becoming a major headache for spine companies. A case in point this year: fastgrowing NuVasive Inc. had, by all measures, a good year, with Q3 sales up 33% and bottom-line growth of 25%, all in a flat market. But as we noted last fall, investors still struggle with a spine market that has slowed as much as the current one has. When NuVasive announced its revised guidance this past September, the company’s stock took a beating. As NuVasive CEO Alex Lukianov told IN VIVO at the time, “What I was trying to explain to Wall Street was that part of the spine market has gone away. But I got pounded for it.” (See “NuVasive: Outpacing a Slowing Spine Market,” IN VIVO, November 2010.) There aren’t a lot of hard data, but Lukianov argued that within the broader decline in spinal procedures, insurance companies have begun to push back on one particular procedure: stand-alone degenerative disc cases where the only symptom the patient experiences is back pain. Degenerative cases with other indications – leg pain, a loss of stability, the presence of stenosis – still are covered by insurers. But, Lukianov noted, what NuVasive is seeing – and what it was trying to tell Wall Street in its guidance – is that insurance companies are no longer going to pay for procedures to treat pure back pain; “they’ve suddenly pushed back.” Lukianov estimated that stand-alone degenerative disease cases account for only 10 to 20% of the market and only about 5% of NuVasive’s revenues. But he said the trend is real – one major health care system, Tenet Healthcare Corp., reported recently that its non-Medicare spine procedure volume was down 15%. To the extent that there’s demand pressure for spine companies, Lukianov said last fall, “it isn’t about price; it’s about the pushback by insurance companies.” Blue Cross Blue Shield of North Carolina, for example, last year laid down a new set of requirements that must be met before it will pay for spinal fusion. A group of nine specialty groups, including NASS, wrote a letter attacking the restrictions, saying they’ll block care for patients who need the surgery. The rule kicked in this month, but the groups still are appealing. Insurers, including Medicare, also are considering changes to the reimbursement of vertebral compression fracture surgeries. (See “Vertebral Compression Fracture Treatments Under Pressure,” IN VIVO, December 2010.)

To a large degree, Lukianov believes NuVasive has taken the most heat for the downturn in spine. “We were trying to explain what’s going on at a time when none of the other spine companies were talking about it,” he said. NuVasive was, he went on, “hit the hardest, I think, because there was something of a disbelief [among the analysts] who thought the other spine companies weren’t feeling this.” But implict in Lukianov’s comments: other spine companies are, or soon will be, seeing the same thing.

Diabetes Assumptions Begin To Shift Although investor interest in spine has slowed, the diabetes market continues to attract investment. The successful management of diabetes, more than any other disease, requires the compliance of patients, with daily tasks including making blood glucose measurements, taking pills and injections, and keeping track of diet and exercise. While waiting for the ultimate solution, the artificial pancreas, which, it is hoped, will one day automate the delivery of insulin according to automatic blood glucose readings, a shift in mindset has begun to occur at both pharmaceutical and device companies, and this became most apparent in 2010. Last year marked the US entry of one of the first, simplified, patch insulin pumps designed to increase compliance, Calibra Medical Inc.’s Finesse, but at the same time, the diabetes industry began to wrap its arms around the notion that no single drug or piece of technology can solve the challenges of diabetes management. What’s required, it seems, is a systems approach to the disease, one that will integrate all the disparate pieces of information emanating from the different points on the care continuum. Kicking off 2010, in January Sanofi-Aventis, created a dedicated diabetes business unit that will invest not only in pharmaceuticals, but also in devices and services, to create an end-to-end care platform for diabetes patients, putting its plan into action by forging an alliance with glucose monitoring company AgaMatrix Inc. Sanofi says that it is expanding its portfolio of offerings beyond drugs to include innovative treatments, monitoring and diagnostic devices, and unique delivery platforms. Meanwhile, other companies have taken different measures to integrate crucial information into the process of managing diabetes. Merck & Co. Inc., for example, launched a mobile application known as Vree for type 2 diabetes, which is downloadable to an iPhone or iPod Touch mobile digital device. Cellnovo Ltd. is on the verge of launching an insulin pump built into a handset that resembles an iPhone that, in one system, simplifies all of the daily tasks of patients with diabetes and disseminates the information to all interested parties. (See “Cellnovo’s Mobile Health Approach To Diabetes Care,” IN VIVO, November 2010.) Indeed, these systemwide approaches may ultimately be effective and more feasible than the artificial pancreas, still so many years off. In this, one could draw parallels to heart failure, where companies never succeeded in building an implantable device that could truly supplant the workings of the heart. Along the way, simpler solutions were found – implanted and external heart assist devices that were less complex than the heart itself. The year 2010 marked a milestone for type 2 diabetes as well. While it has long been known that certain types of bariatric surgery can result in a reversal of type 2 diabetes, both as a result of weight loss and even independent of a reduction in weight, in September GI Dynamics Inc., the developer of a minimally invasive gastrointestinal liner known as EndoBarrier, was able to present 12 months of data showing that patients lost an average

Top Stories of 2010: medical devices

of 20% of their body weight, or 49.5 pounds, and demonstrated significant improvements in diabetes as a result of EndoBarrier’s use. This is another example of how product companies are beginning to look at diabetes therapy in terms of systemic approaches that can make patients’ lives easier.

A Landmark Year In Ophthalmology In the ophthalmology device arena, the big news in 2010 – and an area to watch in 2011 – is the emergence of femtosecond (FS) lasers for cataract surgery, a development that could have a significant near-term impact on the traditionally stodgy cataract surgery market. If that prediction becomes reality, FS lasers will have succeeded in a market well known for its conservatism – and one where other notable technologies have struggled to make a mark. Counted among previous disappointments in this field are presbyopia-correcting intraocular lenses (PC-IOLs), which were touted as a potential blockbuster technology when first introduced in 2005. However, the market for PC-IOLs has grown more slowly than anticipated due to disappointing visual outcomes with the devices introduced to date and the additional cost of the lenses, which must be borne by patients as an out-of-pocket expense. To date, PC-IOLs have managed to carve out only a relatively small share of the IOL market, estimated at about 7% in the US. Despite this cautionary tale, many believe that FS-laser cataract surgery will travel a more positive path, experiencing rapid uptake in the months and years ahead, as more of these systems are introduced to the US market. The chief factor driving interest in this technology is the promise of improved precision and safety for cataract surgery, a possibility that appears to be capturing the attention of a growing number of ophthalmic surgeons. Since its introduction in the fall of 2009 at the European Society for Cataract and Refractive Surgery (ESCRS) meeting, FS-laser cataract surgery has emerged rapidly, taking center stage at several recent ophthalmic conferences, including the American Society of Cataract and Refractive Surgery (ASCRS) meeting, held last spring, and the 2010 meeting of the American Academy of Ophthalmology (AAO), held in the fall. If interest among the large players is a reliable yardstick of a new technology’s potential, FS-laser cataract surgery appears to be doing well so far. In August, Alcon Inc. (a unit of Novartis AG), one of the largest competitors in the refractive and cataract surgery markets, completed a deal to acquire privately held LenSx Lasers Inc., which recently introduced its cataract laser system to the US market. Alcon paid a whopping $361.5 million in cash for LenSx at closing, and could pay up to an additional $382.5 million in contingent payments tied to future unit sales and procedure fee revenue milestones. The fact that a major ophthalmic device player such as Alcon was willing to invest nearly $750 million to acquire a technology that at the time had yet to generate any revenues suggests the company is anticipating significant upside to the deal going forward. The year 2010 was a landmark year for devices in another sector of ophthalmology: glaucoma. A market previously dominated by drugs, and in which all devices have come to market via the 510(k) regulatory process at the FDA, Glaukos Corp. mounted the first clinical study in the field of glaucoma devices – maybe even in the entire field of ophthalmology devices – to go through the PMA process using a comparative control. Although not strictly comparing its therapy with drugs, Glaukos chose endpoints that would demonstrate the relative benefits of its iStent device versus drugs.

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On July 30, 2010, the FDA’s Ophthalmic Devices Panel voted 7 to 1 that the benefits of the iStent outweigh the risks. The FDA has not yet issued a final determination on the Glaukos device, and the agency said it would like to see five years of continued follow-up data on the 290 pivotal trial patients and may recommend a new prospective 360-patient, five-year post-approval study. (See “In Glaucoma, Devices Go Eye-to-Eye with Drugs,” START-UP, September 2010.) Ironically, the message in glaucoma in 2010 is the same as that of the diabetes industry; in diseases that rely on patient compliance for successful management, devices can improve outcomes.

Health Reform In 2010: A Beginning, Not An End Of course, probably the biggest story of last year was health care reform, at least, that is, until it passed, which left everyone waiting to see what the impact of the legislation would be. While health care reform technically happened in 2010 because a law was enacted, the substance and effect of it will be years in the making. With passage of the comprehensive legislation last March, the device industry faces a 2.3% excise tax on sales beginning in 2013 and, over the long term, a health care system that includes more incentives for hospitals and doctors to make cost-effective and evidence-based decisions. The new law also has unleashed a torrent of rebuke, principally (though not exclusively) from the Republican Party; repealing the entire statute is a stated goal of the Republicans who now control the US House of Representatives. As long as President Obama sits in the White House and Democrats control the Senate, that is not a likely outcome, but some individual provisions, including the device tax, could be more vulnerable. Expect efforts focused on reducing or repealing the tax to pick up as the 2013 start-date gets closer, even while industry lawyers interact with the Internal Revenue Service to work out precisely what sales and what products will and will not be subject to the tax. Also demanding the attention and involvement of product companies are the vast sections of the law designed to adjust how doctors and patients make treatment decisions and, specifically, to accelerate new strategies for paying for health care. Read: comparative-effectiveness research, accountable care organizations, pay-for-performance, and the list goes on. None of these programs are inherently detrimental to the healthy growth of the device industry, but they likely warrant changes to the device-development model. What’s more, they each could be structured in a way that discourages adoption of a new technology, even, industry reps argue, when it would deliver better long-term patient outcomes. Device lobbyists have already entered the fray in pushing the Centers for Medicare and Medicaid Services (CMS) to include special new-technology protections in programs implemented out of the reform law, including a nationwide pilot launching in 2011 for accountable care organizations, in which doctors, hospitals and other entities will link up to receive shared incentives for keeping costs down while not skimping on quality. As to comparative effectiveness research, device executives – most notably, Medtronic’s Richard Kuntz, MD, and Johnson & Johnson Medical Device & Diagnostics’ Harlan Weisman, MD – have been chosen to fill two of the three spots on the board of the new federal CER institute designated for reps from the drug, biotech and device industries. (The third post went to a Pfizer Inc. official.) But these are just the front end of what promises to be a long evolution in how policies triggered under the new law will impact

Top Stories of 2010: medical devices TK

the device sector’s way of doing business. In October, the new head of CMS, Donald Berwick, MD, addressed AdvaMed’s annual meeting in Washington, DC, and he urged device companies to play a constructive role in that evolution. “To the extent that those of you out there think of yourselves as wedded to delivery – not just making a device, but actually being a partner in the delivery of care – you should find very ready ears among the innovation systems around the country that want to find better ways to care for their patients,” he said.

recommend additional regulatory or even statutory changes to shore up the aging program. And amid the hustle and bustle, the device center lost some of its most senior pre-market review staffers, including Donna Bea Tillman, director of the Office of Device Evaluation, and Heather Rosecrans, head of the 510(k) policy staff, giving Shuren an added opportunity to put his stamp on how the pending reforms will be carried out. Although these posts have yet to be permanently filled, it is clear industry is facing a new FDA going forward.

Changes At FDA: 510(k) Reform Takes Shape

In Medical Devices, Is “Good Enough” Good Enough?

Perhaps even more important to the device industry than health care reform are the impending changes to the 510(k) review process. Ask device executives – large or small cap – the biggest challenge that faced their business in 2010, and many would answer resoundingly: 510(k)s, 510(k)s, 510(k)s. 510(k) reviews have gotten tougher, firms attest, adding time and cost to a process that is intended to provide a cheaper, more straightforward path to market compared with a full pre-market approval (PMA) review. And, under the leadership of the new, reform-minded device center director Jeffrey Shuren, MD, CDRH has kicked off a number of initiatives that could change the 510(k) review process for the long-term. Sparked by public concerns that the process does not necessarily yield safe and effective devices, and tempered by industry complaints that FDA reviewers have begun demanding more than the law requires, the agency launched an internal reevaluation of its 510(k) pre-market submission program that culminated in two reports published in August. (See “510(k) Face-Off: CDRH’s Foreman Debates Reform Plans With Industry Reps,” IN VIVO, this issue.) One report proposed specific changes to the 510(k) program, while the other suggested new ways of incorporating science into all FDA decision-making. Of the 50-plus recommendations, industry applauded some, such as better staff training and guidance, but balked at others, such as potential limits on the use of predicates. FDA says it will release a list of reforms it plans on pursuing first in the early part of 2011. It remains to be seen whether FDA will, for instance, split Class II devices into two subcategories with different regulatory requirements tailored to each. Device makers initially seemed amenable to such a system, which could better clarify regulatory requirements up front, but worry that FDA’s approach will only serve to impose stricter, more PMA-like requirements on some 510(k)s. In addition to its internal efforts, FDA commissioned the Institute of Medicine to conduct a $1.3 million, top-to-bottom review of the 510(k) process. IOM’s report, due out this summer, may

As we noted in our round-up of the Phoenix Medical Device CEO meeting last November, add to the multiple challenges that small, and large, medical device companies face today – an increasingly lengthy and expensive regulatory process, a scarcity of capital venture and otherwise, and a constrained M&A environment – a new dynamic that could even more radically change the nature of the device industry: an insistence by payors, providers, and policy makers that the benefits (and value) of new technology lie less in its ability to enhance existing technologies or procedures, than in its ability to provide adequate clinical solutions at a reduced cost. The idea is catching on in a number of catch phrases: “negative innovation,” “reverse innovation,” “good enough” technology. (See “Negative Innovation: Helping Reduce Health Care Technology Costs,” IN VIVO, June 2010, and “In Medical Devices, Is ‘Good Enough’ Good Enough?,” IN VIVO, December 2010.) The notion is simple: device companies have historically been rewarded for even incremental technology enhancements with premium pricing, by a price-insensitive customer, all in the spirit that no improvement to the clinical episode would go unrewarded. But in a health care system that is trying to balance exploding costs and greater access, such a goal becomes simply unaffordable. Instead, payors, hospitals, and even physicians, encouraged by government policy makers, will increasingly look for technology that delivers an acceptable clinical outcome at a better price. The argument isn’t just for technology that reduces costs, either in the hospital or more broadly in society. The advent of tools enabling minimally invasive surgery (MIS) two decades ago represented a technological revolution driven in large part by greater economic benefits to the health care system and to society overall – for example in shorter hospital stays and a quicker return to work for patients, both attractive to payors and employers. But even with MIS, the cost issues were almost secondary; the real argument was better clinical outcomes and patient experience – such as less pain and trauma. The kind of technology

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Top Stories of 2010: medical devices

innovation implicit in the notion of reverse innovation posits, if not precisely, a trade-off of quality of care for lower costs, at minimum a reluctance to continue to pay a premium for incremental improvements. Hence, the notion of technology that is “good enough” to achieve an improved clinical outcome, but not necessarily superior to devices currently on the market. The implications of such a fundamentally different mind-set are huge. Challenges such as regulatory reform and a dearth of financing obstacles are certainly hurting small companies today, but their solutions – for example, a freeing up of capital or a more sympathetic FDA (particularly when it comes to 510(k) reform efforts) – could just as easily preserve a status quo ante

bellum for small companies in terms of the kinds of devices that are readily adopted in the marketplace. In contrast, the notion that a reformed health care system will in the future need a different kind of technology solution, one often defined not by better clinical outcomes but by greater systemic cost savings, fundamentally challenges what it means to be innovative and even more fundamentally calls into question the business model upon which the device industry, particularly that part encompassing venture-backed start-ups, embraces. Not everyone is won over to this view. Many long-time entrepreneurs and start-up CEOs think the idea is a bad one – wrong for the health care system and wrong for what it says

Is Physician Choice In Product Selection In Danger? For years, medical device companies have benefited from a curious dynamic in the relationship between physicians (who select and use medical devices) and hospitals (which order and pay for those devices). Because physicians and surgeons have historically been independent agents who simply access facilities such as operating rooms and cardiac cath labs, they’ve felt little or no pressure to follow the price-cutting strategies, such as group purchasing contracts, that hospitals have employed to reduce their device costs. Thus, hospitals have been able to save a lot of money on products doctors care little about – lap sponges, surgical drapes, etc. – but have been thwarted in getting compliance on contracts for so-called physician preference items such as orthopedic implants or tools used in interventional cardiology – precisely the kind of high-ticket items that would have the greatest cost-savings impact if they could be brought in line. Indeed, throughout the 1980s and 1990s, hospital buying groups – GPOs, hospital systems, alliances, call them what you will – were singularly successful in driving contracting on mid- and lower-tech items, but just as unsuccessful in driving contracting on devices that doctors cared strongly about – things like orthopedic implants and advanced interventional tools. Where contracting did take place, it was either done as a kind of defensive measure on the part of suppliers or it came in anticipation of the next generation of technology – for example, contracts for bare-metal stents became commonplace but only when it became clear that drug-eluting stents were coming soon. Recently, the relationship between doctors and hospitals has begun to

change dramatically, as more and more physician groups opt, for a wide range of reasons, to be acquired by hospitals, ending their independent status and making them employees of the hospitals in which they perform procedures. By some estimates, nearly half of all cardiologists now practice in a group that is owned by a local hospital. Although done for reasons that have little to do with device selection and costs, this trend could have significant implications for medical device companies. For folks in the provider communities, this is an important trend – perhaps the most important since hospitals began to band together in systems and alliances more than three decades ago. But the implications for suppliers are less clear. As noted, physician groups opt to sell to hospitals for a number of reasons – greater job security, the ability to cash out, a desire to turn administrative tasks over to someone else, concerns about future health reform measures, to name just a few. And right now, it’s not clear how much reining in costs on the most patient-care sensitive devices ranks as an important priority for these new provider groups. But in a new world where doctors are employees of hospitals, the thinking goes, they’ll both be more amenable to cost-savings strategies when it comes to device choices, making those choices with the economic interests of their employers in mind, and they will have less negotiating leverage to get the products they want, even if they’re not completely won over. For suppliers, the questions raised are critical. Will physicians have less say in what specific brands they use and be forced to adopt a given device simply be-

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

cause the hospital has a volume discount on it? And if hospitals try to enforce some kind of restrictions or implement some kind of standardization, will physicians rebel or will they simply accept the new reality? And could the new dynamics result in dramatic market-share shifts or just lower prices on the brands and devices physicians currently use? It’s not even clear how much hospitals will enforce such product-driven cost-savings strategies, particularly if they prove unpopular with physicians. Yes, physicians will now be employees. But hospital administrators may be reluctant to alienate valuable employees over a budgetary cost that is, when all is said and done, relatively minor. Twenty years ago, even proprietary hospital systems took a less-than-absolute line in enforcing volume-driven price discounting, allowing physicians some prerogative in the devices they used, in the interest of both keeping physicians happy and promoting high-quality patient care. Still, it should be pointed out that many hospital systems and alliances got started for reasons other than the savings available from group contracting and soon found that those savings became very important to their hospitals and members. On the device industry side, more and more senior device executives, particularly at bigger companies, are saying that they believe the dynamic is having an impact on sales and, in particular, is one reason for the declining growth that many big companies are facing today. If it’s less than clear that physician employment is actually affecting product selection, there does seem to be reason to watch this trend as we go forward.

Top Stories of 2010: medical devices TK

about the value of technology and the contribution it makes to patient care. And recent M&A activity suggests, even from an economic perspective, big companies are more than willing to pay significant premiums for new technology that makes a huge contribution to clinical care – witness, to name just two, J&J’s acquisition of Acclarent Inc. last year or Medtronic’s of Ardian. There was nothing of the whiff of “negative innovation” behind either of those deals. Indeed, there’s not much evidence currently that the trend toward technology trade-offs has begun to catch hold. Most of the speculation is driven by interpretations of what health care reform – with its twin goals of expanded access and a more rational approach to health care spending – will bring. But even if health care reform doesn’t take off immediately, there are other dynamics that are pushing toward a different way of valuing technology, including the acquisition of physician practices by hospitals, which could move adoption decisions about innovative technology out of the hands of physicians and into those of hospital administrators and CFOs. (See sidebar, “Is Physician Choice In Product Selection In Danger?”) Here, too, most of the evidence of such a trend toward diminished physician prerogative seems anecdotal. But to the extent that it resonates with interest in a new kind of innovation, it’s also clear that big device companies, rather than small companies and their VC investors, are likely to feel this trend toward a new kind of innovation, if only because they’re more deeply invested in distribution channels. If customers are leaning toward these kinds of technology trade-offs, big companies are likely to feel them first and/or feel greater pressure to respond by building product pipelines that reflect these pressures. As noted, it’s hard to point to specific examples of negative innovation, outside of a trend in large pieces of diagnostic imaging equipment toward fewer bells and whistles. But that’s not to say that we can’t already envision how negative innovation would play out. Indeed, it may already be here – in the exploding emerging markets of China and India, both of which are fostering domestic medical device industries whose business models will likely look very much like those for companies developing “good enough” devices. Most US executives look at China and India and see huge potential patient populations and booming economies willing to spend heavily to get those populations advanced health care. And, to be sure, there is a small band of wealthy, highly educated people in those countries who still prefer Western medicine with a bias toward devices made by companies from the US and Western Europe. (Small, in this case, is a relative term since this cohort could represent a population as large as 100 million.) But gone are the days when doctors in China and India, trained in the West, carried a long-standing preference for medical devices developed and manufactured in the West. As the economies in both China and India – as well as other markets such as Russia and Brazil – expand rapidly, the vast majority of the middle-class populations in these booming markets is likely to favor products made by domestic companies – particularly because in China at least, medical devices are paid for by patients, and product selection decisions are made not by physicians alone but in consultation with patients, and thus must take into account the often constrained affordability of patients. In such a consumerdriven market, “good enough” becomes a reality, just as the vast majority of people buy Fords rather than Mercedes-Benzes.

The question, particularly for US start-ups and their investors: will technologies developed for the emerging markets find their way to a US health care system that under proposed reform efforts will come to prize the implicit cost trade-off? Many US device companies remain wary of emerging markets, particularly China, because of concerns over graft and corruption and a lack of IP protection. But that simply suggests that China and India may soon have greater significance for the US medical device industry as exporters of technology than as huge markets for geographic expansion. The notion that the medical device industry is becoming more global is not in itself all that radical. But for all of its global reach, the industry remains highly US-centric. Still today, four of the top five cardiovascular device companies in India have headquarters in the US, and most device companies still deem the US their biggest market by far. But all that may change as more and more US device companies are seeing ex-US sales grow faster than domestic sales and are beginning to develop so-called “OUS only” products to capitalize on exploding opportunities in emerging markets. If this trend continues, the notion that product development could turn on its head – with a greater focus on selling products developed for foreign markets in the US rather than the opposite – seems less far-fetched and makes the dynamic of emerging markets more complex. [A#2011800005] comments:

Email the editor: S.Levin@Elsevier.com

related reading The A-List: 2010’s Trend-Shaping Series A Financings, START-UP, January 2011 [A#2011900003] Device M&A Rebound Continues: With Ardian, Sadra Deals Show Appetite for Big, EarlyStage Acquisitions, IN VIVO, December 2010 [A#2010800192] Vertebral Compression Fracture Treatments Under Pressure, IN VIVO, December 2010 [A#2010800199] Noninvasive Body Contouring Begins to Take Shape, START-UP, December 2010 [A#2010900249] TCT 2010: TAVI Takes Center Stage, Medtech Insight, December 2010 [A#2010400089] In Medical Devices, Is ‘Good Enough’ Good Enough?, IN VIVO, December 2010 [A#2010800191] Stryker And St. Jude Acquisitions Signal Year-end Uptick In Device M&A, IN VIVO, November 2010 [A#2010800187] Cellnovo’s Mobile Health Approach To Diabetes Care, IN VIVO, November 2010 [A#2010800201] NuVasive: Outpacing a Slowing Spine Market, IN VIVO, November 2010 [A#2010800181] Edwards: Transcatheter Valve Leader Proves You Can Go Home Again, IN VIVO, November 2010 [A#2010800180] Asthmatx Acquisition By Boston Scientific Is Source of Many Happy Returns, IN VIVO, October 2010 [A#2010800165] Future Growth of Spine Industry ‘At Risk,’ Investor Panel Says, “The Gray Sheet,” October 2010 [A#01101025020] In Glaucoma, Devices Go Eye-to-Eye with Drugs, START-UP, September 2010 [A#2010900179] Covidien Runs Familiar But Different Plays to Build Vascular Franchise, IN VIVO, June 2010 [A#2010800112] Negative Innovation: Helping Reduce Health Care Technology Costs, IN VIVO, June 2010 [A#2010800111] TriVascular’s Sequel Could Be a Blockbuster, IN VIVO, April 2010 [A#2010800059] Medtronic Catapults into Transcatheter Valve Market with Billion Dollar Buys, “The Gray Sheet,” March 2009 [A#01350090005] Boston Scientific Shuffles and Sells in Bid to Right Ship, IN VIVO, December 2007 [A#2007800191] Access these articles at our online store: www.windhover.com/article

Top Stories of 2010: Diagnostics

integrating the former Amersham PLC, which it acquired in 2003, and which became the cornerstone of its Medical Diagnostics division. That group has focused on the development of in vivo diagnostic imaging agents. In a health care delivery environment driven by cost-effectiveness considerations, the use of IVD tests to triage patients before imaging, as a means of clarifying whether those technologies would be useful, could add considerable value for patients and payors.

Lilly Takes Up Avid Radiopharmaceuticals Alzheimer’s disease (AD) is one area that could benefit tremendously from an advance in early diagnosis. Avid Radiopharmaceuticals Inc.’s work on developing an agent for detecting the presence of beta amyloid plaques in the brain paid off in November when Eli Lilly & Co. agreed to buy the firm for $300 million up front plus a potential additional $500 million based on regulatory and commercialization earnouts. The move, on the heels of its decision to end late-stage testing of the AD drug semagacestat, signals Lilly’s interest in the testing area: Avid also gives it a platform covering other diseases, notably Parkinson’s disease and diabetes. Neurology and metabolic disorders have long been sweet spots for the pharma’s drug development.

through to commercialization and a veteran CEO – Don Hardison, formerly COO of Laboratory Corp. of America Holdings and CEO of Exact Sciences Corp. – at the helm. Although sequencing is notoriously error prone, which is one of the bugaboos next-gen sequencing has yet to show it can overcome, Good Start believes it has devised methods that ensure the accuracy of the measurements of the specific genes in its test panel, which will assess whether a couple contemplating in vitro fertilization (IVF) is at risk of having a child with any of several dozen genetic diseases. Prenatal (and in this case, pre-pregnancy) screening is among the most well-established areas for genetic testing, and the start-up could become the first company to industrialize sequencing for clinical diagnostics. (See “Good Start Genetics Raises $18 Million For Sequencing-Based Testing,” START-UP, October 2010.) In several states, these genetic tests are reimbursed, and given that 400,000 couples go through IVF in the US each year, the barrier of self-pay in the other states has not stifled the market. Auxogyn, meanwhile, is using imaging and molecular testing to increase the success rates of IVF by allowing the transfer of fertilized eggs back to their natural setting as early as day two. It launched in mid-2010, raising an A round of undisclosed amount from Kleiner Perkins Caufield & Byers, TPG Biotechnology and Merck Serono Ventures.

Personalized medicine appears to be evolving its own persona, as more than an adjunct beholden to pharma for support and success.

Promise In Preconception Testing Two of the year’s most significant earlystage diagnostics financings came in the area of pre-pregnancy screening and embryo transfer: for Good Start Genetics Inc. and Auxogyn Inc., respectively. (See “The A List: 2010’s Trend Shaping Series A Financings,” START-UP, January 2011.) Good Start emerged from stealth mode in 2010, armed with $18 million in funding aimed to take it

A Postscript On Regulatory Activities

In June, FDA sent letters to five companies warning that their personal genome sequencing services were, in effect, providing genetic tests and unless proven to be otherwise, should be approved as medical devices by the agency. The move showed that companies could no longer do an end run around that issue. And importantly, instead of thinking about how to best assure that a wall exists between recreational uses and medical advice, the field is now more highly “medicalized,” revolving solely around issues clinicians care about: clinical workflow, who will be the gatekeepers of sequence information, and how to translate medical genetics data into a form palatable to physicians and patients. But we are still awaiting the publication of FDA guidelines on companion diagnostics, which were expected by the end of 2010. (See “Companion Diagnostics Move Toward Mainstream Drug Development,” IN VIVO, March 2010.) Hopefully, those guidelines will be prominent among this year’s trends. IV [A#2011800006] comments:

Email the author: M.Ratner@Elsevier.com

related reading In Vitro Diagnostics: The Quest For Growth, IN VIVO, January 2011 [A#2011800010] The A List: 2010’s Trend Shaping Series A Financings, START-UP, January 2011 [A#2011900003] GE Acquires Clarient To Anchor Its Molecular IVD Business, IN VIVO, December 2010 [A#2010800193] Auxogyn Inc., START-UP, December 2010 [A#2010900253] Good Start Genetics Raises $18 Million For Sequencing-Based Testing, START-UP, October 2010 [A#2010900204] BGI Touts Eventual Merck Deal, IN VIVO, October 2010 [A#2010800164] The How And When Of Applying Sequencing To Clinical Diagnostics, IN VIVO, September 2010 [A#2010800138] Companion Diagnostics Move Toward Mainstream Drug Development, IN VIVO, March 2010 [A#2010800052] CardioDx: Bringing Molecular Diagnostics Into the Cardiovascular Arena, IN VIVO, March 2010 [A#2010800046] Noninvasive Prenatal Diagnostics: How Much Closer to Reality? IN VIVO, November 2009 [A#2009800209] Access these articles at our online store: www.windhover.com/article

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Pharmaceutical R&D

Putting The Pieces Together Again:

GSK Creates End-toEnd Business Units

After breaking down R&D into small biotech-like drug performance units, GSK is now using these as building blocks for larger, fully integrated business units spanning discovery to approval. ■ At the forefront of radical R&D reorganization, GSK continues to evolve its model, characterized to date by the breaking up of R&D into small, biotechlike drug performance units. ■ A s t h e DPU s m o v e through the second half of their three-year funding cycle, they are about to undergo the latest round of change: closer integration with the downstream medicines development centers in their respective therapeutic areas. ■ The move makes sense given industry’s growing recognition of the need for payor and regulator requirements to inform even early-stage discovery and development. ■ The success of this latest step will both depend upon, and test, the degree to which the DPUs are achieving their overall goal of empowered and accountable leaders delivering data on time, within budget, tapping into both internal and external partners along the way.

by Melanie Senior

verall, I’m satisfied,” says GlaxoSmithKline PLC’s R&D Chairman Moncef Slaoui, PhD, in response to a question about the performance to date of the Big Pharma’s 40 or so drug performance units (DPUs). Created for the most part during 2008 (but some much later), these small, biotech-like units – overlaying the company’s older, therapeutic-area-focused Centers of Excellence for Drug Discovery (CEDDs) – may contain as few as six to eight scientists, or as many as 80, and are typically focused on a particular pathway, mechanism or scientific area, although there are several exceptions. The DPUs were created to mimic biotechs in terms of more than just size. Each was set up with a high degree of autonomy and concrete objectives to be met at the end of a three-year funding cycle, overseen by a discovery investment board (DIB; see Sidebar: GSK Acronym Guide) that includes external executives. The unwritten implication: if the objectives aren’t met, the funding doesn’t happen (See “GSK Tries to Mimic Real-World Biotech,” IN VIVO, February 2009.) It’s not that simple, of course. Objectives, especially scientific ones, move and evolve. They may become irrelevant. The point is that the set-up, in creating tangible goals and holding individuals and small groups directly responsible for achieving them, fosters a culture of creativity, accountability and, ultimately, increased productivity.

“

Executive Summary >> TK 98 40

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It’s still far too early to tell whether GSK’s experiment is working. “This is a 10-to-15year process,” declares Slaoui. “There’s no way to know whether discovery is successful until development is successful and I have a product approved and reimbursed. So we need to be cautious about gauging success or otherwise.” GSK management has already made some changes, though. In January 2010, the company closed down its neurosciences discovery activities, comprising four DPUs in psychiatry, depression, sleep- and mood-disorders. Granted, that was more of a therapeutic-area-driven decision rather than one based on DPU-level performance: GSK felt the commercial opportunity in these areas simply wasn’t worth pursuing. (See “GSK Spins Out Pain Assets, Raises $35.4M,” “The Pink Sheet DAILY,” October 5, 2010.) The remaining DPUs, meanwhile, have all had their mid-cycle review, after 18 to 24 months in existence. There’s a spread in terms of quality and performance, says Slaoui, as would be expected. There are areas of “great success,” such as in metabolic disorders and in the immuno-inflammation CEDD, as well as in oncology. The end of the funding cycle later this year will doubtless see more change. Slaoui isn’t keen to predict DPU-culling, but others are more vocal. “This is Darwinian evolution,” noted Ian Tomlinson, SVP, Biopharmaceuti-

Pharmaceutical R&D

cal CEDD, speaking on a recent “On the whole, the company GSK Acronym Guide business program on the UK’s has made a tremendous step BBC Radio 4. “The reason we forward in terms of restruc• DPU: Drug Performance Unit have 38 DPUs is that some are turing and reenergizing the • CEDD: Center of Excellence for Drug Discovery going to fail,” continued Tomorganization. They are far • CEEDD: Center of Excellence for External Drug Discovery linson, a co-founder of antibody more motivated and aligned, • DIB: Discovery Investment Board group Domantis Ltd., which with more clarity on where GSK acquired in 2006. “In fact, they’re going, and increased Oncology, was set up in 2000 long before if none of them fail, the model’s transparency – thanks to the most other similar initiatives (although all DPU structure – on how each of the units not working,” he said. Meantime though, the evolution contin- discovery and early development appar- is progressing,” remarks one. ues. Before 2011 closes, the latest iteration ently remains housed with the Novartis Any radical change, in particular of the in GSK’s R&D structural experiment – to Institutes for BioMedical Research (NIBR)). sort GSK has put its employees through create integrated business units comprising (See “Reenergizing R&D: Sanofi Stirs The over the last three years or more, creates all the DPU and later-stage Medicines De- Pot, But Does It Have The Recipe?” “The uncertainty and fear. But that’s subsiding velopment Centers in particular therapeutic Pink Sheet,” October 25, 2010.) Pfizer Inc., and being replaced by something more areas – will be underway, maybe even com- meanwhile, has parsed things differently useful, according to Lee, a biotech veteran. plete. The goal, explains Slaoui, is to “drive again, with the creation in late 2008 of “Two years ago, people were like rabbits alignment and intense communication business units encompassing clinical and in the headlights. Now you see what you between the two” halves. “They’ll be part commercial development functions, but see in biotech when you’re coming to the of one unit that succeeds or fails together.” leaving research separate. (See “Pfizer Re- end of the cash: a steely glint in their eyes.” Driving this unification is Patrick Vallance, structures For A More Flexible Future,” “The One of the aims of the three-year reMD, PhD, SVP Medicines Discovery and Pink Sheet,” October 13, 2008.) view set-up and the discovery investment Indeed, even within GSK there are areas board (DIB) – referred to internally as the Development, whose role was expanded that are already fully integrated across ‘Dragon’s Den’ in reference to a popular in July 2010 to include medicines developR&D, including biopharmaceuticals and UK television show where aspiring enment, after the retirement of Allan Baxter. Executives around the industry, many the recently created rare diseases unit. trepreneurs compete for funding– is to engaged in their own R&D reorganiza- Other units such as oncology, vaccines create responsibility, efficiency, and the tion experiments, will be watching GSK’s and dermatology (essentially the 2009 understanding – all too familiar to most latest step closely. In the past year, both Stiefel Laboratories Inc. acquisition) in- biotech execs – that cash is not an endSanofi-Aventis and AstraZeneca PLC clude commercial activities as well, given less resource. “We’re trying to change have announced plans to shake up their that they target specific populations and the mindset of the R&D organization to internal R&D structures to create smaller, “have a different dynamic to the more link time and accomplishment with use nimbler units that recall GSK’s DPUs. Sanofi, mainstream part of the business,” explains of cash. These are completely de-linked however – run by ex-GSK executive Chris Ad Rawcliffe, SVP worldwide BD for R&D. in normal Big Pharma,” observes one exThus introducing a more integrated ternal member of a DPU advisory board. Viehbacher – has created five Therapeutic Strategy Units that go from discovery to R&D structure across the rest of the or- (Several of the DPUs, and all of the CEDDs, registration, akin to what GSK is now mov- ganization is perhaps a logical next step. have advisory boards, separate from the ing towards. AstraZeneca’s eight innovative But according to GSK management, it’s DIB, to help them achieve their objectives medicines units or iMeds, in contrast, span only possible to build truly integrated busi- and use resources sensibly. Remuneration discovery through to proof-of-concept ness units, spanning discovery through of the advisory board members is linked to (Phase IIb) in line with GSK’s set-up to date. approval, if the bricks used to do so – the DPU performance, but the advisory boards DPUs and their later counterparts – are in do not make funding decisions.) Are The DPU Building themselves robust and aligned. In other According to Slaoui, there were no reBlocks Sound? words, the success of this latest step is quests from DPU heads for more money The notion of enhanced communica- predicated on the success of the DPUs to at the 18-month, halfway review, suggesttion and collaboration between late-stage, date – at least in terms of creating the sort ing that budgets were set and being used market-focused commercial folk and of culture of accountability and creativity appropriately. But at least one DPU team was initially planning to ask for several preclinical scientists makes sense in to- that they were designed to deliver. There’s little doubt that the culture more millions of pounds, according to one day’s payor-driven world, where many companies are criticized for not having within GSK has changed. “I started five advisor, but was eventually persuaded not the appropriate data or product profile years ago, and the flexibility and innova- to, and to deliver a “more biotech-like” to meet market requirements. That’s tion has grown beyond what you would pitch, focused instead on the value they why such “integrated business units” are have ever anticipated,” remarks Kevin had created thus far with money available. popping up across pharma more widely, Lee, PhD, who runs EpiNova, a 60-strong “They are learning to prioritize what they some including commercial activities as DPU within the immune-inflammation have within the budget they have, instead well. Sanofi-Aventis’ recently- created CEDD that’s focused on epigenetics. of thinking about as many things as they oncology and diabetes activities span Several of the external advisors that GSK can think of and asking for money to do discovery through commercialization; has appointed to the various boards that them all,” says the advisor. But “there is Novartis AG’s oncology unit, Novartis oversee its CEDDs and some DPUs, agree. definitely a way to go yet in order to shift

Pharmaceutical R&D

that culture” of endless cash, the advisor continues. “That is where they are struggling.” (Not all of them, though. One DPU has apparently already over-delivered and received more capital as a result to get the next wave of programs underway.) Still, GSK’s aim isn’t to recreate biotech. It’s to introduce some of the aspects of biotech, such as the regular investor reviews, strict time-lines and objectives necessary to drive clever and creative decision making. Indeed, remarks another external board member of another CEDD, “it feels like a board of a biotech, except for one lovely feature: we’re not constantly worried about money. It’s more about are we spending money on the right things, rather than are we going to run out.”

to emphasize fixed goals. Slaoui’s less con- whether you have that insight that makes cerned about whether three-year objectives the difference between random shots on are met than how the DPU-heads attempt goal and good judgment.” to meet them. Some outsiders feel that strong action in Those goals vary widely from one DPU closing down DPUs or cutting their fundto the next, depending on what area they ing at the end of the three-year cycle will are working in, and how advanced the be critical in order to drive and maintain science is. In the very new epigenetics the productivity- and goal-driven culture field, Lee’s goals are centered around it’s after. “Until they actually shut someestablishing the discipline within GSK thing down, no one will see this connecand validating some pathways as areas tion between data and funding, and really for therapeutic intervention. Other DPU ‘get’ the model,” opines one external heads, however, need to achieve a certain advisor. “To make this really work,” adds number of compounds in man. another, “they will have to do something That said, “I don’t care if you said you’d drastic at the end of the three-year pegive me five [compounds in man] and you riod,” like taking the least productive and only have three,” illustrates Slaoui. “What getting rid of them. “Otherwise, it will I care about is good quality science, good have all been for nothing.” judgments and that you took the right The recent decision to terminate the Will Meeting Objectives decisions along the line,” he continues. pain and depression DPUs suggests Slaoui Really Matter? Balancing “It’s a judgment, reinforced by numerical” and his team won’t shy away from elimiResults And Judgment measures. And by what areas of science nating specific units. “I may terminate a So if the money isn’t really going to run GSK wants to be in: “If you are delivering DPU even if [it] reaches [its] numbers, out, do the three-year objectives really absolutely nothing, but it’s a fertile thera- because the biggest limitation to numhave to be met? The problem with set- peutic area, we might decide to change bers is that they don’t [necessarily] reflect ting such objectives in science is that, as our approach, or the leadership of the quality,” he says. But at the same time, “I any biotech executive will tell you, things DPU, or the amount of our investment,” won’t make a decision just to relay a meschange. Hence the challenge is to balance he claims. By the same token, “if you have sage,” Slaoui insists. “I’ll make it because the need to allow for that flexibility as work delivered five molecules but the targets are it’s a good decision.” In some cases that Everything you need to know about the future of biosimilars in a particular field develops with the need shaky, yet it’s a fertile field, I’ll ask myself is because shifting R&D priorities mean

Special Report from

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as ial uncertainties latory and commerc s face a host of regu drugs. generics companie market for biosimilar Pharmaceutical and US new the their toes into tual they start to dip way for the even h 2010 paves the drugs. Its hefty d into law in Marc in-based biologic m legislation signe versions of prote biosimilars The health care refor eased fears that drugs – lower cost – ucts milar prod biosi of vator ’s e’s launch in the US exclusivity for inno busters such as Roch hy 12 years of data of biologic block if genericprice tag – a lengt continued growth tion is no longer roadblock to the ira, but the ques will be a near-term y – are more ratories’ Humira, – and there are man tin and Abbott Labo Avas h tions and whic ques gh ptin ining Herce The rema h drugs, throu reach the market. there first with whic like biologics will rtant: who will get ng the most impo complicated. Amo cost? what at and – regulatory pathway mas with rstand why Big Phar It’s not hard to unde drug companies Inside ines and generic pipel l nove might lackluster lecule patent cliff l-mo smal the in facing a drop-off ty – the payoff Biosimilars biosimilar opportuni ening A Door To l. The be attracted to the antia • Op subst be ........................... 3 succeed could US....................... for those that do gics is about $120 In The US for branded biolo et .......... 7 mark n wide billio $15 world Biosimilar Ambition Health. In the US, dy’s IMS Red to . • Dr rding billion, acco to expire between gics are expected Care Reform: For in patented biolo estimates. And alth firm • He rch .....11 resea et Like the mark re Is Much To 2009 and 2013, of the decade. Biopharmas The in the latter part others will likely follow Horse Race In rma Pha Two • A 21 oaching the s.............................. l industry is appr Follow-On Biologic The pharmaceutica rers panning for much like early explo Leap into ng biosimilar market ahead into the d-lo ng Hea forgi s are rck’ 3 • Me pioneers gold; a handful of ther for the s..............................2 make the way smoo Follow-On Biologic market, which could ess model proves follow – if the busin Be Big Player in de Merck drugmakers that • Big Pharma May ........ 25 staking claims inclu ....... nts ket entra Mar s Early successful. , and Novartis, Follow-On Biologic maceutical Industries 29 & Co., Teva Phar unit. But others too, FROM IN VIVO ...... oz generic drug • SPECIAL OFFER through its Sand hospital-focused like Pfizer to the es pani com from Big Pharmas drug traditional generic and ira Hosp firm and Mylan, are Pharmaceuticals such as Watson

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Pharmaceutical R&D

DPUs need to be reoriented. The DIB has already redirected investment away from some areas into others; at least two DPUs have disappeared and/or reinvented themselves. According to one former executive, “one third [of the DPUs] could easily disappear over the three-year cycle.”

For DPU Heads, It’s Less About Competition Than About Collaboration There’s a sense, then, in which the DPUs are competing for resources, for DIB approval and ultimately – to pursue Tomlinson’s Darwinian analogy – for survival. But in fact the model is less about competition than about collaboration, according to Dave Allen, head of the respiratory CEDD. The DPUs are encouraged to collaborate as much as they need to – including with outside partners – in order to achieve their goals. But whereas “in the old commandand-control model, with top-down management, you had to have winners and losers; it was about who had the biggest group. Now, if you meet the milestones, you can all win,” observes Allen. It’s not a zero sum game, in other words. That means, despite being held accountable and subject to performance measures, “in a sense it’s more relaxing. Science is the hurdle. You’re not trying to play internal politics, or grab more people. In fact, you’re more likely to be rewarded for having fewer people.” This, says Allen, is part of a broader change across GSK, including in the US sales force. The new story is about empowerment and achieving outcomes; the old story was about territorial gain over your colleagues or counterparts. Unlike a real biotech, a GSK DPU has tens of potential collaborators internally, in addition to those gained by external partnerships. It’s like a virtual science park, therefore, “with the upside that we don’t need to spend six months negotiating legal contracts,” says Lee. Granted, Lee’s particular DPU, focused on an underlying platform of new science, which could span multiple TAs, and its objective – to establish epigenetics as a therapeutic area within GSK – demands collaboration. For now the unit is officially focused on the application of epigenetics in immune disease but Lee insists that “if we find other opportunities, we’ll look at them. Luckily, we’re surrounded by other DPUs, and can collaborate.” Lee says that for one program, he’s working with five dif-

ferent DPUs across the organization. “That is the power. You can just phone someone up, get them interested, and since they are as empowered as I am, you can quickly launch a collaboration, without having to get approval from various committees. Ultimately you see your molecule being tested in a variety of different areas.” Of course, it’s not all perfect. “There are still processes that we have in place that are less aligned to an entrepreneurial approach,” says Lee. But it’s ok to shout about them, he says. And meantime, “there’s a latitude we have to try to dodge around some of the processes.” External partnerships necessarily require more formalities, but “we’re agnostic about where they [the DPUs] source their innovation” and who they use to meet their objectives emphasizes Ad Rawcliffe, SVP worldwide BD for R&D. “They [DPU heads] should view themselves as the owner of a pipeline, as opposed to the manager of a DPU.”

remit beyond the areas that its existing DPUs are working on. The Immuno-Inflammation CEDD’s Tempero Pharmaceuticals, a regulatory T-cell focused “external DPU” seeded by GSK in 2009 with a view to potentially raising outside VC like a regular biotech, is one example – and also illustrates the wide variety of DPU flavors within GSK. (See “GSK’s Tempero: Pushing Entrepreneurialism to the Limit?” The IN VIVO Blog, May 21, 2009.) (See Sidebar: GSK’s DPU Flavors.) Deals at the exclusively externally focused Center of Excellence for External Drug Discovery, with no internal pipeline at all, are typically for platform technologies or for assets that fall into areas that don’t quite fit in with the current DPUs. At the center of the nest sits worldwide business development, supporting all the strategies, be they those of the DPUs, the CEDDs, the oncology unit, or the rare diseases unit (which has been built almost entirely around deals), as well as hunting

GSK’s DPU Flavors GSK’s DPUs may share certain characteristics such as small size and a high degree of autonomy and flexibility, but they often as a result look very different from one another. Tempero is an external DPU, set up to potentially raise external VC money like a regular biotech. Other DPUs are almost entirely virtual: the Virtual Proof-of Concept unit or VPoC is, as its name suggests, predicated on virtualness. Now other units are fast picking up its ideas and sharing its contracts, according to head Allen Oliff, MD. (See “GSK In Tune With Lilly’s Chorus on Cheap-to-PoC Idea,” The IN VIVO Blog, October 15, 2009.) Ophthiris was set up as a DPU alongside the others to re-profile GSK assets for use in ophthalmology, an idea put forward by a GSK executive. In a similar recycling vein, the Academic DPU was set up to find academic partners to progress halted GSK assets, but has since spawned the Integrated Academic Drug Discovery unit, in September 2010, to identify drug discovery partners within academia.

The fact that DPU heads have some dealmaking autonomy creates a rather complex business development picture across GSK as a whole, which Rawcliffe describes in terms of “nested layers.” At the outer level, DPU chiefs have some money within their three-year budgets for dealmaking (primarily P&L costs; for up-fronts and milestones they have to appeal for funds from the GSK balance sheet). But although they drive the deals, they don’t just go ahead and negotiate the terms; the worldwide team provides diligence and transactional resources, alliance management, and post-deal support. CEDD-level dealmaking comes next, when a CEDD would like to broaden its

out late-stage opportunities and strategic deals in new areas. There’s evidence that this tiered dealmaking set-up, at least at the DPU level, is shaking off some of the traditional Big Pharma dealmaking stodginess. “We had a choice” of potential partners, explains Tim Edwards, CEO of Cellzome AG, which in March 2010 licensed its epigenetics-focused discovery and screening platform exclusively to GSK for use in immune-inflammation. “But GSK was the most entrepreneurial.” And given the clinical resources sitting behind them, “we knew that they would be able to deliver what they were talking about,” Edwards continues.

Pharmaceutical R&D

DPU Heads: Nowhere To Hide

as a very mixed picture in terms of business development expertise within the Indeed, notwithstanding the cozy, DPU layer. “My experience was that the collaborative, pick-up-the-phone atmo- DPU heads were completely BD-illiterate,” sphere that Lee describes, DPU heads says one senior ex-employee. “In general, nevertheless have nowhere to hide if they they did not believe anyone outside their don’t deliver their data, says Allen. They unit knew anything worth knowing, and they certainly had may have a little no sense of how less funding-fear to craft a deal to than biotech CEOs, “I don’t want there to be address the weakbut they are argunesses or concerns a cutoff at all [between ably under even of a partnered progreater scrutiny sciearly- and late-stage gram.” entifically from a development]. I want With almost single, highly wellforty DPUs, there’s commercial input into informed investbound to be some ment board, and DPU programs, and to variation in quality, investor. “There’s connect DPU scientists particularly given no opportunity to the wide skill set to the success of a lateembellish what you required of a DPU have,” notes Lee. stage program.” head. Whatever Nor “can you take wrinkles do remain Moncef Slaoui the equity and run. will be exposed as You’re in it for the GSK implements long-term, you live its next move, creating integrated business with your consequences,” says Allen. Some relish it. “I wouldn’t have it any units spanning discovery to reimbursement. other way…. It’s appropriate that if an investment is made in you, you have a responsibility to do your best,” says Lee. But he’s used to it, and so is the quarter of his 60-strong team that came from biotech. For others, the transition hasn’t been so easy. DPU heads have to combine scientific prowess with entrepreneurship, financial nous, and business development IQ. “It requires a biotech CEO type,” sums up Allen. And there aren’t that many of them hanging around Big Pharma. Getting the management right may have been one of the greatest challenges GSK faced when it created the DPUs. Allen notes that since the respiratory CEDD has only just moved to a DPU structure, somewhat later than the rest of the organization, finding suitable leaders is still one of his number one priorities. In some cases it was clear who would lead each DPU, says Allen; for the neuronal-focused unit, he recruited out of GSK’s neuroscience area. But by and large, he reflects, people that were highly successful in one model don’t necessarily align to a new role. Despite that, and the considerable staff turnover GSK suffered when it began its ongoing R&D overhaul, only 5 DPU heads of the 38 in total were recruited from outside, according to the company. If the figures are accurate, that’s very few, and perhaps helps explain what some describe 44

Putting The Blocks Back Together Again… Details of this latest ongoing step in GSK R&D remain unclear, at least to those outside the upper echelons of GSK. But senior management downplays it as more of a repackaging exercise than a deep overhaul. They also insist this isn’t going back on the “small is beautiful” philosophy underpinning the DPUs; the fundamental building blocks of GSK R&D remain the DPUs and later-stage Medicines Development Centers. Now that they’re in place, these empowered and connected building blocks can be re-packaged, but how they’re packaged and what they’re called doesn’t really matter; the key is output. With output measured ultimately in terms of reimbursed drugs, not whether DPUs meet their three-year goals, it makes sense to pull together the DPUs and their downstream, regulator- and payor-facing counterparts. The MDCs follow the same principles as the DPUs in terms of accountable, delivery-driven leadership; the only difference is their remit is just one or two assets rather than a whole portfolio of programs. GSK has already moved in this direction across oncology, rare diseases and biopharmaceuticals. According to Slaoui, extending this

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

integration across the rest of the R&D organization will have little or no impact on the DPUs’ structure and operations; they will remain empowered and collaborate as they see fit. But even if the puzzle pieces stay the same, the overall picture will change. The effect of that change, if it works, will be significant. In the past, cultural differences between early-stage and late-stage scientists within Big Pharma led to their being mostly kept completely separate – a situation that’s no longer viable. GSK’s incentive scheme – tying unit heads’ rewards not only to the assets passed onto the next stage of development, but also to the subsequent clinical and commercial success of those assets – goes some way to address that problem. The proof-ofconcept stage boundary between the CEDDs and the MDCs at least allows biologists to see some clinical data.

R&D Without Borders But there’s still a boundary, a point at which DPU heads gather their POC output and hand it over to the late-stage development counterpart. That’s the boundary Slaoui doesn’t want. “I don’t want there to be a cutoff at all. I want commercial input into DPU programs, and to connect DPU scientists to the success of a late-stage program,” he says. Not all of his peers in the industry agree, it seems: Pfizer, AstraZeneca and Novartis maintain, for now, the early-stage/late-stage divide and Roche has walled off its discovery-focused Genentech Inc. division. In Slaoui’s borderless R&D world, research scientists will, for instance, see their toxicology decisions (and other trial design decisions) play out in the clinic, and clinicians will have no excuse not to give feedback to the preclinical team their learnings from the marketplace and payors’ evolving needs. There will be no reason for regulatory folk not to advise on how to tweak a Phase IIa study making various assumptions about the phenotype of a particular disease population, or using a particular biomarker. Any new concept that arises in discovery will be noticed by physicians running Phase III studies in the same field. As such, “it feels intuitive,” says Allen. Why would you want two groups if you could have one? Why would discovery scientists not want to be aligned with those that understand payors? he asks. Allen doesn’t deny that such groups aren’t used to talking, but declares that “a single

Pharmaceutical R&D

unit maximizes the probability of that [communication] happening.” The move will also likely address a criticism from some corners that the DPU heads’ three-year goal cycle precludes longer-term, strategic thinking. “Some unit heads need to be much more strategic in their thinking, in terms of what they are contributing to the business,” comments one person close to the company, adding that simply setting and meeting three-year goals is “too easy.” Allen thinks the unification will have a substantial impact across the business and will change GSK “fundamentally”. If discovery scientists can focus on what a medicine looks like and has to deliver, they will have a clearer idea of whether they can deliver it, and know when they must stop, he says. That will lead to a “more sophisticated alignment” between early- and late-stage development that will allow the company to get medicines out faster, cheaper and in a more targeted fashion than before, he says.

How Much Change Is Too Much Change? GSK certainly isn’t claiming it has solved the R&D productivity crisis, though. Such bold assertions can’t be made until the integrated R&D units, and the building blocks they’re made up of, actually deliver medicines. That remains as open question, and there are additional uncertainties about the structure of these integrated units and their oversight. At the structural level, for instance, should these larger units have two separate advisory boards, or just one? If the former, doesn’t that defeat the purpose of breaking down the barriers between early and late entities? What should the scope and composition of such advisory boards be? How will the organization merge the budgetary cycles, given DPUs are on a three-year cycle, and MDCs have a one-year cycle? How will GSK tackle the thorny issue of seniority when presumably CEDD heads and MDC chiefs could be vying for control of a therapeutic area? As such, “some kings of castles will lose their kingdoms,” speculates one advisor. Beyond a possible (temporary) return to some old-style turf wars among a few individuals, the creation of integrated business units may also expose inefficiencies in GSK’s development organization, according to sources. It’s likely that clinical trial management numbers will

be reduced, with much more outsourcing, says one. Not that that would be surprising: several companies, including GSK itself, are already stepping up their outsourcing in a bid to cut fixed overheads. Sanofi-Aventis’ September 2010 tie-up with Covance Inc. is among the most recent, prominent examples. GSK came to a similar arrangement with Aptuit Inc. in July 2010 after closing down its neurosciences discovery operations in Italy, and “we’re currently going through the process of selecting strategic partners for clinical development, and leveraging our relationship with them” across the group, acknowledges Rawcliffe. He’s all too aware that the current R&D infrastructure isn’t sustainable; already GSK has, since 2006, taken some £500million out of its infrastructure costs. Ten years after GSK took its first step to break down huge corporate line-function R&D into smaller units with the creation of the CEDDs, the Big Pharma can claim some results. Some analysts reckon that, despite 2010 having been a dismal year for GSK shares, the pharma’s pipeline is among the richest in the industry, with several innovative medicines, including for instance the anti-CD3 antibody otelixizumab in Phase III trials for Type 1 diabetes. Like some of its peers, GSK has tried to move away from me-too drugs into novel, riskier areas including gene therapy and rare diseases, which it wouldn’t have touched before. It has also built itself a biologics pipeline, with six programs in Phase III (many of them in-licensed). Phase III data for cancer immunotherapy MAGE3 is expected this year in non-small cell lung cancer and melanoma, as is U.S, and possibly E.U approval for lupus treatment Benlysta (belimumab), which would be the first new drug for that condition in decades. Developed by Human Genome Sciences Inc., Benlysta bears testament less to GSK’s own R&D than to its past partnering prowess. Meanwhile, Slaoui claims that the company already boasts the most FDA approvals three years in a row – an important milestone whether they’re homegrown candidates or not. All of which leads Slaoui to declare himself “satisfied with where we stand.” But although the company has dared commit to a 14% ROI for R&D (on which it spends about $6 billion a year), GSK’s R&D experiment continues to evolve. Some fear that continuous change could be counterproductive, with the company

failing to fully reap the benefits of each iteration before the next begins. “Most companies that change too fast do not implement fully what they have started and therefore do not reap the full benefits,” remarks Frederic Brunner, CEO of a-connect, a business project execution company headquartered in Zurich. GSK’s management sees the unified units as a logical evolution, not a stepchange, though. Senior R&D management inside and outside the company argue that some degree of staff turnover is healthy in order to access the best talent. And internal reorganization is no where near as disruptive to discovery as large-scale M&A, which CEO Andrew Witty has declared he’s shunning. Witty has been instrumental in pushing for the DPU structure and supporting the ongoing R&D evolution. He’s also realistic about the industry’s challenges – the PR and regulatory ones, of which GSK has had its fair share in 2010, as well as the scientific ones. That’s why he’s had to hedge the company’s bets in other, less risky fields like consumer health and vaccines (growing a diversified business was the priority when Witty became CEO in 2008), and why GSK, like many others, has pushed fast and hard into emerging markets where growing populations are clamoring for some of the older drugs that are no longer lucrative in Western markets. “Society wants a better value proposition from the drug industry,” said Witty on the Radio 4 program in December 2010. “That’s what this company is determined to deliver.” Just how much of that better value proposition will be generated by GSK’s own revamped, innovation-focused R&D organization isn’t specified. [A#2011800007] comments:

Email the author: M.Senior@Elsevier.com

related reading Reenergizing R&D: Sanofi Stirs The Pot, But Does It Have The Recipe? “The Pink Sheet,” October 25, 2010 [A#00101025005] GSK Spins Out Pain Assets, Raises $35.4M, “The Pink Sheet DAILY,” October 5, 2010 [A#14101005002] GSK In Tune With Lilly’s Chorus on Cheap-to-PoC Idea, The IN VIVO Blog, October 15, 2009 GSK’s Tempero: Pushing Entrepreneurialism to the Limit? The IN VIVO Blog, May 21, 2009 GSK Tries to Mimic Real-World Biotech, IN VIVO, February 2009 [A#2009800033] Pfizer Restructures For A More Flexible Future, “The Pink Sheet,” October 13, 2008 [A#00700410004] Access these articles at our online store: www.windhover.com/article

Medical Devices/Regulatory

510(k) Face-Off:

CDRH’s Foreman Debates Reform Plans With Industry Reps Changes to the 510(k) review program are coming. FDA says not to worry. Should you? The agency’s top device reviewer squares off with two industry representatives at the recent IN3 Summit. By David Filmore

he 510(k) program and plans by FDA to reform it have caught the attention and anxieties of the device industry. And Christy Foreman’s frequent flyer miles have swelled as a result. The acting director of the Office of Device Evaluation within the agency’s Center for Devices and Radiological Health (CDRH) has traveled from coast to coast answering questions and attempting to allay concerns about FDA’s plans for the 510(k) program, which is used by companies to bring more than 90% of new devices to the US market. In late October, Foreman participated in a panel at Elsevier Business Intelligence’s IN3 Summit in San Francisco. There, she joined two other prominent individuals in the industry for a discussion of the 510(k) program and possible impending changes to it: Laurie Clarke, a partner with law firm King & Spalding, who has spent 20 years shepherding companies through FDA challenges, and Joshua Makower, MD, serial entrepreneur (including ENT startup, Acclarent Inc., which was acquired by Johnson & Johnson’s Ethicon Inc. operating company for $785 million), CEO of Bay Area medical device incubator ExploraMed, NEA venture partner, a consulting associate professor at Stanford University, and cofounder of the school’s Biodesign program. Foreman said FDA remains committed to the 510(k) process but acknowledges that it has been applied inconsistently by device reviewers. Changes are needed to improve predictability while also ensuring that the agency has the flexibility to get the evidence it needs on a case-by-case basis, she explained. That sounds fine on paper, but recent practices by CDRH reviewers suggest that

what’s on paper does not always match what happens in reality, Makower argued. Meanwhile, Clarke said she is optimistic about the pending reforms, largely because she believes the changes will greatly improve the predictability of a process that has evolved in recent years into what she calls something of a “black box.” This article is excerpted from the IN3 Summit panel discussion, which was moderated by “The Gray Sheet’s” Senior Editor, David Filmore, and followed on the heels of agency announcements of impending changes to the 510(k) program. In August, FDA issued a report on possible reforms to the 510(k) program, along with a separate report on potential changes to how the agency incorporates science into all of its regulatory decisions. In the coming weeks, the agency is expected to announce its plans for near-term 510(k) reforms it plans to pursue.

Christy, let’s start by getting a status update on the 510(k) reform effort and discuss FDA’s driving philosophy behind the planned reforms?

Christy Foreman: One of the things that we have been struggling with in the 510(k) program has been getting a few knocks in the press lately. Some folks have called it a quick process, a rubber stamp process, an easier process. The agency doesn’t feel that those statements are true. Certainly the time frames associated with a 510(k) are shorter than that of a PMA, but it is what it is. It is a substantial equivalence process, meaning that we have a body of knowledge about that device type that we can leverage in making our decision. We didn’t want consum-

Executive Summary >> 98 46

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Medical Devices/Regulatory

ers, or anybody, to lose confidence in the decisions we were mendations. Now we’re reconciling the comments and the making through the 510(k) process. And we also recognized recommendations, and we hope to publish very soon a list of that devices have changed drastically since 1976. While that is recommendations that we intend to pursue. With that being still the line in the sand as to when you can identify a predicate said, the Institute of Medicine report that we commissioned is device – either something that was on the market before 1976 not due until mid-2011. We won’t undertake any huge changes or something that’s been found substantially equivalent since to the program until we hear from the IOM as to what direction then – we recognize that to continue functional operation of the they’re thinking, what recommendations they may have, so we 510(k) program, the program itself may need to evolve just as can factor that into the process as well. devices have evolved. I can tell you in 1976, when the legislation was written, who possibly could have thought of iPhones Q: Laurie and Josh, both of you have been following this reform and iPhone applications that would allow you to view radiology effort from your different vantage points. What is your sense images on the application that’s on the phone itself? Folks didn’t of how the process is going and/or possible outcomes at have that concept in mind. So what we’ve decided is that we this juncture? What has most caught your attention, either need to take a fresh look at the program and see what changes positively or negatively? we need to make to ensure that the program will continue to function optimally. Laurie Clarke: I’m by nature an optimist, and I am optimis Our review staff needs to be able to tic about it. I wasn’t so optimistic six review applications in a timely manner. months ago, but I am much more opSo some of the changes in the report timistic now. I actually love the 510(k) were made to address issues that might process. I think it’s a great process. “Being an entrepreneur happen a very small percentage of the There’s a lot of flexibility. You can go and an innovator, I’m an time, but tend to chew up a tremendous from needing very little regulation, if optimist, but I’m also a amount of staff resources. There are a that’s what it warrants, to quite a bit of few changes that affect only a very small realist, and I’m deeply regulation with clinical data and postnumber of devices, but would facilitate market surveillance, if necessary. And concerned.” faster decision making by the agency. it can evolve over time, so that as FDA The other aspect is we wanted to be able - Josh Makower, MD gets more information, a device type to provide a very predicable regulatory can go from needing clinical data to environment. The goal of the FDA is to not needing it, or it can even become promote and protect the public health. 510(k) exempt. But I do think there is What that means is we want to provide timely access to safe and room for improvement and I think FDA is going in the direction effective medical devices while fostering innovation. In order to of saying, “We need to look at this.” But I also think we have a foster innovation, we feel we need to have a predictable regula- responsibility to tell FDA what we think is wrong, and what we tory environment, so that at the onset, folks know the data needs think can be improved, and to offer helpful suggestions. The for the device. As we looked at the program, we realized that comment process really is our opportunity to give FDA feedback. there have been some changes in technology that have been I think in the end we’re going to come up with a better process. handled differently down at the review level. In one case, one review group may have said, “OK, we’re comfortable with that Josh Makower: Being an entrepreneur and an innovator, I’m an technology; we’ve allowed a split predicate. So we’ll just say it’s optimist, but I’m also a realist, and I’m deeply concerned. The substantially equivalent.” And another review group said, “Well, reason why is because I see so many of my colleagues suffering. no, that’s a split predicate; that’s not allowed by statute, so you I know what the companies that I’ve started are going through can’t be substantially equivalent.” right now, and it’s a very difficult time. As I look at the proposed There were inconsistent decisions being made, and if some- 510(k) changes, many of them on the surface actually sound rebody on the outside were to look at one of those decisions and ally good. I really like the headings. But what I worry about is the say, “Well, the agency said this was substantially equivalent over implementation part. From what we’ve seen on the development here; I think my circumstance is pretty similar to that. I’m going side over the last two years, there’s been an incredible change, to bank on the agency finding my product substantially equiva- a dramatic change in the way that we’ve been able to advance lent,” and you’re dealing with another review group, perhaps projects through the FDA. It’s become exceptionally frustrating that expected outcome may not have happened. What we want and difficult. What I worry about is: how are we going to impleto do is re-baseline the program so that it can be regulatorily ment these great ideas in the headings? Because that matters. correct, it can be predictable, and it can be transparent. If I have a role on behalf of my fellow entrepreneurs and innovators to be up here with you, I just want to say, we have a very, very sensitive and very fragile ecosystem that generates a Q: So where do things stand right now? lot of the new technologies for advancing human health, and a Foreman: We have 55 recommendations between the two lot of the people in this room and in this general community, and reports and we put those recommendations out for comment. certainly in the Bay Area, have dedicated their lives to try to imWe’ve received comments from 74 different groups, represent- prove patient care. We realize it’s an imperfect process. Medicine ing about 700 pages of total comments. We’ve gone through is not perfect. There’s still so much to learn about biology and those comment and we have internally prioritized our recom- science. But we need to take steps forward and have FDA stick to

Medical Devices/Regulatory

its mandate of requiring companies to demonstrate reasonable assurance of safety and efficacy, not absolute assurance. There is variability in human biology; there’s variability in the physicians’ skill sets to deploy some of these technologies. To be able to advance medicine, we have to embrace the imperfections and try to find a reasonable balance. And most importantly, I think, we have to find ways of working together, both regulators and innovators, to find someplace where we can make progress forward.

implemented is not going back to 1976, but really focus more on what came through last. Each incremental innovation, which by its nature brings something new, brings a small step beyond the existing base of evidence such that one can identify a reasonable incremental piece of knowledge or testing that needs to be delivered for clearance, either through additional clinical trials or bench studies. This is the way the 510(k) system has worked in the past and it has really allowed us to continue to innovate in a relatively rapid fashion.

Foreman: Right. But I will say even some of those small steps, I think Josh gave a sense of the conventional wisdom among if you look at nanotechnology, for example – right now we’ve much of the start-up and investment communities: that the seen a few submissions that contain 510(k) process has become more nanotechnology embedded in the dedifficult to traverse during the vice. And if you look at a nanotechnolpast couple of years and that the “We still want to be able ogy application where you now have current reform effort could make nanotechnology silver – small-particleto have the flexibility it more burdensome. Christy, how sized silver-coated material – that raises that’s inherent in the much of that rings true from your questions. So even if you go back to “yes, perspective? 510(k) program, but we already have silver-coated devices,” you now have a nanotech question in we want to implement Foreman: I’ll put this out there as food for front of you. And the question is: can thought. The 510(k) program, from the it in a somewhat more we ask additional questions over the last agency’s perspective, has allowed much predictable way.” device that was silver-coated? You say, innovation over time. But if we truly are “Well, it’s silver-coated, and we’re silverthinking about an innovative product, - Christy Foreman coated; therefore, the bar should be the are we really thinking about substantial same.” But the question we have is what equivalence? If you’re truly innovative, happens to that silver? Does it come off are you the same as a product that was on the market in 1976? Probably not. But we recognize that the of the product? Does it sit in the liver? Where does it go? Is it 510(k) pathway is probably the appropriate pathway to regulate excreted? What happens to that technology? So when you make many of these devices. What we’re saying is you may have dif- those, even small, steps, we may have to ask for additional data. ferent technological characteristics. You may have a different indication for use, not a different intended use. But we still think Makower: Of course. I think that that’s acceptable. it’s appropriate to go through the 510(k) pathway. But we may need some additional data over what your predicate devices Foreman: What we’re saying is we still want the 510(k) program had. We want the 510(k) program to work for you and to work to accommodate those technologies, but we need to have the for us. We don’t want a PMA for a product in many cases, but capacity to ask for additional data as the technology evolves. with that, as Laurie mentioned, the 510(k) program is flexible. And that’s one thing that we’ve struggled with over the years, Makower: I think that exists. Doesn’t it? Certainly every 510(k) because the program is so flexible, it has the opportunity to that I’ve ever brought through the agency, I’ve had to provide be applied inconsistently. So we have struggled with trying to clinical data for. And that’s been fine. I think the challenge has provide a predictable regulatory environment, because provid- been the degree to which some of the data requests have been ing predictability means, in many cases, losing flexibility. We reasonable or not. I think that many of my colleagues, and I still want to be able to have the flexibility that’s inherent in the know myself, have been sent on some extremely esoteric scien510(k) program, but we want to implement it in a somewhat tific missions, which while being completely interesting from a more predictable way so we can tell you upfront devices that we scientific perspective, don’t necessarily get at safety particularly. But really, I think it’s been very challenging in some cases to try think might need clinical data more often that not. to rationalize some of the questions. So I think under the banMakower: Clinical data is important. If we could reverse the ner of safety, true safety, I think that those are all reasonable clock, I might say maybe we should have adopted something requests. But there also need to be reasonable parameters set for that was much more like the European CE mark-based system, how many questions – how deep, how far, how much more do where it is class-based, and it’s much more straightforward to we need to provide – to basically unburden the process necesfigure out how to navigate. That program has somehow man- sary to advance. In some cases, the questions being asked are aged to remain flexible, predictable and transparent all this time, potentially unknowable, and challenge the limitations of science whereas the 510(k) rubric has some challenges. One of them and our diagnostic equipment. is: are we really comparing ourselves back to 1976, or was the idea more that with each 510(k) clearance we continue to add Clarke: Make no mistake. We all think it’s a challenging time right incremental evidence, and that next new landscape becomes now. And a big part of the challenge is uncertainty. I applaud FDA the landscape to build upon for the next clearance? I think the for trying to increase transparency and predictability. But right way that I would, as an innovator, like to believe it would be now, when we’re filing a 510(k), we don’t know what’s going

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Medical Devices/Regulatory

to happen. We don’t know whether the particular reviewer we get is going to say you can only have one predicate device, even though FDA’s internal report says the agency is not limiting the number of predicates. We’ve had reviewers say, “No, you get one predicate device and one predicate device alone.” Then we have others who are more flexible about it. It’s the uncertainty that is problematic. I think when FDA’s review of the 510(k) process is complete we’re going to have more certainty. It may be harder to obtain clearance in some cases, but it’s easier to work with once we know what we’re dealing with. Right now, we have a feeling that we’re throwing in our submission into this black box. It’s kind of reviewer-dependent, and we just don’t know what’s going to happen. Makower: That’s true.

Josh, as an entrepreneur, how do you weigh greater predictability versus requirements for submitting more data? In other words, is a mandate for a higher threshold of evidence worth knowing exactly what to expect at the outset of the FDA process?

Makower: I’m here because I really want to do something good. And I really believe everybody at the FDA approaches this with the same perspective. We want to do something good for patients. Being a physician, I also understand the tremendous imperfections in what we have today. And I see it every day when I’m in the field, in the OR, in the clinic. I’m just struck by

how much more we need to do to make lives better for people on the planet. And given all these uncertainties and challenges, we have very limited resources that we have to use to be able to get there. Our system was built upon a model that requires a certain amount of investment to make a certain number of advancements, and if this is done properly, then there would be rewards, and entrepreneurs and inventors would get together and come up with the next one and the next one. What I hope that we keep in mind as we look at these proposed changes at the FDA is just how delicate this innovation ecosystem is. If the process we eventually create is predictable but exceptionally difficult to navigate, what opportunity of innovation might we have eliminated because it may not be financially justifiable? I’ll use as an example: pediatric medicine. Most kids are really healthy. There are very few kids who have problems. But when they do, they need specific devices. If the cost gets too high, the companies are going to look at this and say we can’t make back our investment, and that’s not going to be good for kids. So I think that we need to have a balanced perspective on all of this, and ask ourselves the question: what are the reasonable questions? Predictability and transparency are important, but if the outcome isn’t reasonable, it’s not going to work. And how do we get the reason back into the process? What my proposal is, and I’ve talked to Jeff Shuren [MD, director of the CDRH] about this as well, is we need doctors who practice medicine every day deeply involved with the FDA to be able to say, “You know what, I know this isn’t perfect, and sometimes it might not even work, and maybe even sometimes it might

Multiple-Predicate 510(k)s Are Staying Put; “Split” Predicates May Need To Go Based on her discussions with companies, many device industry reps have a misconception about what restrictions the agency is considering for devices that can be used as predicates in 510(k) applications, Christy Foreman said during the IN3 discussion. Predicates, of course, are at the core of any 510(k) submission; they are the already-cleared products that a company must prove its device substantially equivalent to. If FDA puts more limits on the predicates that sponsors can employ, it potentially makes the 510(k) process less broadly applicable. In practice, most applications rely on comparisons to several different devices. But many companies have read the 510(k) reform proposal report issued by FDA in August as suggesting that use of multiple predicates may no longer be allowed. That could not be further from the truth, Foreman stressed. “I would say almost every 510(k) has multiple predicates, and that’s

fine,” she said. “So a multiple predicate is: ‘I have a multi-parameter monitor, and I need to point to three different individual devices to get the entire spectrum of technology.’ That’s fine. ‘I have a device that has size ranges, and I have to point to two size ranges to get the entire spectrum that I intend to offer.’ That’s fine. ‘I have a device for which there are two predicates: one is of a certain design and a material, and another device is of a different design and a different material, and I want to take the material from one device and the design from another device.’ That’s fine as well.” What FDA has an issue with are so-called “split” predicates, she said. Split predicates are “where you take the intended use from one device, and the technology from another device, and you say, ‘OK, now I want to be substantially equivalent,’” Foreman explained. “But there really is no device that you’re

substantially equivalent to. What we’re saying is we may want to put some restrictions on the use of split predicates.” Foreman acknowledged that reviewers have allowed split predicates in the past mostly because they believe a device is at most a moderate-risk product, which does not require PMA data, but they did not want to ask the company for a de novo submission, which is intended for moderate-risk products that do not have predicates. The de novo process is widely regarded as extremely inefficient, so, Foreman explained, reviewers ask themselves, “’do I go through the painful de novo process, or do I just stick it in somewhere and say the ends justify the means?’ “We are not trying to create more PMAs,” she said. “We want to say that for split predicates, that the appropriate pathway is most likely a de novo. And we want to commit to making the de novo process work.”

Medical Devices/Regulatory

be damaging, but it’s better than what I have right now, and if I could just get this, I’ll try to apply it in a way that makes a difference, given its flaws.” I think what the FDA, from my perspective, is supposed to do is to help us as citizens understand what reasonably could be claimed about a new drug, procedure or device so that when we use a product, we know that the labeling is accurate. That’s what we rely on as citizens. And it’s a very important role for the FDA. But if we make that bar too high, we’re going to limit who we can help. That’s what concerns me the most. So I think the reasonability part can’t be overlooked in this whole process.

Foreman: One of the things that we try and balance is the interactive review process. For better or for worse, user fees have put goals on the agency with respect to making decisions in a timely manner. 90% of our 510(k)s have to reach a final decision within 90 FDA calendar days. And 98% of the submissions have to reach a final decision at 150 FDA calendar days. So we are trying to balance the user fee goals with communication. One thing that I often say is I will look into any problem that there is in the office. I just need to be made aware of it. We try and ask that our staff return phone calls within 48 hours. So if you’re not getting that communication, please call me or please call the division director, because I can’t respond to issues that I’m not aware of.

Foreman: To respond to that, the agency is committed to meeting unmet public health needs. And in terms of meeting Q: Laurie, what do you believe are the prospects for reform of unmet public health needs, we’ve taken a few actions. We have the de novo submissions process? some specific strategic plan items related to this. We’ve hired a chief pediatric medical officer at the center to keep in mind Clarke: I think it can make a big difference. Again, the devil pediatric needs because we recognize is in the details, and we need to see how difficult it is to get devices studied what’s going to happen. But some of in pediatric patients. We’re committed the suggestions that are being offered, “The third piece of this is to trying to work with manufacturers for example taking out the 510(k)-nottrust in communication – to get those studies done. We’re also substantially equivalence requirement, in hiring a director of innovation. And this which you have to file a 510(k) first and communication not just will be a person who will specifically be be found not substantially equivalent bebefore the submission, but tasked with making sure that our profore you go though the de novo review, I during the submission. ” cess allows and facilitates innovation. think would be a major improvement in What we’re trying to do is meet both the process, especially if you can come to - Laurie Clarke your needs as a businessperson and an agreement there really is not a good the consumer’s needs as a group who predicate and this is going to be de novo wants to make sure that they can buy from the beginning. a product that has the FDA seal of approval, for lack of better words, with confidence that it means something. So we’re Makower: I tend to agree with what you are saying, Laurie, struggling to try and balance both of those needs. We want to from an intellectual standpoint. I think that the language in the be able to review products in a timely manner. We want to be document is encouraging. But what worries me is that during able to communicate to you up front the data needs for this the last two years we’ve seen a real mindset change in the way technology. Because ultimately, that’s what benefits everybody that reviewers are communicating with companies and even the – putting new devices on the market that help public health. stance toward industry in general. Technically, over the last two And that’s really what our goal is. years or so, nothing has changed from a legislative standpoint. All of the changes that our industry has been experiencing are Clarke: I agree with the points on reasonable requirements and happening related to mindset, approach, implementation, and I agree with communication. The third piece of this is trust in management. So how should I interpret the 510(k) proposals: communication – communication not just before the submis- in the context of the FDA that I grew up on when I started in sion, but during the submission. That’s something that we’ve this industry back in 1989 or in the context of the current stance lost a little bit lately. And I’ve been doing this for 20 years. We and way that the agency currently approaches each and every used to feel like when we submitted something that the expec- individual potential scientific question? That’s really my question tation on both sides was we were going to have done our best to Christy. From your perspective, do you see that over the last job, it was going to be the best clinical data and that it was several years the wheels have fallen off the bus in terms of how truthful. I think now FDA’s a little bit more skeptical. In the same this is working and you’re trying to regain the momentum of vein, if the FDA reviewer has a question, if something doesn’t industry and FDA working together to bring new products? Or make sense, don’t let it simmer. Pick up the phone and ask me. do you see what’s going on over the last two years as being kind Many times we can take care of that in two minutes, and keep of the right direction and that these new proposals are going to things moving. I realize part of it is due to the time constraints be implemented from that perspective? and the number of submissions, but interactive communication doesn’t happen as much anymore. I think there’s a certain sense Foreman: Let me make a couple of comments. First of all, the of frustration from industry of, “Where has the dialog gone?” I agency’s position is the 510(k) program is, for the most part, hear from FDA that there just isn’t the time and resources to do working. But we undertook this effort because there were things that. But I think we need to find that as an important balance we could do to strengthen the program. And I think in terms of because I think that really helps the process. trying to strengthen the program, there are messages out there

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Medical Devices/Regulatory

that can be misinterpreted, both by industry and by internal activities, and we have recently received a letter signed by twelve staff. So I think some folks are potentially caught in a period of Congressmen indicating some concerns with some changes uncertainty. And we’re doing our best to make sure that the they consider fairly significant. And so they’ve asked for some process still works until such time that we come out with our additional information regarding some changes. There is an final recommendations and our implementation. I will tell you ongoing dialog. that for all recommendations, they will go through the notice and comment period as appropriate. Q: I wonder if you could comment on timing. With the IOM The way we are going about looking at changes to the report not coming out until the summer, we could be lookprogram is different from any other change that I’ve seen at ing at a year and a half or two years of uncertainty as this the agency in that normally what we do is we come up with process continues. One of the significant issues is the lack a pretty fleshed-out idea. We put it out there and say, “Here’s of consistency in the application of current regulations exactly what we’re planning on doing. Please comment.” What between branches. I’m wondering how you’re going to we’ve done in this case is we’re providing multiple periods of address it in the near term, and how long you expect the comment. And I understand that the devil is in the details, but process before there’s more certainty. right now what we have are recommendations without a lot of detail because they are just that: recForeman: One of the comments we reommendations. And what we’re saying ceived on our recommendations is that is please comment; please let us know: FDA should not implement all recom“we have to also balance do you support this general direction or mendations at once. I can tell you I was any changes that we’re not, knowing that if that recommendathankful to hear that. I just don’t have it tion gets some support, what we’ll do is in me to implement everything at once. making with the fact we’ll put forth the straw man idea and And strictly speaking, we don’t actually that we have a day the details around that, so that you can have the staff to implement everything job of reviewing your then have an opportunity to comment. at once. So it’s going to have to be a The other thing that I would say is if staged approach. And in part, we have applications.” you look at the report, there are very to also balance any changes that we’re - Christy Foreman few recommendations in that report making with the fact that we have a day that require statutory changes. The job of reviewing your applications. We agency feels we are completely within can’t sacrifice our review times. As I said, our authority to make these changes, one of the things that we’re going to but we’re doing this in a way so that do is we’re going to post a plan of the we are seeking feedback because we don’t want to change the recommendations that we think we’re going to move forward program overnight. We want to do this in a way so that you with, and there will be time frames associated with that as to see the changes and you can comment on the changes. Some when you might actually see a document, a draft document to changes may not be followed through with. We may decide, comment on. That will hopefully lay out the coursework as to “Well, we had that thought, but upon hearing comments and where the agency intends to make changes, and when you can feedback, we don’t want to pursue that anymore.” possibly anticipate seeing some changes. It is a priority for us to make sure that while we’re making these we have a consistent process. And I will tell you it will Q: Christy, you mentioned that there’s no need for statutory changes, take some time to get through all these changes with the IOM changes in many cases, but that also raises the specter of report coming out in 2011. That’s when the big changes may the other 800 pound gorilla that’s in the room, and that start to happen, if they happen at all. We won’t see anything is Congress. There’s a sense in the industry that, for all the until 2012 in terms of a complete finalization. concerns that companies have regarding FDA, at least the [A#2011800008] agency is sensitive to the notion that there is no such thing IV as risk-free innovation. But there’s also a feeling that the comments: Email the author: D.Filmore@Elsevier.com same sensitivity does not exist on Capitol Hill and that the agency is always looking over its shoulder, so that one of the big issues is really how Congress sees these issues. To related reading the extent that you can talk about it, what coordination Firms Find FDA Less Efficient, Less Competent Than European Counterparts, “The Gray or discussions may be taking place between the agency Sheet,” November 29, 2010 [A#01101129014] and the Hill with regard to the prospective 510(k) changes FDA To Rescind A 510(k): Rare Action Target’s ReGen’s Menaflex Device, “The Gray Sheet,” October 18, 2010 [A#01101018011] going forward? Foreman: So just in terms of what the agency has done, just as we’ve been doing these outreach activities for industry and for regulatory affairs professionals, we’ve also provided several briefings to the Hill. Additionally, the White House signed off on the 510(k) report. So the review of the 510(k) report went all the way up to the White House. Congress is aware of our

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Shuren’s Center: FDA Device Chief Discusses Long Road To 510(k) Reform, “The Gray Sheet,” August 30, 2010 [A#01360350001] FDA Maps Out Potential 510(k) Reforms In Long-Awaited Report, “The Gray Sheet,” August 9, 2010 [A# 01360320002] Tighter FDA Review Squeezing Device VCs, IN VIVO, December 1, 2009 [A#2009800222] Access these articles at our online store: www.windhover.com/article

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‘‘The Gray Sheet’’

61 deals in capital investment from according the first quarter of 2010, report from to the latest MoneyTree and the PricewaterhouseCoopers Association. National Venture Capital and That’s down 29% in dollars red to 30% in deal volume compa 2009. Overall, the fourth quarter of for the the industry ranked fourth invested. quarter in terms of dollars y ranked The biotechnology industr going into 99 first, with $825 million ses of 24% deals, representing decrea compared to and 14%, respectively, 2009. Overall the fourth quarter of ent activity venture capital investm

8 |

SBIR Phase I/II grant levels increased

stration Small Business Admini ment to the announces final amend tion Research Small Business Innova that boosts (SBIR) policy directive $100,000 Phase I award levels from II awards to $150,000, and Phase million. The from $750,000 to $1 es a amendment also continu ating provision allowing particip degree of agencies an “appropriate SBA said flexibility” in award size. ting NIH SBIR that applicants submit

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Biotechnology

Biogen Idec Charts A New Course

Thanks to a November restructuring that refocused the company around its historic strength in neurology and the hiring of two critical executives, Biogen believes it can grow beyond its warhorses Avonex and Tysabri.

■ B i o g e n h a s f u l f i l l e d promises made to Wall Street to winnow R&D and strengthen the management team. ■ In doing so, it may have taken a huge risk in narrowing its therapeutic focus to the notoriously difficult CNS space; eliminating oncology, meanwhile, is counterintuitive given the industry-wide rush to protected classes. ■ These efforts, especially the hard decision to exit oncology, were essential to putting the company on a path to growth. ■ However, to broaden its reach as a neurology player, the biotech must in-license either late-stage or marketed products outside the MS space; it’s an open question whether activist investors will support such a transaction.

Executive Summary >> TK 98 54

by Ellen Foster Licking

t’s been an eventful seven months at Biogen Idec Inc., one of the last freestanding big biotechnology companies. Since taking the helm in July 2010, newly minted CEO George Scangos, PhD, has radically restructured the biotech, jettisoning R&D initiatives in oncology and cardiology, as well as eliminating the company’s San Diego site, culling $300 million in costs in the process. He’s also made big changes to his top management team, hiring two former CEOs with decades of biotech experience: Doug Williams, PhD, most recently of ZymoGenetics Inc., as his head of R&D, and Steven Holtzman, formerly of Infinity Pharmaceuticals Inc., to take over the newly created role of EVP of corporate development. These decisions may streamline management functions and create a more entrepreneurial culture as Biogen reverts to its core historic strength in neurology, especially multiple sclerosis. If not explicitly stated, the implicit message is that only by going back to its roots can the biotech truly succeed, despite the complexity and high risk associated with most CNS projects. Whether or not the restructuring signals the ultimate failure of the 2003 merger that created Biogen Idec, the experiment to merge two equals – an outlier in biotech – has run its course. In truth, the recent changes more likely reflect a natural order, where a new management team unencumbered by past allegiances is compelled by present industrial realities to make hard

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

choices to right-size the organization. With a newly installed head of R&D with deep expertise in large molecules this may also mean Biogen further retrenches to focus its resources on biologic therapies as well. Biogen Idec executives aren’t suggesting that the company will transition to an exclusively MS-focused endeavor (its two blockbuster MS drugs, Avonex [interferon beta-1a] and Tysabri [natalizumab], combined for $3.1 billion in 2009 revenue). Such a move could well backfire thanks to that disease’s increasingly crowded treatment landscape. Scangos prefers the term “focused diversification,” and promises the company “will be more active on the business development front” using in-licensing as a means to extend beyond MS in neurology, its emerging expertise in hemophilia, and more nascent efforts in immunology. To develop wider commercial expertise in neurology, however, the company will almost certainly try to acquire another firm with marketed or near-to-market products. Given the industry’s broad interest in neurodegenerative disorders, an arena of high unmet need, acquiring assets that have been derisked clinically could be costly. Executives appear unfazed by such concerns, however. “I submit to you that a company with a $15 billion market cap and $1 billion in free cash flow has tremendous flexibility to look at a multiplicity of different types of business development opportunities,” says Holtzman.

Biotechnology

Although Scangos is pleased with the changes underway, he is acutely aware that more needs to be done. “We have a lot of challenges ahead of us,” he admits. Beyond remaining competitive in MS while broadening into other areas of neurology, those include the successful approval and commercialization of seven programs now in late-stage clinical trials. (See Exhibit 1.) And Biogen must execute on its pipeline while simultaneously keeping its existing investors happy – especially a base that includes activist shareholders such as Icahn Partners. Top executives staunchly profess their desire to make the “new” Biogen Idec into the leading Big Biotech and a partner of choice in its chosen therapeutic niche. But the same strategies that could set Biogen on a growth path could also position it for sale.

Biogen + Idec = Biogen? When Scangos announced news of the company’s restructuring November 3, he was blunt in his assessment of the biotech’s ability to compete in five therapeutics areas when nearly every industry player – many with much deeper pockets – is tacking

in a more specialist direction. “We are a mile wide and an inch deep. We need to focus the company on areas where we have the collection of people, assets, and capabilities to be among the world’s leaders,” he said. Some believe Scangos’ decision to close the Idec San Diego facility and opt out of oncology is a judgment on the wisdom of a merger between equals. The 2003 Biogen/Idec tie-up, after all, was supposed to showcase the strength of biotech-biotech combinations. The deal provided scale and scope to two essentially one-product companies that couldn’t afford to invest on their own in both their pipelines and their commercial-stage products, given the pressures of demonstrating regular earnings growth to investors. (See “Biogen Idec: A Sign Of Biotech’s Maturation,” IN VIVO, July 2003.) But while the addition of Rituxan (rituximab) to Avonex helped smooth the revenue line for the combined entity, conversations with former employees from both Biogen and Idec show why the merger never amounted to more than a sum of the parts. Even if the two companies had identical market caps at the time of

Exhibit 1

Biogen Looks To Launch Seven Products By 2015 Compound

Description

BG-12 (Phase III)

Oral MS medicine acts via the Nrf2 pathway to induce antioxidant enzymes and decrease pro-inflammatory cytokines. DEFINE and CONFIRM Phase III trials read out in 2011. Faces stiff competition from late-stage and marketed MS therapies such as Teva’s laquinimod and Novartis’ Gilenya. Commercial uptake may be hampered by BG-12’s three-times daily dosing schedule and its tardiness to the market.

Daclizumab (Phase III)

Humanized monoclonal antibody binds to the IL-2 receptor on activated T cells, inhibiting the binding of IL-2 and the cascade of pro-inflammatory events contributing to MS. Studied as possible therapy for relapsing and remitting forms of the disease in conjunction with Abbott Laboratories, which purchased Facet Biotech (formerly PDL), after Biogen’s own hostile attempt to buy its biotech partner failed.

Dexpramipexole (Phase III)

In-licensed from Knopp, this enantiomer of Mirapex is already approved for the treatment of Parkinson’s disease and restless leg syndrome. Molecule works by decreasing reactive oxygen species; if mutations to SOD-1 play an underlying role in ALS disease biology this could be helpful. Biogen initiated an 804-patient pivotal trial for ALS in late 2010 with aggressive patient accrual goals. Phase II data were promising and showed dose-dependent improvement, but some analysts caution the company is rushing into Phase III without adequate clinical trials.

Factor IX (Phase III)

Recombinant Factor IX drug to treat hemophilia B, which has a worldwide market around $1 billion. Longer half-life than competing products such as Pfizer’s BeneFix could mean significantly reduced injection frequency. Originally developed by Syntonix, which Biogen acquired in 2007. A 75-patient study commenced in December 2009 and is scheduled to be completed in 2013.

Factor VIII (Phase II)

Recombinant protein under development to treat severe hemophilia A, potentially a $6 billion market opportunity. Also came to Biogen via the Syntonix acquisition; 150-patient Phase II/III trial started November 2010 and is scheduled to finish in 2013. Will compete with a number of marketed Factor VIII drugs, including Recombinate and Kogenate.

Ampyra (dalfampridine) (Ex-US Registration)

Sustained-release potassium channel blocker treats walking impairment associated with MS. Biogen owns ex-US rights to the medicine via its 2009 deal with Acorda Therapeutics. Approved in the US in 2010; a decision by European regulators is expected in the first half of 2011, but may be delayed pending additional questions that arose mid-January. Analysts speculate Biogen may try to acquire Acorda in order to own fampridine outright based on strong US launch.

Pegylated Interferon (Phase III)

Pegylated interferon is being studied in more than 1,200 patients for its ability to be dosed biweekly or monthly. Study commenced in 2009 but won’t be completed until 2013. Although extended half-life improves on first-generation interferon, arrival of orals like Gilenya may make even long-acting interferons less attractive commercially.

Biotechnology

the deal, they weren’t true peers. At the time, Biogen was more mature, already facing P&L constraints thanks to the earlier than expected arrival to market of beta-interferon competitor Rebif from Serono (now Merck Serono SA, a division of Merck KGAA). In contrast, Idec was the young upstart, making money hand over first as a result of rapid uptake of Rituxan, whose revenue it shared with Roche’ Genentech Inc. division. From the start, the two companies were at odds culturally, and integration efforts never resolved those discrepancies. “At times it was a Mars/Venus thing,” recalls one former employee, who says the differences extended all the way to the top of each organization. Biogen’s James Mullen (whom Scangos replaced) was an introverted, analytical guy and all business; meanwhile, a cult of personality had developed around Idec’s charming and charismatic William Rastetter, PhD. “They were just so different in personality and style,” that it divided the company even more than the 3,000 miles separating the two headquarters, says another observer. Thus, despite talk of shared culture and extensive dialog between Biogen Idec’s facilities across the US and Europe, the oncology group grew increasingly isolated, precisely at a time when the balance of managerial power was shifting to Cambridge, MA. Oncology disappointments stacked up as further attention was diverted to rescuing the promising Tysabri franchise after its 2005 withdrawal from the market because of the risk of a

rare brain infection, progressive multifocal leukoencephalopathy (PML). Voloximab, a Phase II alpha-5 beta-1 integrin inhibitor of angiogenesis in-licensed from Protein Design Labs Inc. (now Facet Biotech Corp.) in 2005, for instance, remains mired in mid-stage clinical trials after initial forays in renal cancer were discontinued; meanwhile, a humanized ANTI-CRIPTO antibody developed inhouse at Biogen in Phase I at the time of the 2003 merger remains in early clinical trials. (See “Deal Update: Taking Stock of Biogen Idec,” IN VIVO, September 2005.) Outsiders believe Scangos, unencumbered by the merger’s history, was finally able to effect a change that had been a long time coming. Why continue to invest in an expensive facility and maintain a sizeable commercial franchise to support Rituxan, when Genentech/Roche was already more than adequately supporting the product? “Looking at the fully burdened cost to keep the San Diego site alive, I imagine George came to the conclusion, ‘What I am seeing is not knocking my socks off,’” says one industry watcher. As part of the November restructuring, Biogen revealed that in addition to selling the Idec building, it was laying off 650 employees and surrendering sales and marketing for Rituxan entirely to Genentech in a revision of the original 1995 alliance. It remains for the company to out-license its seven remaining oncology projects, but Biogen’s efforts in the field have officially ended. (See Exhibit 2.)

Exhibit 2

A Closer Look At Biogen’s Programs Slated For Outlicensing Or Termination Compound (Phase of Development)

Analysis

ONCOLOGY

Galiximab (Phase II)

Primatized anti-CD80 monoclonal antibody originally developed by Idec. Works by binding to CD80 expressed on cell surface of follicular lymphomas, triggering an antibody-dependent cytotoxic response. Status: Two Phase III trials in non-Hodgkin’s lymphoma studying galiximab plus Rituxan were terminated due to enrollment challenges created by changes to the standard-of-care regimen. Five additional Phase I or Phase II trials ongoing.

BIIB-021 (Phase II)

Next-generation heat shock protein 90 (HSP90) inhibitor acquired via Biogen’s 2006 purchase of Conforma Therapeutics. Status: Fully synthetic, orally available molecule in mid-stage trials for advanced metastatic breast cancer and gastrointestinal stromal tumors. Preliminary data suggest molecule may have utility in multidrug resistant tumors. Faces competition from drugs under development at Pfizer, Infinity Pharmaceuticals, and Synta.

Volociximab (Phase II)

Alpha5 beta1 integrin inhibitor that inhibits angiogenesis, thereby blocking tumor growth. Inlicensed from Protein Design Labs in 2005 as part of a three compound co-development deal. In 2008, PDL spun out its biotech operations into Facet Biotech (acquired in 2010 by Abbott), which continues development of the antibody. Status: Clinical trials in non-small cell lung cancer are ongoing. Prior trials in renal cell carcinoma have been discontinued.

BIIB-022 (Phase I)

Human monoclonal antibody specific for insulin growth factor 1 receptor. Status: Phase I trials in hepatocellular carcinoma, NSCLC, and solid tumors ongoing. Faces competition from medicines under development at Astellas/OSI (OSI-906), Pfizer (figitumumab), Amgen/Takeda (AMG-479), Eli Lilly/ImClone Systems (cixutumumab), and Merck (robatumumab). Unclear if the problems that forced Pfizer to terminate Phase III trials of figitumumab in NSCLC earlier this year mean IGF-1R inhibitors as a class have limited efficacy in this tumor type.

CRIPTO (Phase I)

Humanized monoclonal antibody targets the Cripto receptor, which is implicated in certain cellular signaling pathways. Originally discovered by Biogen and licensed to Idec as part of a three-compound co-development in January 2003, just months before the two biotechs merged. Optimized to include a cell-killing agent called DM4 developed by ImmunoGen in 2004. Status: Phase I trials in solid tumors ongoing.

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Biotechnology

The Benefits Of Focus The truth is that Biogen Idec has made very little progress in oncology over the past seven years. And as Scangos puts it, the areas where Biogen is developing drugs are so competitive that, “We have to strive for critical mass. We can’t afford to dabble. If we are under-resourcing five initiatives, we should stop and adequately resource three.” With competition bearing down on the company’s multiple sclerosis franchise – Avonex and Tysabri account for an unsustainably large portion of the company’s revenue, 72% in its last reported quarter – it is time to shore up the base. As the multiple sclerosis market evolves, both medicines face threats from newer therapies, most immediately Novartis AG’s Gilenya (fingolimod). Analysts estimate Gilenya, which in September 2010 became the first orally available MS drug to win regulatory approval, could shave as much as 30% of the market share from other first-line drugs: Avonex, Rebif, Teva Pharmaceutical Industries Ltd.’s Copaxone (glatiramer), and Bayer AG’s Betaseron (interferon beta-1b). (See“Gilenya Could Surpass Avonex Market Share, Analysts Say,” “The Pink Sheet” DAILY, November 10, 2010.) Other drugs may eventually join the fray: Genzyme Corp.’s Campath (alemtuzumab), Teva’s laquinimod, Sanofi-Aventis’s teriflunomide, and Merck Serono’s cladribine are all in late-stage trials or registration.

Compound (Phase of Development)

Despite Gilenya’s premium pricing, Geoffrey Porges, an analyst with Bernstein Research, notes more than half of private managed plans have made a formulary decision about the drug. Most have placed the medicine on Tier 3 (the interferons and Copaxone are on Tier 2), but Porges reckons the small co-pay differential will not dissuade physicians from prescribing the medicine to patients, especially since only 18% of the plans require prior authorization and the remainder either have no restrictions or impose only quantity limits. “We believe that broad access to Gilenya is likely to result in an increased fraction of new starts being diverted away from Avonex,” he wrote in a November 2010 note to investors. Biogen Idec, of course, is taking steps to ensure that doesn’t happen. But it won’t be able to rely on its own oral MS medicine, BG-12, as part of its calculus. Top-line data from BG-12’s first Phase III trial read out in the first half of 2011, with a confirmatory trial posting results in the second half of the year. At a minimum, Gilenya will have a four-year head start on Biogen’s rival. The arrival in early January 2010 of the biotech’s new commercial czar, Francesco Granata, ensured the biotech was already devoting resources to rebuilding its flagship products through commonsense initiatives such as increasing the number of sales reps and patient education. Scangos’ installation in July accelerated those efforts. Even as he maintained the biotech is “well positioned

Analysis

BIIB-028 (Phase I)

Status: Forty-patient Phase I trial of the HSP90 inhibitor commenced in 2008 and is still recruiting participants. Original trial design called for study’s conclusion in summer 2010.

Raf (Preclinical)

Origins of molecule date to a 2004 option deal between Biogen Idec and Sunesis, in which Biogen paid $7 million up front plus a $14 million equity investment to access the smaller biotech’s tethering drug discovery technology. In 2009, Biogen opted to move forward with the Raf kinase inhibitor, triggering a $1.5 million payment to Sunesis.

IMMUNOLOGY

TNF TWEAK Bi-specific in Immunology (Preclinical)

Antibody generated using proprietary bi-specific technology, which has the potential to deliver combination therapies in a single agent. First clinical indication is inflammatory bowel disease. One component of the compound targets TWEAK, a protein in the TNF family that contributes to joint tissue inflammation and stimulates production of inflammatory proteins. Related to BIIB-023, another anti-TWEAK molecule in Biogen’s pipeline currently in Phase I trials for rheumatoid arthritis to which the biotech retains rights.

NEUROLOGY

Neublastin Wildtype (Phase I) & Neublastin Variant (Preclinical)

Biogen obtained rights to develop the neurotrophic factor and its derivatives in multiple sclerosis and other non-CNS indications via a 2000 alliance with NsGene. Months before deprioritizing this asset in November 2010, Biogen paid NsGene $6 million up front and agreed to a $1.5 million annual maintenance fee to obtain exclusive global rights to the protein for all potential indications. Status: Originally being tested as a possible treatment for sciatica, with Phase I studies initiated in 2009. Alternate variants of the protein are still preclinical.

CARDIOVASCULAR

Lixivaptan (Phase III)

A selective vasopressin receptor antagonist for hyponatremia and congestive heart failure. In-licensed from venture-backed Cardiokine in 2007 in an alliance worth $50 million up front and another $170 million in milestones. Full rights revert to Cardiokine. Biogen may have been less interested in the asset because of the likelihood of diminished commercial return after competitor Samsca (tolvaptan) received a narrow label from regulators upon that drug’s approval.

SOURCE: Elsevier’s Strategic Transactions; Elsevier’s Inteleos; National Institutes of Health’s Clinical Trials web site; Company reports

Biotechnology

now to aggressively defend our products,” he also told investors in early November, “I think for some years, the company was a little bit behind,” its competitors.

Focused But Diversified, Too

As it aims to grow beyond Tysabri and Avonex, Biogen hopes to notch successes with its late-stage MS programs. In addition to BG-12, the biotech has a homegrown pegylated version of Stratifying The Risk Avonex that promises to cut the medicine’s dosing to biweekly or The renewed selling efforts appear to have stabilized Avonex monthly is in Phase III. Zenapax (daclizumab), an antibody landed sales. In early January, ISI Group Analyst Mark Schoenebaum, as part of Biogen’s 2005 deal with PDL, is also in pivotal trials for MD, noted that based on data from IMS, Gilenya’s share has more severe relapsing forms of the disease. Thanks to a 2009 deal been steadily rising, but this increase has come at the expense with Acorda Therapeutics Inc., Biogen also owns ex-US rights of Rebif and Copaxone sales, with Avonex actually gaining 2% to Amprya (dalfampridine), recently approved in the US to treat market share since Gilenya’s launch. the walking impairment associated with MS. Uptake of Ampyra Buttressing Tysabri sales won’t be as easy. has been impressive, so much so that many Though highly efficacious, the antibody is analysts wonder if Biogen will seek to grow not considered a first-line treatment option via an Acorda acquisition. (See “Launching because of the risk of PML, which appears Ampyra: The Long Road To Approval,” IN “We can’t afford to to occur in one out of every 1,000 patients VIVO, November 2010.) taking the drug. Although the overall risk dabble. If we are Biogen is also building up buzz for its is still small, analysts fear the slow, steady Phase I anti-LINGO antibody, which targets under-resourcing five uptick in PML – as of December 2, a total a molecule selectively expressed in neurons initiatives, we should of 79 PML cases, including 16 deaths, have and oligodendrocytes and aims to be the first been reported – may be a psychological stop and adequately therapy to treat the underlying disease biolhurdle that results in additional Tysabri ogy – the demyelination of neurons – responresource three.” discontinuation. “We have not seen the sible for MS. While analysts view this program alarming trend slowing down, raising the – George Scangos as promising, it could take nearly a decade to serious question on how high it will reach. bring the drug to market. Moreover, the comWe continue to believe that the increaspany plans to use an unconventional imaging ing rate of PML will negatively affect net method called magnetization transfer ratio to new patients added to Tysabri treatment, actually measure remyelination. It’s not clear if a measure that has shown a decrease in regulators will accept this surrogate endpoint 3Q,” analyst Jason Zhang, of BMO Capital Markets, wrote in a or require demonstration of improvement in patients’ symptoms, December 16 investor note. which would likely add to the time and complexity of the trials. Biogen is fighting such negative perceptions with science, atIt’s not surprising Biogen aims to branch out into other, related tempting to demonstrate that an anti-JCV antibody test can be areas of neurology. “We will be more aggressive in business deused as a risk stratification tool, providing physicians and patients velopment,” promises Scangos. Indeed, it doesn’t have much increased certainty of the medicine’s safety. In conjunction with choice. Currently, the only clinical-stage non-MS therapy in long-time partner Elan Corp. PLC, Biogen is conducting two Biogen’s portfolio is its interesting but risky amyotrophic lateral ongoing clinical trials, STRATIFY-1 and STRATIFY-2, to show the sclerosis treatment dexpramipexole, which it licensed from Knopp risk of PML is tied to a patient’s prior exposure to the JC virus. Neurosciences Inc. in August 2010 for $20 million up front and To date, the two drugmakers have analyzed blood samples from another $60 million in equity. In December, the biotech also over 13,000 MS patients, and determined the prevalence of the inked a deal with Swiss biotech Neurimmune Holdings AG worth JC virus in the patient population ranges from 50% to 60%. $32.5 million up front to access worldwide rights to preclinical Studies of 31 blood samples taken from patients at the time compounds against three protein targets – alpha-synuclein, tau, of PML diagnosis (or shortly thereafter) showed, in all cases, a and TDP-43 – implicated in neurodegenerative diseases such as positive signal for the presence of anti-JC virus antibodies. Even Alzheimer’s and Parkinson’s. more important, archived samples from 20 Tysabri patients taken Given the early nature of the Neurimmune assets and uncerbefore they developed PML show 100% tested positive for the tainty associated with dexpramipexole, a molecule analysts caution presence of anti-JC virus antibodies, an event unlikely to be due may have been rushed into Phase III prematurely, it seems likely to chance alone. that if Biogen wants to add close-to-market or commercial-stage These data, which have been published in the Annals of Neu- products in adjacent areas of neurology, a bigger deal could be rology and presented at the European MS meeting, ECTRIMS, in the offing. A conversation with Holtzman, who served as an underpin Biogen’s December 2010 US and EU regulatory unofficial advisor to Scangos before officially taking the reins as applications to revise Tysabri’s label. Whether regulators will head of corporate development, suggests that’s the case. “We’re accept the data remains an open question. There’s also the risk rapidly looking at M&A to acquire neurology assets that diversify that regulators could decide to limit the drug’s use to only the beyond MS,” he says. Still, the scarcity of such assets – programs JC virus-negative population, a move that essentially halves in Alzheimer’s and Parkinson’s with proof-of-concept data are a Tysabri’s market. Obviously, that’s not a decision Biogen execs rarity – and Big Pharma’s own desire to push further into these support. “Even in patients who test positive, the estimated areas of unmet medical need, mean that kind of dealmaking could incidence of PML is one in 500. We’re identifying additional cost Biogen significant up-front money. risk factors so patients and their physicians can make the best In the interim, Biogen’s nearest-term opportunity to diversify decisions,” says Scangos. outside MS comes from its hemophilia franchise. Those assets 58

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

Biotechnology

include recombinant protein therapies to treat hemophilia A and B in Phase II and III, respectively, obtained via the 2007 acquisition of Syntonix Pharmaceuticals Inc. It might seem like hemophilia’s distinct patient base would be at odds with Biogen’s desire to build itself into a neurology powerhouse. Certainly, it won’t be able to utilize its expanding neurology sales force to sell the assets, the latter of which could be approved as soon as 2012. But the fact that these are biologics, an area in which Biogen has deep expertise – and this is a therapeutic area Scangos knows intimately thanks to his days at Bayer AG – likely helps. Moreover, the lack of synergy is overruled by practicalities, especially the two drugs’ market potential: their longer half-lives and the potential to reduce injection frequencies make both the hemophila A and B drugs stand out from competing products in a market, which combined, could be greater than $6.5 billion. Scangos sums up the pragmatic reasons for moving forward with the hemophilia programs as follows: “The risk is small as clinical trials go since the time required [to conduct clinical trials] is short, and the cost is relatively low. Moreover, the medical improvement is large and the market potential is substantial. What’s not to like about such a product?”

Building A New Culture Thus, if Scangos believes in the merits of focus, he also isn’t willing to hew to a plan that pigeonholes Biogen as a neurology-only company. “You can be overly strategized,” he claims. “Companies need some wiggle room for new opportunities to come on board.” That’s one reason the company chose to retain its nascent immunobiology group, which has been investigating some interesting science but isn’t close to pushing a compound into the clinic. “MS isn’t just a neurological disorder; modulating the immune system is another component. We have historic expertise in this field. It makes sense to keep [this department] for its potential to cross-fertilize our efforts in neurology,” Scangos says. Refocusing its R&D engine has been only one of Scangos’ many priorities. Equally important was his promise to Wall Street to “add strength to the senior management” and streamline decision making. That’s been especially important in the business development arena, where, until the restructuring, three different groups – a transactions team, a strategy group, and a corporate venture endeavor called Biogen Idec New Ventures – all reported to different people within the organization. “All three of these are related to business development,” notes Scangos. “How do you do strategy effectively if it’s not tied in to business development?” That Scangos would be attuned to the firm’s business development needs isn’t too surprising. The CEO, a scientist turned entrepreneur, is perhaps best known as a dealmaker, thanks to his 14 years as CEO of South San Francisco, CA-based Exelixis Inc., where he presided over more than 40 alliances, according to Elsevier’s Strategic Transactions. (See “Biogen Idec Taps Exelixis’ Scangos To Be New CEO,” IN VIVO, July 2010.) With the official arrival of Holtzman, in early January 2011, big changes are already underway for this newly integrated group. Holtzman, a 25-year industry veteran and most recently the executive chairman at Infinity Pharmaceuticals Inc., is also a consummate dealmaker, having helped create Infinity’s landmark big sibling/little sibling relationship with Purdue Pharma LP and MundiPharma International Ltd. in December 2008. (See “Infinity/Purdue: The Challenge Of Reprising Roche/Genentech,” IN VIVO, January 2009.) Prior to founding Infinity in 2001,

Holtzman was CBO of Millennium Pharmaceuticals (now Takeda Pharmaceutical Co. Ltd.’s Millennium: The Takeda Oncology Co.), where he earned kudos for mammoth discovery collaborations with drugmakers such as Abbott Laboratories Inc. and Aventis, in addition to product-focused acquisitions like the $585 million pur“I submit to you that chase of LeukoSite a company with a Inc. in 1999. Near the top of $15 billion market Holtzman’s to-do list cap and $1 billion in will be determining the path forfree cash flow has ward for Biogen Idec tremendous flexibility New Ventures, the to look at a multiplicity biotech’s corporate venture group, as of different types of well as for its incubusiness development bator, which currently houses three opportunities.” fledgling biotechs. The company hasn’t – Steven Holtzman stated publicly if either the corporate venture or incubator programs are at risk of being discontinued. When asked whether a company of Biogen’s size should devote resources to either effort, Holtzman demurs, saying, “We need to evaluate … how well these programs serve the strategic interests of the company.”

More Evolution In R&D? Unlike in business development, it seems likely the biggest alterations in the research organization have already come to pass. The organization has been without a chief since October 2009 when Cecil Pickett, PhD, accelerated his planned retirement and gave up his board seat, perhaps partly due to ongoing criticism from activist shareholders. Newly installed EVP of R&D Williams seems likely to take things slowly – at least at first. “I haven’t had a chance to look under the hood,” says Williams. “My priority is to get in there and take a hard look at where we need to grow.” One further evolution that seems likely, however, is an even greater emphasis on the company’s already extensive largemolecule capabilities. When asked whether a company the size of Biogen could realistically be a player in both small and larger molecules, Scangos admits, “It’s a lot to ask of us to be world class in both.” Given Williams’ history at Immunex and ZymoGenetics, a bias toward protein therapeutics wouldn’t be surprising. “I know we are great at proteins,” Williams says of Biogen. “That will continue to be a core strength. We’ll be more selective in small molecules,” he promises. While some individuals might have been reticent to join a company where shareholders have actively questioned the need to invest so heavily in R&D, Williams claims this only increased his interest in the Biogen job. “I like a challenge,” he admits. Moreover, he’s fully on board with the publicly stated changes to R&D. The decisions to jettison the oncology and CV programs “were important steps to take to focus the business back to its core strengths.”

Biotechnology

Like Holtzman, Williams is an industry veteran, with 20-plus years of experience in the industry and the bonafides to satisfy Biogen’s investors. As chief technology officer of Immunex Corp., Williams helped the biotech overcome manufacturing constraints tied to the Seattle biotech’s blockbuster rheumatoid arthritis drug Enbrel (etanercept), setting the stage for Amgen Inc.’s 2001 acquisition of the firm. After stints at Amgen, and briefly Seattle Genetics Inc., Williams moved to ZymoGenetics in 2004 first as chief science offer, becoming CEO in 2009. While running the Seattle biotech he boosted the maker of recombinant human thrombin Recothrom’s share price from $3.22 to $5.30 in September 2010 before it was Although the acquired by Bristolrecent restructuring Myers Squibb Co. for an 84% presimplified Biogen’s mium. (See “Bristol operations and Bid For ZymoGenetics eliminated expensive Looks Even Better In Light of Promising infrastructure, it’s Melanoma Data,” also possible to IN VIVO, October argue the company 2010.)

has cleaned house, removing minuses so that would-be buyers are better able to focus on the positives.

Independent – For Now

There’s a clubby feeling associated with Biogen’s current senior management. Scangos, Williams, and Holtzman have known each other for years, serving together on the boards of other biotechs. During his tenure as a board member of Anadys Pharmaceuticals Inc., for instance, Holtzman served not only alongside Scangos, but also with Stelios Papaopoulos, PhD, who is also a Biogen director and a central reason the former Exelixis CEO is now at the Big Biotech. That familiarity ensures all three executives are aligned with corporate goals – and messaging to the outside world. Not least, each speaks at length about “maximizing shareholder value.” No doubt, such statements will appeal to activist investors such as Icahn Partners, which has been sharply critical of Biogen’s past performance and holds three seats on the biotech’s board. Icahn’s shadow is a long one; having tried – and failed – to orchestrate a sale of Biogen in 2007, it’s hard not to imagine the investor group is eager to make good on its prior ambition. As late as 2009 activists were pushing to split the Big Biotech into a neurologyfocused enterprise and an oncology endeavor built around the cancer drug Rituxan. In many ways, the recent decision to exit oncology achieves the same end. (See “Biogen Idec and Carl Icant: A Report Card On Shareholder Activism in Biotech,” The IN VIVO Blog, December14, 2007.) Indeed, although the recent restructuring simplified Biogen’s operations and eliminated expensive infrastructure, potentially putting the biotech on a renewed path for growth, it’s also possible to argue the company has cleaned house, removing minuses so that would-be buyers are better able to focus on the positives.

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

These include a burgeoning late-stage pipeline with the potential to launch seven products by 2015, $1 billion in annual free cash flow, and significant large-molecule capabilities, all of which should be attractive to struggling Big Pharmas like Sanofi Aventis, AstraZeneca PLC, or Eli Lilly & Co., which face significant patent cliffs in the next several years. The newly installed triumvirate at Biogen is nothing if not pragmatic. During his tenure as CEO of ZymoGenetics, for instance, Williams winnowed the pipeline of the Seattle biotech to focus on pegylated interferon and a risky IL-21 immunotherapy, drastically cut head count, and valiantly talked about the merits of being the sole owner of Recothrom after Bayer walked away from a partnership in December 2009. Still, none of these efforts altered Zymo’s ultimate fate – its sale to Bristol. While the hefty premium Bristol paid dominated the headlines, underlying the move may well have been recognition from Williams that investors weren’t valuing the pipeline his team had worked hard to push forward, and a sale for $9.75 a share was likely the best the biotech could do. Scangos, meanwhile, has already shown he isn’t afraid to make hard decisions built on cold hard logic. Wall Street has rewarded him by sending the biotech’s stock price from the high-forties in July to nearly $70 a share in January 2011. Still, that’s a far cry from the company’s historic high of $82.51 reached in October 2007. And while Holtzman has faith in his ability to orchestrate a big deal, it’s hard to know whether board members like Alex Denner at Icahn Partners will buy the argument that such a large investment is necessary for Biogen’s future growth. Certainly, given the reputations of Scangos and Holtzman as dealmakers, one can understand how orchestrating a multibillion-dollar sale might be an attractive way to cap already illustrious careers. For his part, Holtzman is adamant that five years from now Biogen will “be a major pharmaceutical player and the envy of the biotech industry.” But even as he emphasizes his desire to build an independent Biogen, he also admits that “at a certain price you can’t say no.” Thus, even if the sale of Biogen isn’t a stated goal, it could very well be the outcome of the changes Biogen is now undergoing. Still, before such an event transpires, Biogen’s senior management must demonstrate that faith in their late-stage pipeline is warranted. If products like the hemophilia B drug or the pegylated interferon get delayed, or if its riskier dexpramipexole derails, Biogen may find itself slimmer but no better off than it was before opting out of oncology. [A#2011800009] comments:

Email the author: E.Licking@Elsevier.com

related reading Launching Ampyra: The Long Road To Approval, IN VIVO, November 2010 [A#2010800178] Gilenya Could Surpass Avonex Market Share, Analysts Say, “The Pink Sheet” DAILY, November 10, 2010 [A#14101110004] Bristol Bid For ZymoGenetics Looks Even Better In Light of Promising Melanoma Data, IN VIVO, October 2010 [A#2010800166] Biogen Idec Taps Exelixis’ Scangos To Be New CEO, IN VIVO, July 2010 [A#2010800132] Infinity/Purdue: The Challenge Of Reprising Roche/Genentech, IN VIVO, January 2009 [A#2009800013] Deal Update: Taking Stock of Biogen Idec, IN VIVO, September 2005 [A#2005800162] Biogen Idec: A Sign Of Biotech’s Maturation, IN VIVO, July 2003 [A#2003800130] Access these articles at our online store: www.windhover.com/article

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In Vitro Diagnostics

As Published In

In Vitro Diagnostics:

The Quest For Growth By Anne Staylor and Mary Thompson

he quest for market growth in the in vitro diagnostics (IVD) space is taking manufacturers down a number of avenues, as they seek to counter the effects of the economic downturn that has hit particularly hard in the US and Western European markets over the past couple of years. Since 2008, economic woes in these regions have put pressure on large, consumer-based market segments, such as the diabetes glucose-testing market, driving down sales, pricing, and profits. As a result, the IVD industry is actively seeking out higher growth opportunities to offset this impact—and it is finding solutions in several areas, branching into underserved emerging markets like China and India and targeting higher-growth clinical segments such as cancer, women’s health, and infectious disease. But perhaps the biggest opportunity for future growth lies in the field of molecular diagnostics, particularly products that address the move toward more personalized care. Suppliers well positioned to take advantage of this opportunity are likely to experience strong growth ahead. The IVD industry is also expected to fare better than some other device markets in the post–health care reform world, perhaps even experiencing some upside. Although reimbursement and pricing pressures will continue (in fact, the US Clinical Laboratory Fee Schedule fell 1.9% this year, the first negative adjustment in more than 20 years), as will the push to reduce unnecessary testing, payors are already beginning to take notice of the fact that diagnostic testing can offer a compelling value proposition when it comes to finding ways to better ration expensive therapies. According to Daniel O’Day, COO of Roche Diagnostics, one of the largest players in this field, diagnostics are currently used in 60% to 70% of clinical health care decisions in the US, but they represent only 2% of the gross domestic product (GDP). With statistics like these, the ongoing shift toward cost-effectiveness and preventive care could actually benefit the diagnostics industry, which may receive a bigger share of the health care pie in the future.

Market Trends And Growth Strategies Nowhere are current trends in the IVD market more evident than in the business plans of the field’s leading competitors. That list includes such industry stalwarts as Roche, Abbott Laboratories Inc., Siemens Medical Solutions/Siemens AG, Alere Inc. (formerly Inverness Medical Innovations Inc.), and Ortho-Clinical Diag-

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

nostics Inc./Johnson & Johnson, to name a few, as well as several newer companies like Myriad Genetics Inc., Gen-Probe Inc., Qiagen NV, and Luminex Corp., who are playing an important role in the high-tech, high-growth molecular diagnostics segment. Current growth strategies in IVD can be divided into two broad camps: efforts to globalize sales, with a particular emphasis on increasing sales presence in underserved and emerging populous countries like China and India; and populating the new product pipeline with assays and instruments designed to address areas of high clinical need and/or provide more personalized care. Clinical segments identified as high-need, high-growth areas for IVD include certain markets within infectious disease testing, women’s health, cancer diagnostics, and cardiovascular disease, all of which are experiencing increased R&D investment by the large IVD competitors. (See Exhibit 1.)

Chasing Growth In Emerging Markets Reaching out to emerging markets such as China and India, with their enormous unmet health care needs, makes a lot of sense from a business perspective, but this is also a strategy that comes with a number of risks and challenges. These include political and cultural considerations, potentially difficult laws and regulations, and risks to intellectual property, which is a particularly important consideration at the moment for companies doing business in China. (See Exhibit 2.) Most IVD competitors, however, appear to have concluded that the potential rewards far outweigh the risks. Although the US and Europe accounted for over 70% of IVD product sales in 2009, their share of sales is expected to decline to about 67% by 2014, while emerging markets are expected to increase from 21% to 26% of the market. (See Exhibit 3.) Overall, the worldwide IVD market is projected to grow at a rate of about 6.6%, reaching $55 billion in revenues by 2014. But emerging markets such as the BRIC nations (Brazil, Russia, India, and China) could see much stronger growth ahead. According to Johnson & Johnson (J&J), sales of medical device and diagnostics products in the BRIC markets are expected to grow at a rate that is two to three times the growth expected in the overall, worldwide market, with the highest growth rates anticipated in China and India. (See Exhibit 4.) That doesn’t mean sales revenues in emerging IVD markets are set to overtake those in more established regions anytime

In Vitro Diagnostics

soon. Since prices for IVD products in emerging markets will of necessity be much lower—about one-tenth what they are in the US and Europe—it will be some time before manufacturers can build up enough business in these regions to make a significant contribution to the bottom line. On the other hand, ignoring these countries could put a competitor way behind the growth curve in the coming years. There are many reasons why the BRIC nations, in particular, are attractive targets for IVD competitors. For one, the category includes India and China, two of the most populous nations in the world. In fact, with over 2.5 billion people, China and India combined hold over 40% of the world’s total population. Moreover, all four of the BRIC countries are experiencing GDP growth as well as significant growth in health care spending as a percentage of GDP. (See Exhibit 5.) China is particularly promising as a target for medical device companies, as the country has the world’s third largest economy and the Chinese government has instituted a huge health care reform program with the ambitious goal of bringing world class care to the majority of its citizens. (See “Challenges and Opportunities in China’s Medical Device Market,” Medtech Insight, November/December 2007.) In terms of the IVD market, China has experienced market growth of 20% or higher over the past two years, according to Whitney Research Inc. The country has a total of 90,000 diagnostics laboratories and 1.9 million physicians, and it is home to over 300 Chinese IVD companies. Similarly India, which has the fourth largest economy in the world, is also experiencing a rapidly evolving health care environment, with widening availability of private insurance, and, like China, an accelerating migration of citizens from rural to urban areas. Moreover, it too is experiencing an increase in the prevalence of what are known as “diseases of affluence,” such as cancer, heart disease, and diabetes. Diabetes cases in India are expected to grow to a whopping 70 million by 2025, while China’s more than 93 million diabetes cases outnumber all other countries, according to a recent published analysis. (See “Diabetes Device Market: Innovation Highlights Road to Growth,” Medtech Insight, September 2010.) Other diseases of note that are increasing in prevalence in both India and China include hepatitis C, sexually transmitted diseases, and HIV (there are 800,000 people living with HIV in China and three million in India), which raises issues regarding the safety of the transfusion blood supply in both nations.

which is moving genetic testing, molecular diagnostics, and pharmacogenomics into the clinical mainstream; and advances in instrumentation and testing that are nudging high-tech tools like mass spectrometry beyond the research lab and into the patient care setting. (See Exhibit 6.)

Biomarker-Based Tests Many believe that the movement toward personalized medicine has the potential to revolutionize patient care; however, there are a host of scientific, clinical, regulatory, and logistical challenges that will need to be addressed before this promising future becomes a reality. For example, researchers are discovering novel biomarkers (both protein-based and gene-based) for a variety of diseases on almost a daily basis, but it is not yet clear exactly what impact many of these discoveries will have on early disease detection or patient outcomes, and the process of developing clinically meaningful diagnostic tests based on these markers is far from simple. Cancer is perhaps the biggest current opportunity for biomarker-based tests, with the majority of tumor marker tests developed to date based on proteins, enzymes, and hormones that are secreted in the blood and urine. However, there are several important challenges here. Perhaps most important: proteins and other blood-based biomarkers must be released in the circulation in relatively large quantities to be measured Exhibit 1

Examples Of High-Growth Clinical Areas Within IVD Infectious Disease • Hepatitis C virus (HCV) • Human papilloma virus (HPV) • Hospital-acquired infections (HAIs; eg, methicillinresistant Staphylococcus aureus [MRSA]) • Human immunodeficiency virus (HIV; particularly in emerging countries)

Women’s Health • HPV • Sexually transmitted diseases • Fetal medicine, including pre-eclampsia

Personalized Medicine In addition to targeting emerging markets, IVD companies seeking to boost their growth prospects are also pouring resources into all types of products that fall under the umbrella of “personalized medicine.” Depending on how it is defined, personalized medicine can encompass a broad range of diagnostic assays, including genetic tests to determine a healthy person’s genomic disease-risk profile; biomarker assays, and molecular diagnostic tests to screen for and manage diseases ranging from cancer to Alzheimer’s disease; assays and genetic tests used to help tailor existing drug therapies to an individual patient’s needs; and companion diagnostics developed in concert with new drug therapies to better define the patient population most likely to benefit from drug treatment. Interest in the personalized medicine arena is being driven by a number of important technological trends, including an explosion in biomarker discovery; the ongoing genomics revolution,

• Vitamin D (a rapidly emerging indicator of overall health – low levels have been implicated in bone, breast, and cardiovascular disease)

Cancer diagnostics • Biomarker-based tests • Companion diagnostics

Cardiovascular disease • Biomarker-based tests for • Acute coronary syndrome • Congestive •

heart failure

Genetic tests for warfarin/clopidogrel resistance

SOURCE: Medtech Insight

In Vitro Diagnostics

Exhibit 2

Growth Drivers And Challenges For Medical Device And Diagnostics Companies Doing Business In Emerging Markets

Growth Drivers • Significant government investment initiatives aimed at expanding and upgrading health care infrastructure; • Large population numbers in China and India, with ongoing rural to urban population migration that will increase the availability of health insurance and improve medical care access, standards, and accountability; • Increasingly affluent lifestyles in many countries are shifting focus from communicable diseases to chronic, noncommunicable diseases and conditions associated with affluence, such as obesity, diabetes, cancer, and heart disease, opening up significant market opportunities in these areas; and • Regulatory reform in some countries, such as China, is improving market access.

Challenges and Risks • Political and cultural differences;

with today’s tests, which typically doesn’t happen until a tumor is fairly large. Therefore, many of the tests developed to date suffer at the outset from sensitivity issues that may preclude early disease detection. Moreover, a protein biomarker’s concentration in the body may vary depending on the patient’s age, lifestyle, gender, etc, and the process of biomarker identification can be hampered by artifacts associated with blood collection and clotting. In fact, tissue-specific biomarkers are rare and those identified so far have not been that useful: prostate specific antigen (PSA), which is lacking in both disease specificity and predictive value, is perhaps the best illustration of this point. (See “Seeking New Options for Prostate Cancer,” Medtech Insight, August 2010.) Despite these potential pitfalls, biomarker discovery and biomarker-based test development remain very active research areas. In the future, biomarker-based tests could extend beyond cancer into several new clinical areas, including Alzheimer’s disease screening and diagnosis, which is the focus of a great deal of research at the moment.

The Genomics Revolution

As the field of molecular diagnostics evolves, it is likely that many of the blood-based tumor markers • Potential in some markets for political unrest or change that could being discovered today, particularly those for cancer impact a foreign manufacturer’s ability to sell in the region; screening, will give way to gene-based tests, which hold the promise of greatly improved sensitivity • Governments could renege on promises to spend more on health and specificity. Although this shift is expected to care/build the necessary infrastructure; be a slow evolution rather than a rapid change, • Regulations/import laws may favor domestic manufacturers over and many more years of research will be needed to foreign manufacturers; bring genetic testing to its full fruition, many indus• Importation process may be slow and complex; and try observers believe genetic testing represents the • Potential risks to intellectual property protection (particularly in future of the IVD industry, particularly in the area of China). cancer diagnosis and management. The driving force behind this change is the ever-widening knowledge about the genetic basis for disease, along with conSOURCE: Medtech Insight tinuing advances in gene-sequencing technologies that are making research in Exhibit 3 this area easier and more cost effective. Estimated Worldwide IVD Market By Region 2009-2014E The ongoing evolution in gene-sequencing technolRegion 2009 Sales % of Total 2014E Sales % of Total CAGR ogy has already dramatically (Billions) Market (Billions) Market 2009increased gene-sequencing 2014E capacity, from about 1,000 US $15.2 38% $20.4 37% 6.1% DNA bases per day in 1990 Europe $13.2 33% $16.5 30% 4.6% to one billion bases per day today. Researchers can now Japan $3.2 8% $3.9 7% 4.0% sequence an entire human Emerging/other $8.4 21% $14.3 26% 11.2% genome within a matter of Total $40 100% $55.1 100% 6.6% days and the cost to do so has plummeted, with a $1,000 price tag on the near-term Note: 60% of revenues in 2014 are expected to come from three market segments: diabetes, infectious horizon. (See “The How and disease, and molecular and other emerging technologies. When of Applying Sequencing CAGR = compound annual growth rate. to Clinical Diagnostics,” IN VIVO, September 2010.) SOURCE: Medtech Insight • Potential for corruption and graft;

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In Vitro Diagnostics

As a result, growing numbers of researchers are now performExhibit 4 ing genome-wide association studies, searching human populaEmerging Markets: Medical Device And tions for common, minute genetic variances—known as single nucleotide polymorphisms, or SNPs—that may put people at Diagnostics (MD&D) Growth Projections* higher risk for various diseases. (See Exhibit 7.) This work, which to date has focused primarily in the cancer field, has yet to produce much information that is of clinical utility, since it is first MD&D Market 2009necessary to identify distinct, reproducible patterns of genetic Size, 2009 2014E variation in the population at large that can be definitively linked CAGR to specific diseases—and very few have been validated so far. Overall BRIC $7.2 billion 13% Considering the large spectrum of mutations that exist, gainMarket ing clinically relevant data from this work will require sequencing Brazil $2.2 billion 9% a large number of genomes for each tumor type. But there are Russia $1.0 billion 13% several groups determinedly working to push this goal forward. For example, the International Cancer Genome Consortium (ICGC), India $1.0 billion 14% founded in 2007 by researchers and funding agency representaChina $3.0 billion 15% tives from 22 countries, has set an ambitious goal to sequence 500 genomes for 50 different cancers. ICGC members already have an impressive list of projects underway. (See Exhibit 8.) *Figures are based on product markets in which J&J competes; not reflective of the entire MD&D market However, making sense of all the data currently being generated is perhaps the biggest challenge for this field. This is espeSOURCE: Johnson & Johnson cially true given the fact that several other important processes in addition to gene makeup play a role in the disease Exhibit 5 process—including heritable BRIC Country Stats epigenomic (chemical) modifications to DNA, believed to be influenced by lifestyle Population Per Capita Country GDP 2010E GDP Health Care and environmental factors. ($ Growth Spending as Health Care Researchers now know, for Trillion) Rate % of GDP Spending, 2009 example, that epigenomics (US$) plays a key role in how or Brazil $1.574 193 million 5.5% 7.5% $613 whether certain genes are exRussia $1.229 142 million 4.0% 5.3% $495 pressed in each individual and whether or not that individual India $1.235 1.18 billion 8.8% 4.9% $55 will go on to develop disease. China $4.908 1.34 billion 10% 4.5% $172

IT Challenges and Potential Solutions Given the enormity of the genetic information that will be generated in the coming years, it seems certain that the clinical utility of this research will ultimately require the concomitant development and adoption of significant information technology (IT) infrastructure capable of analyzing, storing, and continuously upgrading this wealth of information. Moreover, widespread utilization of this information will also require shifts in logistics and clinical workflow that could be problematic. One group working to solve some of the IT chal-

SOURCES: Mindray Medical International Ltd., Vital Diagnostics; from presentations given at the International Market Briefing held during the 2010 AACC meeting (original GDP and population data from the C IA World Factbook; World Health Organization; International Monetary Fund)

Exhibit 6

Trends Driving Interest In Personalized Medicine • New biomarker discoveries; • Advances in gene sequencing, molecular diagnostics, and pharmacogenomics; • Increased adoption of high-tech tools such as mass spectrometry for clinical use; • Advances in test miniaturization and test multiplexing that are enabling a new generation of compact, low-cost, easy-to-use diagnostic systems capable of running advanced testing platforms in the lab and at the point of care; • A push for disease management that is creating a need for both patient-administered and lab-administered tests to help monitor and individualize care for patients with chronic conditions; • A growing emphasis on improving health care quality and cost effectiveness; and • Growing acceptance of companion diagnostics as the new model for drug development. SOURCE: Medtech Insight

In Vitro Diagnostics

Exhibit 7

Genome-Wide Association Studies Project

Objectives

Cancer Genetic Markers of Susceptibility

Identify inherited susceptibility to prostate and breast cancers by examining SNPs

The Consensus Coding Sequence of Human Breast and Colorectal Cancers

Systemic genome-wide scan of the coding sequence of breast and colorectal cancers

The Cancer Genome Atlas

Identify all functional gene mutations and other abnormalities in common tumor types

The International Cancer Genome Consortium

Systematic study of more than 25,000 cancer genomes at the genomic, epigenomic, and transcriptomic levels

Human Proteome Project

Catalog and characterize all proteins in the human body

SOURCE: George M. Yousef, MD, PhD, St. Michael’s Hospital, Toronto, Canada; from a presentation given at the 2010 American Association for Clinical Chemistry Annual Meetng and Clinical Lab Expo in Anaheim

lenges is the Partners Healthcare Center for Personalized Genetic Medicine at Harvard Medical School. According to Samuel Aronson, executive director of information technology at Partners Healthcare Center, who provided details on the Center’s work during a full-day symposium on personalized medicine at this year’s American Association for Clinical Chemistry (AACC) meeting, held in July in Anaheim, CA, the volume of genetic testing output is large and growing, and it is difficult to manage using traditional means. This creates a “huge” workflow issue in the laboratory that will intensify in the years ahead, Aronson said. One of the principal problems he noted is that, unlike traditional diagnostic tests, genetic test information must be managed indefinitely, for the life of the patient, and the impact on the patient will change with age and as more is learned about the importance of specific genetic markers. As a result, each patient’s genetic test record will need to be actively managed and updated periodically. Recognizing that this will require considerable infrastructure changes in the laboratory, Partners Healthcare Center has developed the Gene Insight Suite, a database product that includes a modifiable knowledge base and a reporting engine. The Center is working in collaboration with Hewlett Packard to develop the appropriate IT infrastructure to support the database needs. According to Aronson, as the volume of patient-based genetic data increases, it will be necessary to connect care providers to all data sources, something that is virtually impossible to do today. To achieve this goal, the Center envisions a Hub-based infrastructure in which a web of centralized data repositories is used to store and disseminate the data throughout the health care system. 66

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The Exploding Field of Pharmacogenomics Although it will take years, perhaps decades, for all of these issues to be effectively addressed, there are already several examples of the important impact gene-based testing can have on patient management. In the field of breast cancer, for example, tests that detect mutations in the BRCA genes are well-known and routinely employed to assess risk in patients with a familial history of breast or ovarian cancer. In addition, tests for the overexpression of the HER2neu gene are now considered essential to breast cancer management to determine which patients would benefit from treatment with the drug trastuzumab (Herceptin) and are the best example to date of how pharmacogenomics can impact patient care. Genetic tests that detect mutations in certain genes also have emerged as potentially important clinical management tools for patients on blood-thinning drugs such as warfarin or clopidogrel. These include tests for CYP2C19 loss-of-function alleles, which influence clopidogrel (Plavix; Sanofi-Aventis) metabolism in the liver, as well as tests for various SNPs associated with warfarin sensitivity. Although this remains an area of some controversy, particularly with respect to CYP2C19 (clinical guidelines do not recommend routine CYP2C19 genotyping for patients on clopidogrel due to the lack of supportive data, and newer antiplatelet agents don’t appear to be affected by changes in the gene), some clinicians believe genotyping will eventually prove essential to avoiding the costly and potentially serious complications that can occur when patients are over- or under-treated with these drugs. The debate is particularly heated in the field of drug-eluting stents (DES), where CYP2C19 tests can be used prior to stenting to identify patients who are poor clopidogrel metabolizers and thus may be at higher risk for potentially life-threatening late-stent thrombosis if treated with a standard dose or duration of the drug. One study of clopidogrel-treated patients showed that those who carried a loss-of-function allele had a 1.53 to 3.69 higher risk of major cardiovascular events compared to noncarriers. As a result of the mounting evidence, the US Food & Drug Administration (FDA) issued a black-box warning earlier this year, which was added to the Plavix label, to inform clinicians about the potential for reduced drug effectiveness in some patients. According to FDA, between 2% and 14% of the population are poor clopidogrel metabolizers; the agency suggests that these patients be given a higher dose of clopidogrel or an alternative antiplatelet agent. One of the strongest proponents of CYP2C19 testing, particularly for DES patients, is Eric Topol, MD, chief academic officer for Scripps Health in San Diego and director of the Scripps Translational Science Institute. In a recent editorial published in the Journal of the American College of Cardiology, Topol opines that there is now “overwhelming evidence” of the benefits of individualizing antiplatelet therapy on the basis of CYP2C19 genotyping, including studies that have demonstrated an eight-fold reduction in stent thrombosis when patients identified as having a poor metabolic response to the drug were given additional clopidogrel loading doses. In fact, last fall Scripps instituted a policy that will eventually provide genotyping for every elective stenting patient treated at Scripps’ five hospitals to help guide postprocedure antiplatelet therapy. The Scripps Hospital System is also working to make point-ofcare CYP2C19 genotyping available to reduce the test turnaround time, which is currently two to three days. (See “Personalizing Plavix: Eric Topol Champions Genotyping for Stent Patients,” “The

In Vitro Diagnostics

Gray Sheet,â&#x20AC;? April 12, 2010.) And Scripps recently announced a partnership with Plavix manufacturer Sanofi-Aventis, which agreed to fund up to three Discovery Innovation Grants each year for investigators at Scripps Genomic Medicine (a division of Scripps Health). In return, Sanofi-Aventis will have nonexclusive rights to any research tools developed as a result of the partnership and will have access to other Scripps research programs.

considered to be the most promising near-term market opportunity in the genomics personalized medicine field, and one that provides significant strategic benefits for both drug companies and their IVD partners. For drug companies, pharmacogenomics offers a new model of drug development for the future, and one that has the potential to greatly reduce both the risk and cost of the new drug development process. Most participants in the pharma industry believe A New Model Of Drug Development that the old model of the past few years, in which large companies CYP2C19 genotyping is one example of a test that fits under relied on a few blockbuster drugs to drive revenue growth, is no the rapidly growing pharmacogenomics umbrella, which includes longer sustainable, given the costs involved and falling profits in companion genetic tests that are used to identify patients most the industry, which has been hard hit by generic competition. likely to benefit from a particular drug therapy, or to help manage Drug companies are now looking for a better value proposition, drug dosing and/or duration. Companion diagnostics is widely and most believe genetic-based companion diagnostics can help by providing clearer patient target populations for new drugs (potenExhibit 8 tially reducing clinical development ICGC Member Cancer Genome Projects, 2010* costs and drug side effects), increasing drug development efficiency, and offering a better risk/benefit Lead Jurisdiction Funding Organization Tumor Type picture for new drugs that could Australia National Health and Medical Pancreatic cancer lead to faster regulatory approvResearch Council Ovarian cancer als. Diagnostic companies, on the Canada Ontario Institute for Cancer Research Pancreatic cancer other hand, see pharmacogenomOntario Ministry of Research and ics as a way to significantly boost Innovation their future growth potential by piggybacking their way into the China Chinese Cancer Genome Consortium Gastric cancer multibillion dollar pharma market. European Union/ European Commission FP7 Renal cancer As a result, the number of collaboFrance rations between drug and diagnosEuropean Union/UK European Commission FP7 Breast cancer tic companies aimed at companion France Institut National du Cancer Breast cancer diagnostics has exploded in recent Liver cancer years as companies rush to position themselves in this extremely Germany Federal Ministry of Education and Pediatric brain tumors promising new market. Many of the Research large pharma companies, includGerman Cancer Aid ing Pfizer Inc., Merck & Co. Inc., India Department of Biotechnology, Oral cancer Eli Lilly & Co., and AstraZeneca Ministry of Science & Technology PLC, to name a few, are partnered Italy University of Verona Rare pancreatic tumors with multiple diagnostics players Italian Ministry of Education, in this area. University and Research Although there are several exJapan RIKEN Liver cancer amples of pharmacogenomic tests National Institute of Biomedical entering the picture after the drug Innovation has been on the market for several Spain Spanish Ministry of Science and Chronic lymphocytic years (the tests for warfarin sensitivInnovation leukemia ity and clopidogrel metabolism are prime examples), the prevailing United Kingdom Wellcome Trust Breast cancer model that is likely to dominate Breakthrough Breast Cancer the field going forward is to deUnited States** National Institutes of Health Brain cancer velop the drug and the companOvarian cancer ion diagnostic simultaneously. Of Lung cancer course, this is a new paradigm that Leukemia raises important questions about Colon cancer exactly how a drug and a related *As of April 15, 2010. diagnostic will make it through the regulatory process as a unit. But **TCGA projects (TCGA = The Cancer Genome Atlasâ&#x20AC;&#x201D;a joint program of the National Cancer Institute the FDA, which recently formed a and the National Human Genome Research Institute). personalized medicine division, is SOURCE: ICGC keenly aware of the situation and,

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In Vitro Diagnostics

according to Federico Goodsaid, PhD, of the Center for Drug Evaluation and Research, who spoke on behalf of the FDA at the AACC symposium, is “seeking a systematic approach to the biomarker qualification process.” While drug and diagnostics companies are inking a growing number of collaborative deals in the pharmacogenomics space, many payors, physicians, and other stakeholders are also jumping on the personalized medicine bandwagon, in spite of the ongoing controversies surrounding some genetic tests. Medco Health Solutions Inc., a leading US pharmacy benefits management company, for one, appears to have embraced the concept whole heartedly, and its moves in this area could prompt others to do likewise. According to Felix Frueh, PhD, Medco’s VP of R&D, personalized medicine, who spoke during the AACC symposium, payors are buying into the concept of personalized medicine because they believe it can improve outcomes and reduce costs. In fact, Qiagen, one of the leading competitors in the molecular diagnostics market, points out that $350 billion is spent worldwide each year on drug therapies that are ineffective, and many of the top selling drugs today are effective in less than 50% of patients taking them. (See Exhibit 9.) Physicians are coming on board as well, albeit more slowly, with over one-third of physicians questioned in a recent survey indicating they have either ordered a personalized genomics test in the past six months or they plan to do so in the next six months, and the vast majority agreeing that genetics affect drug response. Medco is delving deeply into the personalized medicine field with several recent initiatives. In 2009, the company established the Medco Research Institute to conduct evidence-based research focused on new discoveries that can improve patient outcomes and lower health care costs. To date, the Institute has established collaborations with a number of leading research institutions, including Mayo Clinic, Laboratory Corp. of America Holdings, and Harvard University. Studies performed to date have primarily involved comparative effectiveness research (CER), Frueh said, including a study of warfarin genetic testing that found a 30%

reduction in hospitalization when genotyping was used to help manage warfarin dosage. Medco is also providing genetic testing to over 250 client members as part of its Precision Health Solutions program, which also offers patient genetic counseling and genomics information for physicians. Precision Health Solutions currently offers members testing for warfarin sensitivity and clopidogrel metabolism, as well as testing to help identify breast cancer patients who are most likely to benefit from tamoxifen therapy. The program stems from Medco’s January 2010 acquisition of DNA Direct Inc., a genomicsbased company that provides services for over 1,000 genetic tests. Medco’s embrace of these tests is a telling indicator of where the company believes the cost effectiveness equation is heading. In fact, the Centers for Medicare and Medicaid Services has yet to establish national Medicare coverage for warfarin genetic testing, citing the need for additional randomized trial data. However, Frueh says Medco believes the evidence in favor of the test is “already overwhelming” and thus is advocating a “registry approach” to obtain additional data over a longer period of time. Although Medco has established itself as a leader in this field, it is not alone. In 2009, one of Medco’s primary competitors in pharmacy benefits management, CVS Caremark Corp., which manages drug benefits for about 50 million people, entered into a partnership with start-up Generation Health to analyze companion diagnostic tests for 17 drugs for cancer, heart disease, and human immunodeficiency virus (HIV) to determine which tests offer the best potential to help better manage patient care. With the potential for pharmacogenomics to reduce overall health care costs, it is not surprising that the government also has gotten into the game. In September, the National Institutes of Health announced plans to spend $161.3 million over the next five years to expand the Pharmacogenomics Research Network (PGRN), a nationwide scientific collaborative launched in 2000 that funds research in the field. Network-funded scientists have already identified gene variants for drugs used to treat cancer, heart disease, asthma, nicotine addiction, and other conditions, and through additional funding, the PGRN plans to move into several new areas, including rheumatoid arthritis and bipolar disorder. Exhibit 9 Patient Response to Drug Therapies In fact, it appears the potential of pharPatient Response To Drug Therapies macogenomics is nearly limitless—even the field of pain management could soon be impacted. At this year’s meeting Percent of Patients in which Drugs Are Ineffective of the American Pain Society, scientists % 8 highlighted recent work on the genetic Antidepressants (SSRIs) 3 basis for pain that is ultimately aimed at % developing personalized pain medicine. 40 Asthma drugs

Diabetes drugs Arthritis drugs

% %

Alzheimer’s drugs

Cancer drugs

10% 20% 30% 40% 50% 60% 70% 80%

Source: Qiagen

Legal and Regulatory Challenges

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The future of pharmacogenomics and molecular diagnostics appears bright; however, the field faces a number of important clinical, regulatory, and legal challenges in the years ahead. On the positive side, the Genetic Information Nondiscrimination Act, signed into US law in 2008, protects all genetic information against misuse by health

In Vitro Diagnostics

insurance companies and employers and has eased fears about potential discriminatory practices that might arise as a result of genetic information included in patients’ medical records. But the field has come under fire lately as a result of the practices of a handful of companies that now offer direct-to-consumer genetic testing to the general public. A report released this summer by the Government Accountability Office (GAO) found that such companies often engage in “deceptive marketing practices” and may be misleading consumers about the testing services they offer, which purport to provide an assessment of a person’s risk of various diseases based on their genetic profile. An investigation by GAO revealed that DNA samples provided to these companies often resulted in contradictory conclusions, with widely varying assessments of disease risk from identical DNA samples. As a result, some scientists are pushing for tighter regulation of this industry, and some have called for a ban on such testing altogether. For its part, the FDA may be leaning toward stricter regulations of such tests, a move that some fear could adversely affect the entire genetic diagnostics industry. (See “FDA to Regulate Direct-to-Consumer Genetic Tests,” Medtech Insight, June/July 2010.) Some also are questioning how profitable the genomics industry will be in light of a recent court decision. At issue is a decision by a federal court this past March that invalidates 15 claims in seven broad patents held by Myriad Genetics on the BRCA breast cancer genes, which the company licensed exclusively from the University of Utah Research Foundation. According to the court, the patent claims are invalid because they pertain to DNA sequences found in nature and are thus “unpatentable subject matter.” Myriad, which is appealing the decision, said the court’s ruling will have little material impact on the company because the ruling is not binding on the patent office or on courts in other districts, and the company still holds 164 unchallenged claims under these patents. (See “Myraid’s BRCA Gene Patents Struck Down in Court; Firm Downplays Impact,” Medtech Insight, April 2010.) While some believe the decision will help level the playing field, enabling more research to take place, others fear it could imperil some small biotechnology companies operating in this space and erase much of the incentive for investing in business models that rely on proprietary gene-based biomarkers. Either way, it’s clear this topic is far from resolved and is likely to be revisited many times in the months and years ahead. Meanwhile, Myriad continues to branch out beyond breast cancer. Earlier this month, researchers presented validation results for the firm’s new PROLARIS molecular diagnostic gene panel for prostate cancer at the European Society for Medical Oncology Congress in Milan. PROLARIS consists of a panel of 46 proprietary genes. The findings show that the test can accurately predict survival in men with conservatively treated, localized prostate cancer, helping to separate those patients that were likely to have slow-growing tumors and were good candidates for active surveillance from those with more aggressive tumors who would benefit from further treatment, the firm says.

Market Developments In Molecular Diagnostics Thanks to continuing advances in genomics, proteomics, and gene sequencing technologies, the IVD market is on the cusp of a revolution with the potential to dramatically change the way patients are treated in the future, ushering in a new era of person-

alized medicine. Although more traditional IVD market segments, such as diabetes testing and reagent-based clinical chemistry systems, will continue to account for a substantial portion of IVD sales in the near term, most analysts agree that molecular diagnostics is where the real growth and much of the product opportunity lies in the decades ahead. Cognizant of this fact, all of the large diagnostic products suppliers now have some type of molecular diagnostics program underway, either through internal development work, or as is often the case, acquisition and partnering. In addition, there are a growing number of smaller companies entering this field with innovative technologies, including some designed to bring molecular diagnostics to the benchtop or the bedside. Exhibit 10

Molecular Diagnostics Market; Worldwide Share By Supplier, 2009Market; Molecular Diagnostics Worldwide Share by Supplier, 2009 Cepheid bioMerieux

Genomic Health Siemens BD

3% 3% 4%

Others 13%

Roche 26%

5% Gen Probe/ Chiron 17%

6% 7%

Qiagen

Myriad Genetics

8% Abbott

Note: Total market value 2009: $4.1 billion; growth: 12%

Source: Piper Jaffray Fifth Annual Molecular Diagnostics Update, SOURCE: Piper Jaffray Investment Research, “Fifth Annual Molecular Diagnostics Update,” William R. Quirk, CFA and David C. Clair, CFA, April 2010 William R. Quirk, CFA and David C. Clair, CFA, April 2010

According to Piper Jaffray Senior Research Analyst William R. Quirk, the worldwide molecular diagnostics market is currently valued at about $4.1 billion. This market includes a number of large players, led by Roche Diagnostics, which holds a 26% market share, followed by Gen-Probe with 17%, and Myriad and Abbott, with 8% each, according to Piper Jaffray. (See Exhibit 10.) The big players in this market tend to dominate one or two segments, rather than the entire industry. For example, Roche holds large share positions in the blood screening and viral load detection segments, while Gen-Probe is a strong participant in blood screening and infectious disease, and Myriad is a pure play in genetic testing and a dominant player in the gene-based cancer testing market. (See Exhibit 11.)

The Big Players: Growth-Based Business Strategies At this year’s AACC, the large players highlighted a number of products and strategies that illustrate where they see the major growth opportunities trending in the future. Although the companies differ on exactly how they are approaching these opportunities, most are investing in at least one, and more often several, of these high-growth areas.

In Vitro Diagnostics

Roche Diagnostics

platforms for chemistry and immunochemistry. Roche has had a strong presence in China since 2000, when the company established Roche Diagnostics China in Shanghai, a leading diagnostic device provider in China, with the highest share of the 4.9 billion yuan market in 2009. Since entering the Chinese market, Roche Diagnostics has experienced more than 30% growth over the past eight years, according to Roche executives, who discussed company growth in a 2009 interview with China Daily. O’Day says company growth also stems from its broad array of technology, large installed base of instrument platforms, and access to a very large customer base, which includes patients, labs, physicians, and researchers. Worldwide, Roche Diagnostics has an installed base of more than 6,000 of its cobas 6000 instrument platforms, which serve medium-sized labs with a menu of more than 120 clinical chemistry tests and over 80 immunoassays. But O’Day Exhibit 11 says “high medical value assays,” defined as those that target significant unmet The Molecular Diagnostics Market: Who Plays Where clinical needs, have been instrumental in driving growth on the company’s more STD/ Genetic NAT Blood Viral Load routine menu. Testing Screening (Detection) Infectious For example, Roche’s hepatitis C virus Disease (HCV) immunoassay test, which was ap$1.1 Billion $1.3 $765 $935 proved outside the US in 2008 and was Market Size 2009 Billion Million Million FDA cleared in the US in 2010, addresses a very large and growing market, with 15%-20% 15%-20% 3%-6% 8%-12% Growth some 3.2 million people suffering from chronic HCV infection in the US alone. Abbott Laboratories/ 2% 16% 9% Roche Diagnostics also introduced, in late Celera Diagnostics 2008, an in vitro nucleic acid amplificaLLC tion viral load HCV test that quantifies BD Diagnostics 22% HCV RNA in human plasma or serum bioMerieux 2% 9% using the company’s COBAS AmpliPrep/ COBAS TaqMan Automated Instrument Bio-Rad 5% Platforms. The test is used to monitor Celera 2% viral load levels and treatment effectiveCepheid 11% ness in patients on therapy. The HCV tests are particularly needed in China, where Genomic Health 11% HCV infections have surged in the last Gen-Probe 24% 59% few years and now number more than 39 million, according to the China FoundaHologic (Third Wave 1% 1% <1% Technologies Inc.) tion for Hepatitis Prevention and Control. The Chinese government is looking at LabCorp (Monogram 7% ways to curb the spread of HCV through Biosciences Inc.) awareness and testing, as the disease Luminex 1% 1% is curable for the majority of people if Myriad Genetics 27% diagnosed and treated at an early stage. The spread of the disease has become so Nanosphere Inc. <1% prevalent, the Chinese Ministry of Health Orchid CellMark Inc. 4% has labeled HCV one of China’s top five deadly epidemics. QIAGEN 25% In addition to the HCV test, Roche has Roche Diagnostics/ 10% 15% 41% 50% identified other areas with high unmet Affymetrix clinical needs and is expanding its portSiemens (Bayer Inc.) 23% folio in areas such as women’s health, oncology, cardiovascular disease, and Other 2% 18% 2% infectious disease. In Q1 and Q2 2010, the company released new assays on the US market for testing methicillin-resistant SOURCE: Piper Jaffray Fifth Annual Molecular Diagnostics Update, William R. Quirk, CFA and David C. Clair, CFA, April 2010 Staphylococcus aureus (MRSA), rubella

In an analyst briefing at this year’s AACC meeting, executives from Roche Diagnostics discussed the company’s latest financial results and the strategies that are helping to drive growth amid a challenging market environment. In the first half of 2010, Roche Diagnostics had 22 major product launches and sales growth of 9%, a rate that outpaced the 5% growth rate in the overall global IVD market. According to Roche Diagnostics COO Daniel O’Day, part of the company’s growth can be attributed to strong sales in emerging markets, especially China and Asia Pacific. Between 2007 and 2010, Roche Diagnostics posted approximately 40% to 50% year-on-year growth in China, driven largely by the company’s serum work area, which includes the cobas family of instrument

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In Vitro Diagnostics

IgM, risk of heart failure, and p63 antibody for the diagnosis Roche Diagnostics currently markets the COBAS AmpliPrep/COBAS of prostate cancer. The company is also developing diagnostic TaqMan, LightCycler 2.0, and cobas s 201, real-time polymerase tests for human papilloma virus (HPV), preeclampsia, melanoma, chain reaction (PCR) automated instrumentation for virology, micolorectal cancer, non-small lung cell cancer, and breast cancer, crobiology, and blood screening. But in the second half of 2011, to name a few. Of these, HPV, which is associated with cervical Roche Diagnostics anticipates introducing a new, fully automated cancer, is expected to be one of the biggest growth drivers in molecular diagnostics instrument that will be able to consolidate the near future. Roche Diagnostics’ cobas 4800 HPV test was CE and standardize the menu. marked and launched outside the US in 2009. The test is currently not available in the US but is pending review and premarket ap- Abbott Diagnostics Abbott Laboratories’ Abbott Diagnostics division participates in plication (PMA) approval by the FDA. The company could also experience significant growth in tests for antibiotic-resistant several high-growth IVD market segments with automated assays organisms, such as MRSA, as hospitals seek to reduce the burden and instrument systems. Clinical areas the firm serves include diabetes, cancer, blood chemistry, infectious disease, women’s health, of hospital-acquired infections (HAI). Looking to the future, Roche Diagnostics is also pursuing its and cardiovascular. In the cancer diagnostics market, Abbott is vision of personalized health care by leveraging its relationships pursuing a number of biomarker-based tests and companion from inside and outside the company to develop a strong pipeline diagnostic assays. In June, the company received FDA clearance of companion diagnostic products—particularly in the oncology for a new biomarker-based test to monitor patients with epithelial arena. (See Exhibit 12.) With 150 programs actively searching for ovarian cancer. The new test, the first of its kind available in the potential biomarkers that could identify patients most likely to US, is an automated assay for human epididymis protein 4 (HE4), benefit from a particular therapy, it’s clear that Roche is making a protein found in the blood that the company says has shown a significant investment in this area, which includes two high the highest sensitivity and specificity of any ovarian cancer market identified to date and is considered “the best single marker” for growth areas: tissue and molecular diagnostics. Roche Diagnostics is already the established leader in the mo- stage-one disease. Developed in partnership with Fujirebio Diagnostics Inc. (a divilecular diagnostics market, with an estimated 26% share of the molecular testing segment, using a diagnostic product platform sion of Fujirebio Inc.) of Japan, the HE4 test is a chemiluminescent that includes products that amplify and analyze DNA and other microparticle immunoassay designed to run on Abbott’s ARCHITECT nucleic acids. Currently, about 70% of Roche’s revenue in molecu- Automated System. It is used to monitor ovarian cancer patients for lar diagnostics comes from two clinical areas: blood screening and disease recurrence or progression, and can be used alone or in comvirology. Over the last few years, the company has been working bination with other monitoring tools, including CA-125, currently to fortify its core business in virology and blood screening and the most widely used ovarian cancer monitoring test. According to has been making major investments in growth segments of the company reps, the HE4 test is not sensitive or specific enough to be molecular diagnostics market that the company says will translate used as a screening test in asymptomatic women, although it has into key product launches within the next 12 months, many of which are the high value mediExhibit 12 cal assays previously described. Roche Diagnostics Selected In-House Companion Diagnostics On the instrumentation side, Programs In Oncology the company has been developing molecular automation technologies, new detection Potential Potential Companion technologies, and improved IT Biomarker Pipeline Drug Application Diagnostic connectivity that could improve testing efficiencies, decrease RG7204 BRAF Inh/ BRAF Melanoma cobas 4800 BRAF V600E test costs, and help fuel widespread PLX4032 Various RG7167 MEK Inh/CIF cancers adoption of molecular diagnostics in clinical labs of all sizes. RG7112 MDM2 p53 Various AmpliChip p53 resequencing According to Mark Rutledge, diAntagonist cancers array rector of marketing, Roche DiagRG7112 MDM2 MDM2 Various cobas MDM2 expression nostics, the market for molecular Antagonist cancers assay instrumentation is becoming Tarceva EGFR Lung cancer EGFR mutation test more automated and will be following the path that led to RG7167 MEK Inh/CIF KRAS Lung cancer KRAS mutation test the automated chemistry and RG1273 Pertuzumab HER1, 2, 3 Breast cancer cobas 4800 HER family immunochemistry lab. “The moRG3502 T-DM1 expression assay lecular lab today has the same RG7321 PI3K Inh PIK3CA Various cobas PIK3CA mutation assay challenges as the chemistry lab, RG7422 PI3K Inh cancers FISH PIK3CA copy number including operational, labor, and assay productivity challenges, so automation is absolutely coming for SOURCE: Roche Diagnostics molecular labs,” says Rutledge.

In Vitro Diagnostics

a sensitivity of about 80%, which is higher than CA-125. However, outside the US, it is approved for use in conjunction with CA-125 for risk stratification in women with a pelvic mass, and the company is seeking a similar indication in the US. Other biomarker tests available on Abbott’s ARCHITECT platform include CA 15-3 for managing patients with Stage II and III breast cancer; CA 19-9x for the management of pancreatic cancer; CA-125 II, a test to monitor response to therapy in patients with ovarian cancer; free PSA and total PSA for prostate cancer; and carcinoembryonic antigen (CEA), used to help in the prognosis and management of colorectal, breast, lung, prostate, pancreatic, and ovarian cancers. New cancer biomarkers are in development for lung cancer (CYS RA 21-1, in collaboration with Fujirebio—the test is CE marked and expected to be on the market outside the US by year’s end), as well as pancreatic, breast, prostate, and colorectal cancer. According to company reps, Abbott Diagnostics has more than a dozen novel biomarkers in development and several are expected to be introduced next year. The company also has several new biomarker assays in development outside of the cancer arena, including an assay for neutrophil gelatinase-associated lipocalin for the early detection of acute kidney injury, a common complication of cardiovascular surgery (the test, which is on the market in Europe, offers a quicker turn around time compared with serum creatinine testing, providing results in four hours versus several days); and galectin-3, a biomarker for managing patients with acute decompensated heart failure that Abbott licensed from BG Medicine Inc. for use in both lab-based and point-of-care testing (BG has also licensed the marker to Alere). Abbott Diagnostics is also active in infectious disease diagnostics—the company’s highest volume area, accounting for over 50% of its business—and blood screening markets and has been a leader in HIV testing. In 1985, the company was the first to develop a licensed test to detect HIV antibodies in blood and blood products, and the firm recently introduced the first combined antigen/antibody HIV diagnostic assay in the US. Because it detects both HIV antigens and antibodies, this new test can identify HIV infection days earlier than existing antibody-only tests since HIV virus antigens appear in the blood an average of one week to 10 days earlier than HIV antibodies. In the area of molecular diagnostics, Abbott has established a separate subsidiary, known as Abbott Molecular Inc., which offers a broad portfolio of automated tests in the cancer and infectious disease segments, including assays for sexually transmitted diseases, HIV, and colon cancer. At AACC, the company highlighted several of its molecular diagnostics testing platforms, including the m2000, an automated system that integrates sample preparation and extraction using real-time PCR amplification and detection technology; and the PLEX-ID System for rapid microbial identification. About a dozen tests are currently available on the m2000 outside the US, primarily for infectious disease, but also including a DNAbased colon cancer test launched this spring (for the SEP 9 marker, developed in collaboration with Epigenomics Inc./Epigenomics AG—a US trial to validate the test will be conducted in 2011), as well as tests for HIV, HCV, HCV genotype, HPV, Chlamydia/gonorrhea, hepatitis B (HBV), cytomegalovirus, and Epstein Barr virus. In June, the company received US FDA clearance for the Chlamydia/ gonorrhea test, and in September received FDA approval for the HBV test. The latter is the first automated molecular test for hepatitis B viral load and is used to monitor patients with chronic HBV infection who are undergoing antiviral therapy.

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

The PLEX-ID, which retails for about $600,000, employs the firm’s Ibis technology (obtained through Abbott’s 2009 acquisition of Ibis Biosciences Inc.), combining broad-range PCR followed by mass spectrometry analysis. According to Abbott reps, the PLEXID represents a new market opportunity for Abbott, and one the company hopes to expand further into the clinical care market. Abbott reps say the company likens the mass spectrometry opportunity to when gene sequencing began a few years ago. The firm believes mass spec has a wide-ranging future potential in the clinic, ranging from the rapid diagnosis of blood stream infections such as sepsis (the PLEX-ID can identify the infecting organisms within six to eight hours from the time of blood draw) to pathogenic fevers of unknown origin, respiratory vector-borne diseases, and genomics applications such as the identification of disease-related SNPs and companion diagnostics. The company plans to enter into a number of collaborations with both laboratories and companies in the years ahead to move this technology forward. To date, the firm has placed about 20 PLEX-ID Systems worldwide, the majority in the US, with additional placements in Europe and Australia. Meanwhile, Abbott has several ongoing collaborations in the area of companion diagnostics, including an alliance with Pfizer for lung cancer (testing for the KRAS gene) and GlaxoSmithKline for melanoma (the BRATH gene), and has internal projects underway as well.

Alere In the IVD market, Alere (formerly Inverness Medical Innovations Inc.) has been a well known player and a global leader in the rapid point-of-care diagnostics space. In July 2010, the company formally changed its name to Alere Inc., which was originally the name of an Inverness subsidiary formed in 2008 when the company acquired and merged three companies in the health management space—Alere Medical, ParadigmHealth, and Matria Healthcare Inc. According to Alere, the rebranding is an attempt to bring all of the firm’s products and services together under one global identity. In SEC filings and the company’s second quarter 2010 earnings call, Alere executives discussed the company’s latest financial results, business strategies, and plans for future growth. In spite of a worldwide recession, unfavorable exchange rates with Europe, and continued low levels of flu and other respiratory illnesses around the world, Alere reported a 20% increase in net revenue in the first six months of 2010, which company executives attributed primarily to acquisitions. During the first quarter of 2010, Alere expanded its portfolio in drugs of abuse products by acquiring Kroll Laboratory Specialists Inc., since renamed Alere Toxicology Services Inc., and added to its range of rapid diagnostics products, particularly in infectious disease, by acquiring a majority interest in Standard Diagnostics Inc. Like other IVD companies, acquisitions have been a major growth strategy for Alere. The company, which primarily focuses on the physician office and home markets, acquired more than 65 companies in the last decade, with related technologies, services, and products in the diagnostic and health management arena. Notable acquisitions include BioSite Inc., Stirling Medical Innovations Ltd., Panbio Ltd., Bio-Stat Healthcare Group, Cholestech Corp., Matritech GMBH, and HemoSense Inc., among others. In addition to acquisitions, company growth has also been driven by geographic expansion, and new product

In Vitro Diagnostics

launches, which currently focus on cardiology, women’s health, infectious disease, oncology, and drugs of abuse. However, what differentiates Alere from other IVD companies is its vision for future growth. The company is betting that the future of health care involves connecting diagnostics with health management solutions and ultimately getting diagnostic products into the hands of patients in their homes. According to the company, this strategy will allow individuals to take charge of their own health at home and connect physicians to patients by providing timely access to information that will allow them to more appropriately and effectively direct care, improve outcomes, and lower costs. The company has several new or near-term pipeline products that are geared toward patient-centered care in the home. One such product is the Stirling CHF, a handheld, finger-stick device for measuring and monitoring congestive heart failure. Designed for both professional and at-home use, the device, which will be marketed under the brand name Alere Heart Check, measures B-type natriuretic peptide (BNP), a substance secreted from the heart when congestive heart failure develops and worsens. The company received CE mark for the device and plans to launch it in the European professional market near the end of the third quarter and into select Asian markets during the fourth quarter. According to Alere CEO, Ron Zwanziger, Alere Heart Check could be the company’s most important product launch this year. The firm expects the test to make an early impact in the professional setting, but eventually to migrate to the home, similar to the shift that is currently underway in International Normalization Ratio

(INR) monitoring for patients taking warfarin. The device is currently in clinical trials in the US for at-home use and a multinational clinical trial for at-home use is planned for 2010 in Europe. Alere is already well known within the $1.5 billion market for cardiology diagnostics products and the Alere Heart Check will be a significant addition to the company’s cardiovascular product line, which includes Triage, Cholestech LDX, and INRatio. Another product designed for home health management is the company’s PIMA CD4 Analyzer, a toaster-sized, portable, batteryoperated quantitative platform designed for frequent monitoring of HIV-positive patients, including patients who live in remote locations, such as regions in Africa, and have limited access to a large, automated lab. According to Alere, more than 5 million people are infected with HIV in South Africa alone, and 90% of the population carries a cell phone. That means even if patients live in remote villages without a nearby lab or hospital, any selftrained user can carry the PIMA from village to village, conduct HIV testing, and wirelessly transmit a patient’s lab results directly to his or her cell phone. The company launched the PIMA commercially in sub-Saharan Africa in Q4 2009 and plans to introduce the device to other geographies throughout 2010, including parts of Europe and the Asia Pacific. In the US, the company plans to start premarket studies by the end of 2010 and hopes to launch PIMA on the US market in 2011. Alere also has development plans to bring molecular testing into the home. According to the company, the same team that developed the PIMA CD4 Analyzer is developing the CLONDIAG Molecular Platform, which will allow multiplexing at the point of

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In Vitro Diagnostics

care, with numerous applications beyond HIV to be added over the next several years. Company reps say the CLONDIAG is on schedule to begin clinical studies in select geographies in late 2010. In the oncology diagnostics market, Alere has the only in-office assay approved by the FDA for use in diagnosing bladder cancer. The Matritech NMP22 BladderChek Test is a noninvasive assay, performed on a single urine sample that detects elevated levels of NMP22 protein with results delivered during the patient visit. In women’s health, Alere is in late-stage development with a biomarker-based test—Triage PIGF—to improve the prediction and diagnosis of pre-eclampsia in the hospital and physician’s office. Alere received a CE mark for the test in September 2009 and is currently working to obtain FDA clearance in the US. Pre-eclampsia is a market that has attracted the attention of several Siemens is in earlyof the large IVD stage research on a manufacturers due new concept that to the unmet need. This is a potentially combines diagnostic serious disorder of assays to measure pregnancy characbiomarker levels in the terized by a rise in maternal blood blood with imaging pressure, which can restrict blood flow tools to detect the to the placenta. It location of those occurs in 5%-8% of all pregnancies, is markers in the body. responsible for 15% of premature births in the US and 18% of maternal deaths, and costs the US health care system over $7 billion annually. Until recently, there were no specific tests available to detect pre-eclampsia; however, recent discoveries in biomarker research have enabled the development of tests that could facilitate early detection and preventive intervention.

Ortho-Clinical Diagnostics Johnson & Johnson’s Ortho-Clinical Diagnostics division competes in two large segments of the IVD market: clinical laboratory equipment/testing and blood donor screening/ immunohematology and now offers 120 different tests on its VITROS Clinical Chemistry Systems. The company is also actively working to increase its presence in the high-growth personalized medicine/molecular diagnostics arena, primarily via its Veridex LLC subsidiary as well as through outside collaborations with other diagnostic and drug companies. Veridex provides a unique test called CellSearch that is the only FDA approved test for detecting circulating tumor cells (CTCs). The test uses antibodies attached to microscopic iron particles to automatically capture and count CTCs in drawn blood and is currently FDA cleared for disease monitoring and prognosis in patients with metastatic breast, colorectal, and prostate cancers. According to Nicholas J. Valeriani, OrthoClinical Diagnostics’ group chairman, CellSearch achieved sales growth of 60% in 2009 and is expected to reach $1 billion in worldwide sales by 2014. The company is currently working closely with J&J’s pharma

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

division on the next-generation of the CellSearch technology, which will include the ability to characterize the CTCs, adding more value to the test and enabling more personalized patient management. In addition, Veridex is also working with companies outside of J&J to develop biomarkers for companion diagnostics. Ortho-Clinical Diagnostics is also investing in the molecular diagnostics segment and recently acquired a minority stake in Biocartis SA, a start-up based in Lausanne, Switzerland, that is developing molecular-based biomarkers and compact molecular diagnostic systems. Founded in 2007, Biocartis completed a $30 million Series B funding round in April, with investments from J&J Development Corporation, Debiopharm Group, Aescap, Biovest, Advent Venture Partners, and private investors.

Siemens Over the past several years, Siemens has been bolstering its presence in IVD, a process that began in 2006 with the first of three large acquisitions in the IVD field. The company acquired both Bayer Diagnostics and Diagnostic Products Corp. in 2006, followed by Dade Behring Inc. in 2007, forming a new division: Siemens Healthcare Diagnostics. Siemens now offers a portfolio of IVD products ranging from lab-based immunoassay and integrated chemistry systems and assays to a universal system for molecular sample preparation, as well as associated IT middleware solutions designed to improve information handling and efficiency. At AACC, the firm was highlighting its syngo Lab Process Manager, which provides an integrated technology platform to consolidate diagnostic information at one central location. Siemens also has been working toward a unique goal designed to provide leverage across its product lines. The aim is to integrate in vivo imaging, laboratory diagnostics, and health care IT to produce “the first ever full-service diagnostics company,” while improving quality of care and reducing health care costs in the process. (See “In Vitro Diagnostics: Innovation and Integration, Medtech Insight, September 2007.) At AACC, Luis LaSalvia, MD, Siemens’ head of integrated diagnostics and market development, provided an update for Medtech Insight on the company’s progress in this endeavor, particularly as it relates to personalized medicine. According to LaSalvia, the company has several research initiatives underway in this area with the aim of integrating diagnostics information in real-time and providing physicians with a single, integrated, algorithm-based analysis of that information to help guide patient care. Siemens’ ability to integrate IT solutions with diagnostic data also may provide a unique opportunity for the firm to capitalize on the future IT needs of the upcoming genomic medicine era. LaSalvia provided a few examples of the work Siemens is doing in the integrated diagnostics arena, including a test for liver fibrosis that combines noninvasive imaging and IVD and may reduce the need for biopsy, which is the current standard-of-care. This test addresses a large market of up to 1.7 billion patients worldwide who are at risk of liver fibrosis due to hepatitis, alcohol abuse, or obesity, LaSalvia says. Another area the firm is targeting for integrated diagnostics is fetal medicine. In this field, Siemens is investigating the combination of biomarkers (both new and existing markers) and ultrasound imaging to provide a new screening tool for disorders such as Down syndrome, fetal neurological deficits, and pre-eclampsia. The company is also investigating integrated diagnostics for the management of cardiovascular and

In Vitro Diagnostics

neurological disease. Potential applications in these areas include acute coronary syndrome, heart arrhythmias, heart failure, and Alzheimer’s disease. Further out, Siemens is in early-stage research on a new concept that combines diagnostic assays to measure biomarker levels in the blood with imaging tools to detect the location of those markers in the body. For example, the company is working with the hypoxia marker known as CA IX, which is released in the tissues under hypoxic (low oxygen) conditions. According to LaSalvia, CA IX is a promising marker for the metastatic process in the body and offers the opportunity to truly integrate in vivo and in vitro diagnostics. In this case, patients with high levels of CA IX in their blood would undergo a PET/SPECT imaging procedure, which would be able to locate the area of hypoxia in the body that corresponds with the marker (the marker is localized at the site of the hypoxia). The hope is that such a test would be able to help physicians detect metastases at an early stage when the cancer is still treatable. Siemens is currently conducting earlystage research with this marker for cancer and is looking at other potential applications for this technology as well.

General Electric While Siemens helped pioneer the concept of integrating in vivo and in vitro diagnostics, it is not the only large imaging manufacturer with such aspirations. General Electric Co.’s GE Healthcare, another big player in the diagnostic imaging industry, recently announced its major move into the molecular diagnostics field, with a deal to acquire IVD firm Clarient Inc. for about $580 million. Clarient is developing proprietary gene-based biomarker tests for breast, prostate, lung, colon, and other cancers. In 2009, Clarient acquired Applied Genomics Inc., a molecular diagnostics firm developing the Mammostat test for breast cancer recurrence. GE plans to combine Clarient’s IVD technologies with its own diagnostic imaging capabilities to create integrated tools for cancer diagnosis and characterization. GE also is interested in developing integrated diagnostic solutions for other diseases beyond cancer, and believes the total opportunity represents a $1 billion-plus business for the company, according to GE’s president and CEO John Dineen. One other IVD area GE is actively pursuing is cardiovascular diagnostics. In May of this year, GE invested $5 million in molecular diagnostics company CardioDx Inc.’s $34.6 million Series D venture round and signed an agreement with the company to co-develop diagnostic tests for coronary artery disease and other heart conditions.

Gen-Probe As a pure-play in molecular diagnostics, San Diego-based GenProbe is focused on one of the fastest growing segments within the IVD space. One of the original developers of nucleic acid-based diagnostic platforms, Gen-Probe is a market leader in molecular diagnostics, and along with Qiagen and BD Diagnostics-TriPath (a division of Becton Dickinson & Co.), dominates the infectious disease segment. Novartis AG markets Gen-Probe’s blood screening products, which includes tests for HIV, HCV, HBV, and West Nile virus (WNV). Gen-Probe also specializes in assays for sexually-transmitted/infectious diseases, transplant diagnostics, and genetic testing. At this year’s AACC meeting, Gen-Probe executives discussed the company’s R&D pipeline and new product launches that are helping to drive company growth in 2010 and beyond. The firm

is in late-stage development with its PROGENSA PCA3, a urinebased molecular assay that may be used in conjunction with PSA to help determine the need for repeat prostate biopsies in men who are suspected of having prostate cancer but who have had a previously negative biopsy. According to the company, PCA3 is a gene that is highly over-expressed in more than 90% of prostate cancers, and the test can add specificity to PSA tests where the results are ambiguous (eg, between 4 to 10 ng/ml). The company launched the test in Europe in 2007 and submitted a PMA to the FDA in September, supported by data from a 507-patient, prospective clinical trial. In addition to PCA3, Gen-Probe is in early stage development with TMPRSS2:ERG, a gene fusion test that the company says can identify a subset of aggressive prostate cancers with high specificity. According to the company, TMPRSS2:ERG gene fusions are prostate-cancer specific genomic rearrangements found in approximately 50% of prostate tumors. Gen-Probe is in early stage development with this test, which was licensed from the University of Michigan, and is developing assays to detect this marker in biological fluids. Gen-Probe’s infectious disease pipeline includes the APTIMA HPV and APTIMA Trichomonas vaginalis assays, which received CE mark in 2008 and 2010, respectively. In July 2010, the company received FDA clearance for marketing its new Prodesse ProFAST+ Assay, a multiplex, real-time reverse transcription–PCR test that enables physicians to differentiate among three influenza A subtypes from nasopharyngeal swabs, including seasonal A/H1, seasonal A/H3, and 2009 H1N1. According to the company, being able to differentiate between the different subtypes is important as each has a different susceptibility to commonly used influenza antiviral drugs. On the instrumentation side, Gen-Probe is developing the PANTHER System for small- to medium-sized laboratories. PANTHER will allow labs to fully automate all aspects of nucleic acid testing on a single, integrated platform. The company plans to launch PANTHER in Europe by the end of 2010. Looking to the future, Gen-Probe is investigating opportunities in third-generation sequencing. In June 2010, the company announced a collaboration with Pacific Biosciences of California Inc., a private sequencing company, to co-develop new diagnostic systems based on Pacific Biosciences’ Single-Molecule Real-Time (SMRT) Platform. Gen-Probe invested $50 million in the company and plans to initially collaborate on an exclusive basis for up to 30 months. According to Carl Hull, Gen-Probe’s president and CEO, the SMRT technology has the potential to play an important long-term role in high-growth markets, including oncology, transplant diagnostics, and pharmacogenetics due to its fast time to result, long read lengths, and ability to interrogate broad genomic regions in high resolution. SMRT also enables scientists, for the first time, to observe natural DNA synthesis by a DNA polymerase as it occurs.

Other Key Players There are several other key players in the molecular diagnostics market, including Qiagen and BD Diagnostics. Qiagen is a leading participant in the infectious disease segment and has several genebased biomarker assays in its pipeline for a variety of indications, including tests for cancer of the colon, lung, breast, melanoma, and chronic myelogenous leukemia. (See Exhibit 13.) In Q2 2010, the company launched 19 new products or product groups, including products for gene and pathway analysis that it obtained

In Vitro Diagnostics

BD Diagnostics, which participates solely in the infectious disease segment of this market, provides molecular-based testing systems (Viper XTR, ProbeTec, SmartCycler) and assays for First Indication the detection of sexually-transmitted diseases Biomarker (Cancer) Partnered CE FDA and health care–associated infections, includKRAS Colon, lung Yes 2008 2011 ing assays for MRSA, vancomycin-resistant Enterococcus, toxigenic Clostridium difficile, BRAF Colon, No 2010/2011 2012 and Chlamydia and gonorrhea. The company melanoma reported revenues of $576 million in Q3 2010, EGFR Lung Yes H1 2009 2012 up 1.7% compared to the same period in 2009; EGFR vIII Glioblastoma Yes H2 2009 2012 a comparison the company says was negatively impacted by the H1N1 flu pandemic in FY 2009. PI3K Breast At proposal 2011 2014 In November 2009, BD acquired HandyLab NRAS Melanoma In discussion 2012 2014 Inc., an Ann Arbor-based company with a nextgeneration fully automated molecular analyzer ABL Chronic In discussion 2010 2013 myelogenous that automates cell lysis, nucleic acid extraction, leukemia PCR set-up, amplification, and detection. According to the company the HandyLab Jaguar System, now called the BD MAX, can simultaneSOURCE: Qiagen ously generate up to 24 real-time PCR results in approximately 2.5 hours. The company plans through its November 2009 acquisition of SABiosciences Corp. to use the technology for its GeneOhm line of (See Exhibit 14.) The company also has a full pipeline of partnermolecular assays to detect major hospital-acquired pathogens. ships for companion diagnostics, with more than 20 active colBD also recently received FDA clearance to market a BD MAX laborations currently underway with drug companies, primarily in assay for Group B Streptococcus, one of the leading causes of the cancer field. Qiagen has CE mark for several assays, including morbidity and mortality among newborns. a novel molecular HPV test and a variety of artus real-time PCR as[A#2011800010] says for detecting various pathogens. In September 2010, Qiagen IV launched its QIAsymphony RGQ System, an automated molecular comments: Email the author: A.Staylor@Elsevier.com diagnostics platform for gene profiling and personalized health care applications. The system is composed of three modules with functions for sample preparation, assay setup, and real-time PCR detection. According to the company, future expansions to the related reading system include the integration of next-generation pyrosequencing The How and When of Applying Sequencing to Clinical Diagnostics, IN VIVO, September detection technology and multiplexing, which allows detection 2010 [A#2010800138] of multiple molecular targets in a singe test run. Diabetes Device Market: Innovation Highlights Road to Growth, Medtech Insight, September Exhibit 13

Qiagen’s Cancer Biomarker Pipeline

Exhibit 14

QIAGEN’s SABiosciences Portfolio For Gene And Pathway Analysis Gene expression assay panels

Single gene vs pathway analysis (100+ pathways), pathway study and identification of relevant content

Epigenetics assay panels

Simultaneous regional methylation analysis on a disease- or pathway-focused panel of genes

miRNA assay panels

Simultaneous, disease- or pathway-focused, regional miRNA analysis

Mutation assay panels

Simultaneous, disease- or pathway-focused, regional mutation analysis

Other

Regulatory proteins; cell signaling assays to assess the biological impact of RNA interference, protein over-expression, or drug treatment; cytokine assay panels

2010 [A#2010400069] Pharma Execs: Ventral Developers Make Ideal Companion Diagnostics Partners, “The Gray Sheet,” August 30, 2010 [A#01360350015] Seeking New Options for Prostate Cancer, Medtech Insight, August 2010 [A#2010400059] FDA to Regulate Direct-to-Consumer Genetic Tests, Medtech Insight, June/July 2010 [A#2010400054] Personalizing Plavix: Eric Topol Champions Genotyping for Stent Patients, “The Gray Sheet,” April 12, 2010 [A#01360150014] Myraid’s BRCA Gene Patents Struck Down in Court; Firm Downplays Impact, Medtech Insight, April 2010 [A#2010400035] Personalized Medicine Hindered by FDA Science Gaps, Panel Agrees, “The Pink Sheet,” December 7, 2009 [A#14091207003] An FDA Commissioner’s View of Personalized Medicine, The RPM Report, November 2009 [A#2009500124] Wireless Health: Personalized Medicine Comes to the Device Industry, START-UP, October 2009 [A#2009900202] Genomics Revolution Meets Regulatory Evolution: Why Personalized Medicine Is Taking So Long, “The Pink Sheet”DAILY, October 26, 2009 [A#14091026004] Challenges and Opportunities in China’s Medical Device Market, Medtech Insight, November/ December 2007 [A#2007400098] In Vitro Diagnostics: Innovation and Integration, Medtech Insight, September 2007 [A#2007400075] Access these articles at our online store: www.windhover.com/article

SOURCE: Qiagen

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

emergingemer out of the

blocks

Summarizing the technologies of recently founded companies

Aarden Pharmaceuticals Inc.

IXO Therapeutics Ltd.

E-Mail: gnoonan@aardenpharma.com Web Site: www.aardenpharma.com

E-Mail: contactus@ixo-ltd.com Web Site: www.ixo-ltd.com

Aarden Pharmaceuticals Inc. will discover and develop drugs that target protein tyrosine phosphatases, starting with a preclinical candidate for tuberculosis. It also has programs in cancer and autoimmune diseases. The company’s platform comes from scientific founder Zhong-Yin Zhang, PhD, chairman of biochemistry and molecular biology at Indiana University School of Medicine. Former Eli Lilly exec Gary Noonan is Aarden’s president and CEO.

IXO Therapeutics Ltd. will discover and develop novel recombinant proteins, derived from natural sources, for inflammatory and immune-mediated diseases. The company’s pipeline is based on the work of Patricia Nuttall, PhD’s group at the Natural Environment Research Council, in collaboration with researchers at the University of Oxford.

351 West 10th Street Suite 248 Indianapolis, IN 46202 Phone: (317) 690-2453

Polaris House North Star Swindon, SN2 1EU, UK Phone: +44 7748357352

Mobisante Inc. 190 Everett Avenue Chelmsford, MA 02150 Phone: (617) 968-3004

PMB 173 16625 Redmond Way Suite M Redmond, WA 98052 Phone: (650) 804-5421

E-Mail: info@civitastherapeutics.com Web Site: www.civitastherapeutics.com

E-Mail: sailesh.chutani@mobisante.com Web Site: www.mobisante.com

Civitas Therapeutics Inc. spun out of Alkermes’ pulmonary delivery business with rights to its dry powder delivery platform, pipeline and a commercial-ready manufacturing facility. Civitas will pursue a 505(b)(2) pathway for its lead candidate, an inhalable drug for Parkinson’s disease. Biotech veteran Glenn Batchelder is CEO of the start-up, which raised a $20 million Series A round from Canaan Partners and Longitude Capital.

Mobisante Inc. aims to bring affordable, mobile ultrasound imaging to areas of the world that lack access to conventional ultrasound. Its technology leverages smartphones and Internet cloud services to send images to remote health care providers for diagnoses or second opinions, or to a PACS for storage. WRF Capital has seeded the company, which was founded by former Microsoft executive Sailesh Chutani, PhD, and Washington University researcher David Zar.

Civitas Therapeutics Inc.

ImmuVen Inc.

University of Illinois Research Park 60 Hazelwood Drive Suite 207 Champaign, IL 61820 Phone: (217) 819-5201

Vedanta Biosciences

E-Mail: hoerr@immuven.com Web Site: www.immuven.com

E-Mail: bolle@vedantabio.com Web Site: www.vedantabio.com

ImmuVen Inc. is developing a suite of T cell receptor-based candidates to detect and treat antibiotic-resistant bacterial diseases, including methicillin-resistant organisms. In addition, the company is engineering T cell receptor proteins to treat viral diseases and cancer. Tim Hoerr is CEO of the start-up, which was founded by David Kranz, PhD, of the University of Illinois at Urbana-Champaign and Patrick Schlievert, PhD, of the University of Minnesota.

Vedanta Biosciences aims to develop a novel class of drugs that modulate interaction between the human microbiome and the host immune system. One of the company’s programs is based on the discovery, made by Kenya Honda, MD, and colleagues at the University of Tokyo, that specific gut-dwelling bacteria control key immune cells that combat allergies and autoimmune diseases. PureTech Ventures is backing the start-up.

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

222 Berkeley Street Suite 1040 Boston, MA 02116 Phone: (617) 482-2333

gingemerging start-up

previews

A preview of the emerging health care companies profiled in the current issue of START-UP: Emerging Medical Ventures

Benlysta May Lead Wave Of New Approvals For Lupus Drugs The looming approval of Benlysta may create an easier pathway to approval for other lupus candidates, while leaving a potentially broad opportunity for other drugs to fill gaps in its label. While systemic lupus erythematosus is characterized by widespread inflammation, it is also a disease that correlates so frequently with kidney inflammation that clinicians diagnose and treat “lupus nephritis” as a distinct aspect of the condition. Azano Pharmaceuticals Inc. was established to develop C-reactive protein as a treatment for lupus nephritis. Though elevated blood levels of CRP are widely considered a biomarker of cardiovascular disease, Azano’s founders say CRP also appears to have anti-inflammatory properties that might one day help lupus patients. [A#2011900013]

Start-Ups Across Health Care biocrea GMBH, a 2010 management buy-out of Finland’s Biotie Therapies, is developing phosphodiesterase inhibitors for diseases of the central nervous system, memory disorders and schizophrenia. Biocrea’s novel approach to drug development may make it possible to produce more specific inhibitors at the level of PDE subfamilies and/or isoforms, in order to optimize their efficacy and side effect profiles. [A#2011900016]

Could the eyes hold the key to diagnosing neurologic conditions by associating eye movement behavior to specific areas of the brain? French start-up e(ye)BRAIN certainly thinks so, and as a result has developed a brain tracking medical device that its inventor claims is able to diagnose Parkinson’s disease and multiple sclerosis. [A#2011900017]

A growing number of competing companies are taking fresh approaches to treating lupus. Genentech and MedImmune, for instance, are each working on antibodies intended to directly bind the cytokine known as interferonalpha, and inhibit its inflammatory effects. Start-up Resolve Therapeutics LLC is developing a compound intended to act in the same pathway as Genentech’s and MedImmune’s antibodies, but upstream of alpha-interferon. The idea is not to block production of interferon itself, but rather to block events that company founders believe trigger alphainterferon production in lupus patients.

Patients requiring mitral valve repair of the heart to reduce recurrent leakage of blood or residual regurgitation after initial implant can now avoid going under the knife for a second time. MiCardia Corp.’s Dynaplasty platform has been designed to change the shape of an implantable medical device in response to fluctuations in anatomical conditions. For mitral valve repair, MiCardia’s shape-memory nitinol device is similar to a standard annuloplasty ring, but when activated, pulls the two leaflets together in such a fashion as to significantly minimize regurgitation.

[A#2011900014]

[A#2011900018]

SuppreMol GMBH is developing a recombinant version of human Fcy receptor FcyRIIb, now in Phase IIa for SLE. This candidate competes with membrane-bound Fcy receptors on immune cells, preventing binding of immune complexes containing autoantigens and inhibiting restimulation of immune cells. This down-regulates the B cells specifically involved in the autoimmune response, but does not affect B cells that are part of the normal immune response.

Omthera Pharmaceuticals Inc. is betting that its socalled “free” fatty acid form of omega-3 will prove superior to other companies’ ethyl esther versions at reducing blood triglyceride levels. An ethyl ester is a free fatty acid with an ethanol bond on it; that bond is broken in the intestines by pancreatic lipase, an enzyme specialized in breaking down fat. In Omthera’s version of omega-3 fatty acid, that bond is broken already. The company thinks the difference will allow the free form to more effectively reduce TGL levels.

[A#2011900015]

[A#2011900019]

on the

move

Company Changes

ABRAHMSĂ&#x2030;N, Lars, PhD

COUGHLEN, Gary

GARABEDIAN, Chris

To: Algeta ASA, SVP, Protein Therapeutics (November) From: Affibody AB, CSO Tel: +47 23 00 79 90

To: Osseon Therapeutics Inc., CFO (December) From: PolyRemedy Inc., CFO Tel: 707-636-5940

AUDIA, James E., PhD

CRONIN, Maureen T., PhD

To: Constellation Pharmaceuticals Inc., CSO (January) From: Eli Lilly & Co., Distinguished Scholar Tel: 617-864-0676

To: Foundation Medicine Inc., SVP, Research & Product Dev. (November) From: Genomic Health Inc., VP, Translational Research Tel: 617-418-2200

BAILEY, Brent

DAVIS, Scott

To: Cyanotech Corp., Pres. & CEO (January) From: Unlocking Potential LLC, Pres. Tel: 808-326-1353

To: Med BioGene Inc., CFO (December) From: Cross Davis & Co. LLP, Partner Tel: 604-827-5100

BARMENTLO, Martin

DOHERTY, Liz

To: Sonova Holding AG, Group VP, Mktg. (January) From: Philips Healthcare, SVP, & General Mgr., MRI Tel: +41 58 928 33 33

To: Reckitt Benckiser PLC, CFO (January) From: Brambles Industries PLC, CFO Tel: +44 753 217800

BLOCH, Kathleen P.

DONG, David

To: Laureate Pharma Inc., CFO (December) From: PC Group Inc., COO & CFO Tel: 609-919-3300

BOGIN, Vladimir

To: MediStem Inc., Chmn. & Pres. (December) From: Cromos Pharma, Pres. & CEO Tel: 858-349-3617

To: China Botanic Pharmaceutical Inc., CFO (December) From: Hatitac Inc., Investment Mgr. Tel: +86 451 8260 2162

To: On-Q-ity Inc., CSO (November) From: Oncogene Science Diagnostics, CEO Tel: 781-895-8100

To: HemaQuest Pharmaceuticals Inc., CMO (December) From: Novalar Pharmaceutical, CMO Tel: 206-682-1233

GLADNEY, Dan W.

To: Lanx Inc., CEO (January) From: Norwest Equity Partners, Healthcare Operating Partner Tel: 303-443-7500

HALLAM, Trevor, PhD

To: Sutro Biopharma Inc., CSO (December) From: Palatin Technologies Inc., EVP, R&D Tel: 650-392-8412

HANLEY, Michael, PhD

To: Celtaxsys Inc., Chmn. & CEO (December) From: Amylin Pharmaceuticals Inc., CSO Tel: 404-920-0700

CARNEY, Walter, PhD

HUSS, John-Michel T.

To: Medivir AB, VP, R&D Projects (November) From: Orexo AB, SVP, CSO Tel: +46 8 5468 3100

GHALIE, Richard, MD

FLOYD, William H.

EDENIUS, Charlotte, MD, PhD

BURRIS, Michelle To: OncoGenex Pharmaceuticals Inc., EVP, Ops., & CFO (November) From: Trubion Pharmaceuticals Inc., SVP, COO Tel: 425-686-1500

To: AVI BioPharma Inc., Pres. & CEO (January) From: Celgene Corp., VP, Corp. Strategy Tel: 541-753-3635

To: CSA Medical Inc., Pres. & CEO (December) From: Covidien Ltd., VP, US Sales Tel: 443-921-8053

FURRY, Frederick D.

To: Biolase Technology Inc., CFO (November) From: Windes & McClaughry, Partner Tel: 888-424-6527

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

To: Theratechnologies Inc., Pres. & CEO (December) From: Sanofi-Aventis, Chief of Staff, Office of the CEO Tel: 514-366-7800

JACK, Eva

To: Pulmatrix Inc., CBO (December) From: MedImmune Ventures, Managing Dir. Tel: 781-37-2333

LAU, Stanley

To: China Biologic Products Inc., Pres. (December) From: Baxter Healthcare Ltd., General Mgr. Tel: +86 538 620 2608

On The Move

LOMBARDI, Ron

OSCHMANN, Stefan

TREHU, Elizabeth G., MD

To: Prestige Brands Holdings Inc., CFO (December) From: Waterbury International Holdings, CFO Tel: 914-524-6810

To: Merck KGAA, Head, Pharmaceuticals (January) From: Merck & Co. Inc., Pres., Emerging Markets Tel: +49 6151 720

LONGENECKER, John P., PhD

ROSS, Joe

To: HemaQuest Pharmaceuticals Inc., Pres. & CEO (December) From: Favrille Inc., Pres. & CEO Tel: 206-682-1233

To: LDR Spine USA Inc., VP, US Mktg. (December) From: Axial Biotech Inc., VP, Strategic Initiatives Tel: 512-344-3333

LUEDKE, Jon

RUANE, Timothy

To: Wenzel Spine, EVP (December) From: Centinel Spine Inc., VP, Sales & Mktg. Tel: 512-469-0600

MAHARAJ, Gary R.

To: SurModics Inc., Pres. & CEO (December) From: Arizant Inc., Pres. & CEO Tel: 952-829-2700

MCLAUGHLIN, Fiona, PhD

To: Elara Pharmaceuticals GMBH, Head, R&D (December) From: Antisoma Research Ltd., VP, Translational Research Tel: +49 6221 387 8531

O’BOYLE, Kevin C.

To: Advanced BioHealing Inc., SVP, CFO (December) From: GenMark Diagnostics Inc., Director Tel: 858-754-3700

ONG, Moira

To: Neurokine Pharmaceuticals Inc., CFO (December) From: Grant Thornton LLP, Senior Mgr. Tel: 604-221-0595

To: InSite Vision Inc., CEO (November) From: Tekmira Pharmaceuticals Corp., Pres. & CEO Tel: 510-865-8800

SANTABARBARA, Pedro, MD, PhD

To: Infinity Pharmaceuticals Inc., VP, Product Dev. & Medical Affairs (November) From: Genzyme Corp., VP, General Mgr., Hematology Tel: 617-453-1000

TYRRELL, Bernard R.

To: Delcath Systems Inc., SVP, North American Sales & Mktg. (December) From: EpiCept Corp., SVP, Sales & Mktg. Tel: 212-489-2100

VICKERY, William

To: Hybrigenics SA, Head, Corp. & Bus. Dev. (December) From: ExonHit Therapeutics, Senior Dir., Bus. Dev. Tel: +33 1 5810 3800

To: Infinity Pharmaceuticals Inc., CMO (November) WEBER, David A., PhD From: PharmaMar SA, Senior Dir., To: Otonomy Inc., Pres. & Clinical Dev. CEO (December) Tel: 617-453-1000 From: On Demand Therapeutics Inc., Director SENAGORE, Anthony, MD Tel: 858-768-7830 To: AeroSurgical Ltd., CMO (November) YOUNT, Patrick From: University of Southern To: Aperio Technologies Inc., California, Keck School of CFO (December) Medicine, Chief, Colon & From: Univita Health Inc., EVP, Rectal Surgery CFO Tel: 650-530-0032 Tel: 866-478-4111

SEYMOUR, Tamara A.

To: HemaQuest Pharmaceuticals Inc., CFO (December) From: Favrille Inc., CFO Tel: 206-682-1233

SMEDSTAD, Russell R.

To: Stratatech Corp., Pres. (December) From: Mirus Bio Corp., Pres. Tel: 608-441-2750

On The Move PROMOTIONS COLLIS, Steven H.

READ, Ian C.

To: AmerisourceBergen Corp. To: New Title: Pres. & COO (November) New Title: Previous Title: EVP, Amerisource Bergen & Previous Title: Pres., Amerisource Bergen Drug Corp. Tel: 610-727-7000 Tel:

DE GRAAF, David, PhD To: New Title: Previous Title: Tel:

Selventa Pres. & CEO (December) CSO 617-547-5421

FRAZIER, Kenneth C. To: New Title: Previous Title: Tel:

Merck & Co. Inc. Pres. & CEO (January) Pres. 908-423-1000

FROST, Gregory I., PhD

To: Halozyme Therapeutics Inc. New Title: Pres. & CEO (December) Previous Title: VP, CSO Tel: 858-794-8889

HINRICHS, James To: CareFusion Corp. New Title: CFO (December) Previous Title: SVP, Global Customer Support Tel: 858-617-2000

KATRITOS, Jennifer To: New Title: Previous Title: Tel:

Resignations

Pfizer Inc. Pres. & CEO (December) SVP, Group Pres., Worldwide Biopharmaceutical Businesses 212-733-2323

From: Molecular Insight Pharmaceuticals Inc., SVP, CFO (December) Tel: 617-492-5554

CROVETTO, Mario

SACHDEV, Rakesh To: New Title: Previous Title: Tel:

ABDALIAN, Charles H.

Sigma-Aldrich Corp. Pres. & CEO (November) CFO 314-771-5765

LITTLE, Robert J.

SHEPARD, H. Michael, PhD

To: Halozyme Therapeutics Inc. New Title: VP, CSO (December) Previous Title: VP, Discovery Research Tel: 858-794-8889

TYLER, Brian S., PhD

To: McKesson Corp. New Title: Pres., McKesson US Pharmaceutical (January) Previous Title: Pres., McKesson MedicalSurgical Tel: 415-983-8300

From: Eurand NV, CFO (January) Tel: +31 20 673-2744

From: Halozyme Therapeutics Inc., VP, Chief Commercial Officer (December) Tel: 858-794-8889

PETERS, Daniel L.

From: Molecular Insight Pharmaceuticals Inc., Pres. & CEO (December) Tel: 617-492-5554

STEINER, Solomon, PhD

From: Biodel Inc., CSO (December) Tel: 203-796-5000

VAN NESS, Kenneth J. To: New Title: Previous Title: Tel:

CytoDyn Inc. Pres. & CEO (December) Director 505-412-6480

Curemark LLC VP, Finance (December) Dir., Finance 914-925-3450

making your move? Let us know about your job change, and weâ&#x20AC;&#x2122;ll make sure you get consistent delivery of your IN VIVO subscription. custcare@elsevier.com 1-800-332-2181

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DEALMAKING

Deal

Making

The Dealmaking column is a survey of recent health care transactions listed by relevant industry segment– In Vitro Diagnostics, Pharmaceuticals, Research/Analytical, and Medical Devices–and then categorized by type–Acquisition, Alliance, or Financing.

This issue’s Dealmaking covers deals made in November and December 2010.

In Vitro Diagnostics Acquisitions Gen-Probe pays $53mm in cash for GTI Diagnostics Transgenomic buys Clinical Data’s Familion, PGxPredict

Alliances Genzyme Genetics sublicenses EGFR mutation assay to Roche Bioclassifier licenses breast cancer biomarker to NanoString DiaGenic, Pfizer team up in Alzheimer’s diagnostics J&J, GE team up to create Alzheimer’s disease diagnostic

Financings PIPE brings in $2.5mm for Rosetta Genomics FOPO nets $90.8mm for Sequenom

Pharmaceuticals Acquisitions Axcan pays $576mm for Eurand Gilead to pay $225mm plus earn-outs for Arresto BioSciences Glaxo spends $70mm for Chinese urology specialist MeiRui Insmed buys majority interest in Transave Merck could pay up to $500mm to buy SmartCells Hybrid BioSystems, Myotec merge to form PsiOxus Reckitt Benckiser buys Paras Pharmaceuticals for $726mm Kuwaiti investment firm to buy Spencer for $245mm in cash

Alliances 3SBio pays EnzymeRx $6.25mm for pegsiticase HGS options antibodies from Adimab

Lilly calls on Adimab in antibody discovery alliance

Tesaro gets rolapitant rights from Opko Health

Genentech chooses two targets in antibody deal with Adimab

Sanofi gets Egrifta rights from Theratechnologies

Anaphore partners Atrimers with Mitsubishi Tanabe

Financings

Geron gets rights to AngioChem’s brain cancer compound

Aastrom Biosciences nets $21.1mm through FOPO

J&J pens antibody deal with newly spun off Apexigen

Clarus Therapeutics files for its IPO RDO nets $1.86mm for EpiCept

Astellas, Cytori work on adipose-derived cell therapeutics

Geron nets $94.2mm through a followon public offering

DeveloGen AG forges diabetes alliance with MedImmune

IGI Laboratories raises $6.5mm privately

Avila to use its Avilomics platform in Sanofi deal

Medivir closes SEK281mm private placement

Baxter licenses influenza vaccine technology to Takeda Sihuan gets 30-year distribution rights from Benxi Leilong Oncolys partners HIV compound festinavir with BMS Mesoblast partners stem cell drugs exclusively with Cephalon Dongsheng buys Shanghai Wan’Te’s alprostadil injection Forest gets small-molecule pain candidates from Grunenthal Janssen gets Canadian rights to two drugs from Forest Labs Impax grants GSK rights to PD candidate IPX066 GSK licenses vaccines to Binnopharm for Russian distribution GSK sells three US OTC products to Meda for SEK235mm Glaxo divests early-stage CNS candidates to Proximagen Kwang Dong gets Korean rights to Salvat’s tarafenacin for OAB Pfizer gets option to LPath’s iSONEP Sanofi, Merck Serono combine targeted cancer therapies Watson to sell generic Revlimid in the US for Natco

Lannett nets $11.7mm through FOPO

Momenta Pharmaceuticals nets $54.3mm via FOPO Three investors loan Neurologix $7mm in return for warrants PIPE raises €4mm for OctoPlus NV Otsuka nets Yen198.6bn via its IPO on the Tokyo Stock Exchange Protox gets $Cdn10mm from Warburg in first tranche Sagent Pharmaceuticals files for its IPO ThromboGenics raises €56mm through a private placement Ventrus Biosciences completes its IPO, netting $16.1mm Follow-on brings XenoPort net proceeds of $27mm YM BioSciences nets $37.7mm through follow-on offering

Research/Analytical Acquisitions Thermo acquires chromatography specialist Dionex for $2.1bn

Financings Fluidigm attemps to go public for the second time

Elsevier’s Strategic Transactions database provides comprehensive deal coverage from 1991-present

For information about online access contact James DeFalco at +1 203-451-6269 or J.DeFalco@Elsevier.com or visit sis.windhover.com

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

DEALMAKING Elsevier’s Strategic Transactions database provides comprehensive deal coverage from 1991-present, with weekly deal updates and full search capabilities. For information about online access, contact James DeFalco at +1 203-451-6269, or J.DeFalco@Elsevier.com

In Vitro Diagnostics

Acquisitions

Medical Devices

/In Vitro Diagnostics

Acquisitions Xoft bought by iCAD for $13mm in cash and stock

Gen-Probe Inc. GTI Diagnostics

Novadaq buys PLC Systems’ CO2 Heart Laser business

Molecular diagnostics firm Gen-Probe Inc. is strengthening its transplant testing business through the $53mm cash purchase of privately held GTI Diagnostics. (Dec.)

Vycor Medical buys NovaVision for $900k

Alliances LeMaitre buys the Lifespan line from Angiotech for $2.8mm Argon to globally market Rex Medical’s UltraStream Goodman gets rights to Flexible Stenting’s FlexStent Hologic to sell SuperSonic Imagine’s ultrasound system Olympus buys Stryker’s OP-1 line for $60mm St. Jude Medical, Zonare ally for ultrasound system

Financings BSD Medical nets $9.77mm through RDO EnteroMedics nets $27.6mm through FOPO IMRIS nets $49.35mm through public sale of 11mm shares FOPO nets $39.8mm for diabetesfocused Insulet NxStage Medical nets $73.3mm through FOPO REVA Medical completes its Australian IPO

GTI was formed in 1985 as a for-profit division of the BloodCenter Research Foundation, which in 2008 sold off its ownership to the Riverside Company private equity group. GTI and the BloodCenter (even after the sell-off) have developed assays for transplantation, blood bank, and specialty coagulation markets. Most notably, its products include human leukocyte antigen (HLA) detection lines, which Gen-Probe already sells under its Lifecodes brand. GTI also markets the QUIK-ID assays that detect IgG antibodies to HLA, and serology typing trays. Outside of transplantation, the company has tests that diagnose coagulation and hemostasis disorders, as well as ELISA tests and molecular diagnostics for use in blood banks. Gen-Probe will use its existing salesforce to offer GTI’s products to current and new clients.

Transgenomic Inc. Clinical Data Inc. Transgenomic Inc. (genetic variation and mutation analysis tests) has agreed to purchase Clinical Data Inc.’s (mainly cardiovascular diseases and CNS disorders) Familion testing and PGxPredict pharmacogenomics biomarker development business for $15.4mm, comprised of $6mm in cash, a three-year 10% note for $8.5mm, and a one-year 6.5% note for $932k. (Nov.) Clinical Data will also receive a percentage of accounts receivables that Transgenomic collects for 18 months after the transaction closes (up to $1.8mm), plus development and commercialization milestones (two payments, each of up to $250k in cash or Transgenomic stock for the launch of biomarker assays for any FCGamma gene or any ABCB or MDR gene) and royalties on several new pharmacogenomic diagnostics. Included in the deal is the Familion brand of cardiac genetic tests and PGxPredict pharmacogenomic diagnostics as well as relevant biomarkers and the infrastructure that supports the acquired business unit. The Familion products are used to detect mutations that can cause lethal heart conditions such as Long QT syndrome, Brugada syndrome, catecholaminergic polymorphic ventricular tachycardia, hypertrophic cardiomyopathy, arrhythmogenic right ventricular cardiomyopathy, dilated cardiomyopathy, and left ven-

tricular noncompaction cardiomyopathy. The PGxPredict tests can determine if rituximab is the best individual treatment for follicular nonHodgkin’s lymphoma patients and to assess the risk of clozapine-induced agranulocytosis. The divesture enables Clinical Data to complete its transformation into a strictly pharma company and the funds from the sale of non-core assets will be applied to the continued development of two late-stage therapeutics: vilazodone for major depressive disorder (under review by the FDA) and Stedivaze for myocardial perfusion imaging (Phase III). Investment Banks/Advisors: Wedbush Morgan Securities (Clinical Data Inc.)

Alliances /In Vitro Diagnostics Astellas Pharma Inc. OSI Pharmaceuticals Inc. Genzyme Corp. Genzyme Genetics Roche Genzyme Genetics (recently acquired by LabCorp) has sublicensed to Roche a diagnostic assay that detects mutations in the epidermal growth factor receptor (EGFR) gene. Roche has worldwide rights. (Nov.) Roche will use the assay in a concurrent agreement signed with Astellas’ OSI to develop a companion diagnostic that identifies EGFRactivating mutations in non-small cell lung cancer (NSCLC). Tarceva (erlotinib), a tyrosine kinase inhibitor sold by Roche’s Genentech and OSI, is most effective in tumors that have mutated EGFR genes. In fact, Roche is aiming to gain EMEA approval to expand the drug’s indication specifically to advanced NSCLC in which patients have EGFR-activating mutations (presently Tarceva is available in the US and Europe for NSCLC with and without EGFR mutations). The molecular assay will incorporate PCR technology and run on Roche’s cobas 4800 device. The Big Pharma also plans to investigate the assay for other types of cancer. Since 2005, Genzyme has had rights to the diagnostic IP from the Dana-Farber Cancer Institute and Massachusetts General Hospital. DxS (now Qiagen Manchester Ltd.) also holds a sublicense from Genzyme to diagnostic and research applications in NSCLC. Roche has rights to a similar Tarceva companion diagnostic called TheraScreen EGFR29 from DxS. The companies signed the deal in 2008, but they recently got caught up in a lawsuit in which Roche claimed that DxS tried to terminate the agreement after DxS was acquired by Qiagen. The partners settled this past May, and Roche will remain a TheraScreen licensee.

DEALMAKING Bioclassifier LLC NanoString Technologies Inc. Bioclassifier LLC has granted fellow molecular diagnostics and research firm NanoString Technologies Inc. exclusive worldwide rights to develop new breast cancer tests based on gene expression analysis and intrinsic subtyping. (Dec.) Under terms of the deal, NanoString has rights to Bioclassifier’s PAM50 gene signature, which provides subtype classification information and a prognostic score to help determine the best possible treatment for breast cancer patients. NanoString will incorporate this signature into its NanoString Breast Cancer Intrinsic Subtyping Assay, which will be validated on the company’s nCounter analysis system and will be able to measure expression levels of 50 genes in formalin-fixed, paraffinembedded breast tumor tissue samples, instead of traditional liquid wells. The company plans to file for regulatory approval as soon as possible both inside and outside of the US, and will offer the test in hospitals and pathology labs.

DiaGenic ASA Pfizer Inc. DiaGenic ASA (focused on early disease detection) will work with Pfizer Inc. to discover biomarkers for the various stages of Alzheimer’s disease. (Dec.) Using DiaGenic’s gene expression technology and blood samples from ongoing clinical trials, the companies will assess longitudinal changes in gene expression patterns in patients with mild cognitive impairment (MCI; stage between normal aging and dementia), progressive MCI (early-stage Alzheimer’s), and AD. They seek to identify biomarkers that show those people who are likely to develop these disorders. Under the agreement, Pfizer receives non-exclusive global rights to any resulting diagnostics for use in their research and drug development efforts. Such tests can aide in drug discovery, improve clinical trial success rates, and ultimately help physicians better treat their patients. DiaGenic has already developed the ADtect rapid blood test, which can identify changes in the activity of 96 genes and help in the early detection of Alzheimer’s.

General Electric Co. GE Healthcare Johnson & Johnson Janssen Pharmaceutica NV General Electric Co.’s GE Healthcare and Johnson & Johnson’s Janssen Pharmaceutica NV will team up to discover a biomarker for Alzheimer’s disease. (Dec.) The companies will combine Janssen Pharmaceutica’s expertise in data integration, informatics, genomics, and biomarkers with GE’s imaging and diagnostic assets to develop a noninvasive or minimally invasive diagnostic biomarker for Alzheimer’s before clinical symptoms appear. Amyloid plaques and tau tangles in brain tissues can appear decades before outward symptoms do; a therapeutic to treat or prevent the disease may be able to help lessen or eliminate the deaths, which increased 46% from 2000-2006. (About 5.3 million Americans currently have the disease.) GE is currently conducting Phase III trials for its amyloid PET imaging drug candidate flutemetamol. And

while Janssen Pharmaceutica is mainly focused on schizophrenia, bipolar, and autism, J&J’s Janssen Alzheimer Immunotherapy R&D LLC is developing--in conjunction with Pfizer--assets acquired last year from Elan Pharmaceuticals for Alzheimer’s disease.

Financings

/In Vitro Diagnostics Rosetta Genomics Ltd. Molecular diagnostics company Rosetta Genomics Ltd. grossed $2.5mm through the private sale of 2.5mm ordinary shares at $1 each to undisclosed institutional investors. In addition, the company issued five-year Series A warrants to purchase 1.25mm ordinary shares exercisable at $1.30 per share, and Series B warrants to buy 625k shares at an exercise price of $0.01 per share. (The Series B warrants will be exercised on a cashless basis on the 33rd trading day following the effective date of the resale registration statement, which Rosetta is required to file, but only if the 10-day share average is less than $1.) Rodman & Renshaw was the placement agent. (Nov.) Investment Banks/Advisors: Rodman & Renshaw Capital Group Inc.

Sequenom Inc. In a follow-on public offering, Sequenom Inc. (diagnostic testing and genetic analysis systems) has netted $90.8mm by selling 16.1mm shares (including the overallotment) at $6. Part of the proceeds will be specifically used for validation studies of the company’s Trisomy 21 DNA test, which assesses pregnant women who are at a high risk for carrying a fetus with the chromosomal abnormality. (Dec.) Investment Banks/Advisors: Piper Jaffray & Co.; Jefferies & Co. Inc.; Lazard LLC

Pharmaceuticals

Acquisitions

/Pharmaceuticals Axcan Pharma Inc. Eurand NV Axcan Pharma Inc. (medicines for gastrointestinal disorders), which is owned by Axcan Holdings Inc., has acquired public Dutch company Eurand NV for $576mm, paying $12 in cash (an 8% premium) for each of Eurand’s 48mm outstanding shares. (Dec.) Following a transition period, Eurand’s Chairman and CEO Gearóid Faherty will step down from his position at the end of year and is being replaced by John J. Fraher as CEO of Eurand (Axcan’s Frank Verwiel, MD, will continue as president and CEO of the combined company). It is not clear if Axcan, which was taken private by TPG Capital in 2007, will be assuming Eurand’s public status. The current deal brings together Axcan’s gastroenterology products with Eurand’s portfolio and drug delivery/formulation technologies. The companies already have ties together--Eurand helped develop and formulate and now produces

Axcan’s pancrelipase drug Ultrase in exchange for manufacturing revenues and royalties. Axcan took Ultrase off the market earlier this year because it didn’t meet new regulatory requirements for pancreatic enzyme products. And the firm still has to address some manufacturing issues after receiving a complete response letter. The problems with Ultrase were expected to have a moderate impact on Eurand’s internal financial projections. But now through the acquisition, Axcan has been able to bring an Ultrase competitor in-house-Eurand’s recently launched Zenpep (pancrelipase) for exocrine pancreatic insufficiency. Founded in 1969, Eurand was the pharmaceutical technology business of American Home Products (later Wyeth, now Pfizer) until it was acquired by Warburg Pincus in 1999 for $77mm. At that time, Eurand converted into a Dutch public limited liability company. Eight years later, Eurand completed a US IPO, netting just under $100mm by selling shares at $16. Presently Warburg is still the majority Eurand shareholder with a 55% stake. Eurand has transitioned from strictly R&D/out-licensing mode into a commercial organization with six marketed products. Zenpep is the first drug the company has developed in-house and launched, and as of November 2010, the medicine held 21% of the US pancreatic enzyme market. Last year, Eurand had a net loss of $8.5mm on $173mm in sales; cash on hand totaled €27.8mm ($37.8mm) at the end of September 2010. Investment Banks/ Advisors: Barclays Bank PLC; Bank of America; RBC Capital Markets (Axcan Pharma Inc.); Goldman Sachs & Co.; Jefferies & Co. Inc. (Eurand NV)

Gilead Sciences Inc. Arresto BioSciences Inc. Gilead Sciences Inc. will pay at least $225mm to buy privately held Arresto BioSciences Inc. (treatments for cancer and fibrotic diseases). Additional sales-based earn-outs are possible. (Dec.) Arresto was formed in 2007 and has an investor syndicate that includes Kleiner Perkins Caufield & Byers, HealthCareVentures, NorthGate Capital, DAG Ventures, and Abbott Biotech Ventures. The company is developing compounds targeting enzymes involved in the synthesis of the extracellular matrix. Arresto’s lead candidate AB0024 is a humanized monoclonal antibody that targets lysyl oxidase-like-2 protein and is in Phase I trials for idiopathic pulmonary fibrosis (IPF) and solid tumors. Unlike other IPF compounds in development, Arresto’s AB0024 has shown potential to reverse damage caused by the disease, instead of just slowing its progression. Gilead, which has a strong background in infectious diseases, is looking to add to its own growing fibrosis pipeline through the Arresto acquisition. Gilead has one of its drugs, Letairis (marketed for pulmonary arterial hypertension), in Phase III trials for IPF and hopes to be the first company get a drug to market for the indication. Letairis, though, would be another “disease-slowing” drug, which is a reason Gilead is even more interested in gaining control of Arresto and the novel action of AB0024.

GlaxoSmithKline PLC Nanjing MeiRui Pharma Co. Ltd GlaxoSmithKline PLC has paid $70mm in cash for Nanjing MeiRui Pharma Co. Ltd., a private drug, device, and diagnostic company based in China. (Dec.)

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DEALMAKING The acquisition greatly expands GSK’s access to the Chinese hospital pharmaceuticals market (worth approximately $30bn) in the area of urology. MeiRui’s top two medicines are Prostat (rye pollen extracts), a natural product for benign prostatic hyperplasia and chronic non-bacteria prostatitis, and SheNiTing (tolterodine) for overactive bladder. In addition, MeiRui sells ImmunoCAP, a blood-based immunoassay that detects allergen-producing antibodies that cause allergies or asthma, as well as the Urexact digital urine monitoring device, which tracks urine output of ICU patients. Not only does GSK take over this portfolio, it will also gain MeiRui’s manufacturing plant in Nanjing City and the company’s sales and marketing personnel. MeiRui was founded in 1996 by Pagoda Pharma Group, a British Virgin Islands operating company that currently owns 90%. MeiRui was established as a joint venture combining Cal-Nan Horizon Quest (a US company), Pharmacia Allergon AB (a Swedish drug firm, now independent of Pharmacia, which was acquired by Pfizer) and the Nanjing Medical Group (Chinese pharmaco). The remaining 10% of MeiRui’s shares are held by Allergon AB. In the past two years, GSK has made significant investments in the Chinese emerging market, especially in the area of vaccines. In 2008, it announced plans for a joint venture with Shenzhen Neptunus focused on seasonal, pre-pandemic, and pandemic flu vaccines native to China, Hong Kong, and Macau. GSK invested $31mm into the venture for a 40% stake, and when the deal was finalized a year ago, the pharmaco said it would eventually contribute another $14mm for majority ownership. GSK also formed a JV with Jiangsu Walvax Biotech to market in China pediatric vaccines, including the Big Pharma’s Priorix.

Insmed Inc. Transave Inc. More than a year after beginning its search for new assets, protein manufacturer Insmed Inc. agreed to pay $84.1mm for a majority stake in drug delivery firm Transave Inc. Insmed is issuing 25.9mm common shares and 91.7mm Series B conditional convertible preferred shares--both valued at $0.71 each--and paying another $561k in cash for 53.3% of Transave. (Dec.) Transave counts TVM Capital, Prospect Venture Partners, Fidelity Biosciences, Forbion Capital Partners, and Easton Capital as its investors, amongst others. Insmed’s current executive team and Transave’s chairman will retain their positions in the combined entity. As part of the merger, Insmed has paid off Transave’s existing $7.8mm in debt. Transave’s lead candidate Arikace (inhaled liposomal amikacin) is a bacterial protein synthesis inhibitor currently in Phase II for treating Pseudomonas aeruginosa lung infections in cystic fibrosis patients and lung infections due to non-TB mycobacteria. Since 2009, Transave had been unable to initiate Phase III trials due to its lack of adequate financial resources. Insmed plans to commence Phase III for both indications in the second half of 2011. Arikace is thought to have advantages over currently available drugs for chronic lung infections in that it delivers high and sustained levels of the API directly to the lung, where it has demonstrated improved function. The drug is delivered via Pari Pharma GMBH’s eFlow nebulizer. If successfully commercialized, Arikace would be the first inhaled antibiotic with once-daily administration. Insmed intends to internally commercialize the therapeutic in the US

and seek partners for Europe. One Insmed executive estimates that the drug has the potential to achieve $1bn in annual sales. Arikace could face competition from Bayer Healthcare and Nektar Therapeutics, which are conducting late-stage clinical trials of an inhaled amikacin formulation for gram-negative pneumonia. Insmed sold Merck its follow-on biologics assets for $130mm in February 2009, at which point the biotech started a quest to establish a new therapeutic direction. Investment Banks/Advisors: RBC Capital Markets (Insmed Inc.); Lazard LLC (Transave Inc.)

Merck & Co. Inc. SmartCells Inc. Merck & Co. Inc. has agreed to buy privately held SmartCells Inc. (diabetes treatments) for up to $500mm, a price that includes cash up front as well as development, regulatory, and sales achievement earn-outs. (Dec.) SmartCells was founded in 2001 and has raised about $6mm in venture financing from investors including Angel Healthcare Investors, Beacon Street Angels, Boston Harbor Angels, Cherrystone Angels, and Common Angels. The company has also received numerous grants from the NIH’s National Institute of Diabetes and Digestive and Kidney Diseases for work on its lead project SmartInsulin, a once-daily injection for Types I and II diabetes. The technology behind the preclinical candidate came from MIT and SmartCells cofounder, president, and CEO Dr. Todd Zion. He and his researchers found a way to auto-regulate the release of insulin when the plasma concentration of glucose comes into a certain range, thereby alleviating the risk of hypoglycemia due to glucose level fluctuations that occur throughout the day, and also getting rid of the need for multiple injections and constant monitoring. Merck already has two diabetes products on the market-Januvia and Janumet--but since both of those are for the Type II form of the disease, SmartInsulin will be the Big Pharma’s first access to a potential treatment for Type I diabetes.

Myotec Therapeutics Inc. Hybrid BioSystems Ltd. PsiOxus Therapeutics Ltd. Imperial College London spin-out Myotec Therapeutics Ltd. (focused on muscle-wasting diseases) has merged with oncolytic virus treatment company Hybrid BioSystems Ltd. to form PsiOxus Therapeutics Ltd. (Dec.) The new company will be led by Myotec CEO Dr. John Beadle and will have a pipeline comprised of projects from each predecessor. The lead candidate is Myotec’s Phase II MT102, a dual-action anabolic catabolic transforming agent for cancer cachexia and sarcopenia. PsiOxus will also work on Hybrid’s ColoAd1, an oncolytic virus compound that will be entering Phase I for metastatic colorectal cancer and primary hepatic cellular carcinoma. For further drug development activities, the company will utilize Hybrid’s PolySTAR recombinant viral vector/polymer vaccine platform and the PolyMAP polymer/adjuvant technology, which is used to enhance vaccine effect. Myotec was spun out of Imperial College in 2006 and had completed a £5.65mm ($8.6mm) Series A round earlier this year. Hybrid was formed in 2002 around the virus therapy research of professors from the University of Oxford. Concurrent with the merger, PsiOxus raised £3.6mm from existing Hybrid and Myotec investors.

this month in

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The A-List: 2010’s TrendShaping Series A Financings Investments for start-ups seeking their first infusion of venture capital continue to be scarce as venture firms seek later-stage opportunities and liquidity to improve their own chances of raising new funds.

Masterminds Of Ardian: An Interview With Inventors Mark Gelfand And Howard Levin Start-Up interviews the inventors behind Ardian, the object of one of the highest priced venture capital-backed medical device acquisitions, and between them, five other medical device companies. PROFILES

Start-Ups Across Health Care Profiles of biocrea, e(ye)BRAIN, MiCardia and Omthera Pharmaceuticals

Venture ’Round • Where Private Medtech Investment Dollars Went In 2010 • Cancer Research Technology Ltd.: Biopharma’s Gateway to Cancer-Focused Academic Research • Will Rise Of Corporate Investors Lead To Return Of Device Returns?

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DEALMAKING Reckitt Benckiser PLC Paras Pharmaceuticals Ltd. Reckitt Benckiser PLC has agreed to pay $726mm (INR32.6bn) for private Indian OTC and personal care company Paras Pharmaceuticals Ltd. The price is about 8.1x Para’s 2010 sales of $90mm. The deal is the second-largest Indian pharma acquisition this year, behind Abbott Laboratories’ $3.72bn buy of Piramal Healthcare’s branded generics business. (Dec.) Several companies had been vying for Paras, reportedly Emami, Piramal, Godrej, Dabur, Sanofi, Pfizer, and Taisho Pharmaceutical. RB won out and now majority shareholder Actis (63%) will tender its shares--reaping a profit of about three times its 2006 investment--as well as Sequoia Capital (7%), and Paras founder Girish Patel and his family (30%). Emami’s alleged higher bid of $750mm casued a bit of controversy; when it was refused, stunned Emami officials vowed to launch brands to directly compete with Para’s products. Interestingly, Emami was not the only disgruntled one; in the midst of the four-month bidding process, Darshan Patel (Girish Patel’s estranged brother) professed his goal to create new brands--his Vini Group has launched an itch-relief cream, and eventually plans to introduce pain relievers, antifungals, cold relief, powders, and perfumes--to draw sales away from Paras in order to regain the 33% of the company he sold to Actis four years ago for $43mm. Paras’ products include Moov pain relief ointment, Krack heel lotion, D’Cold for cough/congestion, BoroSoft moisturizing skin cream, Dermicool for prickly heat, and ItchGuard antifungal. The items are manufactured at Paras’ headquarters, where 700 people are employed. Paras’ brands--popularized over the last decade by large-scale mass media campaigns--are compatible with RB’s, including Dettol antiseptic, Disprin pain reliever, Clearasil facial cleanser, Veet hair remover, and Durex condoms. RB has been building up its OTC investments overseas; developing markets (India, Latin America, Africa, the Middle East, and Asia) represent about one-fifth of RB’s annual revenue. The Indian OTC market is valued at $1.8bn, with a growth rate of 23% each year. Investment Banks/Advisors: JP Morgan & Co. (Reckitt Benckiser PLC); Morgan Stanley & Co. (Paras Pharmaceuticals Ltd.)

Spencer Pharmaceutical Inc. Newly formed public company Spencer Pharmaceutical Inc. (developing drug release and absorption systems for metabolic diseases and CNS disorders) is being acquired by Kuwaiti investment group Al-Dorra Holdings for $245mm in cash, or a premium of $0.97 per share. (Dec.) Under terms of the buy-out, Al-Dorra can purchase Spencer shares on the open market and will provide Spencer with $500k up front for legal fees and costs for ongoing operations. Spencer is focused on identifying new drug delivery options, creating novel versions of existing therapeutics, and synthesizing compounds that can cross the blood-brain barrier. The company currently has two projects that are ready to commence clinical trials. First is an oral metformin formulation for Type II diabetes with reduced gastrointestinal side effects. It is also working on a Alzheimer’s disease prodrug that crosses the blood-brain barrier and then undergoes a redox activation process,

which converts it to the parent drug in the CNS. The candidate appears to have advantages over marketed CNS therapies.

Alliances

/Pharmaceuticals 3SBio Inc. EnzymeRx LLC EnzymeRx LLC (therapies for hyperuricemia) has sold Chinese biopharma 3SBio Inc. worldwide rights to pegsiticase for $6.25mm. (Nov.) Pegsiticase is currently in Phase I, where it has proven to be safe and well-tolerated when administered via IV or intramuscular injection in patients with refractory gout and tumor lysis syndrome. The candidate is effective at lowering uric acid, which is abundant in people suffering from these conditions. It has already been granted orphan drug status by the FDA. 3SBio plans to develop pegsiticase in China, where there is high prevalence of gout and hyperuricemia, and will seek partners for development elsewhere. In mid-2008, EnzymeRx paid Polaris Pharmaceuticals $5mm plus an equity stake for exclusive global rights-excluding Taiwan--to pegsiticase, which was then known as Uricase-PEG20 (urate oxidase). (Polaris gained rights to the drug candidate through its 2006 acquisition of Phoenix Pharmacologics.)

Adimab Inc. Human Genome Sciences Inc. Adimab Inc. (mAb platform) has agreed to generate fully human antibodies against a single Human Genome Sciences Inc. target. HGS will have an option to license rights to therapeutics. (Dec.) HGS pays money up front, preclinical and clinical milestones, and sales royalties. Using its yeast-based technology, Adimab generates and optimizes high affinity, full-length, fully human immunoglobulin G (IgG) antibodies. The biotech’s platform integrates many antibody discovery tools and rapidly moves from antigen to lead candidate within eight weeks. This is HGS’s second antibody discovery deal this year; in the first quarter, HGS and BioInvent agreed to collaborate on anti-inflammatory antibodies produced by the latter’s n-CoDeR system. In addition to penning the agreement with HGS, Adimab also monetized its platform through two other new deals with Genentech and Lilly disclosed the same day. And in more positive news for Adimab, the biotech announced that it met a technical milestone in its July 2010 deal with Novartis, and that Merck exercised an option from their July 2009 collaboration.

Adimab Inc. Eli Lilly & Co. Eli Lilly & Co. has received an exclusive option to research antibodies identified by monoclonal antibody developer Adimab Inc. Lilly will select two targets. Adimab disclosed the agreement concurrent with separate antibody discovery deals with Genentech and Human Genome Sciences. (Dec.) Adimab receives research fees and technical milestones. If Lilly exercises the options, it is responsible for a license payment, clinical mile-

stones, and sales royalties on each target. Adimab creates fully human antibodies by re-engineering yeast cells. The company has the technologies to perform many of the discovery and optimization activities--including display methodology and library design--that would otherwise need to be done by several partners, as opposed to one. Facing patent expirations on its leading products Zyprexa and Cymbalta in the near future, Lilly is looking to refuel its pipeline, and the present alliance could be one of the ways to add more antibodies to the group. The Big Pharma notably acquired several MAbs through its 2008 takeover of ImClone, which brought the marketed drug Erbitux plus the follow-on compound IMC11F8, in development with BMS.

Adimab Inc. Roche Genentech Inc. In one of three deals it announced on the same day, Adimab Inc. (mAbs) agreed to produce fully human antibodies against two targets chosen by Roche’s Genentech Inc. Adimab’s alliance triplet also included separate collaborations with Eli Lilly and Human Genome Sciences. (Dec.) Genentech will have rights to market the antibodies as therapeutics or for diagnostic use. In return it pays up-front and licensing fees, preclinical and clinical milestones, plus sales royalties. Adimab will discover the antibodies using its yeast technology, which re-engineers yeast cells to generate diverse libraries of fully human, high affinity, full length antibodies. The company touts the comprehensiveness and speed of its platform to discover and optimize antibodies--it performs library design, display methodology, GMP cell line development, and manufacturing all under one roof. The antigen target-to-lead time is approximately eight weeks. Since Adimab was founded just over three years ago, the company has pulled in over $14mm in venture financing and has now partnered with five Big Pharmas to date. The current agreement actually represents the second time the biotech has collaborated with Roche. In June 2009, Adimab said it would produce fully human antibodies to license to Roche for therapeutic or diagnostic applications.

Anaphore Inc. Mitsubishi Chemical Holdings Corp. Mitsubishi Tanabe Pharma Corp. Tanabe Research Laboratories USA Inc. Anaphore Inc. (protein therapies for cancer and immune conditions) will use its Atrimer technology to discover new autoimmune treatments for Mitsubishi Tanabe Pharma Corp. The companies will initially focus on rheumatoid arthritis, inflammatory bowel disease, and psoriasis. (Dec.) Tanabe Research Laboratories USA Inc. (TRL) and Anaphore will work on initial R&D activities together, after which Mitsubishi Tanabe will take over late-stage development and worldwide commercialization. Mitsubishi Tanabe paid $5mm up front and could make $110mm more in milestone payments based on the success of the first candidate, the target of which has already been selected by the partners (but is not being revealed). TRL has an option to choose two additional targets, which if exercised would result in similar financial rewards. Anaphore also gets tiered

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DEALMAKING sales royalties. Atrimers are genetically engineered proteins of trivalent structure that can be designed to activate or inhibit any target. They have three binding domains instead of two in the case of traditional antibodies, and are also smaller than antibodies (about half the size), enabling for more effective delivery into dense tissue. The deal with Mitsubishi is Anaphore’s first publicized alliance; the two-year-old company notes that it does have one other partnership with a biotech, but has not provided details.

AngioChem Inc. Geron Corp. Geron Corp. (therapies for cancer and degenerative diseases) licensed exclusive worldwide rights to AngioChem Inc.’s (metabolic, pain, and oncology treatments) peptide delivery technology and an associated drug compound, GRN1005 (formerly ANG1005). (Dec.) Geron paid $7.5mm in cash up front and will issue $27.5mm of its common stock (up to 9mm shares at a price to be determined; if the value is less than $27.5mm, the remainder will be paid in cash). AngioChem will also get milestones, royalties, and a share of sublicensing revenues. AngioChem’s EPiC (Engineered Peptide Compound) platform creates new chemical entities that, when linked to a peptide target lipoprotein receptor-related protein-1 (LRP-1), can cross the blood-brain barrier into brain tissue. GRN1005 is a taxane derivative that has completed Phase I trials in primary brain tumor patients and in those with brain metastases from breast and lung cancers. Geron will take over all clinical activities and is responsible for development costs. In addition to GRN1005, Geron and AngioChem have also agreed to use EPiC peptides to try and transport telomerase inhibitors into the central nervous system. (Geron has three telomerase-based compounds in its pipeline: imetelstat, in Phase II for multiple cancer types, and GRNVAC1/GRNVAC2, therapeutic cancer vaccines in preclinical studies and Phase II trials.) The alliance provides AngioChem with money to move two new compounds into the clinic by 2012.

Apexigen Inc. Johnson & Johnson Centocor Research & Development Inc. Apexigen Inc. (monoclonal antibodies) has agreed to use its technologies to discover and develop MAbs for Johnson & Johnson’s Centocor Research & Development Inc. (Dec.) Apexigen gets an up-front license fee, development and commercialization milestones, and royalties. Apexigen will generate and screen antibodies to targets provided by Centocor, which will then handle development and marketing of any resulting products. Five months ago Epitomics--in order to capitalize on the research and diagnostic applications of its MAbs--spun off Apexigen to focus on its business involving therapeutic MAbs for inflammation, metabolic, and immune disorders and cancer. Apexigen has rights to Epitomics’ RabMab (rabbit MAb) and Mutational Lineage-Guided Humanization technologies. These platforms can produce antibodies with high specificity, high affinity, and unique epitopes. The IP can successfully create antibodies against antigens that other technologies have failed to do.

Astellas Pharma Inc. Cytori Therapeutics Inc. Cytori Therapeutics Inc. (regenerative medicine) and Astellas Pharma Inc. plan to investigate adipose-derived stem and regenerative cell therapeutics for diseases that currently have no treatments. (Dec.) In return, Astellas will make a $10mm investment in Cytori by purchasing 1.4mm shares (approximately a 2.8% stake) at $7, a 50% premium. Astellas has obtained a two-year right of first refusal for a worldwide license to develop and market Cytori’s cell treatments for liver disorders. Further, an Astellas executive will hold a nonvoting observer seat on Cytori’s board and the Japanese pharma has the right to nominate a representative to the biotech’s scientific advisory board. Lastly, the partners agreed to pursue a potential deal involving advanced regenerative medicines in the future. Cytori has created Celution, a system that extracts clinical-grade stem and regenerative cells from a patient’s own adipose (fat) tissue. The device, which was launched in Europe and Asia in early 2008 for cosmetic and reconstructive surgery, allows physicians to produce a cell-enriched fat graft to implant back into the patient. Celution is still awaiting approval in the US; in November 2009, Cytori filed a 510(k), but the FDA ruled that the product needed to go through the premarket approval application (PMA; the regulatory pathway for more novel devices) instead. Hepatic disorders do not appear to be an area of significant research for Astellas. A review of the company’s pipeline only shows one candidate for liver conditions--the Phase II ASP9831, a PDE4 inhibitor for nonalcoholic steatohepatitis. The Cytori tie-up also represents Astellas’ first major cell therapy alliance, although Astellas’ venture arm did participate in Fate Therapeutics’ $30mm Series B last year. Fate is working on adult stem cells and induced pluripotent stem cells.

AstraZeneca PLC MedImmune LLC Evotec AG DeveloGen AG Evotec AG’s newly acquired metabolic disorder subsidiary DeveloGen AG has forged an alliance with AstraZeneca PLC’s global biologics division MedImmune LLC, which will gain exclusive access to DeveloGen’s research portfolio in the area of diabetes. (Dec.) MedImmune will pay €5mm ($6.7mm) up front, up to €254mm in development, regulatory, and commercialization milestones, plus royalties. DeveloGen also stands to receive additional funding for in vivo and in vitro research it conducts. In return, MedImmune is getting rights to DG770, now known as EVT770--a preclinical program incorporating beta cell regeneration factors--plus a pipeline of additional secreted factors. DeveloGen’s candidate--based on IP originally licensed from Max Planck--centers on the regeneration of insulin-producing beta cells, which are generated during embryonic pancreas development. During this time, factors responsible for the differentiation and replication of these cells are plentifully expressed and those factors with therapeutic potential can be identified through systematic screening of libraries. A known cause of diabetes is loss of beta cells. The goal of the collaboration is to advance DeveloGen’s disease-modifying approach to re-establish a patient’s ability to produce insulin, restore glycemic control (without

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DEALMAKING risking hypoglycemia), and stop or reverse the progression of both Type I and Type II diabetes. This marks DeveloGen’s third alliance involving its metabolic target discovery platform; it also has deals with Andromeda and Teva (for DiaPep277, an imunomodulator in Phase III for Type I diabetes) and Boehringer Ingelheim (for preclinical compounds that target insulin resistance in Type II diabetes and obesity). Evotec, a partner with DeveloGen since 2003, acquired the company for €14mm (plus potential earn-outs) in July, gaining the latter’s metabolic pipeline and taking over its existing partnerships within this therapeutic area. For MedImmune, this deal has the potential to broaden its pipeline beyond its five core areas of focus (infectious disease; respiratory, inflammation, and autoimmunity; oncology; cardiovascular/gastrointestinal; and neuroscience).

Avila Therapeutics Inc. Sanofi-Aventis Avila Therapeutics Inc. (cancer, infectious diseases, and autoimmune disorders) will use its Avilomics informatics drug discovery platform to identify new candidates for Sanofi-Aventis. (Dec.) Drugs developed using the Avilomics technology form covalent bonds with disease-causing proteins, which allows for the silencing of the proteins in ways not achievable through traditional medicinal chemistry techniques. The companies will identify candidates directed towards six signaling proteins in tumor cells. Sanofi gets exclusive worldwide rights to develop and sell resulting compounds, and Avila has an option for rights to one compound at the end of the initial three-year term of the collaboration. (Should Avila decide to partner a program it exercises the option on, Sanofi holds a right of first negotiation.) Sanofi will pay $40mm in up-front and research payments, and could also hand over up to $154mm per candidate in development, regulatory, and sales milestones, plus tiered royalties, upon approval in the US, Europe, and Japan. The deal is the second endorsement by a Big Pharma for Avilomics. In 2009, Avila teamed up with Novartis AG in a $200mm-plus partnership in an undisclosed therapy area.

Baxter International Inc. Takeda Pharmaceutical Co. Ltd. Baxter International Inc. has granted Takeda Pharmaceutical Co. Ltd. exclusive rights to a Vero cell-based vaccine technology for use in the development and commercialization of pandemic influenza vaccines in Japan. (Dec.)

posed to embryonated chicken eggs, to produce vaccines, and is already widely accepted in both the US and Europe.

Benxi Leilong Pharmaceutical Co. Ltd. Sihuan Pharmaceutical Holdings Group Ltd. Sihuan Pharmaceutical Holdings Group Ltd.’s Hainan Sihuan Pharmaceutical Co. Ltd. has licensed exclusive thirty-year distribution rights to Benxi Leilong Pharmaceutical Co. Ltd.’s alprostadil injection, the second-best selling cardiovascular drug in China. (Nov.) Benxi wil supply alprostadil to Sihuan at a fixed wholesale price; Sihuan will then sell the pharmaceutical through its distribution network of about 10k Chinese hospitals. Alprostadil is an intravenous injectable lipid emulsion for peripheral vascular diseases, cardio-cerebral microcirculation disorders, and post-surgery thrombosis. Sales of the drug in China were RMB700mm ($104.9mm) for 2007. The drug will be compatible with Sihuan’s portfolio of 14 other cardio-cerebral vascular drugs; its most popular cardio drugs Kelinao, Anjieli, and Chuanqing accounted for over 17% of the vascular therapies on the market during 2009. Sihuan’s total cardio pharmaceutical sales for last year were $84mm.

Bristol-Myers Squibb Co. Oncolys BioPharma Inc. In its first Big Pharma partnership, Japanese biotech Oncolys BioPharma Inc. has licensed Bristol-Myers Squibb Co. exclusive worldwide rights to develop, manufacture, and sell its Phase II HIV treatment festinavir (OBP601; 4-ethynylstavudine). (Dec.) BMS pays a total of $286mm, which includes the up-front payment plus development, regulatory, and commercialization milestones. The company is also responsible for tiered global sales royalties. Festinavir, an oral once-daily compound, blocks the nucleoside reverse transcriptase enzyme, which is critical for HIV replication. Scientists from Yale University, Kagoshima University, and Showa University discovered the candidate, and Oncolys obtained the exclusive global license from Yale in 2006. In fact since Oncolys was founded in 2004, it has built up its pipeline through in-licensing. The company has acquired rights to a hepatitis C compound from Tacere and an HDAC inhibitor from Astellas. BMS already has a strong presence in the HIV/AIDS market with leading products Atripla, Reyataz, and Sustiva (the latter two each brought in over $1bn in sales last year, but are expected to lose US patent exclusivity in 2017 and 2013, respectively). BMS does have a marketed nucleoside reverse transcriptase inhibitor Videx, but the drug has gone generic.

transplants for blood cancer patients. (Dec.) Beating Genzyme/Osiris’ Prochymal/Chondrogen agreement as the most expensive stem cell deal ever, Cephalon pays $130mm up front in cash ($30mm upon Mesoblast shareholder approval), $1.7bn in regulatory milestones (a large percentage of which is due upon US approval), and has made a $220mm investment in Mesoblast by purchasing approximately 51.2mm shares (19.99%) at $A4.35 ($4.30; a 33% premium). Per a standstill agreement, Cephalon may not exceed 19.99% ownership over the next year; it can maintain its stake on a top-up basis under Australian Securities Exchange rules. Mesoblast will conduct and fund Phase IIa trials; provides commercial supply; and holds manufacturing rights. The company also gets a “significant” cut of the net product sales. Cephalon is responsible for Phase IIb, III, and marketing resulting products. Cephalon’s COO J. Kevin Buchi (who has actually been running the company while the CEO Frank Baldino is out on indefinite medical leave) has been elected to Mesoblast’s board. Mesoblast has already tested (in Phase II) candidates for congestive heart failure and hematopoietic stem cell transplantation, plus a preclinical agent in the acute myocardial infarction indication. The Australian firm retains rights to its adult stem cell platform for bone and cartilage repair, diabetes, age-related macular degeneration, inflammation, and autoimmune disorders. Thanks to the current deal plus existing resources, Mesoblast has $250mm in the bank to fund these projects. It licensed the MPC technology from the Hanson Institute and Institute of Medical and Veterinary Science. The MPC platform is just one of many biological assets that Cephalon has accessed through dealmaking recently. Also included in this group are the antibody drug discovery capabilities it got through acquisitions of Arana and Ception, and the biologics repurposing system from BioAssets. Investment Banks/Advisors: Deutsche Bank AG (Cephalon Inc.)

Dongsheng Pharmaceutical International Co. Ltd. Shanghai Wan’Te Pharmaceutical Co. Ltd. Dongsheng Pharmaceutical International Co. Ltd. (prescription, OTC, and traditional Chinese medicines) has licensed exclusive marketing and manufacturing rights and IP to Shanghai Wan’Te Pharmaceutical Co. Ltd.’s micro-emulsion alprostadil injection. (Nov.)

Dongsheng will pay RMB10mm ($1.5mm), of which half will be paid in cash and the rest in comTakeda made an undisclosed up-front payment mon stock. If the trading price of Dongsheng’s and will also reimburse Baxter for certain related stock dips below $1.50, Wan’Te can demand the development costs. In addition, it pays developsecond portion is paid in cash instead of equity. ment, technology transfer, regulatory, and sales Micro-emulsion alprostadil injection is the second milestones, plus royalties. The collaboration forCephalon Inc. most popular cardiovascular disease therapeutic in malizes a tentative agreement entered into by the Mesoblast Ltd. Chinese hospitals; the drug has an annual growth companies in August after Takeda had received rate of 17%. Dongsheng plans to take over sales a Y3.6bn ($42mm) government subsidy for the Australian regenerative medicine firm Mesoof the pharmaceutical in March 2011 using its development and production of pandemic flu blast Ltd. has licensed Cephalon Inc. exclusive distribution network that sells medications in over vaccines. Under the most recent deal, both parties global rights to therapeutics derived from adult 30 provinces in China and throughout Southeast will work together on a new vaccine for H5N1 mesenchymal precursor stem cells (MPCs) for Asia. Alprostadil, a vasodilator most commonly influenza and Takeda, with help from Baxter, will degenerative neurological and cardiovascular sold as an erectile dysfunction drug (but also pursue further government funding in Japan to diseases including congestive heart failure, acute widely used as a heart disease treatment in Asiabuild a manufacturing facility for production of myocardial infarction, angina, peripheral vascular Pacific regions), will fit in nicely with Dongsheng’s the vaccine. The goal of that portion of the deal disease/critical limb ischemia, Parkinson’s, stroke, cardiovascular portfolio, which already includes is to have Takeda solely responsible for manufacmultiple sclerosis, Huntington’s, and Alzheimer’s. injectable angina drugs salvianolate (TCM) and turing by March 31, 2014. Baxter’s technology The deal will also include cell products that exuses well established mammalian VeroTransactions cells, as oppand hematopoietic stem cell (bone marrow) Elsevier’s Strategic database provides comprehensive dealsalvianolate coveragemagnesium. from 1991-present For information about online access contact James DeFalco at +1 203-451-6269 or J.DeFalco@Elsevier.com or visit sis.windhover.com

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DEALMAKING Forest Laboratories Inc. Grunenthal GMBH In their second partnership, Grunenthal GMBH (mid-sized European drug company focused on pain management) has licensed Forest Laboratories Inc. exclusive US and Canadian rights to its pain compounds GRT6005 and GRT6006. Forest also received a European co-promotion option. (Dec.) Grunenthal gets money up front, development and commercialization milestones, and net sales royalties. It will have the option to co-promote in the US and Canada. The companies are codeveloping the candidates and will split expenses. GRT6005, a liquid formulation of morphine, is in Phase II for nociceptive and neuropathic pain; it has been studied for postoperative pain following bunionectomy and pain from diabetic polyneuropathy. GRT6006, a follow-on compound to GRT6005, is in preclinical testing. Both oral small molecules are opioid receptor-like-1 (ORL-1)/mu opioid agonists. Research on these targets has demonstrated that activity on both receptors produces a synergistic pain-relieving effect. The composition-of-matter patent on the molecules doesn’t expire until November 2023, providing Forest with an ample amount of time with IP protection. The candidates will complement Forest’s Phase II NR2B-selective NMDA antagonist radiprodil (licensed from Gedeon Richter) for diabetic peripheral neuropathy. Forest has also recently launched Savella for fibromyalgia, a type of muscular pain. With sales of $21.4mm in the second quarter, the drug has become one of the company’s key products. Forest and Grunenthal partnered back in 2007, taking opposite roles than those in the current agreement. In the older deal, Grunenthal got European rights (outside of the UK and Ireland) to Forest’s Phase III inhalable colistin powder for cystic fibrosis.

Forest Laboratories Inc. Johnson & Johnson Janssen Inc. Janssen Pharmaceutica NV Johnson & Johnson’s Janssen Pharmaceutica NV has signed an agreement to exclusively sublicense Forest Laboratories Inc.’s Bystolic for hypertension and Savella for fibromyalgia in Canada. (Nov.) In exchange for an undisclosed signing fee, milestones, and sales royalties, J&J division Janssen Inc. will now handle regulatory submissions and commercialization of the two products in the licensed country. Forest gets the option to co-promote Bystolic and Savella anytime after the first anniversary of approval of either drug. Forest intends to create a Canadian affiliate to exercise the option and handle future regulatory filings and marketing of its products in Canada. Originally developed by Janssen Pharmaceutica, Bystolic was out-licensed to a Mylan subsidiary in 2001; Mylan then sublicensed US and Canadian rights to Forest. The drug gained FDA approval in 2007. Savella has a more complicated history. The medicine was developed by Pierre Fabre, which granted Cypress Bioscience US and Canadian rights in 2001. Cypress penned a reformulation agreement with Collegium Pharmaceutical two years later. Forest came into the picture in 2004, when it licensed US rights and an option for Canadian rights (exercised in mid-2007). Savella was approved in the US last year. The current alliance is Forest’s first step in establishing a presence in Canada.

GlaxoSmithKline PLC Impax Laboratories Inc. Impax Pharmaceuticals

MONTH IN ThisTHIS month in

Generics company Impax Laboratories Inc.’s branded drug unit Impax Pharmaceuticals has licensed GlaxoSmithKline PLC exclusive worldwide rights to its Phase III Parkinson’s disease candidate IPX066. The deal excludes the US and Taiwan. (Dec.) GSK pays $11.5mm up front, $175mm in development and sales milestones, and a tiered double-digit sales royalty. The Big Pharma is responsible for clinical trials, regulatory filings, and marketing in its licensed territories. A group of GSK and Impax representatives will organize global regulatory and commercialization activities. Impax, which will manufacture and supply the drug, is charged with completing the rest of the US Phase III trial, which includes a second study of IPX066 in advanced PD patients (people with an early-stage form of the disease were tested in a previous study). The company anticipates results will be available in 2011, followed by an NDA later in that year. Under a separate deal signed in June, Endo Pharmaceuticals will co-promote the candidate in the US. IPX066 is an extended-release version of carbidopa/levodopa for PD symptoms. It is designed to be fast-acting and reduce the time when medication wears off and the symptoms come back (also known as “off time”). Impax Pharma was launched by Impax Labs in July 2006 to reformulate existing neurology products with drug delivery technologies. Its portfolio includes Carbatrol, a sodium channel blocker for epilepsy and trigeminal neuralgia licensed from Shire, and Lyrica, which is co-promoted with Pfizer for partial onset seizures. GSK currently has a marketed product for Parkinson’s, Requip, but the drug is no longer patented and faces generic competition. The Big Pharma is trying to curb the blow with an extended-release form of Requip that was approved in mid-2008. (Incidentally Impax has already filed an ANDA for a generic version of Requip XL).

GlaxoSmithKline PLC JSC Binnopharm GlaxoSmithKline PLC will license and supply Russian biotech JSC Binnopharm with its cervical cancer, rotavirus, and pneumococcal vaccines (Cervarix, Rotarix, and Synflorix, respectively) for local distribution within Russia. GSK is providing Binnopharm with technology and expertise to aid in secondary manufacturing. (Nov.) Binnopharm will conduct final stages of manufacturing (including filling and packaging), register the products, and distribute them under its own trademark. The company is also responsible for securing approval of its manufacturing plants and ensuring they meet international cGMP standards. GSK will book sales of the bulk vaccines. The agreement was signed during a meeting of the Russian-British Intergovernmental Steering Committee, which aims to improve bilateral trading and sustain economic growth between the two countries. Securing rights to these vaccines means that three highly prevalent infections-human papillomavirus, rotavirus and Streptococcus pneumoniae--will now be covered by Russia’s national immunization calendar. Binnopharm, which was founded in March 2006 and is owned by Sistema (a large diversified public corporation in Russia), develops vaccines and genetically engineered therapeutics for blood disorders, respiratory and infectious diseases, and cancer. By

Straight Talk About Cancer Drug Coverage Medicare coverage of cancer drugs isn’t as automatic as you think. Here’s how CMS’ top coverage official sees it.

“Home Run” Cancer Trials When FDA’s top cancer drug regulator discussed ideas for a National Cancer Policy at an IoM event, one theme was unmistakable: if sponsors really believe what they say about targeted therapies for cancer, they should aim high with their clinical trial designs and endpoints.

Open Season at Open Sessions FDA would be wise to prepare for a new round of active, emotive open public sessions after the impact of the public testimony at the Benlysta lupus drug review on November 16. It’s been a long-time since a public session has had such a direct impact on creating a pro-approval atmosphere at a committee meeting. To keep the public sessions of advisory committees civil and on-point, FDA has rules of conduct and (recently revised) tools of conduct.

FDA’s Antiviral Drugs Division: A Profile Division of Antivirals Director Debra Birnkrant talks HIV, HCV, influenza, smallpox and more in an interview with The RPM Report.

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DEALMAKING partnering with Binnopharm, GSK gains access to the expertise of a local Russian drug producer. The Big Pharma has also penned similar arrangements in China to take advantage of distribution lines. In June 2009, the company finalized a joint venture with Shenzhen Neptunus to bring to market seasonal, pre-pandemic, and pandemic flu vaccines native to China, Hong Kong, and Macau; and later last year, GSK formed another Chinese JV, with Jiangsu Walvax, to sell pediatric vaccines, including GSK’s Priorix.

GlaxoSmithKline PLC GlaxoSmithKline Consumer Healthcare Meda AB GlaxoSmithKline PLC’s GlaxoSmithKline Consumer Healthcare has sold three undisclosed OTC products to public Swedish drug firm Meda AB for $34mm (SEK235mm). The companies are also pursuing future transactions involving US consumer drugs. (Dec.) Together the acquired products generate SEK100mm in annual sales and are said to have solid profit margins. While the subjects of this agreement were not specified, GSK’s collection of OTC medications spans many therapeutic areas and brought in £2.3mm ($3.7bn) in sales last year, exactly half of the Consumer division’s revenue. Leading brands include weight loss agent alli, the pain reliever Panadol, and smoking cessation aids NicoDerm and Nicorette. Meda stepped up its push into the US market with the acquisition of spec pharma Alaven in August. The deal, which cost Meda $350mm in cash, included a broad OTC portfolio. The Swedish company has also expanded its international OTC offerings recently through licensings from Norgine and BioPhausia.

GlaxoSmithKline PLC Proximagen Group PLC Proximagen Group PLC (formerly Proximagen Neuroscience PLC; therapeutics for CNS diseases, inflammation, and cancer) has received exclusive worldwide rights to develop GlaxoSmithKline PLC’s early-stage positive allosteric modulators for neurological indications. (Dec.) The most advanced agent is in preclinical studies for cognitive disorders and interacts with the alpha-7 nicotinic acetylcholine receptor. It will soon enter human testing. The other candidate, which targets dopamine D1, is discovery-stage and has potential in Parkinson’s disease. Both compounds are expected to be more efficacious and tolerant than competitor agonists in development against the same receptors. Proximagen board member Jackie Hunter, a former senior executive at GSK, will lead clinical trials. Proximagen already has several compounds for both cognition and PD, including Phase I naluzotan for levodopa-induced dyskinesia, and Phase I sabcomeline for cognition/depression. The current deal is indicative of the biotech’s new strategy. Previously Proximagen had focused on neurological drug discovery, but beginning this year and going forward, the company plans to use alliances and M&A as a primary way to build its pipeline. Proximagen and GSK already have ties together. In early 2010, Proximagen bought fellow UK biotech Minster Pharmaceuticals, which was established in 2001 around clinical assets (including sabcomeline) in-licensed from GSK. The Big Pharma has divested the alpha-7

and dopamine D1 programs because it is no longer conducting drug discovery work in certain CNS areas including pain and depression. The current deal is the second time this quarter that GSK has sold off assets in the neurology area. In October, GSK spun off clinical-stage voltagegated ion channel blockers for pain to the startup Convergence Pharmaceuticals.

Kwang Dong Pharmaceutical Co. Ltd. Laboratorios Salvat SA Korean OTC, prescription, and nutraceuticals company Kwang Dong Pharmaceutical Co. Ltd. has received exclusive South Korean rights to Laboratorios Salvat SA’s (Spanish company that markets drugs in over 40 countries) tarafenacin for overactive bladder (OAB) syndrome. (Nov.) Kwang Dong will be in charge of development, registering, and marketing the drug, and has agreed to provide an up-front payment and milestones. Salvat will supply the finished product. A selective M3 muscarinic antagonist, tarafenacin has completed Phase IIa clinical trials. According to Salvat the compound shows an increased efficacy and tolerability compared to currently available treatments. The deal marks an expansion into a new therapeutic area for Kwang Dong; its focus has previously been on cancer, metabolic, cardiovascular, gastrointestinal, and infectious disease therapeutics. The Korean OAB market has been growing more than 15% annually.

Lpath Inc. Pfizer Inc. Therapeutic antibody developer Lpath Inc. has granted Pfizer Inc. an exclusive option to license global development and commercialization rights to its lead MAb candidate iSONEP (sonepcizumab) for wet age-related macular degeneration (AMD) associated with pigment epithelial detachment, as well as other eye disorders. (Dec.) Pfizer pays $14mm up-front for the option and will share costs associated with Phase Ib (set to begin in Q1 2011) and Phase IIa (scheduled for Q2 2011) trials. Once these studies are completed, the Big Pharma can exercise its option and would pay an undisclosed fee, as well as up to $497.5mm in development, regulatory, and commercial milestones, plus tiered double-digit sales royalties. Under the deal, Pfizer also has the right of first refusal for Asonep, which has finished Phase I for cancer. Developed using its ImmuneY2 drug discovery platform, LPath’s iSONEP and Asonep bind to and inhibit bioactive lipids (in this case sphingosine-1-phosphate) that are responsible for disease. In late 2008, LPath license Merck Serono rights to develop and sell Asonep. That agreement was terminated earlier this year, at which time LPath announced its intention to aggressively pursue another partner for the MAb.

Merck KGAA Merck Serono SA Sanofi-Aventis Sanofi-Aventis US Sanofi-Aventis US and Merck KGAA’s Merck Serono SA will work together on targeted combination treatments for cancer. (Dec.) In similar fashion to a deal signed last year between AstraZeneca and Merck & Co. (researching the

compatibility of two solid tumor compounds), the current collaboration sees Sanofi and Merck Serono cross-licensing early-stage worldwide development rights to each other’s Phase I candidates, with each party responsible for conducting a dose-escalation Phase I trial of their combo. (The compounds Sanofi is contributing were originally licensed from Exelixis.) Sanofi is getting rights to Merck’s MEK1/MEK2 inhibitor MSC1936369B (also known as AS703026), which it will pair with its own SAR245408, a PI3K inhibitor. In turn, Merck will work on a combination of Sanofi’s PI3K/mTOR inhibitor SAR245409 with Merck’s MSC1936369B. Further development of each treatment will depend on the Phase I trial results. The companies believe that the new therapies will block specific pathways in cancer cells and stop further tumor growth. The alliance comes less than a week after FDA advisors released a guidance document aimed at assisting industry players in the pursuit and completion of co-development deals that combine two or more compounds into one treatment for serious diseases. The Center for Drug Evaluation and Research (CDER) outlined regulatory steps companies can take during the process of developing such therapies in hopes of speeding up the process and getting potentially effective treatments to the market faster.

Natco Pharma Ltd. Watson Pharmaceuticals Inc. Indian drug manufacturer and distributor Natco Pharma Ltd. has granted Watson Pharmaceuticals Inc. exclusive rights to market lenalidomide tablets, which are the generic version of Celgene’s Revlimid, in the US. (Dec.) Watson is responsible for regulatory, legal, and commercial expenses, and the companies will share net profits. Natco has submitted an ANDA for the 5, 10, 15, and 25mg dosages. The partners believe Natco is the first to file for a generic lenalidomide, potentially providing the company with 180 days of market exclusivity. Lenalidomide is indicated for the treatment of multiple myeloma. Celgene’s brand brought in over $2.3bn in global sales last year. Watson’s generics portfolio does not currently include oncology therapies, but does generate over $1.5bn from treatments for infections, inflammation, depression, hypertension, and pain, as well as products for smoking cessation and oral contraception.

Opko Health Inc. Tesaro Inc. Opko Health Inc. (drugs, diagnostics, and devices) has granted cancer company Tasaro Inc. exclusive worldwide rights to develop, manufacture, and market rolapitant and a related compound, both for chemotherapy induced nausea and vomiting (CINV). (Dec.) Opko gets $6mm up front and potential regulatory and sales milestones of up to $115mm, plus double-digit tiered royalties. Opko will take a 10% equity stake in Tesaro and will share profits of commercialized products in Japan, with an option to market in Latin America. The candidate is the first for Tesaro, which was formed earlier this year by former executives from MGI Pharma (before it was acquired by Eisai). While at their predecessor, the management team played a large part in the development and launch of Aloxi, which has since become a market-leader

Elsevier’s Strategic Transactions database provides comprehensive deal coverage from 1991-present

For information about online access contact James DeFalco at +1 203-451-6269 or J.DeFalco@Elsevier.com or visit sis.windhover.com

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

DEALMAKING for CINV. The company looks forward to working on rolapitant, which is a Phase III-ready selective neurokinin-1 receptor antagonist.

Sanofi-Aventis Theratechnologies Inc. Theratechnologies Inc. (peptide therapeutics) has granted Sanofi-Aventis exclusive rights to sell its lead product Egrifta (tesamorelin for injection) in Latin America, Africa, and the Middle East. The drug is indicated for the treatment of excess abdominal fat in HIV patients with lipodystrophy (Dec.) Theratechnologies will supply the drug to Sanofi in exchange for an undisclosed selling price, and retains all future research and development rights. Sanofi is responsible for obtaining regulatory approval in its territories and gets an option to sell the therapy in the same countries for other indications. Egrifta, a synthetic analog of the human growth hormone releasing factor, induces growth hormone and reduces visceral adipose tissue (VAT). HIV patients are particularly prone to abnormal build-up of VAT as a result of undergoing necessary antiviral treatments. The deal gives Canada-based Theratechnologies a stronger international presence for the drug, which was recently approved in the US and will be sold there by EMD Serono.

Geron Corp.

Partnership II (Palisade Capital Management), which each hold a stake of 10% or more in the company. In return, the investors received sevenyear warrants to buy 2.4mm common shares at $1.44. (Neurologix’s stock is currently averaging $0.97.) The loan, which matures on October 31, 2011 and is secured by all of the biotech’s assets, will automatically convert into a new series of Neurologix preferred shares if the stock is senior to the rest of the company’s securities (in terms of liquidation and dividend rights) and if it is sold in a financing that raises $30mm or higher. The backers will receive 1.2x the principal amount of the loan, plus interest. They were also granted registration rights to the common shares from the exercise of warrants, and preemptive rights to future Neurologix fund-raises. Should Neurologix be acquired or receive at least $30mm in a deal for its PD candidate NLXP101, the maturity date of the notes would be pushed up. MTS Securities and Trout Capital were the placement agents. (Dec.)

Geron Corp. (developing cancer, musculoskeletal, cardiovascular, and metabolic therapeutics) has netted $94.2mm through the follow-on public offering of 20mm common shares (including the overallotment) at $5. (Dec.) Investment Banks/Advisors: WBB Securities LLC; Roth Capital Partners; Lazard LLC; JP Morgan & Co.; Rodman & Renshaw Capital Group Inc.

IGI Laboratories Inc. IGI Laboratories Inc. (dermatology therapeutics) has raised $6.5mm through the private placement of 5.9mm common shares at $1.10 (a 30% discount) to several undisclosed accredited investors. Maxim Group and Sanders Morris Harris were the placement agents. (Dec.) Investment Banks/Advisors: Sanders Morris Mundy Inc.; Maxim Group LLC

Lannett Co. Inc.

Investment Banks/Advisors: MTS Health Partners

Lannett Co. Inc. (generics) has netted $11.7mm through the follow-on public offering of 2.5mm common shares at $5. A selling shareholder has also sold 2.5mm common shares. (Dec.)

OctoPlus NV OctoPlus NV (developing drugs with fewer side effects and improved efficacy over existing therapies) has raised €4mm ($5.2mm) through the private sale of 3.3mm ordinary shares at €1.18 (a 2% discount) to new and returning domestic and international investors and qualified US backers. (Dec.)

Investment Banks/Advisors: Roth Capital Partners; Stonegate Securities; Oppenheimer & Co. Inc.

Medivir AB

Financings

/Pharmaceuticals Aastrom Biosciences Inc. Aastrom Biosciences Inc. (cell therapies for various medical conditions) has netted $21.1mm through the follow-on public offering of 10mm units for $2.25. Each unit consists of one common share a five-year warrant to buy one share at $3.22. Some of the proceeds will be used for the company’s Phase III cell therapy for critical limb ischemia. (Dec.) Investment Banks/Advisors: Needham & Co. Inc.; Roth Capital Partners; Stifel Nicolaus & Co. Inc.

Clarus Therapeutics Inc. Clarus Therapeutics Inc. (testosterone replacement therapy) has filed for its initial public offering. (Nov.) Clarus has raised $15mm since it was formed in 2004. Its last financing, a November 2007 Series C, brought in $8mm. Thomas, McNerney & Partners has a 70.9% equity stake in the company and HIG Ventures owns 25%. The company is developing OriTex, a Phase III-ready oral testosterone replacement therapy; proceeds from the IPO will be used for a Phase III trial and to gain US approval of the drug candidate. Unlike current testosterone therapies (such as methyltestosterone) that have been linked to liver toxicity, OriTex has not shown to have this side effect. Investment Banks/Advisors: Piper Jaffray & Co.; Needham & Co. Inc.; Lazard LLC; Wells Fargo Securities LLC

EpiCept Corp. EpiCept Corp. (cancer and pain treatments) has netted $1.86mm through the registered direct offering of 3.3mm common shares at $0.61 each (a 5% premium). The company also issued fiveyear warrants to buy another 1.3mm shares for $0.56. (Nov.) Investment Banks/Advisors: Rodman & Renshaw Capital Group Inc.

Infectious disease-focused Medivir AB has raised SEK281mm ($40.5mm) through the private placement of 2.25mm Class B shares at SEK125 each to 30 international institutional and Swedish qualified investors. (Dec.)

Investment Banks/Advisors: Petercam Group

Otsuka Holdings Co. Ltd. Otsuka Holdings Co. Ltd., the diversified parent company of Otsuka Pharmaceutical Co. Ltd., has raised Yen198.6bn ($2.3bn) through its oversubscribed initial public offering of 90mm shares at Yen2,100 ($25.16), the lower end of

Investment Banks/Advisors: Carnegie Bank AS; Jefferies & Co. Inc.

Momenta Pharmaceuticals Inc. Momenta Pharmaceuticals Inc. has netted $54.2mm through the followon public offering of 4mm common shares at $14.35. The company is using technology that is based on the structure of complex sugar molecules to create generic drugs as well as new therapeutics. (Dec.)

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FDA, Drug Development & Health Reform A Panel Discussion… ■ page 12

Investment Banks/ Advisors: Canaccord Capital Corp.; Cowen & Co. LLC; UBS Investment Bank

inside:

FDA’s External Memory: Committees Push REMS

■ page 16

Biopharma Health Care Reformwasand it is hard to wild and woolly—but

debate The health care reform in general and the for the biopharma sector in particular. So imagine a better outcome & Manufacturers of America Pharmaceutical Research why isn’t anybody celebrating? ■

vol. 5, no. 8 | September 2010 | elsevier business intelligence

A July to Remember

July 2010 featured one hot topic after another—Avandia, Qnexa, opioids, REMS, Avastin, Brilinta, Lovenox. We offer 10 themes to think about heading into the fall. ■

Neurologix Inc. Neurologix Inc. (has a lead Phase III AAV vector gene therapeutic for Parkinson’s) raised $7mm by selling 10% convertible promissory notes to Corriente Master Fund (Corriente Advisors), GE Pension Trust, and Palisade Concentrated Equity

e | www.therpmreport.com | elsevier business intelligenc vol. 5, no. 4 | April 2010

page 6

Weighing the Regulatory Climate:

The Qnexa Review

If you want to know how much the regulatory climate has improved at FDA since 2007, the agency’s approach to Vivus’ weight loss drug Qnexa is all you need to know. But if you want to know how fundamentally the regulatory model has changed, listen to what an advisory committee said in rejecting the application. ■

Opioid REMS Takes Shape

An FDA advisory committee rejected the agency’s carefully crafted class-wide opioid REMS proposal. But sponsors in the class should embrace it anyway. ■

page 18

Brilinta: Imported Efficacy

AstraZeneca won two strong votes in favor of approval of its clot busting drug Brilinta from an FDA advisory committee, despite a failure to show efficacy in North America. ■

c o l u m n s

Free Speech ..............................2 Common Sense ....................... 32 FDA Beat ................................. 34 CMS Beat ................................ 46 Pointed View ........................... 49

“The road to regulatory hell is paved with surrogate endpoints.”

page 34

page 26

–Avandia Advisory Committee member Gerald van Belle, PhD

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page 4

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| www.therpmreport.com

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provision heavily on how A new Medicaid rebate who will be affected depends good early test of line-extensions—but is a legislative language. This CMS interprets the sparse ion process will go. of how the implementat ■

page 34

The Future of DTCdebating the meaning of “neutral”—but at

be FDA and advertisers will public health benefit team sees a potential least FDA’s new leadership from TV ads. ■

page 30

to-File Avoiding a Refuse-process a closer, is forcing its staff to take

review Office of The agency’s revamped Unless industry does better, earlier look at new submissions. says, sponsors can expect more early Jenkins New Drugs Director John rejections from FDA. ■

....2 Free Speech .......................... ....... 22 FDA Beat ..........................

...... 34 CMS Beat .......................... ........... 39 Street Smarts ............. . 46 Pointed View .......................... utical “The truth is that the pharmace of money for the industry has saved a ton the last 30 years.” health care system over –Howard Dean

d a s h board ard FDA’s Cancer Drug Scorec

to FDA BLAs were submitted 58 oncology NDAs and those December 2007; 53 of between July 2005 and approved. Here is FDA’s applications were eventually approvals and the types those analysis of the basis for of approval routes.

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page 39

? FDA’s Last Chance Regulatory Scienceto:secure fund significant resources to

time FDA is trying one more good progress with new leadership is making the money still regulatory science. FDA’s on and on the Hill—but key figures in the Administrati isn’t there. ■

c o l u m n s

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page 22

Don’t Wait For The Next

Type of Approval

Issue!

Now you can get RPM’s analytical web – coverage more rapidly on the www.TheRPMreport.com

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DEALMAKING its Yen2,000-2,400 range. About 60% of the shares were sold to overseas investors. Otsuka will trade on the First Section of the Tokyo Stock Exchange. (Dec.) The long-awaited IPO is the second-largest in Japan this year (behind insurance company Dai-chi Life’s $11bn listing in April) and the biggest global IPO ever for a pharmaceutical company. (The record was held by Merck KGAA, which brought in $1.8bn in 1995.) Through a share transfer in 2008, Otsuka Holdings was formed as an umbrella company with three wholly owned subsidiaries. The company had revenues of $11.7bn FYE March 31, 2010--an increase of 13% over last year. About two-thirds of the money came from Otsuka’s pharma division. It has three other businesses-nutraceuticals, consumer products, and industrial chemicals--with a total of 145 subsidiaries and 39,000 employees. Otsuka Pharmaceutical’s lead product is Abilify, which is marketed in the US by Bristol-Myers Squibb for schizophrenia and other psychological disorders. Investment Banks/ Advisors: UBS Investment Bank; Nomura Securities International Inc.; Morgan Stanley & Co.

Protox Therapeutics Inc. Protox Therapeutics Inc. (fusion protein therapies for cancer) received $Cdn10mm ($9.8mm) through the first tranche of an investment agreement signed with affiliates of Warburg Pincus, which is now the company’s largest shareholder (21%). Protox sold 25mm common shares at $Cdn0.40 (a slight discount) and issued fiveyear warrants to buy 15mm shares at $Cdn0.50. Another $Cdn25mm tranche could be realized if the FDA grants a Special Protocol Assessment for Protox’s benign prostatic hyperplasia candidate prior to September 30, 2011. (Closing of that tranche and exercise of all its outstanding warrants will then bring Pincus’s stake up to 59%.) Concurrent with the financing, a managing director and a principal at Warburg Pincus have taken seats on the company’s board; more board appointments are expected. (Nov.)

Sagent Pharmaceuticals Inc. Sagent Pharmaceuticals Inc. (generic injectable drugs) has filed for its initial public offering. (Dec.) Four-year-old Sagent has brought in $153mm from investors, including Vivo Ventures (a 43% stake), Morgan Stanley (21%), Key Gate Investments (16%), and CNF Investments (5%). Chinese pharmaco Zhejiang Hisun Pharmaceutical also invested $10mm in the company’s $40mm Series B venture round earlier this year. Sagent, which reported 2009 sales of $29.2mm with a net loss of $30.5mm, currently markets 21 products (the majority are injectable drugs) and has a pipeline of 45 new generics with 77 ANDAs that are either under review or have been approved by the FDA and awaiting launch. Eight products alone were approved during the first ten months of 2010, including heparin drugs. In addition to its own generic drug applications, two years ago Sagent picked up Spectrum Pharmaceuticals’ ANDAs for the injectable generics ondansetron (nausea/vomiting), carboplatin (cancer), fludarabine (cancer), and mitoxantrone (multiple sclerosis). Sagent also has alliances with Astral and Actavis; they have separately agreed to develop injectables for Sagent to market in the

US. (The deal with Astral is strictly for antibiotics while the one with Actavis involves a variety of indications.) Overall Sagent’s portfolio includes cancer, infectious disease, and critical care generics in single- and multi-dose vials, pre-filled ready-to-use syringes, medical devices, and premix bags. These drugs are distributed in the US by Cardinal Health, AmericsourceBergen, and McKesson. Investment Banks/Advisors: Morgan Stanley & Co.; Merrill Lynch & Co.; Jefferies & Co. Inc.; Bank of America; RBC Capital Markets; Needham & Co. Inc.

ThromboGenics NV ThromboGenics NV (developing ophthalmic, cardiovascular, and cancer drugs) has raised €56mm ($74.6mm) through the oversubscribed private placement of 2.9mm shares (9.9% of the total shares outstanding) at €19 each (a 6% discount) to domestic and international investors, including qualified institutional buyers in the US. Some of the funds will be used to launch and market in the US and Europe its Phase III microplasmin for vitreomacular adhesion, a retinal disease. (Dec.) Investment Banks/Advisors: KBC Securities; Jefferies & Co. Inc.; Petercam Group

Ventrus Biosciences Inc. Ventrus Biosciences Inc. (focused on therapeutics for gastrointestinal diseases and fecal incontinence) has netted $16.1mm through its initial public offering of 2.9mm shares at $6. The terms were not far off from those the company stated last month: 2.8mm shares between $6-7. (Dec.) Ventrus, which was formed in 2005 as South Island Biosciences but changed its name two years later, is working on iferanserin ointment (VEN309) for hemorrhoids (set to begin Phase III next year); and two drug candidates in-licensed from SLA Pharma: diltiazem cream (VEN307) for pain due to anal fissures (Phase III will occur in 2011), and phenylephrine gel (VEN308) for fecal incontinence that occurs with ileal pouch anal anastomosis, an orphan indication (Phase IIb to begin in 2012). The company plans to use half of the IPO money for Phase III trials of iferanserin. Another $4.2mm will pay for license obligations to SLA Pharma, and the remainder is allocated for other company activities. Investment Banks/ Advisors: Rodman & Renshaw Capital Group Inc.; National Securities Corp.

XenoPort Inc. XenoPort Inc. (developing improved drugs that utilize the body’s natural nutrient transport mechanisms) has netted $27mm via a follow-on public offering of 4mm common shares priced at $7.15 each. (Dec.) Investment Banks/Advisors: Morgan Stanley & Co.; Wedbush Morgan Securities; RBC Capital Markets

YM BioSciences Inc. YM BioSciences Inc. (oncology therapies) netted $37.7mm through the follow-on public offering of 25mm common shares at $1.60. (Dec.) Investment Banks/Advisors: JMP Securities LLC; Rodman & Renshaw Capital Group Inc.; Bloom Burton & Co.; Roth Capital Partners

Research/Analytical

Acquisitions

/Research/Analytical Thermo Fisher Scientific Inc. Dionex Corp. Thermo Fisher Scientific Inc. has acquired publicly traded Dionex Corp. (chemical analysis tools) for $118.50 in cash per share (a 25% premium), valuing the transaction at $2.1bn. Dionex will become a wholly owned subsidiary and part of Thermo’s analytical technologies unit. (Dec.) The deal bolsters Thermo’s position in the mass spectrometry and laboratory software markets. It also brings together complementary products-Dionex specializes in ion chromatography and ultra high performance liquid chromatography (UHPLC)-ready systems such as UltiMate, while Thermo has expertise in gas chromatography. Thermo also believes that there will be synergies in combining its triple stage quadruple mass spectrometers with Dionex’s liquid chromatography instruments, especially for analyzing pesticides and pharmaceuticals in water. Founded in 1975, Dionex manufactures and sells systems for chemical mixture separation, isolation, and components identification. Its analysis tools are used in life sciences and drug discovery industries, as well as applied markets including environmental, chemical, petrochemical, food and beverage, power generation, and electronics. The third-largest chromatography player in the world, Dionex is best known as the first company to launch an ion chromatography system for water safety analysis over 30 years ago. Dionex’s products are now the gold standard for water quality testing. The firm operates in 21 countries including AsiaPacific, where it realizes over 35% of its revenues (the rest of the company’s sales are pretty much evenly split between North America and Europe). This is beneficial to Thermo, as within the past couple years it has set up headquarters for its global environmental instruments business in China. Dionex, which also produces consumables, sample preparation systems, and the Chromeleon chromatography data software, had net earnings of $59.1mm on sales of $419.6mm FYE June 30, 2010. On September 30, 2010, the company had $76.9mm cash on hand. Dionex is the second acquisition target that Thermo has incorporated into its analytical technologies division this year. In July, Thermo paid $260mm for Canadian firm Fermentas, which makes molecular and cellular biology research products. Investment Banks/ Advisors: Barclays Bank PLC; JP Morgan & Co. (Thermo Fisher Scientific Inc.); Goldman Sachs & Co. (Dionex Corp.)

Financings

/Research/Analytical Fluidigm Corp. Two years after its first attempt to go public, Fluidigm Corp. (research products) has once again filed for an initial public offering. (Dec.) Proceeds will be used to hire more sales personnel, for R&D and commercialization activities,

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DEALMAKING and to enhance it facilities and manufacturing operations. Fluidigm reported sales of $25.4mm and revenues of $23.2mm for the first nine months of 2010. The eleven-year-old company develops, manufactures, and markets BioMark and EP1 microfluidic systems (consisting of instruments, chips, and reagents) to life science and agricultural biotech companies, academic institutions, and diagnostic labs. The technology enables researchers to perform biochemical reactions on samples smaller than a single cell. It also enables next-generation DNA sequencing through fast sample preparation with minimal expenses. Fluidigm has a customer base of over 200 clients and has sold its products in more than 20 countries across the globe. Investment Banks/ Advisors: Deutsche Bank AG; Piper Jaffray & Co.

Medical Devices

Acquisitions

/Medical Devices iCAD Inc. Xoft Inc. Cancer imaging company iCAD Inc. will spend $13mm in cash and stock, plus earn-outs, to buy private brachytherapy developer Xoft Inc. (Dec.) ICAD paid $1mm in cash and issued 8.47mm common shares (valued at $11.9mm), giving Xoft shareholders a 15.6% stake in the new parent. ICAD could also shell out up to an additional $40mm in sales-based earn-outs over the next three years. If Xoft’s product sales reach $76mm, the pay-out would be $20mm; if those revenues are $104mm, the earn-out increases to $40mm. The deal transforms iCAD from strictly an oncology imaging company into one capable also of treating the disease. Xoft brings its Axxent eBx electronic brachytherapy system, which delivers radiation therapy directly to a cancer site with minimal exposure to surrounding healthy tissue. It uses a miniaturized x-ray source instead of traditional decaying radioactive isotopes, and has been cleared by the FDA to treat earlystage breast cancer, endometrial cancer, and skin cancer. Axxent can be used immediately following a lumpectomy procedure (while the patient is still in the operating room; also known as intraoperative radiation therapy) or it can be delivered twice daily for five days. ICAD looks forward to incorporating Xoft’s products into its own computer-aided detection systems for mammography. Xoft was formed in 1998 and its net sales for 2010 are estimated at $5.5mm. Investment Banks/Advisors: RBC Capital Markets (iCAD Inc.)

Novadaq Technologies Inc. PLC Systems Inc. Novadaq Technologies Inc. (real-time imaging devices used in the operating room) has agreed to acquire PLC Systems Inc.’s (mainly vascular devices) CO2 Heart Laser transmyocardial revascularization (TMR) system. (Nov.) Novadaq, which has distributed the system in the US since early 2007, will pay $1mm in cash for all the assets used by the TMR business, including manufacturing rights, product inventory, equipment, clinical data, and other IP. Now that Novadaq has complete global ownership, it will also assume PLC’s obligations to service contracts (worth about $700k). The CO2 Heart Laser--a

treatment for angina patients who have diffuse coronary vessels with poor bypass graft targets-will provide Novadaq with the opportunity to sell the product in ex-US markets. For the nine months ending September 30, 2010, TMR sales were $867k. PLC has divested the assets in order to focus on its RenalGuard fluid management system for regulating hydration while patients undergo imaging procedures.

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Vycor Medical Inc. NovaVision Inc. Vycor Medical Inc. (neurological devices) has agreed to buy NovaVision Inc., a medical device company focused on vision restoration, for $900k. Included in the acquisition is NovaVision AG, a German subsidiary. (Nov.)

senior staff writers

Tom Salemi, Mary Stuart Mark L. Ratner, contributing writer

Although seven-year-old NovaVision reported 2009 sales of $1mm, it filed for Chapter 7 bankruptcy in April 2010. NovaVision makes FDA-cleared and CE-Marked medical devices for noninvasive vision restoration therapy, including the NovaVision HMP (head-mounted perimeter) diagnostic system to screen for a visual field deficit. It also has devices for patients who suffer vision impairment due to neurological conditions (such as stroke, traumatic brain injury, or optic nerve damage). The products compete in a market estimated to be worth $1.6bn in the US and $285mm in Germany. NovaVision’s portfolio complement Vycor’s mission to develop and market safer surgical solutions for neurological procedures.

Andrea Mancini, research director Amanda Micklus, research manager, deals Theresa Surprenant, asst. research manager deals analysts

Deanna Kamienski Beth Detuzzi Maureen Riordan publications / databases Adam Gordon, director Ida Stepinac, corporate marketing

creative services

Paul Streeto, director Laura Morabito, Jordana Ammann

Alliances

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/Medical Devices

marketing

Mike Fergus, director promotions

Angiotech Pharmaceuticals Inc. Edwards Lifesciences Corp. LeMaitre Vascular Inc.

Elise Grubb, sr. manager customer service

Vivian Gatewood, manager

LeMaitre Vascular Inc. (disposable and implantable vascular devices) has agreed to buy Angiotech Pharmaceuticals Inc.’s Lifespan expanded polytetrafluoroethylene (ePTFE) synthetic vascular graft product line for $2.8mm. Included in the purchase is a factory in California. (Nov.) Lifespan is used to repair or replace diseased arteries and to create a vascular access site for dialysis patients. It was first marketed in the mid-1990s and is now sold in the US, EU, Japan, Canada, and other markets through distributors that include Edwards Lifesciences Corp. Lifespan sales for 2011 are expected to be about $1.7mm. Angiotech acquired Lifespan from Edwards in late 2005 for $14mm in cash; at the time, Edwards agreed to continue to be the distributor for that product line for the next five years (through the end of this month). The deal was amended two years later, giving Angiotech the right to sell its Vascular Wrap together with the ePTFE graft and Edwards rights to sell the stand-alone Lifespan device. In addition to the new deal with Angiotech, LeMaitre and Edwards have agreed to wind-down Edwards’ distribution of Lifespan. (LeMaitre will pay $750k for smooth market transitions in Europe where demand for Lifespan is the greatest and Japan, and will pay $500k for Edward’s inventory. Edwards will also hand over the Lifespan trademark.) LeMaitre says Lifespan will complement its portfolio of vascular products, which include the expandable LeMaitre valvulotome and Pruitt F3 carotid shunt. Angiotech is divesting the assets to reduce its debt. The company placed its focus

Mary Van Doren

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Terri Smith, manager corporate sales Kristy Kennedy

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0905

DEALMAKING on Boston Scientific’s Taxus drug-eluting stent (for which it produces the drug paclitaxel), but Taxus sales have been vastly decreasing, leading to Angiotech’s struggle.

Argon Medical Devices Inc. Rex Medical LP Argon Medical Devices Inc. (cardiovascular, venous access, and critical care devices) has licensed exclusive global marketing and distribution rights to Rex Medical LP’s (minimally invasive devices used in cardiovascular, venous access, endosurgery, and oncology procedures) UltraStream catheter. (Nov.) UltraStream is used for long-term vascular access in dialysis patients. The device complements Argon’s dialysis portfolio, which includes Becton Dickinson’s critical care systems acquired earlier this year and Rex’s Cleaner rotational thrombectomy system. (Cleaner was okayed by the FDA earlier this year.) Over 500,000 Americans are undergoing dialysis for end-stage renal disease; the rate of dialysis patients is expected to increase, going well above the current 6% annual growth rate.

Flexible Stenting Solutions Inc. Goodman Co. Ltd. Flexible Stenting Solutions Inc. (third-generation peripheral arterial and biliary stents) has licensed Japan-based Goodman Co. Ltd. (interventional devices) exclusive Japanese distribution rights to its FlexStent femoropopliteal and biliary self-expanding stent systems. (Nov.) Goodman will handle the clinical studies and regulatory filings required for approval. FlexStent provides an atruamatic, fatigue-resistant stent designed to conform to the vessel. It offers simple, accurate, and uniform stent placement for the vascular interventionalist. Goodman--which earlier this year gained $90mm from the sale of its LightLab Imaging subsidiary to St. Jude Medical--has a portfolio that includes coronary stents, PTCA balloon catheters, guidewires, aspiration catheters, angiography catheters, sheath introducer, intravascular ultrasound imaging system, and polyurethane artificial vessel dialysis shunt.

Hologic Inc. SuperSonic Imagine SA France-based imaging company SuperSonic Imagine SA has granted Hologic Inc. exclusive rights to sell, install, and service its Aixplorer MultiWave ultrasound system for breast applications in the US. SuperSonic retains US rights for all other indications, including liver, thyroid, abdominal, musculoskeletal, gynecological, and prostate imaging. (Nov.) Aixplorer is a dual ultrasound platform that incorporates MultiWave technology, a combination of a B-mode ultrasound wave and a shear wave. Using the ShearWave elastography imaging tool, Aixplorer generates a color-coded map of tissue elasticity in real time, allowing for the detection and characterization of palpable and non-palpable breast masses. Unlike traditional mammography, SuperSonic’s method does not rely on compression and therefore provides the opportunity to monitor lesion stiffness over time. Hologic will market Aixplorer alongside its own

breast imaging products including the M-IV line of screen-film mammography systems.

Olympus Corp. Stryker Corp. Device specialist Olympus Corp. has paid $60mm for orthopedic implant giant Stryker Corp.’s OP-1 products, including an implant and a putty, for orthopedic bone applications. (Dec.) Included in the agreement is Stryker’s Lebanon, NH manufacturing facility. OP-1’s active ingredient is recombinant human bone morphogenetic protein-7 (rhBMP-7 or osteogenic protein 1), the only known class of proteins able to induce new bone formation. The OP-1 putty is formulated with a purified Type I collagen carrier and placed in between the spinal transverse processes where it promotes fusion. The OP-1 implant works by actively recruiting stem cells from surrounding tissue and blood supply, initiating bone formation, and stimulating natural bone healing. Stryker has divested the assets to focus its resources on other projects, such as BMP-7, that it deems more profitable for shareholders. The OP-1 line was co-developed by Stryker and Curis (then known as Creative BioMolecules) under an agreement penned in the mid-1980s. The deal comes just two months after Stryker purchased Boston Scientific Corp.’s neurovascular division for $1.4bn in cash plus $100mm in milestones. Investment Banks/Advisors: Viscogliosi Brothers (Olympus Corp.)

St. Jude Medical Inc. Zonare Medical Systems Inc. St. Jude Medical Inc. has agreed to combine its FlexView intracardiac echocardiography (ICE) catheter with Zonare Medical Systems Inc.’s (ultrasound) z.one ultra sp convertible ultrasound system to produce an ultrasound platform for intracardiac imaging. (Nov.) The companies will co-market the resulting system in the ICE market, which has an estimated annual growth rate of 30%. Ultrasound technology is valuable during procedures such as radiofrequency ablation for irregular heart rhythms and closing defects, including the patent foramen ovale. The companies hope their combined IP will reduce the amount of time it takes to complete the surgeries as it can gather ultrasound data up to 10x faster than traditional systems. St. Jude gained the ViewFlex imaging catheter (for easy viewing and routing in surgical procedures) through its 2008 acquisition of EP MedSystems. Z.one was launched in 2005; it uses Zone Sonography to perform point-of-care ultrasound imaging for venous ablation and many applications besides cardiovascular use.

Financings

/Medical Devices BSD Medical Corp. BSD Medical Corp. (heat therapy for cancer and cardiovascular disease) has netted $9.77mm through the registered direct offering of 1.75mm common shares at $5.97 (an 8% premium) to two current institutional investors. The backers also received five-year warrants to buy another 875k shares at $7.73 apiece. The company will use the

proceeds for ongoing sales and marketing efforts, and for continued development of interventional oncology products, including its MicroThermX microwave ablation system. (Nov.) Investment Banks/Advisors: Roth Capital Partners

EnteroMedics Inc. EnteroMedics Inc. (using neuroblocking technology to create devices for gastrointestinal disorders) has netted $27.6mm through the public offering of 17.02mm common shares (including the overallotment) at $1.74. The company also issued five-year warrants to buy the same amount of shares at $2.19 each. (Dec.) Investment Banks/Advisors: Craig-Hallum Inc.

IMRIS Inc. IMRIS Inc. (image-guided systems for cardiovascular and neurology procedures) has netted $49.35mm through the follow-on public offering of 10.5mm common shares at $5. A current shareholder also sold 5k shares. (Nov.) Investment Banks/Advisors: Paradigm Capital Inc.; Lazard LLC; RBC Capital Markets; Canaccord Capital Corp.; Wedbush Morgan Securities; Versant Partners Inc.; GMP Securities

Insulet Corp. Insulet Corp. (developing medical devices for diabetes) has netted $39.8mm through the follow-on public offering of 3mm common shares at $13.85 each. (Dec.) Investment Banks/Advisors: Canaccord Capital Corp.

NxStage Medical Inc. NxStage Medical Inc. (renal products) has netted $73.3mm through the follow-on public offering of 3.68mm common shares (including the overallotment) at $21.38. (Nov.) Investment Banks/Advisors: Canaccord Capital Corp.

REVA Medical Inc. US-based REVA Medical Inc. (bioresorbable stents) has completed its initial public offering on the Australian Securities Exchange. The company netted A$80.7mm ($80.4mm) through the sale of 7.7mm common shares (equal to 77.2 CHESS Depositary Interests) for A$11 each. (Dec.) REVA was formed in 1998 as MD3 Inc. but changed its name four years later. The company anticipates using A$35mm of the proceeds for R&D activities, A$10mm for clinical trials, and A$3mm to build up its commercial infrastructure. REVA has licensed technology from Rutgers University and the State University of New Jersey to develop the ReZolve stent using a “slide and lock” mechanism and polymer that is excreted from the body over time. The device, which is scheduled to begin human trials in early 2011, is implanted via a balloon catheter. REVA has raised about $70mm in funding from VC firms, in addition to investments from Medtronic and Boston Scientific. BSC has had the option to acquire REVA since 2004. That option would have terminated on December 7, 2010, if REVA’s IPO had not netted at least $50mm. Investment Banks/Advisors: Inteq Ltd.; Taylor Collison Ltd.

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| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

executive summaries

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Summary of article from page 18

A Look Back At 2010: In Search Of New Biopharma Models BY THE EBI Biopharma Team

The dealmaking trends of 2010 solidified patterns that first surfaced in 2009 (minus the megamergers): risk-sharing deal structures, an emphasis on diversification and emerging markets, and earlier access to new products and technologies. Amid some familiarity on the deal front was an increased awareness of reimbursement issues and a renewed emphasis on the kinds of innovation that can find lower tier formulary placement. The passage of health care reform in the US in the form of the Affordable Care Act as well as the specter of price controls in Europe directed attention

to emerging market deals. Pharma also continued to experiment with new R&D models in 2010 as several large companies embraced a smaller-is-better mentality. Further afield of the mainstream, some pharma began tantalizing new programs with universities and venture capital outfits, determined to access innovation earlier in the value chain – and at lower cost. The coming year will be in many ways the end of a pharmaceutical era as Lipitor (atorvastatin), Zyprexa (olanzapine), and Plavix (clopidogrel) lose patent exclusivity in the US. The R&D experiments of 2010

won’t yield data to ease the industry into a post-cliff world of greater innovation or better R&D productivity, a reason so many companies are doing deals that hew closer to industry’s increasing interests in diversification into generics and emerging markets. What’s perhaps most interesting to watch for is whether companies will stay the course, or evolve further in the face of investor discontent and post-cliff revenue realities. Here IN VIVO recaps some of last year’s defining trends that continue to shape the industry in 2011.

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Summary of article from page 19

Top Device Stories Of 2010: Waiting For The Other Shoes To Fall by The EBI Medical Device Team

For much of the device industry, 2010 felt like a transition year, breeding uncertainty in a number of important areas, including the economy, health care reform, and impending changes to the 510(k) process. Overall, 2010 could be seen as a year when the glass really was half full. Signs of an improving economy appear to have carried over to a rebound in device M&A activity. Stock market gains have left many large companies flush with cash that they increasingly appear willing to spend on

acquisitions, including some major ones. Certain key therapeutic areas also enjoyed a banner year, witnessing a resurgence in private financing deals. However, the IPO market remains pretty firmly closed to device companies, which continues to limit exit opportunities. The greatest upheaval in 2010 occurred in the legislative and regulatory arenas. The passage of health care reform legislation set the stage for a number of changes to be implemented in the coming years, and dark

clouds hover over the industry as all wait to see what impact impending changes to the 510(k) review process will have on the device industry. The changing of the guard at the FDA, CMS and other important health care government agencies opens the door to future changes as well. Industry executives are hoping that this year of transition leads to an environment of greater regulatory clarity, but only time will tell.

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Summary of article from page 36

Personalized Medicine In 2010: Welcome To The Establishment by Mark L. Ratner

Evidence of progress for molecular diagnostics and instrumentation, the mainstays of the personalized medicine toolkit, was considerable in 2010. Dealmaking was at the forefront, including an assortment of IPOs, buyouts and collaborations. Much of the activity centered on sequencing: although its accuracy and overall utility in clinical diagnostics has not yet been demonstrated,

advances in next-generation sequencing hold great promise for the field. More generally, whether measurements of gene expression can form the basis for a plethora of molecular test content also remains an open question, but financial support is available for tests across many disease areas. And while cancer diagnosis remains the main disease focus, tests are encompassing other areas, including

cardiovascular disease and immunology for risk assessment, patient stratification, and therapy monitoring. Among early-stage financings, preconception testing – an area where the power of genetics is well established – was a surprising winner in 2010. In abbreviated form, we list some of the important dealmaking activities and trends of the year.

Executive Summaries

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Summary of article from page 40

Putting the Pieces Together Again: GSK Creates End-to-End Business Units By Melanie Senior

GlaxoSmithKline continues to evolve its R&D model, characterized to date by the breaking up of R&D into small, biotechlike drug performance units. As the DPUs move through the second half of their three-year funding cycle, they are about to undergo the latest round of change: closer integration with the downstream medicines development centers in their respective therapeutic areas. The move makes sense given industry’s growing recognition of the need for payor and regulator requirements to inform even early-stage discovery and development. But its success will both depend upon, and test, the degree to which the DPUs are achieving their overall goal of empowered and accountable leaders delivering data

on time, within budget, tapping into both internal and external partners. The mid-cycle DPU review showed a spread in terms of quality and performance, as would be expected. There are areas of “great success,” such as in metabolic disorders and in the immuno-inflammation CEDD, as well as in oncology, according to R&D chief Moncef Slaoui. But other DPUs have already been shut down or re-oriented; back in January 2010, the company closed down four neurosciences-focused DPUs. The end of the funding cycle later this year will doubtless see more change – and more DPU failures, which some say will be a sign that the experiment is working. But by then GSK’s integrated business units comprising DPUs and their downstream Medicines

Development Centers will be in place, aimed at driving alignment and “intense communication” between early- and latestage R&D, according to Slaoui. Executives around the industry, many engaged in their own R&D reorganization experiments, will be watching GSK’s latest step closely. In the past year, both SanofiAventis and AstraZeneca have announced plans to shake up their internal R&D structures to create smaller, nimbler units that recall GSK’s DPUs. They’ll be watching which structures work, but also just how much change a drug discovery organization can endure before such reorganizations become counterproductive.

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Summary of article from page 46

510(k) Face-Off: CDRH’s Foreman Debates Reform Plans With Industry Reps By David Filmore

The 510(k) program and plans by FDA to reform it have caught the attention and anxieties of the device industry. And Christy Foreman’s frequent flyer miles have swelled as a result. The acting director of the Office of Device Evaluation within the agency’s Center for Devices and Radiological Health (CDRH) has traveled from coast to coast answering questions and attempting to allay concerns about FDA’s plans for the 510(k) program, which is used by companies to bring more than 90% of new devices to the US market. In late October, Foreman participated in a panel at Elsevier Business Intelligence’s

IN3 Summit in San Francisco. There, she joined two other prominent individuals in the industry for a discussion of the 510(k) program and possible impending changes to it: Laurie Clarke, a partner with King & Spalding, who has spent 20 years shepherding companies through FDA challenges, and Joshua Makower, serial entrepreneur (including ENT start-up, Acclarent, which was acquired by Johnson & Johnson’s Ethicon operating company for $785 million), CEO of Bay Area medical device incubator ExploraMed, NEA venture partner, and a consulting associate professor at Stanford University’s Biodesign program.

This article is excerpted from the IN3 Summit panel discussion, which was moderated by “The Gray Sheet’s” Senior Editor, David Filmore, and followed on the heels of agency announcements of impending changes to the 510(k) program. In August, FDA issued a report on possible reforms to the 510(k) program, along with a separate report on potential changes to how the agency incorporates science into all of its regulatory decisions. In the coming weeks, the agency is expected to announce its plans for near-term 510(k) reforms it plans to pursue.

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Summary of article from page 54

Biogen Idec Charts A New Course by Ellen Foster Licking

Thanks to a November restructuring that refocused the company around its historic strength in neurology and the hiring of two critical executives, Biogen Idec believes it can grow beyond its warhorses Avonex and Tysabri. The alterations implemented by George Scangos, just seven months into his tenure at Biogen, are designed to streamline management functions, create a more entrepreneurial culture, and focus on the company’s core historic strength in neurology, especially multiple sclerosis. If not explicitly stated, the

implicit message is that only by going back to its roots can Biogen Idec truly succeed, despite the complexity and high risk associated with most CNS projects. It may seem counterintuitive to drop oncology, an arena where payors have been loathe to constrain prices. However, cancer is growing competitive and in today’s cost-constrained environment, increased focus on a given therapeutic area – or related therapeutics areas – makes sense. Competition in MS is heating up, too; that’s why Biogen isn’t doubling down

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

on MS to the exclusion of other therapeutic areas. Scangos prefers the term “focused diversification,” and promises the company will use in-licensing as a means to extend beyond MS in neurology, its emerging expertise in hemophilia, and more nascent efforts in immunology. But while Biogen has gained focus in recent months, it still faces numerous challenges, including remaining competitive in an increasingly crowded MS space and keeping a vocal cadre of activist investors in line.

indexby company 3SBio Inc.............................88 454 Life Sciences................37

A Aarden Pharmaceuticals Inc..................................78 Aastrom Biosciences Inc......93 Abbott Diagnostics...............71

Biocartis SA.........................74

Clarient Inc....................37, 75

Bioclassifier LLC..................86

Clarus Therapeutics Inc........93

Apexigen Inc........................89

Biocrea GMBH.......................3

Clinical Data Inc...................85

Biogen Idec Inc..............21, 54

Complete Genomics Inc.......37

BioSite Inc...........................72

Cordis Corp.........................27

EnteroMedics Inc.................96

Bio-Stat Healthcare Group....72

Corhythm Inc.......................28

EnzymeRx LLC....................88

Boehringer Ingelheim GMBH.......................20, 24

Covance Inc........................45

EpiCept Corp.......................93

Covidien Ltd........................26

Epigenomics AG..................72

CVS Caremark Corp.............68

Epigenomics Inc..................72

Cytori Therapeutics Inc.........89

Ethicon Inc..........................46

Applied Genomics Inc..........75 Aptuit Inc.............................45 Ardian Inc............................26 Argon Medical Devices Inc...96 Arresto BioSciences Inc.......86

Abbott Laboratories Inc.......13, Astellas Pharma Inc.......85, 89 Boston Scientific Corp..........26 20, 22, 28, 37, 59, 62 Abbott Molecular Inc............72 AstraZeneca PLC.......... 12, 20, Bristol-Myers Squibb Co.....13, 24, 41, 60, 67, 89 24, 60, 90 Ablexis LLC.........................21 Auxogyn Inc.........................38 BSD Medical Corp...............96 Abraxis BioScience Inc.........20 Avid Radiopharmaceuticals Acclarent Inc.......................46 Inc..................................38 C Acorda Therapeutics Inc.......58 Avila Therapeutics Inc..........90 Cadence Pharmaceuticals Adimab Inc....................21, 88 Axcan Pharma Inc................86 Inc..................................21 AgaMatrix Inc................23, 31 Azano Pharmaceuticals Inc..79 Calibra Medical Inc..............31 Alcon Inc.............................32 Alere Inc..............................62

Eli Lilly & Co........... 13, 20, 24, 38, 60, 67, 88

Angiotech Pharmaceuticals Inc..................................95

D Daiichi Sankyo Co. Ltd.........24 Dendreon Corp....................24 DiaGenic ASA......................86 Dionex Corp........................94

Endo Pharmaceuticals Holdings Inc....................24

Eurand NV...........................86 Evalve Inc............................30 Evotec AG...........................89 Exact Sciences Corp............38 Exelixis Inc...........................59 e(ye)BRAIN..........................79

Capsugel.............................13

Direct Flow Medical Inc........30

CardioDx Inc..................37, 75

DNA Direct Inc.....................68

CardioFocus Inc...................28

Domantis Ltd.......................41

Facet Biotech Corp..............56

Celgene Corp......................20

Dongsheng Pharmaceutical International Co. Ltd........90

Flexible Stenting Solutions Inc..................................96

Alere Toxicology Services Inc..................................72

Baxter International Inc..30, 90

Alnylam Pharmaceuticals Inc..................................21

BD Diagnostics-TriPath........75

Amgen Inc.........16, 23, 24, 60

Cellzome AG........................43

Fluidigm Corp......................94

Amicus Therapeutics Inc......22

Benxi Leilong Pharmaceutical Co. Ltd............................90

Cephalon Inc.......................90

Forest Laboratories Inc.........91

Anaphore Inc.......................88

BGI.....................................37

Cholestech Corp..................72

Edwards Lifesciences Corp.........................30, 95

AngioChem Inc....................89

BG Medicine Inc..................72

Civitas Therapeutics Inc.......78

Elan Corp. PLC....................58

Fujirebio Inc.........................71

Bayer AG.............................57 Becton Dickinson & Co........75

Cellnovo Ltd........................31

Fujirebio Diagnostics Inc......71

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indexby company G

Ion Torrent Systems Inc........37

Mesoblast Ltd......................90

Stiefel Laboratories Inc.........41

GE Healthcare...............37, 75

IRhythm Technologies Inc.....28

MiCardia Corp.....................79

Genentech Inc...............44, 56

IXO Therapeutics Ltd............78

Stirling Medical Innovations Ltd..................................72

General Electric Co..37, 75, 86

Millennium: The Takeda Oncology Co...................59

Pacific Biosciences of California Inc.............37, 75

Generation Health................68

JenaValve Technology GMBH.............................28

Gen-Probe Inc.........37, 62, 85 Genzyme Corp... 16, 20, 57, 85 Geron Corp....................89, 93 GI Dynamics Inc...................31 Gilead Sciences Inc..............86 Glaukos Corp.......................32 GlaxoSmithKline PLC.... 16, 20, 40, 86, 91, 92 Goodman Co. Ltd.................96 Good Start Genetics Inc........38

St. Jude Medical Inc......26, 96

ParadigmHealth...................72

Stryker Corp..................26, 96

Paras Pharmaceuticals Ltd... 88

SuperSonic Imagine SA.......96

Mobisante Inc......................78

Pfizer Inc.......... 12, 16, 20, 24, SuppreMol GMBH................79 32, 41, 67, 86, 92 Symetis SA..........................28 Piramal Healthcare Ltd.........22 Syntonix Pharmaceuticals Inc..................................59 PLC Systems Inc..................95

Johnson & Johnson...... 10, 24, Momenta Pharmaceuticals 27, 46, 62, 86, 89, 91 Inc..................................93 Johnson & Johnson PharmaMundiPharma International ceutical R&D LLC............10 Ltd..................................59 JSC Binnopharm.................91 Myotec Therapeutics Inc......87

Protox Therapeutics Inc........94 Proximagen Group PLC........92

Myriad Genetics Inc.............62

PsiOxus Therapeutics Ltd.....87

Purdue Pharma LP..............59

Kirin Holdings Co. Ltd...........17 Knopp Biosciences LLC.......21

T Takeda Pharmaceutical Co. Ltd............................59, 90 Tesaro Inc...........................92 Teva Pharmaceutical Industries Ltd..................57

Qiagen NV...........................62

Guidant Corp.......................13

Knopp Neurosciences Inc....21, Nanjing MeiRui Pharma Co. Ltd.................................86 58 NanoString Technologies Kroll Laboratory Specialists Inc..................................86 Inc..................................72

Guided Delivery Systems Inc..................................28

Kwang Dong Pharmaceutical Co. Ltd............................92

Natco Pharma Ltd................92

Reata Pharmaceuticals Inc...20

Thermo Fisher Scientific Inc. ......................................94

Reckitt Benckiser PLC..........88

ThromboGenics NV..............94

Kyowa Hakko Kirin Co. Ltd...17

National Institutes of Health..........................., 67

Resolve Therapeutics LLC....79

Transave Inc........................87

nContact Inc........................28

REVA Medical Inc.................96

Transgenomic Inc................85

Neurimmune Holdings AG....58

Rex Medical LP...................96

TriVascular Inc.....................28

Neurologix Inc......................93

Rhythmia Medical Inc...........28

NinePoint Medical Inc..........28

Rigel Pharmaceuticals Inc....20

Novadaq Technologies Inc....95

Roche......... 37, 44, 56, 85, 88

Grunenthal GMBH................91 GTI Diagnostics...................85

HandyLab Inc......................76 Harvard Medical School......................36, 66 Harvard University..........22, 68

L Laboratorios Salvat SA.........92 Laboratorio Teuto Brasileiro SA..................................22

HemoSense Inc...................72

Laboratory Corp. of America Holdings...................38, 68

Hologic Inc....................14, 96

Lannett Co. Inc....................93

Novartis AG...... 21, 24, 32, 41, Roche Diagnostics....... , 70, 71 57, 75 Rosetta Genomics Ltd..........86

Hospira Inc..........................13

LeMaitre Vascular Inc...........95

NovaVision Inc.....................95

Human Genome Sciences Inc............................45, 88

LenSx Lasers Inc.................32

Novo Nordisk AS..................24

Life Technologies Inc............37

NPS Pharmaceuticals Inc.....16

Hybrid BioSystems Ltd.........87

Lpath Inc.............................92

NuVasive Inc........................31

Luminex Corp......................62

NxStage Medical Inc............96

Ibis Biosciences Inc..............72

iCAD Inc..............................95 IGI Laboratories Inc..............93

Massachusetts General Hospital....................10, 28

Nycomed International Management GMBH........16

ImmuVen Inc.......................78

HealthTronics Inc.................24

100

Panbio Ltd...........................72

Mitsubishi Chemical Holdings Corp...............................88

S SABiosciences Corp.............76 Sagent Pharmaceuticals Inc..................................94

Theratechnologies Inc..........93

U University College London....22 University of California, San Francisco.................22 University of Michigan..........75

V Valtech Cardio Ltd...............28 Vedanta Biosciences............78

Sanofi-Aventis........ 20, 24, 31, Ventrus Biosciences Inc.......94 41, 57, 66, 90, 92, 93 Veridex LLC...................10, 74 Sequenom Inc.....................86

Voyage Medical Inc..............28

Vycor Medical Inc................95

Matria Healthcare Inc...........72

Shanghai Wanâ&#x20AC;&#x2122;Te Pharmaceutical Co. Ltd....90

OctoPlus NV........................93

Shire PLC............................16

Impax Laboratories Inc.........91

Matritech GMBH..................72

Olympus Corp......................96

SI-Bone Inc.........................28

IMRIS Inc.............................96

Mayo Clinic.........................68 Mead Johnson Nutrition Co..13

Siemens AG........................62

Incline Therapeutics Inc........21

Omthera Pharmaceuticals Inc..................................79

Infinity Pharmaceuticals Inc..................................54

Siemens Medical Solutions..62

Insmed Inc..........................87

Medco Health Solutions Inc..13, Oncolys BioPharma Inc........90 68 Opko Health Inc...................92 Medivir AB...........................93 Ortho Biotech Oncology

Insulet Corp.........................96

Medtronic CoreValve LLC.....26

Interlace Medical Inc............14

Medtronic Inc......................26

Siemens Healthcare Diagnostics.....................74 Sihuan Pharmaceutical Holdings Group Ltd..........90

W Watson Pharmaceuticals Inc..................................92 Wright Medical Group Inc.....28

X XenoPort Inc........................94 Xoft Inc................................95

Research & Development...................10

SmartCells Inc.....................87

International Business Machines (IBM) Corp.......37

Merck & Co. Inc...... 13, 31, 37, Ortho-Clinical Diagnostics Inc..................................62 67, 87

Spencer Pharmaceutical Inc..................................88

YM BioSciences Inc.............94

Inverness Medical Innovations Inc..................................62

Merck KGAA..................56, 92

Ortho Kinematics Inc............28

Standard Diagnostics Inc......72

Merck Serono SA................56

Otsuka Holdings Co. Ltd.......93

Stanford University...............46

Zonare Medical Systems Inc..96

| January 2011 | IN VIVO: The Business & Medicine Report | www.ElsevierBI.com

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