A Note to The Pharmaceutical Industry Upon The Re-Election of Barack Obama

By: Matthew Herper, Forbes Staff, mherper@forbes.com

I’ve covered the drug industry for 12 years, long enough to know that it is no monolith but a collection of hardworking scientists, marketers, and business people, most trying to make a living and make a difference. For a few of you, your jobs are just business, but the vast majority of you do what you do in the hopes of advancing science and helping patients.

No single political position accounts for the hundreds of thousands of people working at drug companies, but I know some executives were hoping that Mitt Romney would win. That would have meant that Obama’s rethink of the health insurance system would have been re-thunk yet again, and it might have meant that a lot of pro-pharma ideas on the right, including faster, easier drug approvals and fewer pressures on pricing, would come to pass. But some of this political thinking is inertia, because for decades, on issues like the roll-out of generic drugs, the regulatory climate, and strong protections for intellectual property, drug companies were clearly better off with the pro-business Republican party. It was no accident that Donald Rumsfeld, one of the most prominent Republicans of the past decade, was a former drug company executive.

But the drug industry doesn’t have a real friend in either party these days. It hasn’t since 2008, when Mitt Romney told John McCain during a primary debate not to “turn the pharmaceutical companies into the big bad guys,” and McCain replied: “They are.”

The bad news is that right now you still have no friends in politics. The good news is that the drug industry was right to bargain with Obama over the shape of healthcare reform (the medical device industry is suffering for not having done so) and that, in many ways, things are looking up, toward what could be one of the better runs of pharmaceutical innovation in years.

The Food and Drug Administration has been approving new drugs at a fast clip. New medicines for cancer and rare diseases are still being reimbursed at very high prices. Even when medicine is much more socialized than what we’re going to get in the US, some drugs can thrive. As hedge fund manager Martin Shkreli, who is bullish enough to have founded his own company, Retrophin, against orphan diseases, likes to point out, BioMarin is able to sell a drug that costs hundreds of thousands of dollars per patient per year in Turkey and Celgene, maker of multiple myeloma drugs, gets more revenue in the tough markets of Europe than in the US. Truly innovative, life-saving medicines will have a place in any future pharmaceutical market. And the innovations that have come from the study of human genetics are actually starting to result in new drugs, more than a decade after the human genome project.

Obviously, the biggest short-term threat to the industry is sequestration – the fiscal cliff. Starving either the Food and Drug Administration or the National Institutes of Health would be disastrous for the industry, cutting off the flow of new products to the market and the flood of new ideas from academia to industry research labs. But as long as Obama and congress can make a deal, the next big question is which vision or visions of the pharmaceutical business will play out. Talking to executives around the drug industry, I really hear about three visions for the future. They are:

The Traditional Model: Drug companies will work on a wide variety of medicines to make patients feel better and live longer, focusing on common diseases such as mental illness, heart disease, and diabetes, but also on cancer and some rarer ailments. They’ll market these medicines widely, with most profits coming from markets where patent protection is strong and either insurers or government health plans are willing to pay a premium for new treatments. This is obviously the vision under the most stress, but I think that many executives still hold to basically this model, even at supposedly disruptive biotechnology companies. And it is possible that it will basically hold up, that is, things won’t change that much. This is how Merck, Pfizer, and even Novartis were built, and it may be that things really are not changing.

The Diamond Hunters: These executives view research in many common diseases to be too risky and unlikely to really change patients’ lives – even if you’re targeting Alzheimer’s or schizophrenia. In fact, even traditional “orphan” diseases, those that used to be so small pharmaceutical companies ignored them, may actually be too crowded and are going to be facing price pressure. The future, in this vision, is in medicines targeted to specific, deadly gene mutations, such as in rare diseases, and against cancer. Medicines will have to be highly effective, actually making people live longer for dramatic periods of time. In return, these drugs will cost tens of thousands or hundreds of thousands of dollars per patient, commanding enormous pricing power that individuals could never pay but that governments and health plans will jump at because of the number of years of life they save. Drugs that make you sleep better, or slightly reduce your risk of a heart attack? Forget about it.

The Vision of Access: This idea is mostly whispered, and I have not heard a single industry executive spell out clearly how it would work. But it is in the air. Maybe there is way to make innovations broadly available across the world, to all the people that need them, and to make money in the process. The idea is that innovative medicines for common diseases, like heart disease and diabetes, could be monitized even in countries that are just beginning to use pharmaceuticals on a big scale, and that the traditional views of public health will win out in new ways. This is the flip side of the diamond hunter idea.

The real big picture question for the pharmaceutical industry is which of these is true (it’s quite possible that all of them are) and how that vision interfaces with the changing face not only of the US health system, but healthcare systems all over the world. There is a real possibility that the drug industry is entering a new period of growth and innovation. But there are also big challenges that need to be solved that go beyond who is in the White House. That’s where everyone’s focus should be.

Novartis Expects 14 New Blockbusters

Novartis recently provided an update on its leading Research and Development (R&D) pipeline and plans for turning these assets into commercial success to provide the basis for continued growth of the group through 2017. Continuing R&D productivity in the Pharmaceuticals Division has fueled an industry-leading pipeline with 139 projects in clinical development with more than 73 New Molecular Entities (NMEs) across a multitude of disease areas. Highlights include RLX030 and LCZ696 in heart failure as well as AIN457 in psoriasis and multiple sclerosis. In addition, the company will showcase a comprehensive early and late-stage pipeline of novel oncology compounds.

“As a science-driven company, Novartis is focused on innovation to address unmet medical needs for patients around the world,” said Joseph Jimenez, CEO of Novartis. “As a result, our leading pipeline in all phases of development positions us well for continued future growth.”

Novartis Group continues to lead the industry with 56 new approvals in the US, Europe, Japan, and China since 2007. In 2012 alone, the Pharmaceuticals division has received nine approvals or positive recommendations to date. Novartis Pharmaceuticals has established a strong foundation for the company’s ongoing growth based on currently marketed products. In addition for the next 12 months, Pharmaceuticals expects data read-out on 13 pivotal studies, 9 filings, and 7 regulatory decisions. For the following 13 to 24 months, strong pipeline newsflow is expected to continue with a further 11 pivotal trials read-out, 11 filings, and 10 regulatory decisions.

As evidenced by the recent launches of Afinitor, Seebri Breezhaler, Jakavi, and Signifor, Novartis has a proven track record of bringing innovative products to market. With the current marketed portfolio, Pharmaceuticals is expected to grow from the second half of next year despite loss of exclusivity on mature brands like Diovan, Zometa, and Aclasta.

The Novartis Oncology portfolio has delivered approvals for six indications, including two new molecular entities so far this year and anticipates continued growth over the next 5 years. One of the major growth drivers, Afinitor, has five indications already approved and has the potential to exceed sales of $2 billion in breast cancer alone by 2017. In addition, launches of Jakavi and the planned launches of pipeline projects such as BKM120 for various tumors and LDK378 in lung cancer have the potential to contribute more than $1 billion in sales by 2017.

Novartis has transformed Ph+ chronic myeloid leukemia (CML) to a treatable, chronic condition and is again on the way to redefine what is possible in CML. The new goal is for patients to live free of drug therapy once they have achieved long-term response to treatment. Tasigna, a potent second-generation targeted therapy for CML, has demonstrated a reduced risk of progression and deeper and more sustained molecular response than Glivec. Based on these advances, as well as advances in molecular response monitoring, in 2013 the company plans to initiate Tasigna clinical trials to explore the goal of achieving sustained treatment-free remission in patients living with CML. If positive, this could lead to a major paradigm shift in CML treatment.

Novartis has initiated a broad-scale clinical development program named PRISM for its leading PI3K inhibitor BKM120 across multiple indications, both as a single agent and in combination with other therapeutic agents in various breast cancer settings, as well as other indications. The company also plans to initiate pivotal studies of LDK378, an ALK inhibitor that has shown potent activity in patients with Alk+ non-small cell lung cancer (NSCLC) as well as activity on brain metastases, in December 2012. Additional trials planned for 2013 and regulatory filings expected to begin in 2014 if trials are successful.

Regarding its strong data in heart failure, Novartis recently presented data for RLX030 show that patients receiving a single infusion of RLX030 had both short-term and long-term benefits. In the short-term, RLX030 treated patients had improved heart failure symptoms such as dyspnea (shortness of breath) and edema, in addition to having a shorter stay in the hospital. The long-term benefits of RLX030 resulted in a statistically significant 37% reduction in cardiovascular mortality and all-cause mortality. Furthermore, fewer patients treated with RLX030 had worsening of heart failure as measured on day 5 and day 14 after treatment. Worsening of heart failure during hospitalization was defined as intensification of intravenous therapy or mechanical ventilator or circulatory support. Based on these findings of the RELAX-AHF study, Novartis plans to initiate regulatory filings for RLX030 in early 2013 in the US and Europe.

Novartis is also progressing its comprehensive clinical program in respiratory to meet the needs of patients with chronic obstructive pulmonary disease (COPD). QVA149 has the potential to establish a new standard of care for patients with COPD, preventing exacerbations and showing improvement in bronchodilation compared to placebo and current standard of care. Across numerous clinical studies, QVA149 enables the limited use of inhaled corticosteroids (ICS) as rescue medications as recommended by the GOLD treatment guidelines for COPD.

Clinical data for AIN457, a highly effective novel IL-17 inhibitor, across multiple disease areas including psoriasis, ankylosing spondylitis, rheumatoid arthritis, and multiple sclerosis were presented. In Phase II clinical studies, AIN457 has shown rapid improvement of psoriasis signs and symptoms in patients with moderate to severe psoriasis. Phase III studies for AIN457 in this setting are ongoing with regulatory filings expected to start in late 2013. In addition, the company is investigating AIN457 across multiple indications including multiple sclerosis.

The discovery process in the Novartis Institute of BioMedical Research (NIBR) focuses on disorders in which there is unmet medical need and good mechanistic understanding. This approach has increased the success rate from preclinical through Phase II trials to more than 20%, three times the industry average. Companion diagnostics and biomarkers, especially in oncology, where most Phase I and II trials have patient selection markers included, have enabled early patient selection for clinical trials, reducing overall development timelines and costs. As a result, Novartis has shown greater than average pipeline return on investment achieving highest average annual peak sales of first launched productsamongst industry.

In addition, Novartis is striving to increase efficiency and productivity to manage more projects while keeping costs at a stable level. Introducing novel technologies and methods reduce recruitment time and trial costs, while improving study quality and patient comfort and safety. These include mobile field monitoring, continuous manufacturing, and Telehealth. In addition, through a research initiative with Walgreens in the US, clinical trials will provide more real-world evidence and lower access barriers for participants.

Patheon to Acquire Banner Pharmacaps

Patheon Inc. recently announced it has entered into a definitive agreement with VION N.V. to acquire Banner Pharmacaps, a specialty pharmaceutical business dedicated to the research, development, and manufacturing of unique gelatin-based dosage forms.

Banner is the world’s second largest pharmaceutical business focused on delivering proprietary softgel formulations for over-the-counter, prescription, and nutritional consumer products, with four manufacturing facilities, significant proprietary technologies and products, and leading positions in some of the industry’s fastest-growing product categories. Banner is headquartered in High Point, NC, with additional research labs and manufacturing facilities in the Netherlands, Canada, and Mexico.

“The acquisition of Banner advances our strategic plan put in place in 2011, fully aligning with Patheon’s intent to be the leader in oral dosage development and manufacturing services,” said James C. Mullen, Patheon’s Chief Executive Officer. “The transaction provides us with a well-balanced portfolio of proprietary products, state-of-the-art facilities with enhanced capabilities, as well as an expanded geographical presence. We believe our visibility within the industry will be further strengthened as we pass the $1-billion revenue mark.”

“Patheon shares many interfaces with Banner’s field of activities and offers opportunities for further growth over the coming years. The sale of Banner is a strategic transaction for both organizations,” added Peter Beckers, Chairman of the Board of Directors, Banner Pharmacaps, and Executive Board Member, VION N.V. “It allows VION to focus on its core business of food and ingredients, while aligning Banner with a global company that is known for its focus on quality and customer service in the pharmaceutical industry. We are convinced that this transaction represents the best outcome for Banner’s customers, partners, and for our people, who will benefit from the scale opportunities of being a part of an organization such as Patheon.”

The acquisition will be structured as a purchase of all of the shares of the entities through which Banner conducts its operations, for a purchase price of $255 million, subject to working capital and other adjustments. The acquisition is subject to applicable regulatory approvals and other customary terms and conditions, and is expected to close by the end of calendar 2012.

In support of the transaction, Patheon has received commitments for financing that will be applied to fund the acquisition and associated expenses, retire existing debt, and used for general corporate purposes. Such commitments are subject to customary terms and conditions.

Patheon Inc. is a leading global provider of contract development and manufacturing services to the global pharmaceutical industry. The company provides the highest quality products and services to approximately 300 of the world’s leading pharmaceutical and biotechnology companies. Patheon’s services range from preclinical development through commercial manufacturing of a full array of solid and sterile dosage forms. For more information, visit www.Patheon.com.

Regulus Therapeutics Secures $80.9 Million

Regulus Therapeutics Inc., a biopharmaceutical company leading the discovery and development of innovative medicines targeting microRNAs, recently announced its financing activity that the company expects will enable Regulus to execute its current strategic objectives for the foreseeable future.

In connection with Regulus’ Initial Public Offering (IPO), which closed on October 10, 2012, and other recent financial transactions, Regulus has raised $80.9 million in gross proceeds, including: (1) $50.9 million from the sale of common stock in the IPO, inclusive of an over-allotment option exercise by the underwriters and insider participation by Isis Pharmaceuticals, Inc., one of our founding companies, and two of our strategic partners, Sanofi and GSK; (2) $25.0 million from the sale of common stock in a private placement to AstraZeneca AB, one of Regulus’ strategic partners, that closed concurrently with the IPO; and (3) $5 million from the sale of a convertible note in August 2012 to Biogen Idec, one of Regulus’ research collaborators, which converted into shares of common stock at the completion of the IPO.

“We are excited to have reached this important point in Regulus’ life,” said Kleanthis G. Xanthopoulos, PhD, President and CEO of Regulus. “With the company well capitalized for the foreseeable future, we are focused on building a meaningful clinical portfolio and realizing the transformative potential of microRNA therapeutics.”

Regulus Therapeutics Inc. is a biopharmaceutical company leading the discovery and development of innovative medicines targeting microRNAs. Regulus is leveraging a mature therapeutic platform based on technology that has been developed over 20 years. Regulus works with a broad network of academic collaborators and leverages the oligonucleotide drug discovery and development expertise of its founding companies, Alnylam Pharmaceuticals and Isis Pharmaceuticals. For more information, visit www.regulusrx.com.

Ziarco Pharma Acquires Pfizer Drugs, Secures Financing

Ziarco recently announced the closing of an initial $6-million tranche of Series A financing totalling $27 million. The round was led by Biotechnology Value Fund L.P, with participation by Pfizer Venture Investments.

Concurrent with the financing, Ziarco has entered into an agreement with Pfizer Inc. for the exclusive worldwide rights to commercialize a portfolio of clinical, preclinical, and research anti-inflammatory and anti-allergic assets. In return, Pfizer will receive equity as well as certain product-based milestone and royalty payments. Ziarco will use the proceeds of the financing to continue development of these assets and advance proprietary research.

“Ziarco was founded to address the significant need that still exists for new, more effective ways to treat disorders underpinned by inflammatory and allergic pathobiology. Each program in development at Ziarco has the potential to be a first-in-class therapeutic and because they target critical points within inflammatory and allergic pathways, they offer treatment options for diverse and difficult to manage diseases,” said Dr. Mike Yeadon, CEO of Ziarco. “Not only are we very fortunate at such an early stage in the company’s development to have licensed significant assets from Pfizer and secured funding from Biotechnology Venture Fund and Pfizer Venture Investments to progress development of these innovative therapeutic agents, but we have in place a highly experienced team which has deep knowledge of these programs and has the passion and expertise to deliver.”

In addition to Dr. Yeadon, formerly Vice President and Chief Scientific Officer of Pfizer’s Allergy and Respiratory Research Unit, Ziarco has been co-founded by three former Pfizer colleagues: Dr. Steve Liu, Vice President and Chief Scientific Officer; Dr. Lynn Purkins, Vice President and Head Clinical Development; and Dr. Arif Shivji, Vice President and Head Development Operations and Business Development.

“Scientists have discovered that many inflammatory and allergic diseases share common biological pathways and pathology. Ziarco has insights that account for the efficacy limitations of existing medicines. By leveraging this knowledge, we can develop innovative and more efficacious therapeutics that target specific points in these pathways for use in multiple inflammatory indications,” explained Dr .Liu. “Our most advanced clinical program is a histamine H4 receptor (H4R) antagonist, ZPL-3893787, which could potentially be used to treat several major diseases, including asthma, allergic rhinitis, pain, and a variety of inflammatory skin conditions. This is supported by several other products in our pipeline, including a topical cPLA2 inhibitor, which is the most advanced in development worldwide.”

Ziarco’s lead candidate, ZPL-3893787, is a potent and selective oral H4R antagonist. Phase I single ascending dose (SAD) and 14-day multiple ascending dose (MAD) studies in healthy volunteers have been completed. ZPL-3893787 has an excellent safety and pharmacokinetic profile, indicative of once daily dosing at low dose. Importantly, these studies have also demonstrated complete inhibition of an H4R blood biomarker, which enables confident dose selection for future Proof of Concept studies. Ziarco also has a number of additional H4R antagonists in the discovery phase being developed for both human and animal health uses.

ZPL-5212372 has completed a Phase I single ascending dose (SAD) study via the inhaled route in healthy volunteers and was found to be safe and well tolerated up to high doses. Systemic free drug concentration was very low, as is expected of a topically delivered compound and significantly below levels required for pharmacological effect. ZPL-5212372 has the ideal profile of a safe and effective treatment for a range of inflammatory diseases affecting topical surfaces, including the lung, nose, eye, and skin.

Ziarco’s histamine H3 receptor (H3R) antagonist ZPL-868087, a compound being developed for the treatment of allergic rhinitis, has been designed to be orally available yet peripherally restricted so to minimize CNS exposure. This should enable higher doses to be administered to achieve greater systemic drug levels for clinical efficacy, whilst limiting CNS exposure. ZPL-868087 has completed 14-day regulatory toxicology studies in two species and is ready to enter Phase I clinical studies. Ziarco also has additional CNS-sparing H3R antagonists in the discovery phase.

Ziarco’s discovery SYK program has identified a number of attractive chemical series. Ziarco will optimize these molecules for topical delivery. For more information, visit www.ziarcopharma.com.

Sun Pharmaceutical to Purchase PhotoDynamic Company for $230 Million

Sun Pharmaceutical Industries Limited and DUSA Pharmaceuticals, Inc. recently announced they have entered into a definitive agreement under which Sun Pharma will acquire DUSA, a dermatology company focused on developing and marketing its Levulan (aminolevulinic acid HCl) photodynamic therapy platform.

DUSA’s Levulan combination therapy is approved by the FDA for treatment of non-hyperkeratotic actinic keratoses or AKs of the face or scalp. Additionally, DUSA’s BLU-U treatment has been approved by FDA for the treatment of moderate inflammatory acne vulgaris and general dermatological conditions. Levulan is manufactured by DUSA in its FDA-approved facility at Wilmington, MA.

Under the terms of the agreement, a 100% subsidiary of Sun Pharmaceutical Industries Ltd will commence a tender offer for all of the outstanding common stock of DUSA at a price of $8 per share in cash, a 38% premium to the closing price of DUSA’s common stock on November 7, 2012. The transaction has a total cash value of approximately $230 million. The transaction has been unanimously approved by the boards of directors of both companies and DUSA’s board has recommended that the company’s shareholders tender their shares pursuant to the tender offer.

“DUSA has proven technical capabilities in photodynamic skin treatments, with USFDA approved manufacturing,” said Dilip Shanghvi, Managing Director of the Company. “DUSA’s business brings us an entry into dermatological treatment devices, where we see good growth opportunities.”

“We believe this transaction brings significant value to DUSA shareholders and are pleased that Sun Pharma recognized the value that has been created. The entire team at DUSA has built an excellent franchise around Levulan PDT and continues to grow its presence in the dermatology space. We are confident that Sun Pharma will build upon the solid foundation our organization has established in the United States dermatology market to further expand access to Levulan for patients with actinic kerotoses,” added Robert Doman, President and CEO of DUSA Pharmaceuticals, Inc.

The closing of the tender offer will be subject to certain conditions, including the tender of a number of DUSA shares that represent at least a majority of the total number of DUSA’s outstanding shares (assuming the exercise of all options and warrants and vesting of restricted shares), the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other customary conditions. Upon the completion of the tender offer, Sun Pharma will acquire all remaining shares at the same price of $8 per share through a second-step merger, subject to approvals as may be necessary.

Established in 1983, listed since 1994, and headquartered in India, Sun Pharma is an international, integrated, specialty pharmaceutical company. It manufactures and markets a large basket of pharmaceutical formulations as branded generics as well as generics in India, US, and several other markets across the world. For more information, visit www.sunpharma.com.