Congrats to Protalix and Pfizer for receiving FDA approval for Elelyso, a drug to treat Gaucher's disease. The Protalix product will compete with the insanely expensive Genzyme product, Cerezyme.
What makes this approval especially noteworthy is that Elelyso is produced in carrots, making it the first FDA-approved transgenic drug.
Transgenics have been in development for two decades, but the challenges of the science have been significant, as has been reluctance on the part of regulators and payers, as they wondered if transgenics could really be bio-identical.
Also interesting, but not noted in the article: Elelyso may have also broken ground as the first biosimilar approved by the FDA. In this case, the resulting molecule is the same, though the expression system is obviously very different. I wonder if we'll see biosimilar makers trying this backdoor approach as well.
Now that Protalix has burst both the transgenic and biosimilar dams, it will be interesting to see the industry response. For starters, I think we'll see Genzyme cutting their price on Cerezyme to match Protalix/Pfizer, in spite of all of their previous protestations that the current price of $200,000/year is justified.
Personally, I'm happy to see this transgenic enzyme for Gaucher's disease receive approval. Approximately 15 years ago I was mildly involved with a research team trying to do the same thing using tobacco as an expression system, with the same goal of a massive price reduction for Gaucher's patients. We never succeeded, for a variety of reasons, but I've always been hopeful that someone else would.
Showing posts with label GENZ. Show all posts
Showing posts with label GENZ. Show all posts
Wednesday, May 2, 2012
Monday, April 9, 2012
Carl Icahn: net positive or negative for the biotech industry?
I can't decide if Carl Icahn's activism in the biotech sector is a good thing or a bad thing. On one hand, his insight, activism, and capital drives stock appreciation in the biotech sector. (And even just his interest in the sector is a good thing.)
On the other hand, no one is more responsible for making mid-cap biotechs an endangered species.
I first looked at this five years ago on the Xcovery blog (Wanna scare a CEO? Just say these 7 words: "Mr. Icahn is holding on line 2.") At the time, Icahn was agitating for the sale of MedImmune, and had recently bagged ImClone. Since then, he's a had a big influence in the sale of Genzyme, and made runs at Biogen and Forest Labs. BIIB and FRX raids did not conclude with a company sale, but both companies had bumps in stock values due to Icahn, and a big profit for Icahn.
Now Carl Icahn is chasing Amylin.
On my old blog I listed 10 reasons why Icahn's interest may be a net positive, and they're worth another look:
1. Interest by corporate raiders validates the biotech industry as viable businesses, rather than a collection of high-risk experiments.
2. Raider interest will attract other sources (non-alternative investments) of capital sends the message that biotech may be volatile, but not necessarily risky. (As opposed to the current notion that biotech is risky, but not necessarily volatile.)
3. Corporate raiders will keep biotech more slim and agile versus big pharma. (Though I've heard rumblings that some hedge fund could take down a pharma one of these days, so maybe this edge won't hold for long.)
4. Raiders force target companies to focus on "what's next," rather than complacently focusing on the sales and marketing of existing products.
5. Raiding will bring about needed consolidation among mid-sized biotechs, as the raiders view the overhead for companies at this size as a bad investment.
6. Raiders will increase the amount of business discipline within the industry. (And likely instigate management turnover, which could also be management evolution.)
7. Raiders will increase attention on the biotech industry.
8. Biotech has (and probably will always be) a game of capital raising. Raiders will bring more capital to the biotech industry, though the capital will tend to be higher-velocity.
9. Attention to financial returns by biotechs will increase among industry folks, as raider interest is in part related to the very high margins earned by biotechs. The high margins decrease risk for raiders, and can generate large amounts of incremental cash to justify raider transactions, if the margins are believed to be improvable.
10. Raiders (and other private equity types) may innovate new vehicles to finance biotech. One of these 'innovations' is quite old, but new to the biotech industry: dividends. (Icahn, in particular, often presses target boards to increase their dividend to drive stock prices.)
In retrospect, I think the label "raider" is harsh and inaccurate - Icahn certainly has high short term expectations, but I think he's also well-intentioned, trying to find the best home for at-risk, underperforming assets. He's not squeezing companies to cut staff to take more cash out of a target, or leaving behind half-dead Zombie companies, but rather hastening the process of smaller company selling out to big.
However, as a result, there are less small-to-mid biotech's left, meaning there's a "lost generation" of companies that could aggressively or reasonably re-invest in early-stage biotech, thus having the knock-on effect of impeding early biotech. (Historically, mid-cap companies have been less risk-averse than big pharma when it comes to partnering with smallish/early biotech. Plus, focusing on fending off Icahn's advances takes attention and capital away from planting partnership "seeds," and may make a mid-cap less attractive to a potential partner.)
The counter-argument that Icahn might make is that capital gains from his activities generate more capital to be invested in the biopharma sector at all stages. I think, though, that the law of supply & demand trumps all: reducing the number of potential "buyers" of early stage tech (i.e. GENZ, IMCL, etc.) drives the prices down on such tech/leads.
There's one other way to look at this that is very much to Icahn's credit: economic impact. Since selling MEDI to AZN, MEDI's footprint in Maryland (MEDI's home) is much, much larger, as they've become AZN's biologics center of excellence (CoE), and it seems that GENZ is also likely to similarly expand in Boston as a CoE for Sanofi. If Icahn's activism provided purely return on capital (rather than labor or assets), you'd see talent and IP sucked up into the corporate parent, and a diminished physical presence as the acquirer cut costs. This was pretty much the case with IMCL, but that might be a factor of Lilly's management style, as much as anything else. (An entrepreneurial NYC company and a starchy midwest giant don't make for a great pairing.)
Ultimately, your opinion of Icahn's impact in the biotech world likely depends on who you are. If you're a shareholder at a target company, you like him a lot. If you're an executive at a target company, you definitely wish he'd go away.
Finally, while this post is centered on Carl Icahn, it is important to note who else has been a key player on Team Icahn, and now on his own: hedge fund manager Alex Denner, who is credited with generating $2B in profits (or is it value?) while chasing under-appreciated biotech stocks, mostly with Icahn.
related: Amylin (AMLN) management: BUSTED!
On the other hand, no one is more responsible for making mid-cap biotechs an endangered species.
I first looked at this five years ago on the Xcovery blog (Wanna scare a CEO? Just say these 7 words: "Mr. Icahn is holding on line 2.") At the time, Icahn was agitating for the sale of MedImmune, and had recently bagged ImClone. Since then, he's a had a big influence in the sale of Genzyme, and made runs at Biogen and Forest Labs. BIIB and FRX raids did not conclude with a company sale, but both companies had bumps in stock values due to Icahn, and a big profit for Icahn.
Now Carl Icahn is chasing Amylin.
On my old blog I listed 10 reasons why Icahn's interest may be a net positive, and they're worth another look:
1. Interest by corporate raiders validates the biotech industry as viable businesses, rather than a collection of high-risk experiments.
2. Raider interest will attract other sources (non-alternative investments) of capital sends the message that biotech may be volatile, but not necessarily risky. (As opposed to the current notion that biotech is risky, but not necessarily volatile.)
3. Corporate raiders will keep biotech more slim and agile versus big pharma. (Though I've heard rumblings that some hedge fund could take down a pharma one of these days, so maybe this edge won't hold for long.)
4. Raiders force target companies to focus on "what's next," rather than complacently focusing on the sales and marketing of existing products.
5. Raiding will bring about needed consolidation among mid-sized biotechs, as the raiders view the overhead for companies at this size as a bad investment.
6. Raiders will increase the amount of business discipline within the industry. (And likely instigate management turnover, which could also be management evolution.)
7. Raiders will increase attention on the biotech industry.
8. Biotech has (and probably will always be) a game of capital raising. Raiders will bring more capital to the biotech industry, though the capital will tend to be higher-velocity.
9. Attention to financial returns by biotechs will increase among industry folks, as raider interest is in part related to the very high margins earned by biotechs. The high margins decrease risk for raiders, and can generate large amounts of incremental cash to justify raider transactions, if the margins are believed to be improvable.
10. Raiders (and other private equity types) may innovate new vehicles to finance biotech. One of these 'innovations' is quite old, but new to the biotech industry: dividends. (Icahn, in particular, often presses target boards to increase their dividend to drive stock prices.)
In retrospect, I think the label "raider" is harsh and inaccurate - Icahn certainly has high short term expectations, but I think he's also well-intentioned, trying to find the best home for at-risk, underperforming assets. He's not squeezing companies to cut staff to take more cash out of a target, or leaving behind half-dead Zombie companies, but rather hastening the process of smaller company selling out to big.
However, as a result, there are less small-to-mid biotech's left, meaning there's a "lost generation" of companies that could aggressively or reasonably re-invest in early-stage biotech, thus having the knock-on effect of impeding early biotech. (Historically, mid-cap companies have been less risk-averse than big pharma when it comes to partnering with smallish/early biotech. Plus, focusing on fending off Icahn's advances takes attention and capital away from planting partnership "seeds," and may make a mid-cap less attractive to a potential partner.)
The counter-argument that Icahn might make is that capital gains from his activities generate more capital to be invested in the biopharma sector at all stages. I think, though, that the law of supply & demand trumps all: reducing the number of potential "buyers" of early stage tech (i.e. GENZ, IMCL, etc.) drives the prices down on such tech/leads.
There's one other way to look at this that is very much to Icahn's credit: economic impact. Since selling MEDI to AZN, MEDI's footprint in Maryland (MEDI's home) is much, much larger, as they've become AZN's biologics center of excellence (CoE), and it seems that GENZ is also likely to similarly expand in Boston as a CoE for Sanofi. If Icahn's activism provided purely return on capital (rather than labor or assets), you'd see talent and IP sucked up into the corporate parent, and a diminished physical presence as the acquirer cut costs. This was pretty much the case with IMCL, but that might be a factor of Lilly's management style, as much as anything else. (An entrepreneurial NYC company and a starchy midwest giant don't make for a great pairing.)
Ultimately, your opinion of Icahn's impact in the biotech world likely depends on who you are. If you're a shareholder at a target company, you like him a lot. If you're an executive at a target company, you definitely wish he'd go away.
Finally, while this post is centered on Carl Icahn, it is important to note who else has been a key player on Team Icahn, and now on his own: hedge fund manager Alex Denner, who is credited with generating $2B in profits (or is it value?) while chasing under-appreciated biotech stocks, mostly with Icahn.
related: Amylin (AMLN) management: BUSTED!
Saturday, April 2, 2011
My biotech experience as a patient (Genzyme's Carticel)
I've been away for a bit because I have undergone some knee surgery (as detailed on my personal blog, fwiw.)
Turns out, the surgery represents a new involvement for me in biotech: as a patient.
The surgery involved the harvesting of a chondryle cartilage sample. The sample was sent to Genzyme, which is growing up autologous replacement cartilage (i.e. Carticel.)
The journey so far has been illuminating. Here's a few observations from my experience, as related to the business of biotech and medicine, admittedly based upon my own n=1.
1) The health care rationing system in the US works. Carticel is both expensive ($20-40k) and rarely prescribed (~10,000 patients in ~ 10 years). From my experience there was very effective screening to get to the point of electing this treatment option. I definitely had the feeling from both the physician and insurance company sides that this treatment was well-rationed, and my financial obligation is significant.
2) Traditional comparative healthcare stats don't tell the whole story. Carticel is only available in the US, UK, and Germany (as far as I can tell online), so relative to all other comparable countries (France, Japan, etc.) I represent a huge expense, though this procedure only improves my quality of life, not longevity. In the non-Carticel countries I'd be a 40-year old dealing with early onset osteo-arthritis, whereas my goal (post treatment) is to return to my triathlon-competing, baseball playing self. Is the USA a better place if I can run again? No, but my world is, and to me, my treatment is a good investment (that is, a co-investment with my insurance company.)
The flipside of this investment is that the total financial investment probably equates to about 1 full-time job (say $50k between physical therapists, insurance admin, medical procedures, etc.) Pundits freak out about how health care represents 18% of our GDP, but I'm not certain that it is bad for the economy in this way.
3) Delivery via diffused specialists is the best approach to healthcare. State-driven (or, if you like "socialized" medicine) has an inherent bias towards centralization and generalization. It is believed that economies of scale improve health care economics, and that specialists - when necessary - should be centralized to maximize utility. (Made up example: in western Canada, it is better to concentrate heart specialists at say the province level in, to better triage cases and avoid duplicating equipment. Also, if the province needs say 8 heart surgeons, it is better to concentrate the 8 surgeons, rather than diffusing them broadly, leading to oversupply in some areas and undersupply in others.)
Since developing my knee symptoms, I haven't had any interactions with my GP, or been in any of the local hospitals, nor do I expect to do so. My x-rays were in my specialists' office, my MRI through a standalone operation, and surgery in an out-patient center. Each were under competitive pressures not present in the centralized model. My experience suggests to me that specialization should be encouraged, whereas the current trend is increased regulation to reduce specialization. (Best example: regulators and larger hospitals using "Certificate of Need" regulations to eliminate or reduce the competition by specialists. (Nutshell example: group of local heart surgeons try to open a stand-alone heart center, which studies show deliver better results at lower costs (due to specialization.) Large existing hospital refuses to "sign" the certificate of need certifying that the area needs this medical facility, thus defending their existing capacity and reducing competition.)
This practice is in effect cartelization, and ALWAYS leads to higher consumer costs.
4) As if this weren't already a given among readers of this blog, but biotech treatments such as Carticel represents the tremendous innovation and value in the US biotech industry. My therapy was impossible ~15 years ago (and, I suspect, will be obsolete 15 years from now due to advances in stem cell therapies). The research and development that resulted in the Carticel product was wholly US-based, and really could only happen in the USA.
As I understand it, Carticel R&D began as a spin-off from Genzyme's R&D in hyaluronic acid (which itself resulted in the Synvisc (knee lubricant) product.) Genzyme got involved in hyaluronic acid R&D as a result of their interest in winning NIH funding in this area, which would finance the construction of Genzyme's first lab.
I can only guess at the cost of Carticel R&D, but it is highly likely that this was a high-risk investment by Genzyme, far beyond the risk-tolerance of large pharma companies. This was also only possible through access to the large and lucrative US health care markets and the relative availability of risk capital to fund Genzyme's R&D (though both VC and public markets). (As is the risk-tolerance of Genzyme's management team.)
I just don't believe that Carticel could have been developed in any state-driven health care system or anywhere else but the USA. (Though 2 German companies have engineered successor technologies.)
(The counter argument is that through US R&D funding and high health care prices other countries get a free-ride on USA-based R&D. It's true, but the R&D financial investment required is typically based only on sales in the US market.)
5. The health care financial model works here in the US. Genzyme trades @ 4.4X sales, while the median of the 3 largest hospital companies trades at .4X sales, suggesting that my (roughly ) $50k total cost (to me, revenue to others) might create $138k in shareholder value. (Blended 60/40 to yield a 2.77 (Yes, there are problems with this approach in the abstract, but the example is illustrative.)
To someone worried about the cost of US healthcare, I represent $50k of value destruction - i.e. $$ that can't be saved from the system. Truth is, the earnings (or, in the case of this analysis, revenues) represent capital creation, especially if the recipients (i.e. healthcare providers) can further leverage the capital.
In contrast, in state-driven systems like the NHS in the UK, there is no equity value from patient spending - a patient spending is an operating cost, and unlike in the US, these operating costs can not be leveraged to fund further R&D, or other investment uses of the cash flow, such as seeding new ventures.
As part of the Carticel therapy I'll have another operation in a few months to implant the lab-grown replacement cartilage. I'll be sure to post additional thoughts as they occur.
Monday, February 28, 2011
Genzyme: one less hope for a biotech to graduate to big pharma status
Add Genzyme to the list of biotech companies that made it to scale, and could have ultimately "graduated" to big pharma status. While I am happy for GENZ shareholders (and employees), GENZ's fate further confirms that all biotechs - even the successful ones - are due to be acquired by big pharma.
Genzyme joins Genentech, MedImmune, ImClone, and OSI, as operating companies with revenues in excess of $1B that have been absorbed by Big Pharma.
Why this matters? Because building a company to be acquired and building the best company are two different strategies. Given the developments with the companies above, one could question the wisdom of adopting any strategy but building to sell.
Who's left:
Amgen - there were loud rumors about PFE buying AMGN 3-4 years ago after reimbursement for Amgen's Epo was reduced. The emergence and success of D-Mab (osteoporosis drug) has kept Amgen an independent company - and there is still hoped for sales growth from personalizing Vectibix, but there doesn't seem to be either another exciting late stage product in development, nor much talk of AMGN acquiring companies or drugs to build and diversify their portfolio.
One factor surprisingly prominent in driving M&A discussions is the age of the selling CEO (GENZ's Termeer is 64), and AMGN's Kevin Scharer turns 63 on Wednesday, Mar 2. CEOs generally don't put their companies up for sale because they hit a certain age, but rather they are a little more receptive to acquisition overtures and because CEOs on the metaphoric "back nine" of their careers don't hold acquisitions hostage to demands for a significant role in the resulting merged company.
Biogen - which has previously been put in play by Carl Icahn, so you can't expect it to stand-alone for too long.
Celgene - I think the one to watch. They have the resources (i.e. cash flow) to reinvest in expanding the product portfolio, their CEO is hungry, and they might not be viewed as attractively by acquirers simply because Celgene is not the product of a novel technology platform. (Revlimid is a fantastic drug, but it's technical roots go back to the 1960's.)
Cephalon - Strong with almost $3B in annual revenue, CEPH has the added advantage of a diverse business. The company has a new CEO as of December 2010 following the death of their founder and CEO, so I'd assume that the new CEO will want to stay independent for the immediate future, while the company climbs a steep growth curve from a number of new product releases over the last 2-3 years. As of now, CEPH lacks a blockbuster drug, which often drives acquisition interest.
Gilead - made further steps towards the big leagues by buying Calistoga last week, which not only adds scale, but also gets the company into a new, large market (oncology.)
Onyx - no way they're independent 3 years from now. Either Nexavar's growth continues and their partner Bayer decides to buy them, or Bayer's follow-on (son of Nexavar) makes the company put themselves up for sale.
Vertex - The company of "Billion Dollar Molecule" fame has lived many lives, and probably rebuffed many suitors, but the future of this company is completely tied to it's late-stage HepC drug. The drug, a potential blockbuster, is partnered with JNJ ex-US, meaning one of 3 things is likely to happen to VRTX:
1) The drug is a smashing success - JNJ decides to buy VRTX to get 100% of the growth, especially since they'll have a great view of sales performance, as they distribute the drug in Europe and elsewhere.
2) The Hep C drug is a middling success, but ultimately shares the market with one or more of the competing emerging HepC drugs. In this scenario, VRTX becomes valued at whatever option value the market perceives JNJ to place on VRTX, at least until VRTX gets another non-HepC product to the late stage.
3) drug not approved, Vertex leaves a big, smoking crater. (Clinical data released so far indicates the drug is strong and that this scenario isn't likely.)
Keep in mind: VRTX's current $9B valuation is ~5% of JNJ's valuation. To an acquisition-driven company like JNJ, VRTX would be a snack.
Are there any other candidate companies that could grow into multi-billion dollar competitors to big pharma?
Genzyme joins Genentech, MedImmune, ImClone, and OSI, as operating companies with revenues in excess of $1B that have been absorbed by Big Pharma.
Why this matters? Because building a company to be acquired and building the best company are two different strategies. Given the developments with the companies above, one could question the wisdom of adopting any strategy but building to sell.
Who's left:
Amgen - there were loud rumors about PFE buying AMGN 3-4 years ago after reimbursement for Amgen's Epo was reduced. The emergence and success of D-Mab (osteoporosis drug) has kept Amgen an independent company - and there is still hoped for sales growth from personalizing Vectibix, but there doesn't seem to be either another exciting late stage product in development, nor much talk of AMGN acquiring companies or drugs to build and diversify their portfolio.
One factor surprisingly prominent in driving M&A discussions is the age of the selling CEO (GENZ's Termeer is 64), and AMGN's Kevin Scharer turns 63 on Wednesday, Mar 2. CEOs generally don't put their companies up for sale because they hit a certain age, but rather they are a little more receptive to acquisition overtures and because CEOs on the metaphoric "back nine" of their careers don't hold acquisitions hostage to demands for a significant role in the resulting merged company.
Biogen - which has previously been put in play by Carl Icahn, so you can't expect it to stand-alone for too long.
Celgene - I think the one to watch. They have the resources (i.e. cash flow) to reinvest in expanding the product portfolio, their CEO is hungry, and they might not be viewed as attractively by acquirers simply because Celgene is not the product of a novel technology platform. (Revlimid is a fantastic drug, but it's technical roots go back to the 1960's.)
Cephalon - Strong with almost $3B in annual revenue, CEPH has the added advantage of a diverse business. The company has a new CEO as of December 2010 following the death of their founder and CEO, so I'd assume that the new CEO will want to stay independent for the immediate future, while the company climbs a steep growth curve from a number of new product releases over the last 2-3 years. As of now, CEPH lacks a blockbuster drug, which often drives acquisition interest.
Gilead - made further steps towards the big leagues by buying Calistoga last week, which not only adds scale, but also gets the company into a new, large market (oncology.)
Onyx - no way they're independent 3 years from now. Either Nexavar's growth continues and their partner Bayer decides to buy them, or Bayer's follow-on (son of Nexavar) makes the company put themselves up for sale.
Vertex - The company of "Billion Dollar Molecule" fame has lived many lives, and probably rebuffed many suitors, but the future of this company is completely tied to it's late-stage HepC drug. The drug, a potential blockbuster, is partnered with JNJ ex-US, meaning one of 3 things is likely to happen to VRTX:
1) The drug is a smashing success - JNJ decides to buy VRTX to get 100% of the growth, especially since they'll have a great view of sales performance, as they distribute the drug in Europe and elsewhere.
2) The Hep C drug is a middling success, but ultimately shares the market with one or more of the competing emerging HepC drugs. In this scenario, VRTX becomes valued at whatever option value the market perceives JNJ to place on VRTX, at least until VRTX gets another non-HepC product to the late stage.
3) drug not approved, Vertex leaves a big, smoking crater. (Clinical data released so far indicates the drug is strong and that this scenario isn't likely.)
Keep in mind: VRTX's current $9B valuation is ~5% of JNJ's valuation. To an acquisition-driven company like JNJ, VRTX would be a snack.
Are there any other candidate companies that could grow into multi-billion dollar competitors to big pharma?
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