A Thanksgiving Message from Pfallergan

As the United States prepares to celebrate Thanksgiving, a holiday that traditionally mixes gratitude and gluttony in relatively even proportions, we at Pfallergan would like to say how grateful we are for the fortuitous conjoining of our two constituent companies. There are critics who claim that this merger epitomizes the worst of corporate gluttony, but we believe that it is a celebration of American ingenuity at its best, exploring and exploiting the legal path through and around the burdens otherwise unfairly imposed by outdated allegiances to patriotism, morality, and the Tax Code. We answer to a higher authority–our Shareholders, and the Analysts to whom they turn for guidance.
Those who have reported that Pfallergan will pay various advisors over $300 million to provide counsel regarding this joining of our two companies must surely recognize that, for this scale of remuneration, we have been guaranteed access to wisdom of Solomonic quality, albeit with a contemporary, pragmatic bent. Even though the payment of that remuneration depends upon the completion of this merger, we feel fairly certain that if there were any cogent reasons to not go ahead, legal or ethical, that someone would have mentioned them in passing, even if not in writing.
We are grateful that our legal counsel found a way to construct this transaction as one where Allergan could appear to be acquiring Pfizer, while Pfizer shareholders end up with the majority of Pfallergan, and I get to keep my job. What a country: America is a terrific place to do business, one which has made it possible for us to prosper, with the highest drug pricing in the world and occasionally aided by federally funded research. It is a shame that the United States would not cut us a better break on our tax rate, or made it less expensive for us to bring back the $95 billion that we have stashed offshore. We are grateful to Ireland for existing, and offering us a shore upon which to land our craft. And we are grateful to our scientists, to whom we will offer industry-standard severance packages as we gradually de-emphasize the research to which they have devoted themselves.
Thank you for your time and attention. Now let’s go gorge ourselves with turkey and football!

Ian Read

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The Pfallergan Phallacy

(from NP Nov-Dec, released 10/31/15)

As this issue of NP is released, the business media world is all aflutter with news that Pfizer and Allergan are discussing a merger. The headlines emphasize the massive scale of the potential alliance and the hope that Allergan’s growth and tax rates will pump up Pfizer’s tepid numbers. This relies upon the premise that size matters in the pharma world, which it does, but not in a good way. For example: Regardless of the business school spin, we will never buy into the illusion that the neuroscience sector in specific, and the pharma environment in general, was enhanced by Pfizer’s merger with Wyeth. Similarly, this marriage would be driven largely by Euro-domicile tax inversion considerations, as was Pfizer’s previous overture to AstraZeneca, thankfully rebuffed. Astra Zeneca’s Pascal Soriot ‘got it’ when it came to the correlation of size with productivity: To the degree to which they are correlated, it is in a negative direction, and he fended off Pfizer’s entreaties. Pfizer has revitalized its neuroscience programming, albeit under an umbrella of fiscal nitpicking that makes us think that a merger would lead to the kind of culling of programs and talent that only makes street analysts happy. John LaMattina*, a former head of Pfizer R&D, today made the reasonable observation in Forbes that the two companies have little overlap in R&D capability at present, and that the greater risk would be if Allergan’s Brent Saunders were to eventually ascend to the Pfizer CEO role: Saunders is certainly no champion of internal research. We prefer to not find out. Allergan’s acquisition of Naurex, and their Forest legacy in CNS late-stage drug development, gives us some hope that, on their own, they may prove to be a healthy contributor to the neuroscience resurgence already underway. While Biogen has gone through a difficult period of late–no one is immune to setbacks–that company has demonstrated over time what we believe is the productivity benefit to be garnered from maintaining focus and some degree of organizational nimbleness, both of which suffer in the wake of mega-mergers. We just hope that Pfizer and Allergan do not create a business school case study for 2018; another example of a corporate marriage driven by the wrong priorities, and a vision of the future driven by girth rather than excellence.

*LaMattina wrote a followup piece published in Forbes today (11/11/15) that is well worth reading, focused on the lack-of-fit between Saunders’ lack of affinity with inhouse research and the Pfizer R&D culture.

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A Nest of Vipers

Context: Two months ago, in Neurogram, we wrote: <<This brings us to Valeant Pharmaceuticals. We despise Valeant, a company that routinely treats acquired companies like poachers who have machine-gunned an elephant in the veldt, stripping the tusks while leaving the carcass to rot in the tropical heat.>>

Since then, Valeant’s price-gouging (they say they don’t actually gouge, they raise the price astronomically, and then give discounts….right)  left them swimming in the same cesspool as Turing Pharma, and now today, an activist short seller, Citron Research,  issued a report that charges Valeant with operating two specialty pharmacies as a way of camouflaging their actual drug-sales activity flow. To which Bill Ackman, head of Pershing Capital, and formerly in league with Valeant in the attempt to bludgeon Allergan into accepting its hostile takeout bid, responded by buying around $200 million more of Valeant’s stock. Which, a cynic might suggest, is his attempt to shore up the value of Pershing’s already large-scale Valeant holding. But then again, Andrew Left of Citron, who has his own checkered past, admits to having a short position (someone bought two million put options), and thus has profited handsomely (on paper at least) from Valeant’s turmoil, and the dramatic price drop today in response to his own report.

To be fair–they’re all vipers. There isn’t a hero to be found in this motley but extremely overpaid crew. We do not know where the truth lies in the relationship between Valeant and its two specialty pharmacy progeny/prey, and we do not particularly care. It all adds up to more collateral damage to the reputation of the pharma industry, which does have its share of vipers, but nothing like this. This is a reality show from Hell: Lock the lot of them in an underground bunker, and let the cameras roll. We will not be watching.


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Neurogram+ 10-5-15

Greed Jumps the Shark1

Future pharmarchaeologists may try to unearth and analyze the sequence of events that triggered the eventual imposition of pharma price controls in the United States, for so long the bastion of pharmacoeconomic free enterprise. It is like exhuming the skeletons of Pompeii, except that they did nothing to trigger Mt. Vesuvius’ wrath, whereas this cataclysm was largely self-induced. From our viewpoint, the first major warning tremor came with Gilead’s pricing of Solvadi for Hepatitis C, where the cost, multiplied by the size of the potential treatment population, portended fiscal distress for American payor systems. But the advent of a competitor, and the restriction of access by payors, kept the crisis from burgeoning out of hand. But recent incidents of extreme price-gouging, amplified by the populist lens of an approaching election year, have put pharma drug pricing back in the crosshairs of editorial writers everywhere.
First, Turing Pharmaceuticals acquired a grizzled antibiotic (Daraprim) used for toxoplasmosis, and immediately raised the price 5400%, from $13.50 to $750 per tablet. When challenged, the justification claimed by CEO Martin Shkreli was that this would fund R&D and physician education, displaying a level of disingenuous smarminess close to self-parody. Shkreli finally promised to roll  back Turing’s price increase by some undisclosed amount. Rodelis Pharmaceuticals announced a 2000% increase in the price of cycloserine, used in the treatment of tuberculosis, after acquiring it from a nonprofit group. In the resultant outcry, the sale was canceled, the drug returned to its nonprofit owner. Similarly,  Valeant Pharma has been called out on its chronic appetite for a spate of abusive price-escalations.
Damage has been done: Democratic Party presidential candidates have mustered their outrage and called for regulatory controls, including proposals for requiring R&D expenditures to reach some minimum level (we would like to see Valeant’s research-phobes deal with that one); restrictions on the deductibility of DTC advertising costs (though DTC spending levels have indeed reached an absurd apogee); the acceptance of pharmaceutical imports from lower-cost countries; a reduction of marketing exclusivity for biologics; and the possibility of price controls. Like many campaign promises, these specific proposals may only have a shelf life of one or two polling cycles, but it would be naive to think that this issue will go away.
This serves as a salutary lesson on what happens when people-in-power possess neither a conscience nor the frontal-lobe capacity to appraise the future consequences of their actions. Valeant’s CEO Michael Pearson pathetically defended Valeant’s strategy as necessitated by his obligations to “shareholders”, apparently oblivious to the consideration of anything more than next-quarter’s earnings report.
Turing, Valeant, and Rodelis are nothing but entities bent on exploiting market anomalies, but the rank arrogance of their gouging exacerbates the overall public perception of the pharma industry as a club of robber-barons. Greed has jumped the shark, and the pharma industry as a whole is going to eventually suffer some pain as a result.2

1 “Jump the shark”: An American idiom that initially referred to a television show that signals its impending decline by resorting to some gimmick or story device that undermines its own premise or credibility. It has gradually been broadened to indicate a moment of excess in any industry or endeavor that constitutes a tipping point, after which decline/deterioration can be expected.
2 Some pain has already been felt: The NIR Stock Index dropped 25.6% from July 1 to October 1, as the topic of possible price controls resurfaced.


Two Science Notes

1) Roche announced positive data from a trial of ocrelizumab in PPMS, which along with a previous report of positive results from MedDay, albeit in an earlier-stage trial, signals the possibility that disease-modifying progress is finally being made vis-a-vis Progressive MS.
2) We were intrigued by the report that the HERV-K retrovirus may play a key role in the initiation of ALS pathophysiology. While this is a hypothesis that will require validation over time, it is reminiscent of the work being done by GeNeuro in the role of retroviruses in the onset of MS and schizophrenia.

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FRM-6124 Trials Halted

There is a highly credible report that the Forum Pharmaceuticals Phase III trials for encenicline/FRM-6124 are being halted due to a safety issue: Gastric hypomotility setting the stage for eventual gut perforation. FRM-6124 is a program that NIR has long followed, and while there have been questions raised regarding the magnitude of its procognitive impact, we have seen it as one of the more promising options for cognition in Alzheimer’s and schizophrenia, the one clinical-stage nicotinic alpha 7 modulator still left standing. Forum has not yet made a public announcement, we await any detail that may come from them on this. But in the meantime, this would be devastating news. It would leave the 5HT-6 antagonist programs from Lundbeck/Otsuka and Axovant  as the most advanced procognitive candidates for Alzheimer’s. Unless and until a disease-modifier establishes efficacy in the Alzheimer’s realm, and nothing has yet produced a clearcut, consistent signal, symptomatic therapies will continue to receive clinical and investor emphasis, even if their magnitude of clinical effect is marginal–so long as they exert that effect safely. It appears that FRM-6124 has failed that critical test.

Addendum: Forum’s press release was finally sent out, and it provided some additional detail regarding the Phase III programs: The Alzheimer’s programs have been fully suspended, no additional study drug will be administered during the clinical hold.
The schizophrenia efficacy trials, which are fully enrolled, will continue, with additional GI safety monitoring provided. The premise is that elderly Alzheimer’s patients, who have a documented elevated incidence of GI disorders, may be particularly–or even uniquely– vulnerable to this AE. No patients in the schizophrenia trials have shown this AE (they have an average age of 40) hence the decision to allow the completion of the two efficacy trials. However, a longterm safety study in CIAS was halted, so the FDA is hedging their bets regarding FRM-6124’s safety in even the younger CIAS population.

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The Sharing Economy: Pharma Version

The Twenty-First Century ‘Sharing Economy’ has achieved a high profile and been sometimes rewarded with massive valuations over the past few years, with AirBnB and Uber epitomizing the model of sharing the costs and benefits associated with an asset. The Pharma version involves two companies joining forces on a program, sharing the costs, risks, and potential rewards. The difference between the Pharma iteration of SE and the aforementioned AirBnB and Uber is that, in the Pharma world,  there is also a change in ownership of the asset, but the sharing concept still has some applicability. Now, we have a brand new example of this being applied in the neuropharm arena:

(BioCentury 9/1/15)
Amgen Inc. and Novartis AG will collaborate to co-develop and co-commercialize candidates in Alzheimer’s disease and migraine. The companies said they will combine beta-site APP-cleaving enzyme (BACE) inhibitor programs to treat AD. Novartis’ CNP520, which is in Phase I/IIa testing, will be the lead candidate. Amgen will make undisclosed upfront and milestone payments to Novartis, and pay “disproportional” R&D costs for an undisclosed time frame, after which the companies will share equally global profits and costs for all AD assets. Novartis will receive global co-development and full ex-U.S., Canada, and Japan commercialization rights to Amgen’s migraine candidates including mAbs AMG 334 and AMG 301 in return for paying “disproportional” R&D costs and double-digit royalties.”
Just one day earlier….
(from NeuroPerspective, Sept-October 2015, released 8/31/15)
“Given the enormous scale of late-stage clinical trials in AD, several companies have decided to collaborate on the therapeutic programs as well. While there are some companies (e.g. Roche/Genentech) who are willing to double-down and carry the costs of multiple disease-modification programs, for those who want to go for the gold ring of arresting Alzheimer’s at its biological source, there is value and safety in partnering around one or more mechanisms, to avoid risking too much credibility and capital. Biogen/Eisai, Lilly/AstraZeneca, and Lundbeck/Otsuka exemplify pairings that provide some insurance against excessive exposure in the event of failure. Collaboration means relinquishing hubris in the service of sharing both the risk and the reward, but one-third or one-half the revenue that will come from a successful Alzheimer’s drug will be–or should be–more than sufficient for any pharma company.”
We would like to take full credit for thereby inspiring the Novartis/Amgen deal, but unfortunately, we cannot. This is an excellent example of an illusory correlation that has nothing to do with causality. However, and more importantly, the agreement epitomizes pragmatic diversification and risk-reward sharing. Amgen will shoulder a major share of Novartis’ Alzheimer’s costs/risk in venturing into a BACEi field not lacking for competition (Merck, Biogen/Eisai, Lilly/AstraZeneca); while Novartis is taking on some of the challenge of bringing Amgen’s CGRP-antibody into a now crowded CGRP-migraine field (Teva/Labrys, Allergan/Merck, Lilly/Arteaus, and Alder Pharma).
There is a bonus here: Amgen, with all of its resources, had largely exited neuroscience several years ago. They are finally giving some indication that they see neuroscience as something more than just a headache. We hope that this presages greater investment in this area.

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She Loves Me, She Loves Me Not

NIR has not covered the journey of flibanserin/Addyi , but we have watched with interest, and as the FDA decision loomed, we fielded a couple of calls from print journalists inquiring about our views on this somewhat controversial drug for female sexual desire disorder. Yesterday’s FDA approval was followed by today’s billion-dollar acquisition of Addyi by Valeant, and a comment is in order, since the very essence of the Addyi premise is that to a large degree, this is a ‘brain-based disorder’, as opposed to male sexual dysfunction, which is largely, albeit not entirely, an issue of  hydraulics.

Addyi is a mediocre drug with a minuscule therapeutic effect, one that provides a minimal level of improved sexual functioning to a small minority of women trying it. It has some problematic side effect issues. But we do believe that it was the correct decision to approve Addyi, now the first and only drug tested, approved, and labeled for a condition which is estimated to affect sixteen million women in the US alone. Part of this is a gender politics quandary; in an environment where drugs for male sexual dysfunction have become a part of the popular lexicon, purchased (and covered by insurors) to the tune of many billions of dollars per year, and couples in hot tubs gazing at the horizon have become a routine backdrop for televised sporting events, we would not want to be the regulatory agency saying no to the  attempt to develop something of a parallel for women. Frankly, to say no to the offering of an option would have been an exercise in condescending paternalism, and this is the last area where paternalism should show its face. It is a domain where women and their physicians should be able to make informed decisions.

After all, this is a domain that is poorly understood, and neural chemistry is just one factor amongst a host of others, including the hormonal and interpersonal, that mediate a woman’s level of sexual desire. There is no way for a single compound to provide a panacea for something that is so highly interwoven with the context of a relationship. In fact, it may matter little just how much actual pharmacologic impact this drug has, vis-a-vis how much is based on expectancy, and the inevitable placebo effect: Just the contemplation of whether or not to try Addyi will have a reverberating effect within a couple’s relationship, and indeed, couples therapists should have field day contending with couples wrestling with the decision to try–or not to try–a pharmacotherapeutic intervention. It brings their sexual relationship, and the role of women’s desire, to the forefront, and if the effect is to foster more sexual intimacy, that has the potential to be self-reinforcing. To that degree, even more than in so many disorders, this will harness the placebo effect in a way that could be more durable than it usually is. Of course, if it is the relationship itself that is the primary source of dysfunction, then a drug intervention will  fail, sooner rather than later.

This brings us to Valeant Pharmaceuticals. We despise Valeant, a company that routinely treats acquired companies like poachers who have machine-gunned an elephant in the veldt, stripping the tusks while leaving the carcass to rot in the tropical heat. But in this case, there is nothing else, no R&D operation to be trashed; Sprout Pharmaceuticals is a one-product gamble that has paid off very well for the entrepreneurs who acquired flibanserin after Boehringer Ingelheim dropped it. We are somewhat stunned at the billion dollars to be paid upfront (even if in two installments); with the uncertainties attached to Addyi, we expected a deal that included more in the way of sales milestones. It is possible, that if initial word-of-mouth is negative, or if insurors resist the (initially cited) $5000 per year price tag (they will rue the day, if they reimburse ED drugs more liberally), that Addyi will end up only a minor success. But if just 1% of the projected, potential patient population in the US uses Addyi for six months in a year, that would produce gross revenue in the $400 million range (we are not going to spend time projecting rebates and the like). Addyi is not going to be a product to rival the Viagra and Cialis franchises, it costs too much and provides too little, but it is likely to be remunerative for Valeant. We only wish we could be a fly on the wall of the advertising agency brought in the develop the eventual OTC marketing campaign for Addyi, which is going to have to walk a tightrope of nuance as they navigate this marketing minefield.

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