Clayton Christensen on the Future of Pharma

Posted under Blog, business model, change, Clayton Christensen, commercial model, Companies, conference, Diagnostics, Events, FDA, Funding, health analytics, healthcare, innovation, IP, leadership, Medical Devices, Medical Supply, Mitt Romney, People, Pharmaceuticals, Politics, Public Policy, R&D, Regulatory, Safety, SaS, Startups, Strategy, Technology, Uncategorized, Universities, Videos by Ben Comer

A keynote speaker at the 9^thAnnual SaS Health Care & Life Sciences Executive Conference on May 10, ‘disruptive’ author of The Innovator’s Dilemma and Harvard business professor Clayton Christensen sat down with PharmExec to discuss the future of the pharmaceutical industry, and what Mitt Romney could bring to the White House.

Ben Comer: Like tech companies a decade ago, many pharmaceutical companies are now outsourcing more and more of their core competencies in the name of efficiency, often short-term efficiency. Do they risk losing their core in the process?

Clayton Christensen: We absolutely worry that that’s exactly what is happening. I wrote a book called The Innovator’s Prescription, about the future of healthcare, and chapter nine is our view of where the pharmaceutical industry is headed. But the genesis is that, when we thought that diseases were defined by their symptoms rather than their causes, there were big blockbusters out there that were very attractive for [treatment]. And now we realize that a disease should not be defined by the symptom, but rather by the cause. It used to be that the FDA clinical trials process was like a final exam. If 30 to 35 percent of the patients responded to a drug, it was judged as a passing grade. And if your percentage was less than that, then you failed the test. But now we realize that if only 20 percent of the patients responded, then there must be something different about those 20 percent. They must have a different disease than all the rest. Rather than just project it, now we understand that managing clinical trials is an indispensable element of drug discovery. And so if you outsource that, then you’re outsourcing the activities that in the future will be the critical capabilities.

BC: How can big pharma companies foster a culture of innovation in the context of a large, lumbering bureaucracy?

CC: Rarely is the development or the absence of a product the problem in a company. Almost all companies are awash in ideas for new products. What they don’t do – and they could but they choose not to – is to create new business models that are tailor-made to the characteristics of the new product. You come up with this great idea, and you can’t do anything with it unless you get funded. To get funded, you have to, little by little, morph and shape and modify your business plan so that it fits the current business model. If it doesn’t fit the business model, they don’t perceive that it will be successful. So what comes out of the process is incremental innovation after me-too innovation. It’s not that the original idea wasn’t innovative, but in order to get it funded, you have to change your strategy so that it ultimately conforms to your company, rather than to the problem or unmet need in the market.

BC: Is it a viable strategy for pharma companies to spin out a separate entity, away from headquarters, to facilitate new kinds of development?

CC: It doesn’t have to be totally thrown outside of the corporation, but it needs to be a different business unit underneath the corporate umbrella. And you have to manage it at the level of the CEO, differently, than the mainstream. Almost never do you need to accomplish or accept lower profits when you set up this new business. But the formula by which you make acceptable money will be different.

BC: Is current US public policy harming or helping innovation in this country?

CC: I think that it facilitates a particular type of innovation. But I don’t think government is the core problem. I think finance and hedge funds and private equity funds are the big bad actors in the system. Investors like hedge funds and private equity funds and venture capitalists have a measure of performance called internal rate of return. And internal rate of return is a ratio; the way you get internal rate of return up is that you only invest in things that have a very short time horizon. If you just invest more and more for faster and faster quick wins, IRR goes way up. And you think that you’re innovating, because of the quick returns you’re getting. But what that means is that you can’t invest for the long term, because the truly disruptive business units don’t pay off for five to eight years. So then because the government says, ‘Well if you keep your money in the investment for 366 days, we’ll count it as long-term capital gain.’ There isn’t anything about 366 days that is long term. So the government should re-frame that, so that if you keep your money in for five years, there’s no tax, and if you keep it in for eight years, it’s a negative tax. All of these massive amounts of capital that are in private equity funds and so on, you re-purpose it through the tax code, and it would behave very differently, and invest in very different kinds of things.

BC: What is your message to the pharmaceutical industry, and is there a solution to the productivity gap?

CC: I think I know the right question, but I don’t know the answer. I would love to get together with deep thinkers in the industry to sort it through. As a general rule, when other industries are at this kind of an intersection, what has happened is that, at one stage in the value-adding stack in an industry, at one stage if it’s becoming commoditized and modular, you cannot make money at that level in the stack. But the whole industry doesn’t become unprofitable, rather its activities above and below that original [product or service], that’s where the money is made. And that has to be happening in the pharmaceutical industry, but I can’t see what it is yet. By example, the auto industry is becoming commoditized; cars are being assembled by sub-assemblies from tier-one suppliers. Anybody can get these modules and snap together a car. So it’s really hard to differentiate your car from anybody else’s car, so where the money is being made is in the subsystems that define the performance of the car, and by activities that sit on top of that, like OnStar. That’s where the money is made. Somehow, I have a sense that selling the pill, in the future, is not where the money will be made. It will be the attachments on top or underneath it. I haven’t heard anybody articulate what those look like, but I think they’re emerging, and we need to identify them.

BC: I read in The New Yorker that you’ve lived near the Romneys, and both you and Mitt are active in the Mormon church. Do you have any thoughts about a President Romney?

CC: He’s really a good man. He’s very smart, but it’s true that he was raised in a wealthy home, in a prominent home, and then accrued even more wealth, and his kids have been raised in an even more prominent family. And that’s actually about the toughest environment in the world to be raised in, and have your head be screwed on straight. It truly is. And so people think of that, that he’s not connected with the real world. But he has raised his family to create unbelievably good kids. But more important than that, in the Mormon church, we don’t pay professional ministers to teach us and to take care of us, but we help other people and teach each other the gospel of Jesus Christ. What that means is – because the members have to take care of one another – you meet everybody. And so Mitt was the bishop of our church, and bishop just means that he had responsibility for about 500 members of the church. And he had a family, he was trying to build Bain at the same time, and to be the bishop meant that he spent, on top of all that, 30 hours a week. And I don’t know if you ever saw the first Star Wars movie, but Luke Skywalker came in to meet Han Solo at some kind of a café, and the band that was playing, there was one of every conceivable form of life in the band, that’s what a Mormon church looks like; one of every conceivable type of person. If you’re the bishop, you’ve got to help all of those people. Under his leadership we built three significant new congregations in the inner city, in three different languages. So he really has seen a lot. I don’t think journalists have really realized, when he left [Bain & Company], the consulting firm, to create Bain Capital, that was going great. And the original owners of Bain & Company decided to sell their ownership stake to the next generation of partners. In order to pay the selling founders off, they had to take all of the profits the consulting activity made, and then some, to pay off [the owners]. And these people were just sitting at the side, rolling it in. As a result, Bain & Company would have gone bankrupt in two weeks. So they said, ‘Mr. Romney, could you please leave [Bain Capital] and come here and take presidency of Bain & Company, and somehow you have to prevent bankruptcy.’ So Mitt sat down with the six selling partners, and essentially convinced them to agree to take one-sixth of the amount of money that they thought they were owed, and got them to feel good about it. Just the way that he got these people, instead of knocking their heads together, he led them to agree on something that was very counterintuitive to all of them, and that is the idea that we are all best served if we try to help the other side win. I just think that someone with that instinct in the White House, in the climate of Washington, that would be a good skill.

Christensen’s new book – How Will You Measure Your Life? – takes his experience and thinking in business and applies it to personal decision-making. He has been the subject of lengthy profiles this month in both Bloomberg Businessweek and The New Yorker.

U.S. Biosimilars Under Threat?

Posted under biosimilars, Blog, Companies, Diagnostics, FDA, Funding, Guest Blog, IP, Legal, Medical Devices, Medical Supply, Pharmaceuticals, Regulatory, Regulatory Guidelines, Startups, Strategy, Technology, Universities, Videos by Guest Blogger

by D’vorah Graeser, Graeser Associates International

While the FDA continues to develop its guidance for U.S. biosimilars, including a one-day public hearing on May 11, 2012, the basic legal underpinnings of biosimilars in the U.S. may be under threat, as the Supreme Court debates the healthcare law, a large chunk of which includes provisions for biosimilars.

As background, biosimilars were discussed for many years in the U.S., but unlike Europe, no regulations were developed. As part of the health care law’s cost controlling measures and to promote biosimilars innovation in the U.S., the Biologics Price Competition and Innovation Act (PPACA) was included in the bill. However, the act was stated to be “non-severable” from the rest of this law, meaning that if the PPACA is struck down, so is the biosimilars part of the law. That means, even if the Supreme Court does not specifically object to the Biologics Price Competition and Innovation Act, its mere inclusion in the PPACA could lead to its downfall.  As a side note, the Supreme Court does not seem to have much of an opinion on generic biologics one way or the other, with Supreme Court Justice Stephen Breyer referring to “the biosimilar thing” during oral arguments.

This uncertainty comes at precisely the wrong time. Innovation in biologics has taken off in the U.S. The FDA reported that at least 35 requests for biosimilar pre-IND meetings were made in reference to 11 biological drugs as of February 15, 2012; as of that date, 21 pre-IND sponsor meetings were held and 9 INDs had been received. The FDA is instituting measures which are likely to further increase the popularity of this program, including providing a path to regulatory approval in the U.S. for similar biological products licensed outside the U.S.

Although the Biologics Price Competition and Innovation Act could be passed again as a separate law, the upcoming presidential election and campaign maneuvering are both likely prevent any real action on that particular motion. The bill will probably be swept to the side as “politicking” takes the place of “policy making.” This would be unfortunate, as the Act would clearly benefit consumers by reducing the price of biological drugs, which are typically among the most expensive on the market. The bill would also prevent originator biotech companies from enjoying a de facto “post patent” monopoly, due to the current expense and uncertainty of achieving regulatory approval for “generic” forms of these drugs.

Dr. D’vorah Graeser is the founder and CEO of Graeser Associates International (GAI), an international healthcare intellectual property firm.

Related: Biosimilars Spend to Reach $2.5 Bln by 2015: IMS

Dare to Compare: Genzyme Bets on MS

Posted under Blog, Companies, Diagnostics, Events, FDA, Funding, Genzyme, Global, IP, Medical Devices, Medical Supply, multiple sclerosis, Pharmaceuticals, R&D, Regulatory, Safety, Sales, Sanofi, Startups, Strategy, Technology, Universities, Videos by Ben Comer

Riding positive data on a late-phase multiple sclerosis drug, Genzyme execs talked up the company’s willingness to go head-to-head against Rebif, EMD Serono and Pfizer’s blockbuster beta interferon.

Genzyme execs didn’t go so far as to reiterate former CEO Henri Termeer’s 2010 prediction of $3 billion plus in potential sales for Lemtrada (alemtuzumab), but they did tout clinical results suggesting a reversal in MS-related disability for some patients.

New phase III data from Genzyme’s CARE-MS II was unveiled yesterday at the American Academy of Neurology’s annual meeting, and while Biogen Idec’s BG-12 (dimethyl fumarate) – a twice or thrice daily oral drug – has gotten more and better attention over the last year, Michael Panzara, therapeutic area head, multiple sclerosis, immune diseases and neurology at Sanofi-owned Genzyme, says consider the trial design. Without speaking directly to other clinical programs in the MS space, Panzara tells PharmExec that Genzyme’s decision to use an active comparator, rather than a placebo, raises the bar. “When you have a therapy as efficacious as [Lemtrada] with a risk profile that’s manageable – but it does have a risk profile – you want to set a standard of going against what is viewed as the most effective platform therapy, which is Rebif,” says Panzara.

This strategy, while riskier than testing against placebo, pays dividends if the results suggest superiority, according to Panzara. “I think [active comparator data] will be viewed favorably by physicians, who practice medicine and have to make these treatment decisions every day,” says Panzara. “And I would hope regulatory authorities would take notice as well, because they’re always looking to better understand risk and benefit versus therapies that are already available, especially in Europe.” Bill Sibold, senior vice president, head of multiple sclerosis at Genzyme, says the comparator data will aid in reimbursement discussions with payers, so the risk of knockout in a head-to-head battle is warranted. “I think most companies hesitate to do [active comparator] trials, so I think it says a lot about Genzyme and the approach that we’ve taken, specifically with this program.”

But is Rebif still the lead contender in MS? Raghuram Selvaraju*, head of healthcare equity research at Aegis Capital, says going head-to-head against Rebif in MS is akin to playing a game of chicken and waiting a bit longer before turning away. “Rebif is no longer the standard as far as efficacy is concerned…that honor now belongs to [Novartis'] Gilenya,” says Selvaraju. Gilenya was approved in late 2010, which illustrates a key difficulty with comparator trials; when Lemtrada went into the clinic, Gilenya wasn’t yet on the market. Concerns regarding Gilenya in patients with a history of cardiovascular issues have recently reemerged, however, which could add a few pounds to the scale for Lemtrada.

If approved – Genzyme is on track to file for US and EU approval of Lemtrada for relapsing MS this quarter, according to Panzara and Sibold – the company has worldwide rights and the lead role in development and commercialization, although  Bayer HealthCare retains an option to co-promote the drug, and would receive contingent payments based on sales, according to a company statement. Sibold says Genzyme will be hiring sales reps closer to launch. “You’ll see a lot of growth” with respect to marketing and promotional capabilities in MS, says Sibold. Sales force headcount and the specifics of a co-promote with Bayer are details for a later date, he said.

Sibold added that Genzyme has the modest goal of “becoming leaders in MS,” and that “starts with the portfolio.” In addition to Aubagio (teriflunomide), a phase III once-daily oral treatment with “efficacy similar to the platform therapies,” according to Sibold, Genzyme is “looking within our internal pipeline, and looking externally for ways to continually evolve our MS franchise…our plan is to be here for a long time, so we need the supporting portfolio to do so,” says Sibold.

Lemtrada is administered as an infusion over five consecutive days, and then again one year later, for three days. Autoimmune side effects, particularly hypothyroidism and hyperthyroidism, occurred at a rate as high as 30% of patients during phase II, but were down at 15.9% for the CARE-MS II study. A rare autoimmune disorder called immune thrombocytopenic purpura, or ITP, occurred in less than one percent of patients. Only 5% of the Rebif comparator arm had autoimmune thyroid side effect. As a result, analysts have been cool on Lemtrada, but Panzara insists that most of the occurrences were mild to moderate, and they’re well managed. “We’ve gotten very good at detecting and managing [thyroid-related autoimmune side effects], and it doesn’t cause people to leave the trial early, or refuse additional doses; it doesn’t impact that,” says Panzara. “It’s easy to call attention to [Lemtrada’s] side effects, without calling attention to the risks of MS itself,” says Panzara. Of the benefit side of the coin, the CARE-MS II study used the Expanded Disability Status Scale (EDSS) to show that 29% of patients with an EDSS score of two or more – two is characterized as “minimal disability” – had a preexisting disability that was reversed, says Panzara. “Those patients had a reduction in their disability scores that was sustained, so that is a reversal in what they had before,” he says.

Lemtrada’s active ingredient – alemtuzumab – is already on the market in a subcutaneous formulation known as Campath, indicated for the treatment of certain cancers. In 2010, Genzyme execs publicly considered discontinuing Campath and giving it to cancer patients for free, to prevent off-label MS usage, but Sibold wouldn’t elaborate on the company’s current strategy with respect to Campath, beyond expressing a “commitment to ensuring that patients who need Campath receive it.” The pricing issue is problematic, says Selvaraju. “Currently, a dose of Campath that is over 10 times higher than the dose being used in MS patients is sold for roughly $30,00 per year. Just as Genentech/Roche found with their Avastin/Lucentis problem, Genzyme/Sanofi are going to run into trouble if they ask reimbursement agencies to swallow a higher price than roughly $3,000 per patient per year for alemtuzumab in MS,” he says. Taking Campath off the market and providing it for free to cancer patients while putting a premium price on the MS version “is probably not going to fly with reimbursement agencies either here or in Europe,” says Selvaraju.

Lemtrada has patent protection in the US until 2017, and most of Europe until 2014, the company said.

*Raghuram Selvaraju does not currently have ratings or price targets on any of the companies mentioned in this article, nor does he own securities or any derivatives thereof pertaining to these companies. Aegis Capital has not conducted any investment banking business for any of these companies, either.

Trust Issues: Dealing with Academia

Posted under academia, Blog, collaboration, Companies, Deals, Diagnostics, Funding, IP, leadership, Medical Devices, Medical Supply, partnerships, Pharmaceuticals, R&D, Startups, Strategy, Technology, Technology Transfer, Universities, Videos by Ben Comer

Worried they might get taken for a ride, university tech transfer offices are beginning to hire ex-pharma and biotech personnel to help negotiate deals with industry.

On exiting a theater, writers are often astounded and dismayed by the film resulting from a screenplay they’ve sold to a producer. Punch-up writers have added corny jokes, directors have replaced nuanced dialogue with bombastic proclamation, and editors have substituted long-form visual narrative with jump cuts and montage. However, these collaborators – the directors, punch-up writers and editors – often determine whether a film is a commercial hit or a box office bomb. Writers and producers have to work together so that both parties are satisfied with the end result.

A similar relationship exists between scientists at academic institutions and the pharma industry; intellectual property is like a screenplay, in that it holds the potential for commercial gains, but it takes a team of different kinds of people to bring that potential to fruition. Academics who spend most of their time in the lab regard the commercialization process with skepticism; they may have concerns about the application of their discovery, or they may feel swindled by the financial arrangement.

With the proliferation of university partnerships in recent years, tech transfer offices have sought to provide intermediary staff that academics can trust, so they don’t automatically assume that industry has shown up in the lab for a fleecing. “University tech transfer offices are hiring biotech and pharma people that can say, ‘You really don’t need another mouse study,’ for example. This helps unlock value faster,” noted one participant at PharmExec’s 2012 Dealmaker’s Roundtable yesterday (the full conversation on trends in deal-making will drop in June; for last year’s roundtable conversation, click here).

Susan Desmond-Hellmann, chancellor at the University of California, San Francisco (UCSF), has been credited as a facilitator on deals with Pfizer, Sanofi-Aventis and Bayer; before she joined UCSF, she was president of product development at Genentech. “As a former head of product development myself, I think that future investment by industry in more deals with academia will depend on a very business-like assessment by companies on what their return on investment has been. They’re going to do that math, as I would expect them to,” Desmond-Hellmann told Nature Reviews Drug Discovery last year. Academics are doing the math, too. Increasingly, institutions “want to be treated like a small biotech,” said another roundtable participant. To avoid distrust, tech transfer offices and academics should “be able to get advice from someone on their side,” and this can be done through the creation of an advisory board peopled with ex-industry expertise.

Job losses at major pharmas over the last couple of years could result in a larger pool of relevant applicants, and many institutions, including Duke University, the University of California San Diego, the University of Michigan, and many others, already have former industry workers in their tech transfer offices. As for writers, they’ll need to cough up Writers Guild of America dues and hold out for DVD royalties.