Saturday, October 27, 2007
Wednesday, October 24, 2007
"For Kindler, this hardly seems like a fair shake for his first year as CEO. Will investors view him as a stoic leader making tough decisions to clean up someone else's mess? They may. However, this could be the last time Kindler gets the benefit of the doubt."
Pharmalyst's own view is that Mr. Kindler should not get any of the blame. In fact if anything, this is perhaps the one gutsy move where Mr. Kindler has shown that he is a "fact-based manager" rather than a "faith-based manager" or a "hubris-based manager" like his predecessor. Pharmalyst's very first blog post (on March 25, 2007) expressed the view that "with the benefit of hindsight, this product should never have been launched". It seems that Mr. Kindler has recognized that sunk costs are sunk and that there are other projects with prospects of a better RoI that could use the dollars that Exubera was sucking up.
Pharmalyst was even more impressed with Mr. Kindler's decision to kill their NextGen Exubera.This was supposed to address some of the issues of Exubera version1 - such as a bulky inhaler. In light of this decision, it is time that Lilly/Alkermes, Novo & others re-evaluate their inhaled insulin projects very carefully...if these are not viable, then these companies should pull the plug early and avoid PFEs fate of having to do a $2.8 billion write-off later. The following factors in Pharmalyst's view, bring the viability of these inhaled insulins into question:
1. Lung Function Tests: Just yesterday Alkermes reported that their product also showed slightly reduced lung function. This alone may be enough for NICE etc to deny reimbursement. In the US, private and medicaid insurance will have a zillion complications with the billing codes for the tests etc and physicians will view this as a hurdle. There are also concerns around lung cancer etc over the long term.
2. Dosing: Looks like some of these products are providing better options here than Exubera but this too may be a challenge
3. Cost: Exubera had a higher price point than the injectable versions.So it was not a viable product in emerging markets (some of which do have a high prevalence of diabetes). The payers in Europe will not reimburse unless clear economic value (higher compliance etc is demonstrated and Pfizer seems to have failed in this area). In the US, the insurers force customers to pay higher co-pays or will not cover the costs for the inhaler. So in both developing and developed markets, the price point of these inhaled insulins will be a critical factor.
4. Using insulins early: Witness the full page ads that Sanofi has been taking out in US newspapers asking patients to consider insulin early....this has proved to be a hard sell.
5. Finally there is the prospect of being blindsided by some other way of delivering insulin. Look at this BBC report showcasing a project by UK company Diabetology and Cardiff University - apparently they are exploring ways to deliver insulin in a pill.
Thursday, October 18, 2007
Mannkind and Lilly inhaled insulins may be better but this is not a sure bet. Though inhalers here may be much smaller than Exubera, several problems remain:
1. Continued hassles of checking lung function test; reimbursements for these etc
2. Precision dosing/titration of an inhaled powder always a challenge
3. Still not cost-effective in Asia and other developing markets
These are perhaps the reasons that Pfizer decided to abandon Exubera part deux and Lilly & Mannkind better take a critical look at their inhaled insulin programs.
Sunday, October 14, 2007
Buying a French "national champion" is never easy politically & given Sanofi's size this is no cakewalk for Pfizer. From an alliance perspective though a number of planets line up:
- Sanofi is coming up with a Zetia like molecule. This could present some interesting combination opportunities with Pfizer's Lipitor?
- They could leverage Pfizer' s US sales & marketing machine for their smoking cessation treatment dianicline
- Both companies are also researching obesity/diabetes compounds (similar class as Accomplia). Perhaps there exist some opportunities to pool risks.
Mega mergers haven't worked but alliances in the industry seem to have (Schering - Merck on Vytorin, Bristol - Sanofi on Plavix, Pfizer - Eisai on Aricept, J&J - Bayer on rivaroxaban(perhaps?) etc). Time for Pfizer to consider such an alliance with Sanofi.
So Pfizer finally settled on its lead internal candidate Dr. Martin Mackay, to lead its research labs (PGRD). But looks like their CEO Jeff Kindler hedged his bets a bit. Pfizer is going to run a biotech startup out of San Franciso headed by Dr. Corey Goodman. According to Pfizer's press release Dr. Goodman will also report to Mr. Kindler. Dr. Mackay's leash however was shortened a bit by Mr Kindler. Dr. Briggs Morrison from Merck was hired as Dr. Mackay's top deputy overseeing all of clinical development. Should Dr. Mackay screw up, Dr Morrison will be ready, willing and able to take over.
Mr. Kindler may be hedging his bets with a structure like this but Pharmalyst thinks that with this approach, Mr. Kindler is being more of a lawyer than a manager. This convoluted cluster of their R&D organization has no single point of accountability - no one head of R&D with whom the buck stops. Dr. Mackay was probably hired so as to not upset their mid-stage pipeline which if they are to be believed, is looking strong (it probably also helped that no outsider was willing to step into this clusterf***).
Mid-stage pipeline aside, there could be serious problems longer term. The biotech in San Francisco could blame the R&D organization for not supporting its ideas enough & the R&D group could blame the biotech. Two strong executives in this sort of a role is ripe for ego clashes etc. A powerful strong deputy like Dr. Morrison could also end up looking over the shoulder of his boss & second guessing him all the time. So from an organizational theory standpoint, this new approach could have serious problems.
A long time ago, Pharmagossip had this interesting post about investors clamoring for a GSK consumer division spin off (See Pharmalyst's posts on the same here). The BreakingViews column (subscription required) of this past wednesday's WSJ makes a string case for a divestiture of GSK's consumer biz. They point out that branded consumer goods companies like P&G and Reckitt Benckiser are trading at higher multiples than GSK. New consumer brands are not easily built and so GSK's division should fetch a good multiple should their new CEO Mr. Witty consider a spin off or sale. By BreakingView's math, this division will earn about $1.5 billion in operating profit this year and should fetch $25 billion in a sale!!
That is a huge multiple indeed and GSK will probably not miss brands such as Tums and Horlicks. Horlicks to Pharmalyst's amusement is an improbably named "malt beverage" (no...not the kind readers in the US are thinking) that is well liked among the UKs senior set (supposedly useful in getting a good nights sleep).
If GSK brass consider such an option they have to weigh whether to float the new subsidiary (lower taxes) or sell it to another buyer (taxes on capital gains will accrue). Pharmalyst thinks that there are plenty of buyers like P&G who will be willing to pay a premium to make a sale worthwhile.
Wednesday, October 3, 2007
To quote a couple of excerpts:
- "About a month ago, we heard some rumors and there was some [options] activity and then it stopped," said Joe Kinahan, chief derivatives strategist for thinkorswim. Now we're starting to hear again that Bristol-Myers might be in play, that a few of the other drug companies are starting to take a look at it, and that seems to be bearing out in some of the activity we're seeing," he said.
- Almost 26,700 call options on Bristol-Myers changed hands yesterday, compared with only 2,800 puts, according to Track Data. Investors focused on November calls that convey the right to pay $30 a share for the stock in the weeks ahead.
BMS of course didn't comment and Sanofi's name was widely bandied. Given all the negative news regarding Accomplia, Sanofi does need something like Bristol's Apixaban to shore up its revenues (Plavix LoE in a few years and serious competition for Lovenox).
That pretty much leaves Sanofi & Pfizer as the two most likely candidates interested in an M&A deal. Sanofi as a European company will probably have to pay a premium to Bristol's American shareholders compared to Pfizer - but that shouldn't be a problem at all given the weak dollar & the consequent appreciation of Sanofi's stock & cash position. Pfizer on the other hand may be more desperate. PFE probably needs all of the potential Apixaban revenues to offset its LoEs (Lipitor in 2011, Norvasc, Zoloft etc) & Bristol's heritage in the oncology area would be a good fit with Pfizer's emerging oncology pipeline. Other BMS products (Sustiva, Orencia) may also offer interesting combo molecule opportunities. According to some IMS data Pharmalyst has seen, Abilify too is seeing some commercial success. Certainly a BMS+Sanofi or BMS+Pfizer deal makes more sense than say a Pfizer+Wyeth deal. However it would have to be a friendly merger rather than an acquisition and that leaves the amount of efficiencies that can be extracted from such a deal in question.