The Friday Five – 5 questions raised this week in pharma

Pfizer's neratinib gamble | A biotech bubble? | GSK concedes the game has changed in US primary care | Specialty care players insulated | Can Biogen manage EU Tecfidera expectations?

How much visibility did Pfizer have on Puma's neratinib data?

The biggest mover in biopharma this week was Puma Biotechnology. The company's share price trebled in after-hours trading on Tuesday as investor confidence grew on the opportunity for neratinib; a potential therapy for HER2 breast cancer patients in the extended adjuvant setting.

The strength of new clinical data for neratinib in this setting – coupled with a lack of competitor products in development – prompted analysts to significantly upscale their peak revenue forecasts for the drug - ViewPoints: Puma's perfect storm - share price triples on new breast cancer data.

Neratinib was in-licensed by Puma from Pfizer in 2011; a decision on the part of the US pharma giant that looked increasingly questionable on Tuesday. Furthermore, just prior to unveiling the new data for neratinib, Puma announced that its agreement with Pfizer had been amended and in exchange for a modified royalty structure (fixed in the low-to-mid teens rather than incrementally increasing between 10 percent and 20 percent), the company will be responsible for all further neratinib development costs.

The key question – postulated The Street's Adam Feuerstein and a handful of industry commentators on twitter (but surprisingly overlooked by analysts on Puma's investor call) – is whether Pfizer had seen the extended adjuvant data before it agreed to reduced royalty payments.

If it did, then perhaps full data from the ExteNET study will not look quite as rosy when it is published later this year (safety data will be a key focus, argue analysts at Bloomberg Industries). If it didn't, then Pfizer may have made a second questionable decision where neratinib is concerned.

FirstWord is in the process of polling US and EU5-based oncologists about their potential use of neratinib in the extended adjuvant setting, based on data from ExteNET. Results will be published next week.

Is biotech in a bubble?

The neratinib data and Puma's subsequent share price performance were also heavily cited this week as providing a much needed recovery in investor sentiment, following comments made by US Federal Reserve chair Janet Yellen last week when she suggested that biotech valuations had become stretched.

International Strategy and Investment analyst Mark Schoenebaum was one of the most vocal analysts in rejecting suggestions that the biotech sector has evolved into a 'bubble.' Schoenebaum stated that the most conclusive evidence to suggest that Yellen's comments were misplaced was his analysis of biotech price to earnings ratios back to 1978, which demonstrates that the current average PE ratio is approximately in line with the historical median and roughly 40 percent below the peak average, which occurred in the recognised bubble of 2000.

Furthermore, while Yellen's comments clearly spooked investors, their timing has been somewhat fortuitous, coming just a week before Q2 earnings season picked up pace with impressive performances from Biogen Idec and Gilead Sciences.

In a note to investors on Wednesday, Schoenebaum cited Biogen Idec's biggest quarterly 'beat' in a decade as further evidence that valuations are not stretched, while on the same day Gilead duly delivered on the so-called 'most important number in biotech' when it confirmed that Q2 sales of its hepatitis C therapy Sovaldi had reached $3.5 billion (versus consensus expectations of around $2.9 billion). See ViewPoints: What bubble? – Do Biogen Idec's Q2 results vie with Yellen's cautious outlook?

Notable advances in a number of disease areas – such as hepatitis C and the expected pending explosion in immuno-oncology – suggest that from an underlying R&D perspective the sector is in a strong position. Others have argued, however, that Yellen's comments are applicable less to the likes of Biogen Idec and Gilead, which are rapidly becoming 'Big Pharma' players, but more so smaller, development stage companies whose valuation is heavily leveraged to a single asset.

Puma has become a $7-billion company overnight, a valuation that implies considerable commercial success for neratinib. Such confidence may be justified, but Yellen will no doubt be concerned that other biotech companies that remain significantly less de-risked will simply be pulled along in the slipstream.

Have pricing dynamics in the US primary care market changed for good?

GlaxoSmithKline's Q2 results not only provided the most compelling evidence to date that US pricing in certain primary care segments has becoming increasingly challenging over the past 12 to 18 months, but in a subsequent investor call CEO Andrew Witty conceded this directly - ViewPoints: GlaxoSmithKline's Q2 results confirm US primary care pricing pressures have intensified.

Analysts at Credit Suisse were notably downbeat; "in our view there is no sign of a turning point in operational weakness. Management's message on the call was clear – US Advair price erosion will deteriorate further (worse than our previous expectations) and new launches will remain challenging and require more investment." They add "Witty effectively flagged that the decade-long benefits of a US respiratory oligopoly are now over and investors need to adapt to the new 'normal' market dynamics or more powerful buying groups and increased competition for formulary positioning."

While it is the declining sales performance of GlaxoSmithKline's flagship asthma and COPD treatment Advair that is illustrative of the adverse impact from this evolution in US drug pricing, it is the company's approach to the launch of Tanzeum in diabetes that is arguably most indicative of how the landscape is changing.

Asked about the approximate 62 percent discount in price for Tanzeum versus Novo Nordisk's market-leading GLP-1 agonist Victoza (see Spotlight On: GlaxoSmithKline makes return to diabetes market, but finds few familiarities), Witty suggested that this approach will be indicative of how pricing in crowded primary care segments occurs moving forward. It would be foolish to cite pricing pressure as a barrier to growth, but not utilise discounting as a means to gain market share, added Witty, also noting the discounted price of new launches Breo Ellipta and Anoro Ellipta versus Advair in the COPD market.

See also Spotlight On: Pharma watch out! – US formulary exclusions expected to increase in 2015.

And does this support importance of a specialty care focus?

A concern for GlaxoSmithKline investors is that its respiratory strategy in the US has rapidly become outdated by changes to the payer landscape. While the industry as a whole has moved towards a sharper focus on specialty care products due to both the patent cliff and the necessity to demonstrate value to payers, GlaxoSmithKline is in the midst of a strategic overhaul that will see its respiratory franchise account for a larger proportion of revenues moving forward (primarily driven by its exit from oncology, albeit at an attractive price).

Thus, in contrast to GlaxoSmithKline's Q2 performance – which was described by Panmure Gordon analyst Savvas Neophytou as "shocking" and which prompted the company to downgrade full-year revenue expectations to flat growth for the second successive year – Roche delivered a robust set of results on Thursday, underlying the importance of its leadership in the cancer market, where pricing pressure in the US remains largely hypothetical.

Despite currency effects adversely impacting Roche's profit for the first half of 2014, the company reiterated its full-year outlook, largely driven by a continued strong performance from its oncology portfolio. Sales for its HER2-positive breast cancer portfolio were particularly impressive – up 20 percent year-on-year – and indicative of how Roche is seeking to both enhance its offering via the launch of new products, which raise the standard of care, and prolong the duration of its revenue streams by raising barriers to future biosimilar competition. The company also cited on its Q2 investor call, the development and launch of subcutaneous formulations of Herceptin and Rituxan as designed to play a key role in preventing patient migration to biosimilar competitors dosed intravenously.

Can Biogen Idec maintain Tecfidera's impressive performance in Europe?

A pleasing component within Biogen Idec's sizeable Q2 revenue 'beat' this week was the performance of its oral multiple sclerosis treatment Tecfidera in Europe. Ex-US sales for the quarter were some 60 percent higher than consensus at around $115 million, with management citing a "US type trajectory" for Tecfidera in Europe; an impressive performance given the greater entrenchment of Novartis' Gilenya, added analysts.

Some caution may be necessary, however. With regulatory discussions still occurring across much of the region, this European performance is primarily being driven by Germany where pricing and access will face minimal disruption during Tecfidera's first year of availability (after 12 months its price will be renegotiated as per standard AMNOG procedure). Thus it is worth remembering that Biogen Idec previously cautioned towards a much slower launch for Tecfidera in Europe, a sentiment that may take on greater weight in subsequent quarters (launch in France and the UK is expected in Q4). That said, there is ample evidence to suggest that underlying demand for Tecfidera is as great among neurologists and patients in the EU as it is in the US (see ViewPoints: Biogen Idec stresses slower European launch for Tecfidera, but all signs point to significant demand for MS drug).

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