The Friday Five – The week in pharma

Payers’ nightmare

The US Centers for Medicare and Medicaid Services (CMS) published a paper in Health Affairs this week reporting that prescription drug spending soared by an unprecedented 12.6 percent in 2014, due in large part to the explosive growth of hepatitis C (HCV) drugs Harvoni and Sovaldi from Gilead.

While payers and pharmacy benefit managers will have long seen this coming, the sheer size of the increase may still serve as a shock to the system considering that annual growth had fluctuated between 0.5 percent and 5.2 percent for each of the previous seven years. If there is a silver lining for companies on the hook for picking up the tab it is that CMS estimates that growth is expected to slow this year and going forward “as lower costs associated with expensive specialty treatments for hepatitis C are negotiated between payers and the drug industry.”

Gilead apparently didn’t get the memo about the expected slowdown though as the US drugmaker reported the same day that second quarter sales came in at $8.2 billion, up 26 percent over the same period last year, with much of the beat coming from the $4.9 billion in combined sales for Harvoni and Sovaldi, far outpacing the $4.3 billion that the Street was expecting.

The company did acknowledge, however, the volume of HCV scripts in the US actually declined versus 1Q15 – something that investors were nervous about based on recent comments from AbbVie – declining to 60 000 patients from 70 000 patients during 1Q15, with a sequential increase in ex-US sales more than making up the difference. (See ViewPoints: Gilead’s strong earnings offer a welcome reprieve for large-cap biotechs.)

Another situation payers are monitoring closely is last week’s approval of Praluent (alirocumab), the first of two anti-PCSK9 mAbs that are expected to hit the market over the next month and are expected to represent the next big battleground over drug prices. Indeed, Regeneron and Sanofi’s decision to price the product at $14 600 per year – well above the $5000 to $10 000 range that many analysts were expecting – suggests that the companies are giving themselves some extra flexibility for managing the discounts and rebates that will be sought by health insurers and formulary managers. (See ViewPoints: Regeneron, Sanofi seek leverage via Praluent’s aggressive US pricing.)

Regeneron, Sanofi’s big week

In addition to being off and running with Praluent, Regeneron and Sanofi also made headlines this week by announcing a massive new investment in the white hot – and increasingly crowded – immuno-oncology space. The companies have already established a rather remarkable track record with successfully developing Regeneron-discovered mAbs for a variety of conditions, though the plan to develop a product against PD-1 may be their most audacious effort yet.

Merck & Co. and Bristol-Myers Squibb are recognised as the current leaders among the many contestants vying for a slice of the massive PD-1/PD-L1 pie, though they have a fair number of fast-followers nipping at their heels, including Roche, Pfizer and AstraZeneca.

On July 28, Regeneron and Sanofi announced plans to throw their hat in the ring as well via a collaboration – built on the foundation of their existing antibody discovery arrangement – that will involve investing $1 billion (in addition to a $640-million upfront payment from Sanofi) for discovery through proof-of-concept development of monotherapy and combinations of immuno-oncology agents. The lead project is Regeneron’s REGN2810, which is an anti-PD-1 mAb in Phase I testing.

The big question mark is whether there will be room enough in the market for yet another anti-PD-1 product, as Merck and Bristol-Myers Squibb have already begun staking claims in various settings, and many well-heeled competitors also have a head start on Regeneron and Sanofi.

Deutsche Bank analyst Robyn Karnauskas said the key will be the partners’ ability to quickly identify and test the right combinations featuring REGN2810, which she believes is the direction the immuno-oncology space is headed and should offer the companies their best shot at closing the gap on those ahead of them. “Immune oncology is expected to become a big opportunity in oncology and, despite being behind the leaders, we believe Regeneron could catch up with the frontrunners with the combo strategy,” she noted.

Swimming upstream

Twenty-plus years after being founded as a small generics maker, Allergan appears to have fully transformed itself into a major player on the innovative side of things thanks to this week’s agreed sale of its generics business to Teva for $40.5 billion.

Allergan has been among the most active mover-and-shaker during one of the more frenetic deal-making periods in the drug industry’s recent history, leveraging successively larger acquisitions of Warner Chilcott in 2013, Forest Laboratories in 2014 and (while known as Actavis) its new namesake earlier this year. (See Spotlight On: A brief history of Actavis.)

The company’s most recently transaction, particularly when coupled with a $560-million acquisition of Naurex announced in parallel, accelerates Allergan’s move ever deeper into the higher margin arena of innovative drug development. Naurex is working on intravenous and oral formulations of a NMDA receptor modulator in Phase IIb and Phase I testing, respectively for highly refractory major depressive disorder.

Investing more heavily in innovative R&D and actually succeeding in the space are two very different things though, as countless failed biotechs that have worked one or more failed projects – a list that may soon include Xoma – could attest. However, Allergan has managed to acquire enough size and scale via its fruitful business development efforts to withstand a setback here or discontinuation there, and more power to it. (See ViewPoints: Allergan putting its money where its mouth is on moving upstream.)

Careful what you wish for

Mylan has spent the past few months fighting tooth and nail against a proposed takeover by Teva, an effort that can now officially be considered a success after its erstwhile pursuer’s decision this week to drop the bid in favour of the Allergan deal.

The news leaves Mylan free to go about its business without a looming threat to force its hand, which may come as a small relief to the generic maker’s shareholders, but perhaps a bigger issue is that Teva’s about-face means that one of biggest players in the increasingly competitive generics space just got a whole lot stronger while simultaneously removing some of Mylan’s leverage for its mooted hostile takeover of Perrigo.

Indeed, in the immediate wake of the Allergan-Teva announcement, shares of Mylan tumbled 16 percent on July 27, making a potential stock deal for Perrigo significantly more dilutive. “Mylan has less leverage now…it wanted to acquire Perrigo on the basis of a share value inflated by the Teva offer, and now it cannot do this,” noted Migdal Capital Markets analyst Steven Tepper, adding that the deal may now be on the rocks.

Mylan was able to report on July 29 that it received regulatory clearance for the deal from the European Commission under the European Union Merger Regulation, but the larger question of whether it can still afford the deal is clearly weighing on the minds of investors, particularly given the widely held belief that the company can’t stand pat if it wants to remain competitive.

"They need to land Perrigo," explained Evercore ISI analyst Umer Raffat, continuing "if they do land Perrigo they'll have better capacity to do more deals." Other potential takeover targets include Hikma Pharmaceuticals, which this week agreed to buy Boehringer Ingelheim’s US specialty generics business for $2.7 billion, or Akorn Pharmaceuticals, as well as some Indian generic drugmakers.

Lupus throws UCB for a loop

Investors were disappointed – though perhaps not completely surprised – this week after UCB reported that epratuzumab failed a pair of Phase III trials to treat systemic lupus, leading analysts to suggest the programme is all but dead in the water. Shares of the Belgian drugmaker were off as much as 7 percent on July 28 before finishing the week down 4 percent while partner Immunomedics, from which UCB licensed rights to the anti-CD22 mAb in 2006, had plummeted 43 percent as of Friday’s close.

Citi analyst Peter Verdult noted that the heterogenic nature of the lupus population has long been a complicating factor in running trials in the setting, which has experienced numerous failures and few successes over the years (GlaxoSmithKline’s Benlysta being one of the only recent outliers). As a result, investor expectations for epratuzumab had been relatively low as of a few months ago, though they had been growing slightly more hopeful in the weeks leading up to the readout.

All is not lost for UCB, however, as the company has some important inflection points coming up over the next few quarters that will attract a fair amount attention and could help it regain momentum. The first is an IP case related to its antiepileptic drug Vimpat that is coming up in October, followed by Phase IIb results for UCB4940 in psoriatic arthritis later this quarter, while the most important is a highly anticipated Phase III readout for romosozumab to treat osteoporosis in 2016.

The disappointment hit Immunomedics a lot harder, which despite boasting a surprisingly well-stocked pipeline of mAb candidates clearly had more relative growth tied up in the outcome of epratuzumab. In fact, without any near-term revenues from the lupus programme, the company may now be at the mercy of its ability to find a partner, according to Jefferies analyst Chris Howerton.

Howerton believes the biotech’s next best bet at this point is IMMU-132, an antibody against Trop-2 conjugated to a topoisomerase inhibitor that is in Phase I/II testing for triple negative breast cancer. “Two complete responses have been observed and positive progression free survival benefits of up to 6.0 months” in early stage testing,” noted Howerton, though Immunomedics needs to find a partner before possibly making the jump to Phase III testing.

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