Joe Panetta, president and CEO of BIOCOM, discusses an emerging model of M&As in which human and IP assets are valued and biotech brings expertise to Big Pharma as venture capitalist funding dwindles and patent cliffs loom large.

Pharm Exec: Can you tell me about how small biotech and specialty companies have started switching from relying on venture capitalist (VC) funds to M&As, and when that shift came about?

Joe Panetta: I wouldn’t say they’re switching from relying on VC. I think the fact is that VC investment has taken on a different approach than it had traditionally; so we’re seeing a different, let’s say more conservative, shorter-term VC investment model. That’s combined with the fact that we’ve seen for a couple of years now that VC firms have been much more engaged in investing in their current portfolio companies, and there’s been less of an appetite for investment in new companies than there was five years ago.

Part of that is the fact that we’ve got economic challenges; part of it is the fact that we have a tremendously challenging environment at FDA; and part of it is the fact that we have uncertainty from a political standpoint. So those kinds of things have created a much more conservative approach to VC investing than we’ve seen in the past, and that’s had an impact in terms of the ability of our companies to be able to raise the kind of funding that they still need to raise to move their products through the pipeline.

What that means is that companies need to turn toward alternative sources of funding beyond VC. VC is also taking a much shorter timeframe perspective in terms of the investments that they’re making now. But that leads us to the need that large pharma companies see for innovative technology to fill their pipelines; the ability of biotech companies to attract large biotech and large pharma partners much more successfully than they have in the past; and the dynamic that we’re beginning to see—biotech companies becoming much more focused on management of the products that they’re developing, and on partnering to gain the expertise that is needed to move through development and clinical testing and commercialization.

So that creates the opportunity for companies to focus on innovation and to team up and partner with the experts on product development, commercialization, and manufacturing. And that’s where pharma comes in and plays an enormous role. Obviously pharma’s pipelines have become more depleted in terms of new innovative products over time, so there’s a greater appetite from the pharma side to engage in real partnerships with biotech companies. It’s not outright acquisition; rather, what I’m hearing more and more from a number of different pharma companies, is that the partnering model is more attractive than the outright acquisition model. And if the outright acquisition takes place, then the ability to allow a biotech company to continue to function as a satellite entity is much more attractive than simply acquiring the assets and letting the people go.

PE: What has changed in the industry or the economy that has larger pharma realizing that partnerships where both organizations work together on a level playing field may be more valuable than the straight acquisition model?

JP: There isn’t so much of an appetite any more in biotech, from the investor side or even from the management side, for creating fully integrated future large biotech companies that look like pharmaceutical companies. That used to be much more the direction that the companies were headed in, and for the most part that model has gone by the wayside. Now there’s a more virtual model, a leaner model, and that makes it much more attractive for partnering. The larger partner doesn’t have to worry about what to do with an entity that is duplicating—or at least attempting to duplicate—what they already have the ability to do.

The other thing that’s changing is the fact that we’re seeing generics come on the scene. Now there’s a future road map for biosimilars that is being developed. We see that way forward, and larger companies are beginning to plan for the world of biosimilars. Also, Big Pharma is beginning to plan more for the world of generics and of patents expiring, and I think they’re beginning to realize that they need to go into fast forward to begin to fill the pipeline, and to develop more innovative products. That’s not coming out of the merger of pharmaceutical companies. Those mergers are actually resulting in the large pharma companies having to deal with duplicate organizations and integrating existing products together, so that isn’t providing for innovation.

PE: So the mergers with smaller or more specialized biotech companies are where you believe the more specialized knowledge can come from?

JP: Absolutely—the more specialized knowledge, and the ability to do early-stage research and development much more nimbly and more quickly, resulting in more candidate products that can be developed through partnerships.

PE: How is this working so far as an economic strategy? Is this helping to bridge the financial gap that’s left from VC funding?

JP: I think it’s more than bridging the gap. Last year we did our first pharma/biotech partnering conference here in San Diego, but the relationship between large pharma and biotech has been evolving slowly over time. There was a time when the attitude on the pharma side was, ‘don’t call us, we’ll call you.’ But what we saw at out partnering conference last year and we are continuing to see now is a real appetite for equal partnership on both sides.

Everything we hear and everything we see points to a greater desire for there to be a real partnership between the two. And I think that can sustain smaller biotech companies. Pharma needs biotech as a partner, and biotech needs pharma, but pharma especially needs to continue to appreciate the value of biotech as a partner in terms of the people assets, and not just the intellectual property assets.

PE: Can you tell me more about the dynamic? How is this model of partnering different in terms of what both sides might be gaining, compared to the traditional acquisition model?

JP: The major difference is that by utilizing the resources of smaller biotech companies and by creating partnerships with various smaller biotech companies, a larger pharma can take advantage of the diversity of technologies that these small biotech companies are working in; they can take advantage of the creative environments that exist within these companies; they can harness all of that energy. Just as the biotech model is evolving away from creating a fully integrated pharmaceutical company, the pharma model is evolving away from creating these enormous R&D organizations; if we look at the performance over the last few years for the investment that’s been made, it’s pretty clear that that model isn’t as successful as it was years ago.

PE: What are some factors that result in VCs not being as willing to invest as they were in the past?

JP: I think FDA is overwhelmingly the concern right now. I don’t think a day goes by where I don’t hear or read something about how the FDA is negatively impacting the ability of the industry to be competitive in terms of developing and introducing new drugs. The climate has changed. Because of the risk-averseness at FDA, the lack of ability to accept innovation at FDA, the investor community—particularly the VC community—has been encouraging its members to obtain their approvals outside of the US, in Europe in particular. And that’s because the review process at the European Medicines Agency (EMA) is much more predictable and much more innovation-focused than the FDA is here.

If we look at what has happened with a number of drugs that have been reviewed by the FDA in the last year or two, in the obesity arena in particular and in diabetes drugs, the FDA has shown a real reluctance to approve new products and new technologies. So why invest in a process that’s unpredictable and has demonstrated that the ability to get all the way through the process to commercialization is pretty slim? That wasn’t the case years ago with FDA, especially when the Prescription Drug User Fee Act (PDUFA) came into play 15 years ago. There was a real desire on the part of the FDA to move products through the pipeline more efficiently, to take advantage of the user fees and the deadlines that were agreed upon. But now we’ve got an FDA that’s just mired in bureaucracy and risk-averseness.

Part of that is fear of making a mistake. We’ve got examples like Vioxx where, post-approval, there have been issues that have come up, and FDA is taken to task by Congress for having made a mistake. There’s a lack of understanding of the fact that there are risks associated with all products that are approved; from a media standpoint, from the Congress standpoint, from the public’s standpoint. So that all makes for a very risk-averse climate and VCs won’t invest in a process that isn’t predictable. That’s why we’re seeing a lot of VC investment moving more towards early-stage product development with an investment period of maybe three years. This way, they can be more focused on the part of the process that doesn’t involve FDA review, and can let pharma or other partners deal with the later stages of review at FDA.

I think FDA is beginning to appreciate the fact that this is an issue, and is beginning to talk more about the need to focus more on innovation. But making good on that is a long-term process, and it’s going to take years for it to happen.

PE: How do you see all of this panning out in the next five to ten years? Will M&As continue to spread, and will VCs come around if they see certain changes occurring within industry?

JP: I think pharma will continue to need to engage in M&A over the next five years. I think biotech is becoming more sophisticated in terms of its ability to rely on outside expertise and predictive tools.

Two weeks ago I talked to a VC firm that actually has an FDA expert within the firm, who now goes in and looks at all of the relationships that the biotech company might have had with the FDA before making a decision on investing. I think that’s good; I think it helps to focus in on the companies that are doing it right, and it helps to drive other companies to understand that they need to bring in the expertise to help them to create greater predictability for the investors.

But I think in the next five years, if we see an FDA that truly responds to this call that’s coming from the industry and from Congress to focus more on innovation, and we begin to see some results, then I don’t think there’s any doubt that we will see the VC community engaging in later-stage investing. But I don’t think that changes anything in terms of the need for Big Pharma to create more partnerships across the board with biotech companies. And I think we’ll continue to see that happening as there’s a need to fill pipelines and as the patents expire on products, and as we move more towards the implementation of the biosimilars legislation. VC funding and healthy, dynamic M&A deals do not have to be mutually exclusive.

With the “largest and most significant” mail-order business in the industry, according to Shaun Urban, president of Ogilvy CommonHealth payer marketing, and Ogilvy Healthworld payer marketing, Medco brings a high-margin platform to Express Scripts, a company with expertise in driving generics utilization. Patients using mail-order pharmacies are primarily suffering from chronic conditions, and need maintenance medications; by offering co-pay rebates to patients for a 90-day supply of a medication, the companies incentivize mail order use among certain populations.

That doesn’t sit well with bricks and mortar pharmacies, which sign contracts with PBMs often out of economic necessity, given the breadth of a PBM’s patient base. “The relationship [between PBMs and retail pharmacies] is not a fair relationship,” says John Norton, a spokesperson for the National community Pharmacists Association. “What PBMs generally do is steer patients into their mail-order pharmacies through mandates or incentives,” such as restricting a retail pharmacy’s ability to provide a 90-day supply, or offering a three-month drug quantity for a two-month co-pay price, says Norton. On top of that, PBMs nickel and dime pharmacies through contractual agreements, which establish drug reimbursement rates, and they (PBMS) also plague pharmacies with financial audits, says Norton. “They game the system to their advantage, and that’s the dynamic we’re faced with – this merger will create a bigger monster, who’s able to push the model in a more aggressive fashion.” Walgreen’s announced in June that it would not renew its contract with Express Scripts for 2012, despite an expected $5.3 billion in drug sales the pharmacy expects to realize through the relationship in 2011.

Indeed, a combined Express Scripts/Medco entity would “negotiate downward,” based on its size, for prescription filling fees and reimbursement at the pharmacy level, but also in discounts and rebate contracts with drug manufacturers, says Urban. Despite that kind of pricing leverage, Medco has a history of being “a little more pharma friendly” than Express Scripts or CVS Caremark, the third major PBM player. Medco “engages with pharma in areas like disease management programs, wellness and prevention initiatives, partnering on adherence interventions and programs,” on a fee-for-service basis, says Urban. On the specialty pharmacy side – Medco owns Accredo, the market leader, and Express Scripts owns CuraScript – Medco helps pharma with “injection training through their nurse educator resources,” and that kind of historic relationship with pharma “now may trickle over into the newly-formed Express Scripts/Medco organization,” says Urban.

Although Express Scripts led the industry in brand drug utilization when it introduced its proprietary “bid grid” system, letting drug manufacturers bid on the rebates they will provide to PBMs, the company also demonstrated an ability to drive generic utilization, a side effect of a more restrictive formulary system. The proposed Medco acquisition would potentially increase generic market share against brands, since Express Scripts has “a history among the three big PBMs of being able to most effectively drive generics utilization, and now with that reputation and demonstrated capability, and unequivocally having the largest mail-order piece, the risk of greater generic utilization is quite significant,” says Urban, adding that PBM margins on generic drugs are “much greater” than on brand drugs.

The deal, if it survives FTC scrutiny – Norton’s association, as well as the National Association of Chain Drug stores, will do everything thing they can to stop it – will offer yet another reason for generics manufacturers to raise a toast.

The deal is expected to skyrocket Teva’s brand drug portfolio to $7 billion in annual sales, making Teva “not only the world’s largest generics company, but also one of the world’s largest specialty pharma companies,” said Shlomo Yanai, Teva’s CEO, on a conference call yesterday. Post-acquisition, the combined entity boasts “more than 30 products in the late stage, and three awaiting filing,” said Yanai.

Trimming in-house R&D to escape the rigors and expenses of bringing a drug to market – investors are less willing to put their money on a horse that takes over a decade to reach the finish line – has become a strategy du jour for some pharma companies. It’s better to let the smaller, scrappier companies assume the risks associated with early stage development; once a compound proves itself in clinical trials and with regulators, then big pharma can pounce on it, the thinking goes. That was earlier suitor Valeant’s rationale for its own abortive bid for Cephalon.

Teva is bucking that trend with its acquisition of Cephalon, trumpeting the latter’s success in “doing what we call search and development: identifying pipeline products in an early stage, and taking them all the way through to commercial success,” said Yanai on the call. Teva has two primary brand drugs on the market, Copaxatone (for MS) and Azilect (for Parkinson’s). Copaxatone (glatiramer acetate) earned $938 million in 2010, representing 18% of the company’s total net sales in 2010, according to an SEC filing. Azilect had sales of $89 million in 2010. Cephalon’s best-selling product, Provigil (indicated for excessive sleepiness associated with narcolepsy), comprised 41% of Cephalon’s consolidated net sales in 2010, but is expected to meet generic competition in April 2012, according to an SEC filing. The combined company will have 20 branded products on the market, according to a statement.

Cephalon will bring new therapeutic classes to Teva, specifically pain management and oncology, and will also extend the company’s footprint in Europe, Asia and Latin America, Yanai said on the call. The deal will also create marketing and sales “synergies,” but Denise Bradley, a US-based spokesperson for Teva, said in an email that it’s too early to elaborate on what those synergies might entail. Cephalon’s own generics business, Mepha, earned $400 million last year.

Last March, Teva forged a deal with packaged goods giant Procter & Gamble, to leverage both companies’ selling networks for their combined portfolio of over-the-counter (OTC) drugs. The partnership covers all markets outside of the US, and is worth an estimated $1 billion, according to a Teva release.

To expedite distribution, and to make sure educational initiatives – under  Risk Evaluation and Mitigation Strategies (REMS) requirements, and otherwise – are being met, AstraZeneca signed a deal with Biologics, an oncology management company, to distribute vandetanib exclusively through Biologics’ specialty pharmacy. Financial terms of the deal were not disclosed.

Approved in the US on April 6, vandetanib is an orphan drug indicated for the treatment of medullary thyroid cancer that can’t be removed by surgery, or that has spread to other parts of the body. In the US, somewhere between 500 and 1,000 patients, approximately, have this rare form of cancer, according to Dan Duffy, executive VP and general manager, oncology pharmacy services group, at Biologics. FDA puts the number at 1,300 to 2,200 in 2010, according to a release.

Biologics is tasked with managing vandetanib’s REMS requirements (only REMS-certified pharmacists are allowed to dispense the drug) in addition to working with payers and consolidating referral sources. Ten nurse liaisons are “going out to educate the physician and clinical staff about program specifics, how to make it efficient for them, and to ease the administrative burden for the physician,” said Duffy. For patients, the company expedites available copay assistance, with a focus on rapid turn-around times. Without insurance, a 30-day supply of 300 mg vandetanib, taken once daily, costs $10,454.00, according to an employee in Biologics specialty pharmacy. Patients without insurance may be elligible to recieve the drug at no cost, through AstraZeneca’s prescription savings program, according to Laura Woodin, a spokesperson at AstraZeneca. In clinical trials, vandetanib was “shown to affect the electrical activity of the heart, which in some cases can cause irregular heart beats that could lead to death,” hence the REMS, said FDA, in the release.

Woodin said in an email that the company’s exclusive distribution arrangement with Biologics is “a new approach for our US business…vandetanib is also the first treatment that AstraZeneca has developed and brought to market under orphan drug designation in the US.” Woodin said the small patient population for vandetanib was a major factor in signing the exclusive distribution deal. Duffy said the agreement lets AstraZenca “standardize the distribution channel and really control it.”

Vandetanib doesn’t currently have a brand name; AstraZeneca requested Zactima, but FDA did not accept that name, said Woodin. The company is currently in talks with FDA about a new name.

Billed as the first Chinese product development partnership (PDP), the Global Health R&D Center of China (GHRC) hopes to discover and develop new treatments for tuberculosis (TB) and other diseases by collaborating with pharmaceutical companies, the Chinese government, academic institutions and other groups, according to a statement.

The GHRC was created through a partnership between The International Scientific Exchange Foundation of China (ISEFC), a translational sciences group, and the TB Alliance, a not-for-profit organization focused on developing new and better TB medications.

Mel Spigelman, president and CEO of the TB Alliance, said in an email that pharmaceutical companies stand to gain from sharing resources, such as intellectual property, with the GHRC. “The GHRC will offer companies financial and world-class discovery and clinical development resources to advance compounds for neglected diseases that they otherwise may not be able to [develop] on their own,” said Spigelman. “In addition, companies will establish strong working relationships with key discovery, regulatory, and clinical resources in the fastest-growing pharmaceutical market in the world.”

The TB Alliance has drug development partnerships with AstraZeneca, Bayer, GSK, Novartis, Sanofi-Aventis, and Tibotec, and is currently managing three drug candidates in clinical trials, according to organization’s website. Spigelman declined to specify which compounds the TB Alliance itself will contribute to the GHRC.

“The vision of the GHRC is to focus on translational medicine for public health and bridge the innovation gap that currently exists into new treatments and cures,” said Geng Jianyue, secretary-general assistant of the ISEFC, in a statement. In China alone, some 1.3 million people develop active TB annually, and 150,000 die from the disease each year, according to the TB Alliance.

A recent World Health Organization (WHO) report found that only a 10% of the multidrug-resistant tuberculosis (MDR-TB) cases identified globally received treatment in 2009. The WHO report called multidrug-resistant and extensively drug-resistant tuberculosis a global epidemic, and TB in general kills almost 2 million people each year, according to the TB Alliance. The announcement of the GHRC coincides with World TB Day, which is celebrated on March 24 each year, to commemorate Robert Koch’s discovery of TB bacillus, the cause of the disease.

While access to treatment remains a major problem in many of the 27 countries most burdened with MDR-TB, the treatments themselves, many over forty years old, present further difficulties, since first-line drugs like isoniazid, ethambutol, pyrazinamide and rifampin require a six to nine month regimen. Failure to adhere to a treatment regimen can result in drug resistant strains of TB, which require second-line drugs, many with severe side effects.

In addition to developing new TB treatments and addressing other public health diseases in China, the GHRC will also develop compounds for the rest of the developing world, according to Spigelman. “Global development programs will likely be partnered with disease-specific PDPs or with global pharmaceutical companies, who will then work with GHRC to register the compounds throughout the world,” he said.

The current business model on which biotech has relied is flawed. Due to poor rates of

Jo Pisani, PwC

return, investment has dried up as the model carries very high risk of failure. This was illustrated recently by a study that highlighted that of the 1,606 biotech investments realised between 1986 and 2008, 704 investments resulted in a full or partial loss, while 16 only just covered their costs.

The same study showed that the gross rate of return on these 1,606 biotech investments was 25.7% compared with a pooled average return of 17% on all venture capital invested over the

same period. However, costs and ‘overhang’ from unrealized investments reduced the net rate of return to about 15.7%. There were also huge variations in the cash multiples earned by the 886 investments that did make a profit. On top of this, the external conditions that have allowed companies to thrive are now vanishing.

As Asia’s emerging economies invest more heavily in higher education and the reverse ‘brain drain’ picks up pace, the research base is shifting East. This is shown by the number of students graduating with doctorates in the physical and biological sciences.

Between 1998 and 2006, the number soared 43% in India and a staggering 222% in China, far outstripping the rate of increase in the West. Emerging economies are also now competing more aggressively and many are even actively building domestic biotech industries.

In the last 18 months, China has invested $9.2 billion in technologies R&D, including biotech, and India is currently exploring plans to become one of the top five biosimilars producers by 2020. These particular companies pose even more of a risk to Western biotech having learnt from their mistakes. They are now sidestepping the costly infrastructure that places burdens on companies in developed countries to create new business models that are leaner and more economical, as well as pioneering innovative products and processes.

Furthermore, financial investors are getting increasingly more cautious and capital is no longer easy to raise. In 2008, biotech raised just $16.3 billion in the US, Europe and Canada, 45% less than in 2007, and no significant improvements are expected.

According to one estimate, 207 of the 266 private and public European biotech companies with products or platform technologies either in clinics or on the market, urgently need to raise around $8 billion between them. Given that the total amount of European venture capital invested in the sector was just $666.6 million in the first half of 2010, it is doubtful many will succeed. However, yet another change is taking place as the boundaries between biotech and pharma continue to blur resulting in the creation of the biopharmaceutical industry. Despite this development, all biopharmaceutical companies will need to adopt a very different business model if they are to survive.

A united front
So, what would this new model look like? Efficiency is the name of the game and, as collaboration will accelerate and facilitate innovation, discovery and development, which in turn will reduce costs, two new concepts — precompetitive discovery federations and competitive development consortia — lend themselves to just such an approach and could be the keys to unlocking the industry’s potential.

Pre-competitive discovery federations
Pre-competitive discovery federations are public-private partnerships in which biopharmaceutical companies swap knowledge, data and resources with each other and additional third parties, such as government agencies and universities. Their aim is to overcome bottlenecks in early-stage biomedical research and a number have already been established. Many of these are fairly new and sit toward the philanthropic end of the spectrum. One such alliance, the Structural Genomics Consortium, has already proved a success.

Backed by organizations such as GlaxoSmithKline, Merck and Novartis it published 450 protein structures within three years of starting work, and aims to publish another 660 structures by July 2011. It is much too early to assess the overall impact of pre-competitive discovery federations in terms of reducing lead times and costs, or treating intractable diseases. Nevertheless, given the benefits, including, cash savings as investments costs will be lower and reduced duplication, it’s probable that all precompetitive research will be conducted in this way by 2020.

Determining the boundaries between pre-competitive and competitive research is difficult and opinions will vary. However, it’s possible to see how some of the lines might get drawn. For example, data preceding the point of filing for a patent could provide various opportunities for pre-competitive collaboration with many companies possibly prepared to go considerably further.

Competitive development consortia
Closer collaboration could also benefit the development process with the introduction of competitive development consortia (as we’ve called them). These consortia allow rival biopharmaceutical companies to join forces with each other, as well as with contract research organizations and platform technology providers.

The pooling of their portfolios could enable them to concentrate on the best drug candidates, regardless of which company had invented them, thereby eliminating a great deal of waste. Big Pharma has traditionally shied away from such arrangements, yet competing heavyweights in a number of other industries have successfully come together to develop new products.

General Motors, Daimler and BMW collaborated to create the hybrid petroleum-electric engine, for example. And there’s evidence that some large pharma companies may now be willing to take a more open stance Indeed, AstraZeneca and Merck recently embarked on a partnership to develop a combination therapy for cancer, each contributing an investigational compound to the mix. Combination therapies for cancer are common, but they’re usually tested late in clinical development, after registration, or a new potential treatment is tested in combination with the standard therapy.

However, AstraZeneca’s compound was still in Phase II, and Merck’s compound had only been tested on 100 people, when the two companies decided to join forces. As trials have moved on, and look promising, collaboration has also been agreed for testing the treatment in Phase 1 trials. The big question is how regulators will respond if they are successful as no one has ever co-registered two unregistered drugs before. The success of these new federations and consortia will hinge on the existence of data aggregators. No such organizations currently exist. Nor, indeed, do some of the tools required to manage vast amounts of biological and chemical data.

Nonetheless, solutions to the challenges are starting to emerge as big technology providers enter the computational bioinformatics space and the use of semantic technologies for integrating and analysing data grows. An ‘innovation culture’ and a new spirit of realism, on the part of all involved in the chain, will also be vital if this approach is to succeed. Organizations will need to share assets and insight that they have previously ring-fenced for themselves, will need to be willing to take risks and work with third parties and assets that they don’t own and this will require investors to take a longer term view on rates of return and change the funding model.

The size of the prize
By following this new model, the biopharmaceutical industry would be able to use their precious resources more intelligently, make more astute investment decisions and ultimately develop and deliver better medicines and even small savings could yield significant savings. We have estimated that, given average development costs and lead times, a 5% increase in success rates for each phase transition and a 5% reduction in development times could cut R&D costs by about $160m, as well as accelerating market launch by nearly five months. In fact, a 5% improvement in phase transition rates alone would trim about $111m from the tab.

In addition, there is also room for companies to benefit individually. The biggest companies will see increased access to innovation, higher productivity and lower costs — improvements that will help them to fend off growing criticism from healthcare payers and patients angered by the high prices of many new medicines that are currently coming to market. Meanwhile, the smaller companies will be in a position to obtain more stable, long-term financing, better opportunities for benchmarking the value of their own contributions and access to vital regulatory and marketing skills. There are considerable cultural, behavioural and practical hurdles to overcome if the industry is to succeed but, given the rewards collaboration can bring, they’re well worth resolving.

Making the sums add up
Hard-pressed governments are now struggling to meet the healthcare demands of growing populations and their changing demographics. More effective and more economical medicines are now more important than ever and only when the industry can work together will it be on track to meeting the demands of today’s society.

About the Author
Jo Pisani is Partner, Global Pharmaceuticals and Life Sciences at PriceWaterhouseCoopers, UK.

Last week, the World Health Organization (WHO) announced an initiative involving six Pharmaceutical companies—Novartis, GlaxoSmithKline, Sanofi-Aventis, Johnson & Johnson, Bayer, and Eisai of Japan—that will bring much-needed funding and research to several neglected yet debilitating diseases.

The 17 chronic infectious diseases the new funding will focus on include leprosy, lymphatic filariasis, and sleeping sickness, and many are found in very poor populations.

The initiative came along with the release of a new report from WHO, titled “Working to overcome the global impact of neglected tropical diseases,” and a speech by Dr. Margaret Chan, director general of WHO. “What brings these diseases together is our collective failure as an international community to do a better job of reducing poverty and addressing the diseases that are bred by poverty,” she says.

Impoverished settings, substandard housing, poor hygiene, and disease-spreading insects and animals all play a factor in the spread of these diseases. While the consequences of long-term infection vary from disease to disease, some of the more severe results can include blindness, disfiguring scars and ulcers, severe pain, limb deformities, impaired mental and physical development, and damage to internal organs, according to WHO.

Together, the 17 diseases covered in the WHO report are endemic in 149 countries and territories, and impair the lives of at least one billion people.

WHO has been focusing on practical ways to obtain more private sector support to fight these 17 diseases, which represent an effort by multilateral agencies to prioritize around the most challenging and badly resourced ailments rather than to tackle every public health threat afflicting the poor.  Many critics of aid flows claim that three key diseases—malaria, HIV, and TB—are attracting too many resources at the expense of tropical diseases that might be more easily addressed if the commitment is made.

As part of the effort to overcome the global impact of these diseases, Novartis has renewed its commitment to donate an unlimited supply of multidrug therapy and loose clofazimine for leprosy and its complications; GlaxoSmithKline has announced a new five-year commitment to expand its donation of albendazole through WHO; and Sanofi –Aventis has agreed to renew its support for the WHO program to eliminate sleeping sickness. Additionally, Bayer has started discussions with WHO on how to evolve its current commitment to fight sleeping sickness and Chagas disease; Eisai has committed to work towards the global elimination of lymphatic filariasis; and Johnson & Johnson is expanding its donation of mebendazole to supply up to 200 million treatments per year for treatments of intestinal worms in children.

“Decades of experience tell us that health initiatives survive long enough to deliver sustainable results only when they are nationally owned and aligned with national priorities and capacities,” says Dr. Chen. “By expanding coverage, we can actually prevent many of these diseases. This is a first-time opportunity for some very ancient diseases.”

An important question going forward is whether the six participating companies will share their work and—with WHO cooperation—start to build effective multistakeholder partnerships around these priority diseases. To date, such partnerships have been hard to cement; most companies have preferred to go it alone.  Also unclear is how this initiative ties in to actions taking place in the field, where aid donors hold sway and the need for improved distribution networks to deliver improvements in drug technologies has long been recognized, but with scant progress to date.

Pfizer and King Pharmaceuticals announced on Tuesday they have entered into a definitive friendly merger agreement. Under the terms, Pfizer will acquire King, a diversified specialty pharmaceutical company based in Tennessee, for $3.6 billion in cash, or $14.25 per share. The company emphasized the deal is not dilutive of earnings and will not affect its forecast estimates on market performance for the full year.

King, a mid-sized player in the industry, has been a suspected acquisition target for Big Pharma for some time, given its concentrated franchise in the lucrative therapeutics for pain market.

• The deal indicates Pfizer will remain a key player in primary care, with a new emphasis beyond the statin franchise that drove the business over the past decade. King’s inventory of small molecule drugs will prove useful in keeping Pfizer active in high volume businesses linked to prevalent chronic diseases. It will thus augment the company’s recent entry through Wyeth into high-cost specialty biologics.

• King will also cement Pfizer’s effort to become the therapy lead in pain management, building on the existing Celebrex and Lyrica franchises. The expectation is that patients will continue to pay a premium for pain relief, particularly for the explosion in arthritis predicted as the baby boom population ages.

• King’s expertise in new delivery technologies will also help other Pfizer products find new markets and seed introduction of process improvements “beyond the pill.”

On the down side, more staff restructurings—and a $200 million anticipated cost savings—will follow the acquisition and likely trigger additional efforts to review the status of under-performing segments of the overall business, such as oncology. Diversification is clearly the Pfizer strategy—but even for a behemoth like Pfizer it could be too much of a good thing. Look for some winnowing down of asset categories in the early part of next year.

A new way for patients to have access to affordable HIV and AIDS medications has come to light via the Medicines Patent Pool—which aims to create a common space for patent-holders to license their technology for use by generic manufacturers in exchange for royalties. Established in July by UNITAID, the Medicines Patent Pool has the potential to reduce the price of existing drugs.

Now, the US National Institutes of Health (NIH) has become the first patent holder to join the Pool, licensing its life-prolonging antiretroviral (ARV), darunavir. Though this is a step in the right direction, making the technology to produce darunavir available to low- and middle-income countries, generic versions of the drug cannot yet be manufactured and sold because pharmaceutical company Tibotec, part of Johnson & Johnson, still holds additional patents on darunavir.

“This license underlines the US Government’s commitment to the Medicines Patent Pool and its goal to increase the availability of HIV medicines in developing countries,” says NIH Director Francis S. Collins, M.D., Ph.D.

“We are encouraged by the support of the NIH, and call on other patent holders to follow their lead,” says Dr. Philippe Douste-Blazy, Chair of the UNITAID Executive Board.

Nelson Otwoma, Director of Network of Persons Living with HIV/AIDS in Kenya and UNITAID board member, adds, “We ask that companies step up and collaborate with the Medicines Patent Pool so that we can quickly see more affordable, easy-to-use pills getting into people’s mouths.”

The move by NIH is likely to put additional pressure on the research-based industry to cooperate with UNITAID in participating as active members of the Pool. Discussions have taken place with numerous companies, but significant differences of opinion remain over whether this argument is as “voluntary” as UNITAID says it is.

Endo Pharmaceuticals has entered into an agreement to acquire privately held Qualitest Pharmaceuticals for approximately $1.2 billion in cash.

Qualitest, the sixth-largest US generics company as measured by prescriptions filled, is focused on cost-competitive, high-quality manufactured products with high barriers to entry. Qualitest has cGMP facilities in the US, including the ability to manufacture controlled substances, which make up approximately 40 percent of its product portfolio, and liquids, which are roughly 17 percent of its portfolio. The company brings a broad range of generics to Endo encompassing 175 product families.

Endo believes Qualitest brings critical mass to Endo’s current generics business, further diversifies its business lines and product offerings, and enhances Endo’s portfolio of pain management products. Combining the companies’ generics portfolios will also significantly boost Endo’s revenue and earnings growth.

In addition, with more than 90 percent of all pain prescriptions now filled by generic drugs in the $15 billion US pain market, the acquisition of Qualitest is a key step to Endo remaining at the forefront of providing pain solutions to its customers. Forty percent of Qualitest’s revenues are derived from pain products, making the acquisition a natural extension of Endo’s competitive position in pain and controlled substances.

“Together, we will be well positioned to strengthen our relationships with physicians and payment providers to deliver better outcomes for patients and to meet the demands of the evolving health care system in the US,” says David Holveck, president and CEO of Endo.