Accelerating Change Marks 2012 for Life Sciences

In August 2012, FDA approved Zaltrap, a new therapeutic to treat colorectal cancer. What happened next says a lot about where the pharmaceutical industry was in 2012 and what's ahead in the new year. Zaltrap, developed by Regeneron Pharmaceuticals and Sanofi, essentially chokes off the blood supply to tumors. In the safety and efficacy nexus with FDA, it passed muster, but for others concerned about questions of value, Zaltrap reflected what's wrong in healthcare today.

G. Steven Burrill

Critics of Zaltrap say the drug provides the same survival benefit as Genentech's Avastin when either drug is added to standard chemotherapy. Like Zaltrap, Avastin is also used to inhibit angiogenesis in patients with colorectal cancer, but Zaltrap did so at more than twice the price. At launch, Zaltrap was priced at an average of more than $11,000 per month for treatment compared with about $5000 per month for Avastin. Concerned about the question of Zaltrap's value, Memorial Sloan-Kettering Cancer Center decided not to give the drug to its patients.

In an October 2012 op-ed article in The New York Times, three physicians at Sloan-Kettering (two of whom have served as paid consultants to Genentech) say the decision should have been a "no-brainer" (1). The exclusion of Zaltrap from Sloan-Kettering's formulary, though, didn't come easy, according to the doctors. That's because, they say, the culture of medicine equates new with better. "Our refusal to adopt this remarkably expensive therapy," they wrote, "risks being labeled 'rationing,' not 'rational'." Sanofi swiftly moved to cut the price of its drug in half, according to a report in The Cancer Letter (2).

Today's pressures on drugmakers reflect greater pressures throughout the entire healthcare ecosystem as payers, patients, and providers wrestle with the escalating cost of healthcare and push systems around the world away from cost-based to value-based. For pharmaceutical companies, this reflects not only a growing pressure on pricing, but pressure from all quadrants of the healthcare world to demonstrate the value their products provide to justify their costs. This new reality is altering the life-sciences landscape and changing business models, development strategies, and funding opportunities for companies.

That pressure will only continue in the US, with the US Supreme Court leaving the Obama Administration's landmark healthcare reform legislation largely intact. The re-election of President Obama and the preservation of a Democratic majority in the Senate mean that efforts to repeal the legislation will be put to rest and the focus will shift to implementation of the law.

As of this writing, a fight in Washington over the impending fiscal cliff was under way. If not resolved before year end, sequestration could trigger broad cuts to the federal budget that could have significant effects on the life-sciences industry. Most notable would be cuts to the National Institutes of Health and FDA, even cutting into the 2012 reauthorization of fees paid by industry to FDA under the Prescription Drug User Fee Act in exchange for timely reviews of products seeking marketing approval.

The past year also saw passage of the Jumpstart Our Business Startups (JOBS) Act, which seeks to make it easier for emerging growth companies to access capital through the public markets. The Act provides exemption from compliance with costly regulations for smaller companies. It also allows companies to test investor interest before having to make sensitive information public in securities regulatory filings.

Global life-sciences venture financings totaled more than $1.2 billion during the first 11 months of 2012, an increase of 23% over the same period a year ago. Venture investors, however, are moving away from early-stage financings. Companies are relying more on alternative sources of financing, including accelerators, angel capital, corporate venture sources, and private equity investment. In fact, of the top 10 private financings in 2012, four had significant backing from private equity firms.

When venture investors do fund early-stage companies, increasingly they are providing large rounds to carry a company to proof-of-concept when investments can be exited or new financing at higher valuations can be raised. While therapeutics grabbed the largest portion of funding with a total of $3.1 billion through the first 11 months of 2012, digital health and life-sciences information technology deals showed the biggest jump in activity with a 63.2% increase to $690 million.

It was a good year in the stock market for biotech stocks overall. The Burrill Select Index rose 41.8% through the end of November 2012. That compares to a 6.5% increase in the Dow Jones Industrial Average, a 12.4% gain for the S&P 500, and a 15.4% rise in the Nasdaq Composite Index.

A total of 16 life-sciences companies completed initial public offerings (IPOs) in the US through the end of November, the same as last year. US life-sciences IPOs rose an average of 12% from their initial offering price through the end of November 2012. Of the 16 issues, 12 came below their target range. Overall, these companies sold their shares at an average of 22.7% below the median of their target price. The 12 therapeutics companies that debuted in public markets in 2012 outperformed life sciences IPOs as a whole. Those issues rose 17.8% by the end of November 2012.

Through the end of November 2012, companies announced a total of $101.1 billion in mergers and acquisitions transactions, down 34.5% from the activity a year ago. Big Pharma and Big Biotech continue to be the most active acquirers. While generic drugs and consumer health were big areas of activity, the top deals involving innovative biopharmaceuticals in 2012 included Bristol-Myers' $7 billion acquisition of Amylin, GlaxoSmithKline's $3 billion purchase of Human Genome Sciences, and Dainippon Summitomo Pharma's $2.6 billion acquisition of Boston Biomedical, which is developing drugs to target cancer stem cells.

Global partnering deals rose to $34.4 billion through the first 11 months of 2012, a 5.4% increase over the same period a year ago. Discovery deals led the way with a total of 66 transactions, followed by preclinical (42), phase 2 (36), and phase 1 (28) transactions. Most deals are back-end loaded with significant milestones tied to achievement of sales targets for drugs that are approved and marketed. Allergan's agreement with Swiss biotech Molecular Partners to develop and commercialize a class of biologics aimed at treating serious eye diseases was the largest deal of the year through the end of November, with $62.5 million in upfront payments and a potential total value of $1.4 billion.

Through the first 11 months of 2012, FDA approved 31 new drugs and biologics, one more than approved for the same period a year ago. These approvals included Vertex Pharmaceuticals' Kalydeco, a targeted therapy for cystic fibrosis patients who have a specific gene mutation that drives their disease. Pfizer won approval for Xeljanz, the first oral disease-modifying drug for rheumatoid arthritis in more than a decade. The year also saw the European Medicines Agency issue the first approval in the western world for a gene therapy, UniQure's Glybera, a treatment for a rare, inherited disease where patients are unable to handle fat particles in their blood plasma.

There were also some notable innovations in 2012 in the way approved drugs were made. Pfizer, along with its partner Protalix Biotherapeutics, won approval for the Gaucher disease drug Elelyso, the first drug to be manufactured using genetically engineered plant cells. Novartis, notably, won approval for Flucelvax, the first seasonal influenza vaccine licensed in the US and produced using cultured animal cells instead of fertilized chicken eggs.

Despite ongoing financial concerns in Europe and the US, as well as tensions in the Middle East, the life-science industry is poised for positive results in 2013. The arrival of the $1000 genome is rapidly advancing the clinical applications of whole genome sequencing and the promise of personalized medicine to improve care and cut costs is starting to be realized.

Emerging digital health technologies are pushing this trend further. As the demand to transition healthcare to a value-based system continues, the importance of digital health technologies will reverberate through virtually every aspect of healthcare. In 2013, these technologies will grow in importance as they empower patients to take greater control over their own health and wellness, provide real-time monitoring to improve efforts to prevent disease and improve outcomes, and help payers and providers harness vast amounts of new data, transforming them into actionable information that improves care and reduces costs.

G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, publications@b-c.com.

REFERENCES

1. P.B. Bach, L.B. Saltz, and R.E. Wittes, The New York Times online, Oct. 14, 2012, www.nytimes.com/2012/10/15/opinion/a-hospital-says-no-to-an-11000-a-month-cancer-drug.html?_r=0, accessed Dec. 12, 2012.

2. P. Goldberg, The Cancer Letter, 38 (42), 1–4 (2012).