Biotech Strategy Blog

Commentary on Science, Innovation & New Products with a focus on Oncology, Hematology & Cancer Immunotherapy

Posts tagged ‘Pharmaceutical industry’

The Supreme Court of the United States (SCOTUS) heard oral argument today in William Sorrell, Attorney General of Vermont versus IMS Health Inc., a case involving the right of Vermont to regulate the use of prescription drug data for marketing and sales purposes by pharmaceutical companies.

You can read my previous blog post with a background to the case, and also my correct prediction yesterday of what the Justices would focus on.  A transcript of the oral argument is available on the Supreme Court website.

Justice Scalia and Chief Justice Roberts started the oral argument by Vermont’s Assistant Attorney General with concerns that what Vermont was seeking to do was prevent the use of the data by pharmaceutical companies for marketing purposes when it could be used for other purposes such as clinical trials or university research.

JUSTICE SCALIA: So what the Chief Justice suggested is right, that the purpose is to stop them from using it in order to market their drugs?

Justice Scalia appeared sceptical about what privacy benefit the physician obtains from only restricting pharma company access to his prescribing information, when physician prescribing data is widely available to others e.g. through insurance claims.

In further questions, Justice Scalia pursued the topic that the consent of physicians was only required for marketing uses, when the data could be given away for research without the physician’s consent.

JUSTICE SCALIA: So the only thing it assures the physician who prescribes is that he won’t be bothered by drug companies who, on the basis of their knowledge of information which other people have, approach him in order to market their drugs? That’s basically all it assures the prescribing physician, right?

Justice Scalia certainly seemed to have the bull by the horns in his questioning of Vermont’s Assistant Attorney General, Bridget Asay. The following exchange is a good illustration:

JUSTICE SCALIA: How does it increase the prescribing physician’s right of privacy that the data about his prescribing can only be given away, but can’t be sold? Does that make him feel happier about his privacy?

MS. ASAY: What it allows the doctor to do is to avoid an intrusive and invasive marketing practice.

JUSTICE SCALIA: He can do that by saying: I don’t want to talk to you.

MS. ASAY: The doctor cannot shut off any communication and any information from the pharmaceutical companies by slamming the door on the detailers, but that’s not necessarily in the interest of doctors or patients.

JUSTICE SCALIA: That may well be, but then just don’t tell me that the purpose is to protect their privacy. Now you’re arguing a totally different purpose: it makes it easier for the physician to cut off approaches by drug companies that want to sell drugs. If that’s the purpose of this statute, it’s quite different from protecting his privacy.  His privacy isn’t protected by saying you can’t sell it but you can give it away.

Justice Sotomayor asked why Vermont couldn’t adopt an opt-out approach for doctors from the use of their data, rather than an opt-in.

JUSTICE SOTOMAYOR: Well, but, given the restrictions on speech, why is that a bad thing? Meaning you don’t really intend to tell us that the State couldn’t and wouldn’t — just like we got all of that advertising relating to the opt-out on telephone solicitations, virtually every American knew they could do it if they chose. Maybe some didn’t, but a vast majority did. You can’t really say Vermont’s incapable of telling doctors in a mailing or in some public professional magazine, if you want to opt out, here’s the number?

Justice Ginsburg pursued the issue of whether it was right to restrict the commercial speech of pharmaceutical manufacturers in favor of generics companies.

JUSTICE GINSBURG: There’s another there’s another purpose that I would like you to comment on, and that is the, the State is interested in promoting the sale of generic drugs and correspondingly to reduce the sale of brand name drugs. And if that’s the purpose, why doesn’t that run up against what this Court has said that you can’t, you can’t lower the decibel level of one speaker so that another speaker, in this case the generics, can be heard better?

Throughout oral argument, the Justices focused on the regulation of speech by Vermont.

CHIEF JUSTICE ROBERTS: You want to lower your health care costs, not by direct regulation, but by restricting the flow of information to the doctors, by, to use a pejorative word, but by censoring what they can hear to make sure they don’t have full information, so they will do what you want them to do when it comes to prescribing drugs, because you can’t take, I gather, direct action and tell them, you must prescribe generics, right?

Reading through the transcript of the Justices questioning, I found the Assistant Attorney General of Vermont entirely unconvincing in her answers.

The message I took from this transcript, and others may differ, is that Vermont’s chance of having their Statute upheld is low.  The Justices appeared to be unpersuaded and unconvinced by Vermont’s case.

I recently attended the Association of Health Care Journalists (AHCJ) annual meeting in Philadelphia. “Health Journalism 2011” offered the opportunity to hear speakers on a wide range of topics.

One presentation that by chance I attended was on what we can learn from Massachusetts, where a law was passed two years ago requiring individual healthcare insurance. Many of the features of the MA law were incorporated into the Affordable Care Act that will impact everyone in the United States.

I have used Storify to aggregate some of the live Tweets from the session, and I hope this captures the essence of what the panel presented.

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At this past weekend’s Association of Health Care Journalists (AHCJ) conference in Philadelphia, Ed Silverman from Pharmalot moderated a panel on “efforts to revive the drug delivery pipeline.” He drew the attention of the audience to FDA data, published earlier this year, on the number of applications/approvals for new molecular entities (NME).
Source: redrawn from FDA Center for Drug Evaluation and Research (CDER) presentation.  The data in my opinion is a little ambiguous as to the true state of the Pharma industry.  While the number of applications declined last year to a five year low of 23, from a previous 5 year high in 2009 of 37, the number of NME approvals at 21 was only just below the 5 year average of 22.

What I took from this data (see chart), was the fact that in 2010 the number of approvals as a percentage of applications was the highest in 5 years (91%) as compared to 70% in 2009.  It is too early to tell from this data whether companies are presenting better applications to FDA, or if this data reflects the fact that new products are being terminated if the phase III trial results are not promising.

For the biotechnology industry, the challenge remains that bringing a new product to market is an expensive and risky proposition.  However, it is clear that there are some factors that are likely to be key factors for success, including:

  • Improved understanding of the biology of disease
  • Better clinical trial design
  • More rigorous patient selection criteria
  • Increased time in the phase II stage

As big Pharma scales back R&D funding in favor of shareholder value and baby biotechnology companies struggle with the challenges of whether to grow or sell out, it will be interesting to see how the FDA application/approval data evolves.

In a unanimous decision, the United States Supreme Court decided yesterday that pharmaceutical and biotechnology companies may have an obligation to disclose adverse events to investors, even if the data is not statistically significant.

I previously discussed the case of Matrixx Initiatives, Inc. v. Siracusano on this blog and correctly predicted that the Supreme Court would uphold the decision of Court of Appeals for the Ninth Circuit.  The result is a valid securities class action fraud claim that can now go to trial, or more likely, a financial settlement will be worked out.

You can read more on the background to this case in my previous post, but at issue was whether Matrixx Initiatives, Inc. (Matrixx) mislead investors by not disclosing reports that some consumers had lost their sense of smell (anosmia) after using Zicam Cold Remedy.   Despite product liability lawsuits, complaints from consumers and medical scientists drawing the company’s attention to previous studies linking zinc sulfate (contained in the Zicam nasal gel) to loss of smell, Matrixx continued to be optimistic to investors about the company’s performance and prospects.

In the November 2003 Form 10-Q filed with the Securities and Exchange Commission (SEC), the company made no disclosure that two lawsuits had been filed over alleging use of Zicam had caused a loss of smell.

The decision in Matrixx Initiatives, Inc., v. Siracusano case has major implications for investor relations, public relations and corporate communications departments of publicly traded companies within the biopharmaceutical industry.

Under U.S. Securities and Exchange Commission (SEC) Rule 10b-5 companies have an obligation to disclose material facts related to statements that are made that could impact the purchase or sale of stock i.e. you have to provide all the information necessary to avoid a statement being misleading.  This does not mean that companies have to share all material information about their products, they control what they say, but what they say has to contain all the material facts necessary for it to be truthful and accurate.

Say a major pharma company issues positive press releases at a major medical congress announcing great clinical trial results, while at the same time the Data Monitoring Committee (DMC) is meeting to terminate the study because the drug has too many adverse events.  My reading of the Matrixx decision is that the company cannot make the positive statements without including the information about their concerns about adverse events.  In those circumstances they might be better off not making the positive press releases, rather than potential misleading investors into buying stock on the back of this data, when the drug may end up being terminated shortly afterwards.

As Justice Sotomayor states in her opinion, “the materiality of adverse event reports cannot be reduced to a bright-line rule.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. ___ (2011) (slip op., at 1-2).

The presence or absence of statistical significance is not the key factor as to whether an adverse event is material or not.

“A lack of statistically significant data does not mean that medical experts have no reliable basis for inferring a causal link between a drug and adverse events.”

(slip op., at 12).   As Justice Kagan noted in her questioning at oral argument and Justice Sotomayor picked up in her opinion, “[t]he FDA similarly does not limit the evidence it considers for purposes of assessing causation and taking regulatory action to statistically significant data.” (slip op at 13).

Justice Sotomayor goes on to conclude that reasonable investors may also base their decision on non-statistically significant data.  The challenge that the industry now faces is determining what information is “material” and needs to be disclosed.  A bright-line rule of statistical significance would have made this easy.

Companies, their investor relations and public relations agencies are now faced with the question of what is “material”, and what is not.  The guidance the court offers is that:

“assessing the materiality of adverse event reports is a “fact-specific” inquiry that requires consideration of the source, content, and context of the reports.”

(slip op., at 15, citations omitted).  The Court notes this does not mean that “pharmaceutical manufacturers must disclose all reports of adverse events” only those for which “a reasonable investor would have viewed the nondisclosed information as having significantly altered the total mix of information made available” (slip op., at 15, citations and quotation marks omitted).

So should all adverse events be reported?  That’s one possible way to avoid deciding what’s material, but Justice Sotomayor, clearly states that this is not the standard to be applied. She states,

“mere existence of reports of adverse events which says nothing in and of itself about whether the drug is causing the events – will not satisfy the standard.”

(slip op., at 16). What is needed is some link between the adverse event and the drug that suggests possible causality, what Justice Sotomayor describes as a “contextual inquiry.”  She goes on to say that it is this contextual inquiry that can come from other sources or reports.  In the Matrixx case this would have come from the filing of lawsuits, the concerns of academics about causal links, consumer complaints, the presentation of a scientific poster etc.

“This contextual inquiry may reveal in some cases that reasonable investors would have viewed reports of adverse events as material even though the reports did not provide statistically significant evidence of a causal link.”

(slip op., at 16).  The conclusion from the Matrixx case is that publicly listed companies should be very careful of the information that they tell the market.  As Justice Sotomayor notes:

“Even with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market.”

(slip op., at 16).  Whatever information is given to the market e.g. investor presentations at conferences, press releases, press briefings or SEC reports, the information should not be misleading through the omission of material facts.

What the Matrixx decision does is include adverse events as possible material facts, even those adverse events that have not been proved to be causal, or have reached statistical significance.  The conclusion being that disclosure of adverse event data may need to be included, if the omission of this information could impact the decision making of a reasonable investor.

In practice, clinical departments and medical affairs will need to be more closely involved with investor relations, and judgments will have to be made as to what information is disclosed.  Any time a judgment is required, there are likely to be differences in opinion as to what is “material” or not.  Prudent companies should consider sharing more information rather than less, but how to do this in a way that does not overburden investors will be the challenge.

 

Although the market for biotech IPOs is opening, capital constraints remain a key issue for biotech companies.  Recent years have proven difficult with limited access to financing, and venture capital in particular has been virtually non-existent.  Biotech companies with limited resources have focused on core development activities. 

This has resulted in delayed development of pipeline products and is likely to have a future impact on the availability of new drugs for licensing and acquisition by big pharma.  One of the consequences is that big pharma cannot rely on biotechnology companies to be the sole source of new products to keep their portfolio's stocked.  They will have to continue to invest in their own R&D, however inefficient this may be. However, the trend of big pharma is to outsource and divest R&D as evidenced by the recent layoffs at AstraZeneca and GSK, and the loss of R&D facilities post-merger at Wyeth/Pfizer.  The current strategy of big pharma is only likely to exacerbate their pipeline shortages in the face of the generic cliff many companies are facing.

Additionally, as reported earlier this week in the FT, the benefit to pharmaceutical companies of investing in their own R&D is that early stage development is cheap compared to the high cost of buying developed research. Late stage products come at a price premium reflecting their lower risk.

An example of this is the $1.2B licensing and development deal that AstraZeneca did last week with Rigel Pharmaceuticals (Nasdaq: RIGL) for their rheumatoid arthritis drug, fostamatinib disodium (R788). The Pharma Strategy Blog has further insight on this.

Big pharma cannot rely on outsourcing and biotech for all their new drug development and need to invest in their own R&D.

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Arc De Triomphe (Paris) in 1000 MegaPixels (Zo...Image by Anirudh Koul via Flickr

An emerging French biotech company, AB Science has plans for an IPO on the Paris based Euronext exchange.  The company is reported to be seeking €50 million.  What makes AB Science interesting is not only that it has a tyrosine kinase inhibitor that has particular promise in pancreatic cancer, but the company has grand designs to follow the growth strategy of biotech companies such as Genentech, Celgene and Biogen Idec.

In the initial company filing with the French Autorité des Marchés Financiers (AMF), the stated corporate strategy is to become a “fully integrated pharmaceutical company (FIPCO)” in order to preserve as much of the potentlal value of the drugs in the pipeline.  Very few biotech companies have been able to succeed with this busienss model, so it will be interesting to see if AB Science makes it.

The CEO of AB Science, Alain Moussy provided insight on his plans for the company in the interview he did last year with Sally Church of the Pharma Strategy Blog.

In the interview he states why AB Science has not pursued alliances or partnerships with large pharma companies:

“Biotechs are owned by venture capitalists, who have a 5 to 7 year cycle to make money, but the cycle of drug development is 10-12 years, so in the middle of the cycle they have to sell where the risk is not too high. Typically, venture capitalists do not care whether the product ends up being approved or not.  Most biotechs end up following this strategy because they are owned by VC firms.  AB Science is owned by entrepreneurs, and we have chosen to dedicate our life to developing products that make a difference.  We have to stay independent, because if we try to make money in the middle of the drug development cycle, then we will just select drugs that we can sell to a big pharma, and this is not what we want.  What we want is stability for the long-term to have time to take the necessary risks to make the right products.”

AB Science is a company to watch, not only because the CEO has a passion for wanting to make a difference to the lives of patients, but their business model is different from many other biotech companies who instead have adopted a licensing and shared risk approach with major pharma companies.

Ultimately, AB Science’s success will rest on clinical data and in particular the phase 3 clinical trial results for mastinib in pancreatic cancer. Recruitment is set to end in this study in mid-2010 with results in 2011.

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