BioSpace BioPharm Exec
Wednesday, June 25, 2008
Small is Beautiful

Perhaps most men, to paraphrase Henry David Thoreau, indeed lead lives of quiet desperation. Pharmaceutical companies, however, are getting increasingly noisy about it. The patent expiration time bomb is ticking away, and with MacGyver nowhere in sight, it's up to CEOs to formulate some kind of plan.

This has given way to a new wave of biotech envy. GlaxoSmithKline exhibited it this month, announcing a plan to become "more biotech-like" by expanding its "Centres of Excellence" strategy to create an R&D organization that is essentially a collection of small semi-autonomous units focused on specific disease areas, with decision-making privileges and as-yet undefined financial incentives for creating value. At the same time, new chief executive Andrew Witty says he wants to "diversify and derisk" the company by increasing its emphasis on, among other things, non-prescription products. (I've had GSK's popular blackcurrant drink 'Ribena,' before, but even if a "King of Denmark"--Ribena and Pernod--is a lot better than it sounds, it's hard to picture this making up for all that Advair revenue. Still, it does make you wonder if biotech should take a page from Big Pharma's playbook. The idea of, say, a Genentech shampoo is strangely intriguing.)

Actually, there's a lot to be said for diversification beyond pure reliance on branded prescription drugs, particularly if it means adding generics to the mix. Think of Novartis with its Sandoz division, or--more recently--Daiichi Sankyo with Ranbaxy (assuming it gets its way and isn't outbid by Pfizer). Keeping things small and "biotech-like" is also gaining in popularity, presumably under the theory that autonomy will keep R&D nimble and boost productivity. Takeda is leaving Millennium as an independent organization, for instance, and GSK is doing the same with Sirtris.

Pfizer is also thinking a lot about the time bomb, having just made its peace with Ranbaxy Laboratories over the launch of a generic Lipitor in 2008. Pfizer gained about five extra months in its agreement--which is nothing to scoff at, as Lipitor brings in about $35 million in sales every single day--but the company will be coping with a post-Lipitor world come December 2011.

How will they do it? In Vivo recently came up with a modest proposal that fits nicely with the 'small is beautiful' Zeitgeist: Pfizer should just spin out Lipitor and other tail-end products into a separate company right now. It would hold the lion's share of the equity in the spin-out and at the same time make the core company much smaller and therefore easier to grow. The problem is how the spin-out would see its value grow rather than shrink, as it would simply inherit Pfizer's expiration problems. But without big research budgets and other issues, the new company might, In Vivo argues, find it easier to maneuver than Pfizer itself, giving it freedom to pursue a sort of Forest Labs--type model. I've my doubts about yet another big company looking to be a licensor when the industry really needs novel products. But there's certainly some appeal to defusing the time bomb by boxing it up and mailing it somewhere else.

Here's to keeping it small. --Karl Thiel

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How much demand is there for new Alzheimer's drugs? Enough that shares of Elan shot up over 10% after reporting equivocal results for the antibody it is developing with Wyeth. (Wyeth shares were up almost 5% on the news). The drug failed to meet its primary endpoint in a phase 2 study, but showed statistically significant improvement in five different cognitive performance measures in a subgroup that had a lower genetic susceptibility to the illness. That's enough to have some analysts speculating the drug will top $7 billion in annual sales by 2015. There's going to be a wild battle between bulls and bears on this one. On the positive side, Bapineuzumab wasn't expected to reach its primary endpoint, and the fact that it showed statistical significance in a small patient subgroup is actually a surprisingly strong result. On the other hand, the analysis was retrospective and the companies haven't released many details, holding off for a later medical conference. Place your bets! -KT
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Axing 350 research jobs (about 2% of its global research staff) is just part of GlaxoSmithKline's plan to reinvent its R&D operations. In fact, the drug giant says it is deliberately setting out to be more like a biotech company. Sure, doing more with less is part of the formula, but there's more than job cuts and cost containment planned. The company also wants R&D split its discovery operations into smaller, more focused units. It's not clear if this will increase the risk-taking that is also characteristic of small, nimble biotechs; nor is it clear if such an approach would serve GSK or its shareholders well. After all, sometimes risk-taking pays off, and sometimes it doesn't.

Oh, and just a small explanation of the Dyadic story: This company, which started out selling pumice used for stone-washing blue jeans, got into a spot of trouble last year when "material operational and financial improprieties" were uncovered. Founder and CEO Mark Emalfarb was terminated for cause, replaced by Wayne Moor. Well, now Emalfarb is back...and Moor and other senior management are resigning in protest. Sure, Dyadic doesn't trade on Scamex...ahem, I mean AMEX...anymore, but it's still on the pink sheets, and Emalfarb owns a big chunk. The resignation letters make for some entertaining reading. Good luck, investors. -KT
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Karl Thiel is an analyst for The Motley Fool, a columnist for BioWorld Today, and a contributor to Nature Biotechnology. He lives in Portland, Oregon.

You may contact Karl Thiel at Karl.thiel@biospace.com.

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