BIO 2013 Monday Roundup: Bayer, Orphan Drug Pricing, Avalon/GSK

Our survey of news from the first day of BIO 2013 includes a look at Bayer’s business development plans, Avalon Ventures’ tie-up with GlaxoSmithKline, and news from panel discussions on orphan drugs, venture philanthropy and Russia.

Bayer’s BD Gambit Paying Off

About a year ago, in a move that reflected Bayer AG’s ambitions to offer more integrated solutions for patients and physicians, the company’s health care division pulled together its various business development groups – in animal health, consumer care, pharmaceuticals, and medical care – into one large team (Also see "Rebuilding Business Development For Bayer HealthCare’s Changing Worldview" - In Vivo, 12 Sep, 2012.).

So how’s it going? “Better than I expected, initially,” said Christopher Seaton, Bayer Healthcare’s senior VP, negotiations during an interview at BIO. Though there were questions as to how much commonality existed across the previously siloed groups, Seaton noted that the transactional issues were largely similar. Instead of determining new best practices for the team, Seaton said the reorganization has rather avoided “worst practices” and boosted the caliber of its alliance management activities. Furthermore, “on the [asset] evaluation front, we’ve made a lot of strides to make sure we have appropriate rigor and consistency of approach in evaluating opportunities,” he said.

Despite some vacancies in executive offices at Bayer Healthcare, Seaton noted that the business development organization hasn’t been hobbled by the absence of leaders like Jorg Reinhardt, the group’s former chairman who departed for Novartis in 2012 (Also see "Top Changes At Bayer And Novartis As Vasella Goes, Reinhardt Returns" - Pink Sheet, 28 Jan, 2013.). If anything, more doors have opened for Bayer lately, thanks to the success it has enjoyed in the clinic with existing partners’ assets. “It’s easier today to get an audience with people we want to talk to,” he said. Though there’s always someone willing to pay more for a deal, sellers are increasingly “more sophisticated,” and willing to choose a better partnership fit over a deal with an extra few million dollars in the upfront payment. “The challenge is making them see why you are the right partner,” Seaton said.

Orphan Pricing Model’s Longevity

The pricing model for ultra-orphan drugs will only remain sustainable if patient organizations have a voice in determining new value metrics for these therapies, according to executives at BIO. Their remarks came during a panel about defining drug value and incorporating patient perspectives in that process.

Only one patient of the first 800 patients prescribed Vertex Pharmaceuticals Inc.’s breakthrough cystic fibrosis therapy Kalydeco (ivacaftor) experienced push-back on reimbursement, said Cystic Fibrosis Foundation president and CEO Robert Beall during the April 22 session ‘How Do We Determine and Pay for Value? Does the Patient Have a Voice?’ “But we’re not sure if that’s sustainable,” he said, especially given that so many other orphan diseases may soon be treatable with their own suites of disease-modifying drugs. To maintain the model that has large pharma companies moving en masse into rare disorders, “we as a patient organization [must] work with the manufacturers and payers so we can define new value metrics that might have an impact, might be persuasive, and allow for these kinds of costs for these drugs,” Beall said.

Venture Philanthropy

In a morning panel discussion about venture philanthropy, it was a bit disappointing to find that the representative from the Bill & Melinda Gates Foundation had to cancel at the last minute. After all, the world’s richest nonprofit organization could become a sizeable force in early-stage vaccine funding for private biotechs, now that it’s revving up its equity program (Also see "After Slow Start, Gates Foundation Ready To Boost Biotech Investment" - Scrip, 26 Nov, 2012.).

We were eager for an update, especially since the rest of the venture philanthropy world, at least in the life sciences, seems in need of a bit of fresh blood. The Cystic Fibrosis Foundation famously registered a huge assist getting Vertex Pharmaceuticals’ Kalydeco to market, and the Multiple Myeloma Research Foundation put resources into the program that Onyx Pharmaceuticals eventually brought to market as Kyprolis (carfilzomib) (Also see "Drug Research Supported By The Multiple Myeloma Research Foundation" - Pink Sheet, 1 Jan, 2011.). A new model in the space is Dart Therapeutics and its spinoff, Halo Therapeutics, working on Duchenne’s muscular dystrophy and funded entirely by patient foundations in the space (Also see "Dart Therapeutics: Backed By Non-Profits, Open To Venture" - Scrip, 23 Oct, 2012.).

But beyond the established groups, new venture philanthropy groups have been slow to emerge, in part because organizations with multiple missions beyond research funding – say, to do public-health outreach and patient education – might not be ready to shift those dollars to risky drug discovery and development. Others are hesitant from a legal perspective, which is why a few panelists and audience members brought up a new corporate structure, called an L3C, or “low-profit company,” that are legal in several states including Michigan and Vermont. An L3C, or "low-profit limited liability company," is a new business structure that makes it easier for nonprofits to invest in for-profit entities, as long as the entity has an explicit goal of providing social benefit.

To date, however, it’s unclear if any have formed in the life sciences. (There’s a running total here.) Plans for crowdfunding-type mechanisms are on hold, at least in the U.S., as the federal government sorts out the rules. “It’s top of mind,” said Tracey Mumford, senior associate director of research partnerships at the Michael J. Fox Foundation. “But the devil’s in the details.”

Avalon And GSK’s Venture Into Company Creation

Avalon Ventures and GlaxoSmithKline unveiled the latest venture-pharma experiment in company creation at the conference on April 22. The two groups, led by Avalon managing director Jay Lichter and GSK senior vice president of alternative discovery and development Lon Cardon, will form up to ten start-ups in San Diego, where Avalon is based. Avalon will serve as scout for the early-stage technology, and the two sides will jointly approve formation of new companies.

Avalon is contributing up to $30 million, all from its newly raised $200 million Fund X; GSK will provide the rest, up to $465 million for ten companies. For its contribution, GSK holds an option to acquire each company, if and when it produces a clinical candidate. If GSK declines to buy, the company in question remains Avalon’s.

Avalon invests in high-tech companies, too, but on the life-science side, its modus operandi is to launch new companies with its own seed money and own partners in operational roles (Also see "Avalon's Sweat Equity" - Scrip, 1 Mar, 2011.). It recently sold three of its tiny portfolio companies through early-stage deals (Also see "RQx Antibiotic Collaboration With Genentech Marks Third Exit For Avalon Ventures This Year" - Pink Sheet, 12 Feb, 2013.).

As Big Pharma cuts internal research groups, and as venture capitalists struggle to raise funds for the traditional investment models, both sides have undertaken a series of collaborations. Some drug giants have become limited partners in new venture funds, such as Sanderling Ventures and venBio ( (Also see "GSK Will Be A Limited Partner In Sanderling Ventures’ New Fund" - Pink Sheet, 10 Jan, 2013.)and (Also see "Where The Money Is: Armed With Pharma Cash, VenBio Seeks Pharma Customers" - Scrip, 24 May, 2012.)). Some have entered into equity and option deals with venture-backed companies. ( (Also see "Cancer Genomics Firm Quanticel Debuts With Close Ties To Celgene, And An Exit In Mind" - Pink Sheet, 7 Nov, 2011.) and (Also see "The A-List: The Trend-Shaping Series A Financings Of 2012" - Scrip, 25 Jan, 2013.)).

Western MNCs Figure Out Russia

Western multinationals are figuring out strategies to respond to Russia’s efforts to modernize its pharmaceutical industry and seize opportunities there. The Russian biopharma industry is among the world’s fastest growing, but navigating the terrain is a challenge. Reimbursement, regulatory, intellectual property and manufacturing policies are in flux, with the official government program, Pharma2020, initially emphasizing import replacement. Under that strategy, it would shift the balance of drugs produced locally compared to imports to 50%/50% from its current 20%/80% by 2020, with half of the domestic drugs being innovative.

Russia’s efforts to transform its biopharma sector were the subject of an opening-day full morning track at BIO. Representatives from the Russian Ministry of Industry and Trade and the state Duma of the Russian Federation, as well as leaders of some of the country’s largest life sciences clusters— recently-established well-defined regions to which pharma companies are gravitating—presented to a packed audience.

Executives of foreign companies with established roots in Russia made for some of the most interesting contrasts, although not directly stated, as they outlined their strategic thinking about Russia. Anna Protopapas, executive vice president, global business development, at Takeda Pharmaceuticals, noted that Russia is Takeda’s third largest market globally, after the U.S. and Japan—a surprising statistic given the overall size of the market ($14.7 billion in 2011) and weak reimbursement system, especially for innovative specialty pharmaceuticals.

Takeda has significant commercial operations in Russia, where it is among the top 10 pharma companies, thanks to its acquisition of Nycomed in 2011. Given a 20-year history in Russia and its extensive portfolio there, Protopapas said, it made sense for Takeda to build a large manufacturing plant in Yaroslavl, which began operations in September 2012. Takeda’s growth there is driven by its portfolio, which is “tailored to local market needs,” and its long-term commitment, she said.

In contrast, AbbVie Inc.’s vice president of operations for Eastern Europe, the Middle East and Africa, Alberto Colzi, stated that now that AbbVie is split from Abbott Laboratories, it is reshaping its global strategy. While Abbott’s broad portfolio of pharmaceuticals, devices, and nutritional products motivated it to invest in Russian infrastructure, building a manufacturing infrastructure in Russia does not currently make sense for AbbVie. That’s due to low market demand for its portfolio, which consists of high-value innovative specialty drugs. In Russia, it is more likely to look for manufacturing partners for its portfolio of innovative specialty pharmaceuticals than to build its own facilities, but it is proceeding cautiously.