The Three-Point Shot

As an amateur in the field of the global health, I have no special training or experience in the disciplines of the professionals- public health, epidemiology, microbiology, medicine, public policy- and so appreciate publications that synthesize the knowledge of experts into a digestible form.  Hence my recent rereading of a 2010 report on vaccines by Paul Wilson of the Médecins Sans Frontières Campaign for Essential Medicines (MSF Campaign) was worthwhile (“Giving Developing Countries the Best Shot,” 2010 report).  The report is a good accounting of the roles of the major players, including the biopharma industry, and is balanced; it doesn’t beat the drum for more for donor- and government-based solutions that the MSF, while clearly a force for good in the world, often advocates stridently.

The report starts with the good news that, in many of developing countries, immunization programs are in place and are preventing disability and death in millions of people for a good number of diseases:  tuberculosis, polio, measles, diphtheria, tetanus, pertussis, Hepatitis B, Haemophilus influenza type b, rubella, mumps, and yellow fever.  The less-than-good news is that the primary buyers of basic vaccines, the ministries of health of the low- and middle-income countries and the primary international financing authority, the Global Alliance for Vaccines and Immunization (GAVI), have been affected by the global economic depression and will not be able to meet the growing need.  GAVI (Global Alliance for Vaccines and Immunization), is projected to be under-funded in the near term, in part due to declining donor income and in part to its commitments to purchase the newer pentavalent (diphtheria, tetanus, pertussis, hepatitis B, and Hib disease), pneumococcal, and rotaviral vaccines.  The result is that GAVI will be supporting fewer purchases, and its goal of serving as a “pull” to encourage more companies to develop vaccines for global markets will be compromised.

For the biopharma industry, the good news is that, although public sector purchasing will be constrained, sales of vaccines in the low- and middle-income, “emerging” market, countries (LMIC) is projected to increase at 10% over the next five years (GEN article) and therefore will be an increasing part of the overall world market which is estimated as $34 billion in 2012.  The report notes the major biopharma players (the multinational vaccine companies, GlaxoSmithKline [GSK] and Sanofi, and the new-comers, Merck, Novartis, and Pfizer) have a major challenge in creating pricing strategies that are both affordable to LMIC buyers and have returns-on-investment sufficient to support product innovation (and investor expectations).  The current strategy is to have different prices in different countries (high in high-income countries to low in lower-income) and for large purchasers like GAVI and the Pan American Health Organization’s Revolving Fund which purchases vaccines for Central and South America.  My reading of the report is that the healthy competition from LMIC vaccine companies and an increase in pricing information will drive the major companies to be more creative in both their pricing and their business development.  In the latter category, the multinational vaccine companies may:

  • partner with LMIC vaccine companies to gain local manufacturing capacity and regional market access (Sanofi’s $1 billion investment in India, FierceVaccines article);
  • participate in the donor-supported vaccine product development programs to defray development costs of LMIC products (like GSK’s participation in the Malaria Vaccine Initiative, GSK press release);
  • use corporate venture funds to buy into possible game-changing technologies specific to LMIC products (like adjuvants to stretch doses and products that do not require refrigeration), and
  • participate in efforts to advance regulatory harmonization and strengthen national or regional regulatory authorities.

For other players, I read the report as a basis for more deal-making.  The LMIC vaccine manufacturers may:

  • build technical capacity, especially for multivalent vaccines and manufacturing, through sponsored/joint research with biotech companies, in addition to investing in internal R and D, and
  • bid on public sector tenders to increase competition.

For the biotech companies, the advice is to:

  •  look for out licensing and collaboration opportunities with the LMIC companies; and
  •  join vaccine PDPs for visibility and possible funding.

For US universities and research institutions:

  • use more open licensing policies and aggressive marketing to facilitate technology transfer to multiple innovators and suppliers especially in the LMIC; and
  • work with other institutions to set up IP pools and technical advisory groups to enable licensing and technology transfer of vaccine-related technologies.

With the goal being lower costs for existing vaccines and new and better vaccines, the three-point shot is to increase competition, expand markets  through public sector procurements and transparency, and innovate with better technology transfer and development.

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Deal of the Year 2011

For those of you with a better memory than mine, you likely remember last October’s Big Deal announced between Pfizer, the world’s biggest (annual revenues of $70 B plus) and most at-risk (due to patent expirations) pharma, and Biocon, India’s small (annual revenues of under $150 M), up-and-coming biotech company (Biocon, Biocon).  In it, Pfizer purchased marketing rights and supply contracts for four of Biocon’s generic insulin analogues as part of its strategy to backstop its branded (patent-protected) drug business, which has had a series of trial-stage failures (FierceBiotech article), and to have products for the emerging, middle-income markets like India and China.  Diabetes is a major global health problem; according to the WHO, 220 million are affected worldwide and 80% of the diabetes deaths occur in low- and middle-income countries (WHO fact sheet).  In Vivo, a bioindustry trade publication, thought highly enough of the deal to name it the Alliance Deal of the Year:  “the union of these two companies is, in fact, blatantly ambitious and could have far reaching implications. It demonstrates a new way of doing business for pharma, touching on an battery of industry hot topics: biosimilars, pricing flexibility, diversification and emerging markets.” (In Vivo blog).

The specific dollars involved were relatively modest.  Pfizer paid Biocon $200 M upfront and will pay $150 M when certain milestones (e.g., at approval or sales levels, “additional amounts linked to Pfizer’s sales of any insulin products” according to the Wall Street Journal, WSJ article), but apparently not royalties.  In comparison, GlaxoSmithKline paid Acetlion $150 M upfront and up to $3 B later for an insomnia treatment in 2008 only to pull the plug on disappointing Phase III data early this year (FierceBiotech article).  Thus is the power of a patented but unproven product (and for a non-life-threatening condition of the developed world) to command big bucks.

Biocon also could have done better on the marketing terms.  Pfizer will have exclusive rights to commercialize Biocon’s drugs globally except in Germany, India, and Malaysia, where Biocon will have co-exclusive rights, but more co-exclusives would have been better since Biocon sells other products in 27 countries and, since the deal is not exclusive to Pfizer, Pfizer can shop for cheaper sources.  Biocon also has the task of getting approvals for the products which, although is good experience for a growing company, is expensive.  Biocon has also said it will be spending $300 M over three years to build manufacturing capacity to supply Pfizer (WSJ article), a good investment but major commitment.

The four products are all biosynthetic analogues of human insulin, the mainstay of diabetes control since Lilly came out with the first version, Humulin, in 1983.  Worldwide sales of such products is about $14 B annually (Bloomberg article).  Specifically the products are:

Product Stage Branded Product
Recombinant Human Insulin Approved in 23 countries Humulin by Lilly, Novolin by Novo Nordisk
Glargine Approved in India Lantus by Sanofi-Aventis
Aspart Preclinical Novolog by Novo Nordisk
Lispo Preclinical Humulog by Lilly

For Biocon, the deal provides capital to grow now, income as the lead product gets approval in the EU (2012) and US (2015), and international recognition as a player.

Of course, behind every great company there is a great woman and Biocon is driven by Kiran Mazumdar-Shaw, whose story is a primer on entrepreneurship.  As described in a recent article (Bloomberg article, Bloomberg article), Ms. Mazumdar-Shaw, whose father was a brew master like my grandfather, started Biocon in a garage in 1978 with a few thousand dollars, overcame gender discrimination and starting up in a low-resource environment, has ably guided the company to a market cap of more than $1 B, and has a personal wealth of $900 M (Economic Times article).  Biocon is diversified (more than 40 products, contract manufacture and research services [Biocon fact sheet]) and innovative with two novel drugs in late development, including an oral insulin (IN105) (Biocon pipeline).  Ms. Mazumdar-Shaw also is trying to change the equation in global health care through the Biocon Foundation which was started in 2004 with the mission “to provide sustainable and affordable healthcare/educational services to under-served rural and urban communities in India” (Biocon Foundation).  In health care the Foundation has two main projects:

  • an insurance plan called Arogya Raksha Yojana which in 2005 had about 70,000 member paying less that $3 each per year (ARY), and
  • a chain of seven clinics which served 22,000 in 2008-09 (ARY clinics).

The foundation’s big plan is “to set up large ‘health cities’ in every state capital and large hospitals in every district” creating “at least 20,000 beds within the next 3-5 years in various parts of the country.”  Its partner is India’s (and maybe the world’s) largest pediatric hospital, Narayana Hrudayalaya, which is both profitable and charitable (Wikipedia article and UNDP case study).  I like the concept of a biotech/pharma selling directly to a hospital chain at low but profitable prices to serve a social good, and I guess that is what Biocon and Narayana Hrudayalaya are thinking.  As for the Deal of Year 2011, I hope Pfizer realizes the value of a partner like Biocon and gives them a fat option fee for IN105.  If any of my former Wyeth BD colleagues survived the Pfizer takeover, I hope they can see that tie-ins with innovative, emerging market companies are good hedges against getting stuck at the bottom of a patent cliff.