Monday, January 29, 2007

sanofi-aventis, BMS and merger speculation

Here we go again, another day when rumors out of France suggest that s-a and BMS have signed a pre-merger agreement. These two long term partners have had a good deal of success - most especially with Plavix. I don't think there is much doubt that the managements of these two companies would see some significant benefits to a merger.

BMS have been under a cloud for quite a while - probably right back to the massive Imclone deal that looked very expensive and coincided with the appointment of two former BMS senior managers to senior positions at Imclone. The cloud has been lifting slowly but all is not yet clear and a mega merger with s-a would go a long way to clearing the air.

s-a would love to be the largest pharmaceutical company in the world. With market cap of around $170 billion this would be a huge organisation with significant synergies, an existing strong relationship and the all important US market capabilities that s-a have sought for so long.

But I wonder if this rumor is really true? If these two companies are really seeking to merge, why would BMS sell 50% of their very promising DPP-IV anti-diabetic (saxagliptin) to AstraZeneca? Is the s-a diabetes pipeline so strong that they could afford to go without that business? Or are BMS so dysfunctional that the two decisions were being managed separately? Or is saxagliptin not what they thought it would be and selling 50% in exchange for all future development costs plus $100 million was an offer to good to turn down? It goes without saying that I don't know the story behind the story behind the rumor, but something in there doesn't quite pass the sniff test - yet.

Either way, I am sure that this rumor will not be the last relating to a mega-merger in 2007 as all of the majors try to shift their fortunes by acquiring assets that will allow them to maintain (or return to) growth of revenue, earnings, dividends and ultimately shareholder value.

Friday, January 19, 2007

NIH, Ethics and Commercial Funding

It seems that the NIH conflict of interest issue will be with us for some time. The cancellation of a meeting to discuss guidelines for herpes treatment of pregnant women because most of the panel have received funding from big pharma is just the latest episode in a long running saga. So how do we overcome the problem that most research funding is going to come from industry and a good deal of the best and brightest in health research work for the Government? If the latest ehtics bill to come out of the Senate is anything to go by, the legislative tendency (when they get around to it) will be to ban all forms of commercial funding - and that would be a disaster for all concerned. I have a different idea.

What about taking a leaf out of the book of military research? I'm based in the DC area and so I am geographically very close to NIH, NNMC, WRAMC and USUHS. Now for those of you not familiar, these last three are Navy Medical, Walter Reed and the military medical school - all of which conduct a significant amount of research that is funded by the pharmaceutical and biotech industries - and ethics isn't an issue over there. So how do they do it? The answer is the Henry M. Jackson Foundation - a non-profit that is the source for all funding of medical research in the military and a mechanism that has been used by big pharma for years (decades). You want your research done at a military establishment? You set up the research and channel the money through HMJF. You get access to the researchers you want - but they can't be your spokesman. That job must be done by someone outside the military using the research produced (and published) by your military researcher.

Surely a similar model could be worked into the NIH? Wouldn't it be possible to separate the funder from the researcher so that the research is completed in an environment that is independent and yet scientifically sound and relevant to the needs of the community. The problem at NIH isn't that researchers are biased - they aren't - it is that their results are perceived as biased because these people go on to stay at the NIH and get paid as consultants to industry. With an effective middle-man to manage the funds the issue of NIH funded research being biased could be effectively removed.

I'm not suggesting this would be an easy fix as there are a number of very strong vested interests who rather like the current system. But if meetings are going to be cancelled and research is going to remain unpublished because the funding source attracts accusations of bias, then the system has to change. Perhaps HMJF could simply be expanded to cover all Government institutions - not just the military?

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Tuesday, January 16, 2007

MedImmune v's Genentech - Licensing Revolution?

Well, here's a conundrum - what to do when the Supreme Court makes a ruling that not only reverses the rulings of lower courts but also contradicts conventional business practices? In allowing a patent validity challenge without insisting on a cessation of royalty payments the Supreme Court has, in effect, removed all the risk from the licensee who wishes to mount a challenge. Many in the industry are suggesting that this will create mayhem, confusion and turmoil - I don't quite see it that way.

I think future licensing agreements will have new clauses inserted that cause the licensee to forgo this new right granted by the Supreme Court. Failure to agree to such terms on the part of the licensee will be a clear signal to the licensor that a challenge is distinctly possible and either the points will tick up to compensate for the increased risk, or the deal will not be done. How else can licensors continue to do business?

The bigger issue I see is with the thousands upon thousands of agreements already in place! This is not to suggest that all of these (or even most of them) will be the subject of patent challenges, but there have to be quite a few situations where companies are currently paying royalties for bits of enabling IP that they would prefer to go away. Now they can mount a challenge with substantially reduced risk - and I think this is bound to occur. Who loses in these circumstances? Well, it is the smaller organisations that do not have the resources to fully defend all their IP - and here I think Universities must be at particular risk.

In the end I am not sure that this ruling will make such a huge difference to licensing, but there will be a number of cases where the nature of an existing agreement shifts dramatically so that challenges will be put in place. The lawyers win (as ever) and I hope that promising products do not suffer as a result, but in the end I think business will do what it always does best and adapt to the new legal framework. Unless of course the ruling prevents adaptation, in which case the pharmaceutical and biotech industries could be in for a VERY interesting 2007!

Monday, January 15, 2007

BMS & AstraZeneca - Merger in the wind?

It is almost impossible to avoid wondering if the recently announced deal between BMS and AZ will ultimately create the forces necessary for them to merge. AZ need something in primary care to help fill the gap that will be left by Crestor, as well as giving their Crestor reps something else to discuss with physicians. BMS need marketing muscle in the primary care world in order to compete effectively as a late entrant (against Merck and Novartis).

Neither company can describe their R&D productivity in glowing terms - which may ultimately be the weak element in any potential merger. Their product lines have a good fit, but neither has demonstrated the ability to produce a consistent flow of new products. Also they both have numerous oncology agreements that might cause some difficulties for a merger. Does saxagliptin represent so much potential that it could drive a merger? I doubt it; it's probably not quite going to be enough on its own but it would be interesting to see if these two flailing giants of the industry could see this as a starting point towards much closer ties. BMS have some history in this in the USA (both Plavix and Erbitux are in-licensed and over 50% of total comapny sales are from in-licensed compounds or IP) and saxagliptin will add to this (licensed IP coming from OSI). AZ have been more "stand-alone" in their strategy - but that has certainly been driven by the success of Crestor! In addition, if a way could be found to merge these two oncology portfolios ther result would be a real power-house.

In the end I think the saxagliptin deal is good for both companies in their primary care operations, but I don't think it will be enough on its own to drive a full merger. On the other hand, should either of them suffer further late-stage set backs the situation would change again - and it is still fairly clear that the industry is over segmented at the top end.