A short orientation follows at the end of this post that is worth reading to make sense of the discussion that follows.

So How Was January?

It was a very good month, all three indexes were up for the month led by the Emerging Specialty Pharma Index (ESPI) up 8.5%. This was very good news as it had taken a beating over the latter half of 2011. The Drug Delivery Index (DDI) was up a very positive 6.6%, a welcome change from the similar dismal performance of 2011. The Commercial Stage Index (CSPI) was up a more modest 2.5%, although 2011 was not that tough a year despite a significant drop in the second half of the year.

With respect to longer terms trends the CSPI, at 2,260 is well above the baseline value of 1,000 established at the end of 2004. The DDI and CSPI indexes though are still below their 2004/12 baseline values (1,000). Although both indexes did show an uptick in 2005 and 2006, there was a slide in value that started in 2007 and bottomed out in 2009. Since then the DDI and ESPI indexes have come back but respectively are still 12% and 30% below their baseline values.

So with the exception of the CSPI, companies as a group have lost enterprise value as estimated by their market capitalization. The loss in investor share price is even more dramatic for the DDI and ESPI companies as a group. In many cases these companies have issued considerable amounts of additional stock that disguise their stock price erosion.

In terms of individual companies, BioDelivery Sciences was the top gainer with a 150% increase in market cap in January as a result of their deal with Endo for their Phase III buprenorphine formulation. Adeona was up 84% and Orexigen 70%. The list of the top gainers and losers for the month in each index can be found at the Pharmanumbers index summary page.

Here’s hoping that 2012 can be an up year for all three of the indexes. With increased valuation will come increased investment that can support new investments in pipelines.

Background to the Indexes

The indexes are based on market capitalization, not share price. The indexes therefor reflect only the public company side of the industry and necessarily ignore the private company sector. Market capitalization makes it reasonably easy to calculate the value of the various sectors by adding up individual company market caps each month and comparing the total with previous months and years. Complications arise when companies are acquired or when they are delisted, but this is handled is a simple and consistent manner. Give me a call if you have questions about this.

So what defines the companies included in the different indexes, Drug Delivery Index (DDI), Commercial Stage Specialty Pharma Index (CSPI) and Emerging Stage Specialty Pharma Index (ESPI)? A drug delivery company is one that provides drug delivery type services to third parties in the form of technology, services or products. Their business model depends on securing a significant portion of their income from third parties agreements for drug delivery related activities. Specialty Pharma companies are those that develop branded pharmaceutical products for their own commercialization. These companies do not have a discovery function, they either work with previously approved actives or secure novel therapeutic actives at some post-discovery stage of development. The difference between the definition of emerging and commercial stage relates to whether the company hopes to have commercial activity, i.e., sale and marketing to physicians, or they are already active in commercializing products. Emerging companies of course hope to evolve into commercial stage companies.

The requirement that these specialty pharma companies not have discovery functions is important. If not for this requirement it would be impossible to separate these companies from any other number of emerging and commercial stage biopharma companies. The idea of Specialty Pharma companies being those companies that ‘specialize’ in one area is a misnomer. There are in fact very few companies that fit such a description, and almost none of them are active at the commercial stage. Once you are at the stage of commercializing products you are willing to promote almost anything, even products outside your specialty, as long as you feel it will turn a profit.

Not only do you have a new product, you are almost guaranteed extended market exclusivity relative to new oral formulations with the same active.

The challenge is getting an inhalation product through development and to approval. It’s much like getting into one of the selective Ivy League schools. If you can get in you are almost guaranteed a job with significant earning potential. The challenge for students is admission; about 7% of students applying to these colleges are admitted.

But developing an inhalation product doesn’t allow for a ‘back up’ or ‘safety’ school. You either gain regulatory approval or you don’t. There is no simple fall back position in drug development.

Recent industry news highlight just how difficult it is to develop an inhalation product through to approval. The FDA advisory committee panned Alexza’s Adasuve. It passed, but not with the type of grades that ensure approval or a commercially valuable product label. And Skyepharma recently reported a delay in the European approval of Flutiform, a product that has been in the clinic for eight years and incorporates two approved and commercially successful actives.

It’s not supposed to be this difficult. In fact though, the development of inhalation products for any but the most experienced of companies has become the pharmaceutical equivalent of the Hotel California. You can check in but you can never leave, or not leave with what you had when you came in.

Adasuve and Flutiform are just two examples of the many failures seen with respect to inhalation products. Our figures estimate the current approval rate for inhalation products entering Phase I is on the order of 15%. This is better than the odds of getting into one of the more selective Ivy’s, but it probably overestimates the odds of approval for an emerging biopharma company with unvalidated technology and an unproven therapeutic concept.

The odds of approval for an inhalation product remain so low as to be almost suicidal for a start up company with the resources to develop perhaps one product. With an average cost of $90 million to bring a drug delivery enhanced product through to approval there seems to be little real opportunity for value creation.

But start-ups will continue to see inhalation products as great opportunities; high risk but even higher reward (well maybe, ask the Pfizer and Nektar people about that). The price of entry is low, but the cost and chance of coming out the other end is becoming impossibly high. Welcome to the Hotel California of the pharma business.

Musings on a Partner for Afrezza

The future of MannKind depends on the company’s ability to finance itself through additional current shareholder investment and/or a partnership with a deep-pocketed biopharma company.

Much hope has been expressed that in the next few months MannKind will be able to announce such a partner for Afrezza. A partner who will provide the necessary financial resources to allow Afrezza to secure FDA approval, reach the market, and realize its full potential. Let’s consider who that might be and when.

If you’ve been part of an in-licensing or out-licensing team you have had an opportunity to appreciate the very complex interactions involved in any transaction. For the purpose of this discussion I’ll focus on the considerations within an in-licensing company and not speculate on the interactions or dynamics within MannKind, or the actual partnership discussions.

Let’s make a quick, and indisputable point right up front. Companies don’t do deals; people do. And they don’t happen by magic. Understanding the interpersonal dynamics within a potential licensee organization as it relates to Afrezza can provide insight into who might do the deal, and when.

No deal is done without a champion. And for a deal that involves the kind of money needed to support MannKind and Afrezza through to approval that means a high level champion who is able to convince the organization to write a check for at least a couple hundred million dollars. This is the kind of money that can kill a career if it doesn’t work out. And by work out we mean a number of things; failure to reach approval, failure to capture sales, or failure to turn a profit. This is not like the often-told story of the employee who loses a million dollars and upon offering his resignation is told that the company can’t afford to fire someone they just spent a million dollars educating. A failed deal of this magnitude needs at least one high-level head to roll. And there will be plenty of people in the organization who will be ready to point out whose head that is. It’s too easy to be a naysayer with respect to Afrezza; the odds are stacked against success, as it with all novel pharmaceutical products. This is not an early stage in-licensed product that might fail for reasons that could not reasonably have been anticipated. Afrezza is a product for which the potential reasons for failure are well understood.   Afrezza represents damaged goods by virtue of an ongoing inability to secure FDA approval, the commercial failure of Exubera, and the lingering worry about the long term administration of any growth factor to the lungs.

So what kind of company has someone in senior management who wants to be a champion? Well it needs to be a company that has significant financial resources. This limits the list to perhaps fifty companies that can afford to lay down a couple hundred million dollars and not sweat it. It also needs to be a company that already has a franchise in the area of diabetes, even if it is not very large. You wouldn’t want to figure out the diabetes business and develop key opinion leaders and prescribers while launching a high profile product like Afrezza. So that probably limits the list to about ten companies.

What about the big boys: Lilly, Novo Nordisk, and Sanofi? If they really wanted in they would be in already. Having any one of these three companies involved in the later stage clinicals or even the regulatory filing for Afrezza might well have led to a different outcome (assuming Afrezza is actually approvable). But they didn’t and I’m pretty sure they won’t. Sanofi is looking pretty smart for allowing themselves to be bought out of Exubera by Pfizer. All of these companies already have substantial insulin/diabetes franchises and the sales potential of Afrezza will be incremental at best. And if Afrezza is approved, and it gets a good label, and it gets good reimbursement, any of these three companies could negotiate a post-approval co-promotion deal that would be interesting to all parties involved by bringing in resources that could accelerate Afrezza’s growth.

Okay so it seems to be that we’re looking at a second tier diabetes company, but still a first tier company from the financial perspective. This might mean a GSK, or a Merck, or a Bayer. But all of these companies are on the bubble in terms of sales and profit performance or regulatory compliance issues. They would seem to have little latitude to take a flyer on Afrezza. The win would be relatively small and slow to develop: there is still competition in the short acting insulin area; it will take time to move Type 2 diabetics to insulin even if inhaled; and the issue of reimbursement may take time to settle. But if Afrezza were not approved, or it failed commercially, the company would be damaged. The management team, not just the champion (who would be gone by now), would be criticized for making a stupid decision that was sooooo obvious. This might even lead to the board shaking up management. (Unless of course it was J&J, where it’s not clear the board knows how to shake anything.)

Now back to the champion thing. There are only three people in an organization who might take the lead on something this big; the CEO, the head of R&D, or the head of commercial operations. The CEO won’t do it, it’s too risky and the responsibility would fall directly on their head. They are the ‘decider, not the champion’. (“Mistakes were made, but not by me; I trusted my people”.)

The head of R&D would doubtless not be the champion. They would prefer to keep the resources in their own department for their internal projects. And given the failure of MannKind to date they would probably be required to ‘take over the project’ if there is any further development or regulatory problems. At the very least they would be held accountable. This would be considered a distraction and drain of resources from other projects. So no way is the head of R&D our Afrezza champion.

The head of commercial operations has two challenges in accepting the role of champion. They need to convince themselves they can do what Pfizer couldn’t, even if they have a nominally better product. They will ask themselves if the physicians and patients are ready and willing to make this leap of therapeutic faith. Remember the partnering company will likely have a limited track record in this area. And what about profitability? Can they get reimbursement at levels that don’t limit sales? Probably, but that will be a challenge. What about profitability? MannKind will want their share of sales so that hits operating margins, and cost of goods will be high at least to start, and a new therapy like this will take big bucks in sales and marketing costs. Those margins don’t look all that good. And if MannKind wants to ‘share’ sales and marketing responsibilities for a bigger share of the profit you have a logistical headache. Hmmm – I’m not sure I’d want to make the recommendation.

But even then the marketing/commercial operations person can’t make the call on their own. They will need the buy-in of the head of R&D. I can almost see the discussion and negotiation on this. “Well the dossier isn’t that strong, and our people see lots of regulatory issues, and the Phase IV commitment is likely to be expensive and demanding – but if you are really committed to Afrezza, ….”.

So who’s hungry enough to want to take on Afrezza? It’s not at all obvious. Post approval partnerships will be a different situation, but if it takes that long to bring on a partner it means the launch will be messed up or delayed as the partnering company puts their stamp on the marketing and sales program. A good plan takes a couple of years to develop, and this one is will probably only start post approval.

There is also the real possibility that an approval is delayed and more expensive than originally budgeted. Does the licensee put up more money, or do they cut and run? I’ve seen companies in just this situation and it’s not pretty. It’s precisely the type of situation a company, and any champion, does not want to willingly walk into, much less pay for the privilege of dealing with.

So will MannKind find their partner soon? I doubt it. If they do it will be one of two kinds. A serious partner that ponies up a little, something like $50 MM as an option fee, with the balance on approval. A little money is lost but not their pride, or their head. But that doesn’t really get MannKind close to what they need, although it may convince Dr. Mann to reinvest.

Or it will be a rookie that puts up $100-200 MM and bets the ranch. This is exactly the kind of company that does not have the resources to hang on if there are further costs or delays, nor the experience to optimize the success of Afrezza when it does get approved.

People and companies will be trying to cover their asses in any deal for Afrezza, and that means it will be a very tough licensing negotiation. But that’s another issue for another day.

You may want to rethink your investment if it depends on MannKind signing a near term deal with a deep pocketed partner. It’s certainly possible, but it will need a champion who is so sure of a profitable outcome that they are willing to bet their career on it. Easier it seems for a champion, or company, to sit on the sidelines and wait until the risk has been reduced, even if the cost will be higher. On a risk-adjusted basis it will be a much better deal.

I hope you will find it interesting and helps validate the argument supporting the development of drug delivery enhanced pharmaceuticals.

Provenge and Krystexxa have both stumbled with their product launches. Despite addressing important clinical needs neither of the products are getting appreciable market acceptance. A back of the envelope calculation suggests that Provenge, for the treatment of advanced prostate cancer, is treating less than 300 new patients per month eighteen months after FDA approval. And Krystexxa, for the treatment of chronic gout, I generously estimate is being administered to less than 50 new patients per month. With very high treatment prices, $93,000 for a full course of treatment with Provenge, and $59,000 for Krystexxa, neither product is on an obvious path to success.

It can be argued these are novel products, only recently launched, and too little time has elapsed for them to gain traction. It is also worth noting that both products have only recently sorted out federal reimbursement issues.

The point worth noting is that neither company has a Big Pharma or Big Bio partnership. One might have thought Big Pharma would have been all over products like these that offer novel therapeutic benefits and an entrance to new markets. Perhaps Big Pharma has been all over them, and that is exactly why they are unpartnered. There was talk about Savient selling themselves to the higher bidder (with a reserve price of course) on the basis of Krystexxa’s pending approval. Obviously none of the bids met the reserve price. Provenge seemed an obvious partnering asset even if the company wasn’t ‘for sale’.

What derailed the partnering opportunity, and more obviously the commercial opportunity, for these two products?

Big Pharma seems to have properly assessed the potential for both products. The challenges were apparent even two years ago. The more obvious challenges ranged from limited target population, dosing logistics and manufacturing costs. An even bigger concern must have been competitors in later stage development that addressed a number of the challenges with Krystexxa and Provenge. In a recent post I recently discussed the challenges faced by Provenge and its competitors. In the case of Krystexxa, Ilaris (canakinumab) from Novartis may be a formidable competitor with a less onerous dosing regimen.

I’m pessimistic that either Provenge or Krystexxa will ever make it big. You only have one chance to make a good first impression, and the up and coming competition looks tough and ready to learn from these product’s mistakes.

Bottom-line: if Big Pharma is not interested in a product there is good reason believe there are more issues than are obvious to the investment bloggers pumping a stock. And please, let’s remember that benefits and prices need to be aligned. High prices will only fly if a product provides a life and death benefit for patients where there are no real alternatives.

This has a familiar ring, Provenge a novel cancer vaccine approved last year extends survival a similar four months or so. Provenge though is an autologous vaccine that requires extracting white blood cells from a patient and sending them to Dendreon’s facility where the cells are processed and ‘activated’ with antigen and cytokines. The processed cells are returned and administered to the patient in three separate infusions, two weeks apart.

The processing of the cells is an expensive custom process, and Dendreon has priced the product accordingly; $93,000 for the three infusion treatment. This price covers only the processing of the cells and the production of the vaccine. Collecting the white blood cells from the patient and re-infusion are separate expenses.

Labeled a vaccine, Provenge is also a cell therapy, where cells are taken from a patient, transformed ex vivo and then read-ministered.

I had the opportunity to learn about cell therapy in the mid-1990’s working for Rhône-Poulenc Rorer when we acquired Applied Immune Sciences (AIS). AIS at the time had in development a treatment for renal cancer that involved taking a portion of the tumor, activating it with cytokines, and then re-infusing the activated cells. It was a high tech process with technicians in bunny suits working in clean rooms. Although there was one long term remission with the treatment, the results in general were insufficient to continue the program.

As the BD person assigned to AIS I needed to understand the cost of goods associated with this type of autologous cell therapy. This was before pharmaceuticals were priced priced at $50,000 and up for treating cancer.

At the time I estimated the production cost of the AIS autologous cell therapy was on the order of $5,000 (1995 dollars). This included facility overheads, labor costs, materials and shipping. Actual commercial scale costs could have varied from $3,000 and $8,000.

This figure concerned me. We were looking at pricing treatment as high as $20,000 to $30,000, which meant our cost of goods would have been on the order of 17-25%. This was an acceptable figure  given the gross dollar profit for each patient was as much as $27,000. My concern was how we could respond to future competition that weren’t burdened with a similarly high cost of goods, gene therapy, protein or even small molecule treatments.

At the same time we acquired AIS we also were also heavily invested in a gene therapy initiative targeting a variety of conditions including cancer. Gene therapy involves batch manufacturing of viral or non-viral gene based therapeutics that are directly administered to the patient. There is no need to extract cells and treat them ex vivo. Rather than manufacture a personalized treatment for each patient gene therapy medications is manufactured in bulk, much like proteins, albeit at a somewhat higher cost.

This led to the ‘$5,000, $500, $50 and $5 rule of thumb’ for manufacturing costs; $5,000 for cell therapy, $500 for gene therapy $500, $50 for protein and $5 for small molecule courses of therapy.

If it costs you $5,000 to manufacture a treatment and a competitor can manufacture a product that provides the same benefit for $5, $50 or $500, they can kill your value proposition with a relatively minor change in the price they charge. Or they can charge a similar price and kill you with the extra money they can allocate to sales and marketing. If you are planning to introduce a relatively high cost of goods therapy in the market you need to be confident you will have years of relative exclusivity if you want to secure a reasonable return on your investment. This is particularly true with cell therapy treatments and the high cost of production.

Back to Dendreon and Provenge. I suspect the cost of goods for Provenge is at least $5,000 per three infusion course of therapy, when running at or above 80% of capacity. Below 80% overheads start to rise, eroding gross margins. The introduction of Zytiga and potential approval of MDV3100 is a killer for Provenge. Provenge sales have taken off slowly, largely because of pricing, and reimbursement issues. And now Zytiga is on the market offering similar survival benefit at a little more than half the $93,000 price tag of Provenge, without the associated cell collection and re-infusion costs. Provenge seems priced out of the market.

Dendreon’s problem arises in part because they did not properly plan for the entrance of competitors with a lower cost of goods leverage. It’s not clear what they can do. Dropping the price of Provenge will kill the margins but might improve volume. Sticking at $93,000 is possible only if Dendreon can demonstrate much better outcomes, in terms of efficacy, safety, tolerability and/or convenience with Provenge. But given the slow start for Provenge there are limited financial resources or lead time to make the necessary strong value argument. Current sales figures suggest less than 300 patients per month are being treated with Provenge.

There are lots of reasons why Provenge is a less than ideal product from a patient convenience and price perspective. But from a business perspective it’s the manufacturing costs and capital cost requirements that are killing the product and company. And with little room to maneuver because of the high production costs the game seems over.

$5,000/$500/$50/$5. It pays to understand how your cost of goods fits with the market. Cost can be as critical a determinant of success as product performance and marketing smarts.

Listening to the DepoMed conference calls discussing the results of the Breeze 3 trial, and the more recent 3rd quarter financial results, I realized that DepoMed is either willing to pay a huge price for the ‘slooow’ statistical analysis and clinical review of the Breeze 3 trial, or they are signaling that they are dropping Serada. Let me explain.

The Breeze 3 trial was intended to be the pivotal trial that supported the filing of Serada for the menopausal hot flashes claim. It was an expensive trial with direct out of pocket expenses of about $8 million, and all-in costs of perhaps $15 million. That’s expensive but not unreasonable considering it would have supported an NDA filing. It’s the $100 million cost of the statistical analysis and clinical review that is shocking; or perhaps not really.

Where does the $100 million figure for the analysis and review cost come from? It’s a little complex, but easy to understand.

In the company press release of November 1st DepoMed said they hoped to meet with the FDA as soon as the first quarter of 2012 to discuss trial results and the next steps. In the most recent conference call they pushed it back to the first half of 2012. I know the FDA doesn’t have a ‘drop by when you’re free and let’s discuss your results and where you want to go’ policy. But the FDA is responsive to companies with late stage programs who have data and a plan to discuss.

Meeting with the FDA in the first half of 2012 implies that DepoMed has not completed a full analysis of the data, and hasn’t figured out what the data really means and what they want to do with it.

It seems to me that the study analysis, presumably the statistical analysis, will take another two to three months to complete. If the analysis was complete and a development decision made, a meeting with the FDA could be arranged as soon as December, even with the FDA’s tight schedule.

So how does a 2 to 3 month statistical and study analysis add up to $100 million? In an article I published in 2006 I looked at the real cost of time for pharmaceutical product development. In that article I presented analysis and guidelines for estimating the cost of delaying, or accelerating, a development program. I won’t go through that process in detail and point those interested to the article.

Delaying analysis and a meeting has significant implications on sales and profitability in two areas; a loss of marketing exclusivity before generics, and the loss of competitive position. Serada exclusivity seems to extend to 2020 based on a licensed method of treatment patent. The three years of regulatory exclusivity will expire before then. Taking two or three months longer for analysis means two or three months less sales.

The competitive impact of a delay can be more costly, but harder to define. Being second to market, or trailing a competitor by an additional two or three months can seriously impact momentum and market share. My 2006 article discusses this in more detail. In addition to the established estrogen products on the market there are a number of non-hormonal agents in development to address menopausal hot flashes. A delay may or may not the hurt Serada’s competitive position, but it will certainly not improve it.

Assuming that Serada has peak product sales of about $400 million in the sixth year on the market (when most products hit their peak market penetration), I estimate that a three month delay in getting to the FDA will cost the company about $130 million in lost sales, or $90 million on a net present value basis. And these are incremental sales, which would have a much higher profit margin.

If the peak product sales were double, about $800 million the lost sales and income numbers would be more like $250 million $180 million. And if the peak sales were $200 million the cost of the statistical and clinical review delay would be $65 and $45 million. That’s a high price to pay for a leisurely analysis of clinical trial data.

My sense is that a decision has been made to abandon Serada. After three expensive Phase III trial failures another trial would probably be throwing good money after bad. Delaying final analysis of the study and a meeting with the FDA will let Serada fade into the background, at which point, perhaps in Q2 2012, an announcement of the program’s termination can be offset with good news about Gralise sales.

But if a decision is made to soldier on with the Serada, the delayed statistical analysis and clinical review will have cost DepoMed a cool $100 million or more. I know statisticians are expensive and hard to pin down, but for that kind of money I would think you could afford to get things done much faster.

“You can’t always get what you want (no, no baby)
You can’t always get what you want
You can’t always get what you want
But if you try sometimes you just might find
You get what you need, ah yes… “
Rolling Stones – “You Can’t Always Get What You Want”

Alexza may soon get what it needs, an FDA approval for Adasuve aka AZ-004. And Adasuve is right on schedule and budget; at least in terms of the average for all drug delivery enabled/enhanced products (DDEP) according to the report DDEP2011 [link]. Adasuve is a novel inhaled formulation of loxapine targeted to the treatment of agitation in patients suffering from schizophrenia or bipolar disorder (manic depressive disease).

In the past couple of weeks Alexza has provided two updates on Adasuve’s regulatory status: submission of a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA), and a December 2012 Psychopharmacologic Drugs Advisory Committee (PDAC) meeting in the US. Both are important steps on the pathway to approval. The scheduling of the PDAC meeting by the FDA suggests there are no significant technical issues related to the Adasuve filing. With a Prescription Drug User Fee Act (PDUFA) goal date of February 4, 2012, Adasuve could be approved in a little over three months.

Clinical Development and Approval Times
Assuming a February 2012 approval, Adasuve will have taken about seven years to progress from first clinical to FDA approval. Despite the often optimistic statements made by companies developing drug delivery enhanced pharmaceuticals with previously approved actives, the seven year timeline for progression from first clinical to approval is about average for DDEP, and a little bit quicker than many inhaled DDEP.

Alexza initiated Phase I clinical trials for Adasuve in 2005, entered Phase III pivotal trials in early 2008 and filed the NDA in December 2009. This 5-year timeline is about average for all DDEP. Assuming approval is received by the PDUFA target date, review and approval will have taken a little more than two years, longer then average and much longer than the 10 months often seen with other DDEP.

Development Costs
Through the end 2010, expenses related to the development of Adasuve have totaled about $105 million, about $125 million in current dollars. This includes direct and overhead costs. It’s reasonable to expect that by the time FDA approval is received total costs will have reached about $120 million ($140 million in current dollars).

These cost figures are not surprising. Assuming a limited Phase I and Phase II development program, a minimal Phase III program with short endpoints, and approval on first NDA submission, a DDEP in theory can be approved for less than $10 million. In practice they aren’t. The only exceptions are DDEP approved solely on the basis of bioequivalence trials. Realistically, $25 million is the low-end budget required to take a DDEP through development and approval (DDEP2011 Report), not including technology development expenses.

Approved in 1975, loxapine has a long history of use for psychiatric indications, with marketed oral and injectable formulations. Any new product targeted to the out patient treatment of agitation would need to need to be simple to use, provide a rapid onset of action and preferably not involve an injection. By using the inhalation route, with a single-dose formulation Adasuve meets these needs. Additionally there is a requirement to demonstrate that Adasuve is safe and well tolerated in the short- and long-term, especially with increasing concerns about pulmonary delivery.

Given these demands, seven years and $140 million dollars to bring Adasuve through to approval as an inhalation formulation represents a strong performance, especially since this is Alexza’s first product using their Staccato inhalation system. Alexza surely hoped for a quicker and less demanding review and approval process when they filed their NDA in late 2009. Like too many smaller companies developing DDEP, Alexza submitted what they thought should be just enough to gain FDA approval. This approach has pros and cons; it can reduce costs and allow for an earlier filing, but it can unnecessarily extend the review time if the company is required to provide additional information or conduct additional trials. Although the review clock is not reset, it is delayed in comparison with a complete initial filing.

The Intermezzo (Transcept), and Afrezza (MannKind) NDAs, initially filed in 2008 and 2009 respectively, are suffering similar delays. Both of these companies have experienced so much drama with respect to revised estimates of approval dates, one might believe it would have been better to have delayed the filings until a more complete regulatory package was ready. While some have accused the FDA of review and approval delays because of process inefficiencies it is now generally understood that fault rests with companies submitting incomplete filings.

I’m hoping Adasuve makes it through the PDAC and receives approval in February. Alexza has done a good job of developing the product and their underlying Staccato technology. It’s time for them to enjoy the rewards of commercialization. But it won’t be easy. After a failed partnership with Biovail (now Valeant) Alexza is on its own in the US, and partnered with Grupo Ferrer in Europe and Latin America. I’m confident Alexza will find a partner in the US, but getting a similarly large license fee as was paid by Biovail will be difficult. Sales and profitability will be initially limited as Adasuve is targeting a rather small market with what is sure to be a restricted label and a premium price.

If you try hard enough you get what you need. The lesson here is that drug delivery enabled/enhanced products (DDEP) are not as quick and inexpensive to develop through approval as many companies would like to believe. Budgeting $75 to $150 million in costs and six to seven years for clinical development and approval seems a reasonable estimate of what it takes, regardless of what your investors and your R&D folks would like to believe.

Stuff happens.

“Should I stay or should I go now?
If I go there will be trouble
And if I stay it will be double
So come on and let me know
Should I stay or should I go?”

The Clash – Should I Stay or Should I Go

That pretty much sums up the issue facing DepoMed with Serada, their drug delivery enhanced product (DDEP) version of gabapentin, following disappointing Phase III results. Serada, an oral sustained release formulation of gabapentin being developed for the treatment of menopausal hot flashes, failed to meet all of its clinical trial endpoints in the Breeze 3 trial.

This latest trial was a follow up to two earlier Phase III trials, Breeze 1 and Breeze 2, that provided evidence of efficacy, and reasonable tolerability, but failed to hit all of the pre-specified endpoints. Breeze 3 used a trial design intended to minimize or eliminate the issues of outliers and placebo responders that plagued the two earlier trials. Altogether some 1,700 subjects have been studied in the Phase III trials for Serada.

Serada is a sibling of DepoMed’s Gralise, a lower dose sustained release oral formulation of gabapentin. Serada and Gralise both use the same AcuForm Diffusional technology, but in different strengths. Gralise was approved earlier this year, and more recently launched in the US, for the treatment of post-herpetic neuralgia. The treatment of post-herpetic neuralgia is a well known, and approved indication for immediate release gabapentin. The menopausal hot flash indication being pursued with Serada is a relatively novel indication for which no other gabapentin formulation is approved. The hot flash indication is attractive; there is a definite need for non-hormonal treatments. Unfortunately there is no established path for development and approval for this indication.

DepoMed is facing a major decision with the inconclusive outcome of the Breeze 3 trail for Serada. Should they try once again to prove Serada is safe and effective for menopausal hot flashes or should they move on?

A little background. As a sibling of Gralise, much if not all of the preclinical and formulation development work for Serada was complete when the decision was made to pursue the hot flash indication. This has limited non-clinical development expenses. Nonetheless, DepoMed has still invested more than $40 million (2011 dollars) in Serada, including $15 million for the most recent Breeze 3 trial. Conducting another trial, presumably Breeze 4, would cost another $15 million and take at least another one and a half years.

Another trial presents risks. Breeze 3 was designed to address the outlier and higher than expected placebo response issues that confounded the two earlier trials. But rather than solve the problem the new design seems to have introduced additional issues. Is there a ‘proper’ design? How will the FDA, or an advisory panel, respond to a product that was able to demonstrate efficacy only with a fourth pivotal trial? Do the other three count? If they do, do they prove the product doesn’t work? A fourth trial would not only need to nail the efficacy issue it would need to eliminate any doubts about the other three trial results.

Money isn’t an issue for DepoMed; the company has its house in order and manages its bottom line well. With $150 million in the bank they can easily afford another trial. But can they afford the distraction of another trial, and the possibility of another trial failure that will hammer their stock?

DepoMed’s near term prospects are defined by the commercial performance of Gralise. After some wrangling with Abbott and a very handsome buyout of the Gralise rights, DepoMed recently launched commercialization activities with a contract sales force. The prospects for Gralise are questionable, as Abbott presumably felt. The major benefits offered by Gralise versus generic gabapentin are dosing convenience and better tolerability. It remains to be seen if these benefits will offset generic pricing for the immediate release formulation and its Tier 1 status.

Gralise may be a success, but it will be expensive in the near term. Most, if not all, of DepoMed’s $150 million cash stash will be necessary to support the product’s introduction. All belts will need to be tightened until the product provides a positive cash flow.

So does DepoMed stay or does it go? My guess is that they stay with Serada and gamble with another Phase III trial. They are almost there, and they presumably have a good idea of what type of trial design should work. It’s hard to imagine that management has the courage to walk away from their $40 million investment. Perhaps the new CEO, Jim Schoeneck, has less invested personally in the product. But he was on the Board when it made a decided to pursue the hot flashes indication, and the Breeze 3 trial.

Art Levinson, former CEO and current chairman of Genentech, in a 2001 presentation suggested that smaller companies, unlike Genentech, were too reluctant to kill products after Phase II or even Phase III trial failures. Can DepoMed afford to follow his suggestion? Companies that struggle in the present like to point to their pipeline and future, but without Serada there is no obvious pipeline or future.

“Should I stay or should I go now”? We’ll see what DepoMed decides. I think it’s time to go.

Eugene Melnyk the founder of Biovail is back again with a new company, Trimel Pharmaceuticals, stocked with Biovail alumni. He has also returned to a business strategy that was very successful at Biovail; take approved molecules and make them better using drug delivery technologies. This time though he has moved from oral sustained release products to intranasal and inhaled products. It’s the intranasal products that are most interesting.

Since leaving Biovail Melnyk has had his share of excitement, most of it unrelated to his Ottawa Senators NHL hockey team and horse farm in Florida. Earlier this year the Ontario Securities Commission banned him from senior roles at public companies in Canada for five years and penalized him CDN $565,000. He also settled with the US SEC paying a civil penalty of US $150,000 US on top addition to an earlier $1 million fine. These settlements were related to charges over financial figures in a 2003 press release, related in part to the infamous accident involving a shipment of Wellbutrin XL.

About those intranasal products. Trimel’s lead products are two hormone formulations of testosterone, an approved and well-accepted treatment for male hormone deficiency. What is most interesting is the delivery approach and the indications.

The lead Trimel product is Compleo, a Phase III stage intranasal gel formulation of testosterone targeted to androgen deficiency in men. This seems a tough market to crack. Although testosterone replacement treatment in the US is an attractive market with sales of more than $1 billion, it is very competitive. There are at least seven branded products already approved, with more in the development pipeline. These branded formulations of testosterone include gels, implants, metered solutions, transdermal patches and buccal tablets. And there are also the less commonly prescribed injectable formulations.

Trimel’s hook is that their product reduced interpatient transference of testosterone, an issue associated with the use of the gel formulations. This feature seems an unlikely benefit. Drug transference is a well-recognized problem that is easily managed with only a little bit of attention to personal hygiene. And Acrux’s marketed testosterone product Axiron addresses this issue head-on. Axiron’s delivery device, similar to a spray deodorant, limits hand contact, and the product is dosed underarm to prevent casual contact with others. The implants, patches and buccal formulations are even less likely to give rise to transference of drug.

Much more interesting is Trimel’s TBS-2, a lower dose intranasal gel formulation of testosterone targeted to the treatment of female anorgasmia. If Viagra popularized the expression erectile dysfunction, and the acronym ED, TSB-2 hopes to do the same for anorgasmia. In a recent press release Trimel defined anorgasmia as “a women’s inability to achieve or persistent difficulty in achieving orgasm even in conjunction with adequate sexual stimulation”. While anorgasmia applies to men and women, TBS-2 is targeted to the treatment of women.

Trimel is proposing to treat female anorgasmia by the intranasal administration of a low dose bioadhesive testosterone gel 30 minutes prior to physical stimulation. Trimel’s recently disclosed Phase II Vibro-Tactile Stimulation (VTS) clinical study “measured the effect of TBS-2 on the occurrence of orgasm, time to orgasm, the quality of orgasm, and placebo response rates for the anorgasmic patient population in order to assist in determining statistical power required in the AMB clinical study”. Apparently the results were sufficiently positive to permit an early termination of the study. The study presumably involves what its name suggests. Anorgasmic women were dosed with TSB-2 intranasally, provided a vibrator and asked to rate the outcome. This is a protocol not unlike those probably used to study ED drugs, although in the case of the latter there were harder endpoints.

TSB-2 represents one of the most ‘out-there’ therapeutic approaches I’ve seen. The suggestion that a small amount of testosterone, about one milligram, applied intranasally thirty minutes prior to sexual activity will enhance sexual satisfaction is incredible. It’s almost as though TSB-2 was acting as a pheromone. While androstadienone, a component of male sweat, has demonstrated some pheromone-like sexual activity, no pheromone has been shown to provide sexual attraction in a peer reviewed trial.

Anorgasmia is a complex condition with a very significant psychosocial component. Trimel says the US FDA recognizes anorgasmia as a medical indication. That’s a good start, but the hurdles to approval seem to be high given the likelihood of a high placebo response rate.

A September 26, 2011 article in Canadian Business suggests TSB-2 could be the female Viagra. It’s a little bit different of course. Viagra helps a man get into the game, while TSB-2 promises to help a woman win the game. I guess if it works, and is approved, TSB-2 can be a commercial success. An estimated 20% of women worldwide suffer from some degree of anorgasmia.

In terms of competition, BioSanté is in Phase III trials with their topically administered testosterone formulation, LibiGel. M et P Pharma AG has intranasal testosterone products that seem to be the licensed to Trimel, although this apparently has not yet been disclosed. Acrux’s Luramist, a spray formulation of testosterone, is in later stage development for female sexual dysfunction (FSD).  Three other testosterone products for FSD from ProStrakan, Novavax and Proctor & Gamble, have been later stage clinical development failures.

In addition, Trimel has a nasal formulation of dopamine in preclinical development for Parkinson’s Disease and several inhalation products in earlier stage development, all of which seem to be branded generics. While Biovail was very successful with branded generics we’ll need to see if the market has the same appetite for this type of product. Risks are reduced, but so are the rewards.

Hockey, horses and hormones. Eugene Melnyk has to be hoping he has better luck with hormones than hockey and horses. Nowadays his Ottawa Senators can’t even beat the Toronto Maple Leafs. (Correction 2011-11-12, the Ottawa Senators came from behind to beat the Maple Leafs today.)