2012

Identity Crisis

While Big Pharma corporate presentations tend to offer little that is new or persuasive in terms of overt informational content, what they provide as covert barometers of company attitudes and priorities can be unintentionally revealing. Over the past two or three years, it has not been unusual for Big Pharma CEOs to downplay CNS components in their public presentations of their Company and its prospects. After all, Big Pharma successes in CNS have been anything but common in recent years, and they naturally want to put their best organizational foot forward in public venues. At the most recent JP Morgan conclave, NIR had the opportunity to watch the current iteration of CEO/CFO-speak from most of the major pharmas, and a few of these corporate Rorschach tests were unusually evocative.

Our first metric in evaluating these presentations is a crude one: How long does it take for the CEO/CFO to acknowledge the existence of the brain? If the anatomical terrain were straightforwardly reflected in the emphasis given, one might sometimes think that the 2012 human body consists of a pancreas and assorted tumors. But this year, we encountered a more awkward phenomenon, a Big Pharma CEO who appears to wish that they worked someplace other than in the pharmaceutical industry: GSK' CFO Simon Bingemans, in his twenty-minute presentation, uttered neither the word 'drug' nor 'pharmaceuticals.' The closest that he came to mentioning this category, which constitutes 67% of GSK's business, were a few references to "vaccines." But otherwise, the entire presentation featured a detailed and not-compelling-in-the-least tour of GSK's new 'Financial Architecture', which offered repeated references to 'improved efficiencies,' debt load, and 'working capital.' Had we been blindfolded, there would have been virtually no clue as to what might constitute the contents of GSK's pipeline: Video games for emerging markets? Athletic shoes that light up in the dark? Cat food for the underserved 'pet segment'?

The other presentations were highly variable in their acknowledgement of CNS, but did tend to acknowledge that pharmaceuticals are pertinent to their core business. Sanofi's Chris Viehbacher loaded his presentation with a fiscal emphasis which could have applied to anything, but he also discussed diabetes, emerging markets, and the aforementioned "pet segment." Last year, Roche's Rolf Hunziker provided a stirring call-to-arms for the neuro area, declaring that "CNS is the new oncology." The new CFO, Alan Hippe, instead focused primarily on the topics of improved efficiency, personalized medicine, and biosimilars. He was not visibly enamored of CNS as the 'new oncology', he cited a fondness for the old oncology, due to its higher success rates. Pfizer emphasized its pharma focus, with a brief nod to the brain. Bristol Myers Squibb has already divested all non-pharma components, but CNS did not float into view during their talk. Lilly's John Lechleiter launched into a refreshingly full description of Lilly's pharmaceutical business, and noted CNS interests in the process; he even had the courage to spend a minute on solaneuzumab. The most focused and single-minded of all the talks was given by Astra Zeneca's CFO Simon Lowth, who provided a 20 minute infomercial about AZ's emphasis upon partnering going forward, and all the reasons that why one should partner with AZ, thankfully within the clearly defined context of being a drug company.

It's not that the absence of mention confirms a lack of pharma substance, companies may have CNS strengths but not emphasize them in public, just as others may overstate the quality of their pharma components and CNS capabilities. But it does say something about the filter through which these executives view and appraise the companies that they lead, and the spirit with which they inspire--or not--those companies. NIR holds to the old-fashioned view that pharmaceuticals are not just another type of widget, and that this belief system is necessary in order to transcend and master the particular challenges that are endemic to this calling. We hope that GSK's CFO had simply lost a couple pages from his presentation, hence the eye-widening chasm of omission. If not, he'd better set to the task of writing them, or hiring someone else to do so; this is not an endeavor where the rallying-cry is 'may the best spreadsheet win.'

Postscript: AstraZeneca's emphasis upon inlicensing now takes on a different meaning, with their announcement that they are essentially shutting down all neuroscience R&D, maintaining a skeleton crew of 40-50 scientists who will basically provide the interface between AZ and their outsourced CNS drug development program.

The Cycle Begins to Turn: 2012

Those readers who saw NIR's recent presentations at CNS Summit (Boca Raton) or Windhover TA (Boston) in recent weeks know that we have made the case for 2012 seeing the tidal cycle begin to shift back to one of credibility and ascendancy for the CNS therapeutics industry. We appreciate the concern expressed by some that a certain speaker's lithium level might have ebbed into the subtherapeutic range--but no, that's not the case. Certainly, this is not the viewpoint of those who focus on the macroeconomic climate, riven as it is with doubts as to whether the US Executive and Legislative Branches might ever work together for the common good (highly unlikely for the next year), and fears for the future of the Euro Zone and the smorgasbord of economies and attitudes awkwardly melded therein. Many will justify sitting on their venture wallets for the foreseeable future, given that taking risks now might be seen as foolhardy, albeit timely.

But it's not going to be about them in 2012. Just as clinical failures greased the skids on the way down, clinical successes will be the winch by which the sector extricates itself from the quicksand, trial by trial. There are a number of such clinical programs, with profiles of varying height, that will report data during 2012. First of all are the fab 'mab' twins, Bap and Sola. For a number of reasons, bad news for these highly expensive trials has already been largely built into expectations, and a show of hands of those expecting positive results primarily yields scattered waves from those who need success more than they expect it. Any hint of efficacy, even in a subpopulation, would now count as a pleasant surprise. But moving beyond that cohort, there are several other trials of promise. On the less speculative end, we expect CeNeRx's TriRima to show well in Phase IIb as a selective MAO-A inhibitor for TRD, that data coming during 2Q:12. Moving away from relative predictability, EnVivo will have Alzheimer's data for EVP-6124 during that same quarter. On the more risk-laden end of the spectrum, Allon Therapeutics will have davunetide data in Progressive Supranuclear Palsy late in 2012, and if positive, one might well speculate about single-trial regulatory consideration. Naurex will report Phase II data for GlyX-13 in depression by midyear. Phase III data in Fragile X could come from both Novartis and Seaside Therapeutics. Important clinical results will also come from Biogen-Idec/Knopp, Catalyst Pharmaceuticals, Lundbeck/Takeda, Targacept/AstraZeneca, and Acadia Pharmaceuticals.

It is not that all of the clinical events coming up in the next 12-18 months will pan out positively. After all, December was a remarkably cruel month, marked as it was by the failure of the second TC-5214 Phase III, and the less surprising failures in high-risk trials from Trophos (ALS) and Sygnis (stroke). These unfortunate dénouements serve as reminders that nothing can be taken for granted, particularly in CNS. But some of these programs will show clinical benefit, and the negative psychology beclouding the neurotherapeutics area will begin to clear. In 2012. Really.

2011

Ivy League Outsourcing

This roster would gladden the heart of the fiercest Tiger Mom: Harvard, Columbia, Johns Hopkins, U.Penn, UCSF, and Vanderbilt; they are just some of the academic institutions to which companies like Pfizer, AstraZeneca, JNJ, and Genentech are entrusting a slice from their shrunken research budgets. And there are the freestanding research institutes, like Salk Institute, Sanford-Burnham, and Gladstone Institute, which have attracted collaborations from JNJ, Lundbeck, and Sanofi. Much, albeit not all, of Big Pharma has turned to academic outsourcing with a fervor suited to new converts, the dilated-pupil certainty that academia will secure those elusive new molecular keys to the kingdom-and more cheaply. But this is outsourcing, and our guess is that some of the cultural mismatches that arise when Bangalore tries to imitate Tulsa are going to crop up here as well. The Culture of Industry fundamentally differs from the Culture of Academia: The security of tenure, the pace of academic endeavor, the goals of recognition via publication, the access to postdoc indentured servants, and the belief that not all knowledge must be applied; these are not going to coexist smoothly, at least not often, with the desperate neediness of an industry where no job is safe, and MBA's are beating the drum to which the oarsmen must hew their pace. Either Academia will forfeit the curiosity that is its strength, or Industry will grow impatient as the results that they demand do not arrive fast enough. Either way, our guess is that a couple of years from now, many of these joint ventures will begin to unravel, because underfunding academics will not work any better than squeezing one's own scientists, and neither of the parties will feel fulfilled by the compromises required by the clash of their respective cultures.

The Illusion of Certainty

More often than not these days, when Big Pharma peels back the veil from their licensing wishlists, one of the first criteria cited goes something like this; 'Program must address validated molecular target.' Seems perfectly reasonable, since knowing the target allows for the anticipation of potential issues, including but not restricted to adverse events and drug interactions. This provides a more rational foundation than a program that is driven by empirical observation, where a molecule is seen to exert an effect, albeit via a mechanism yet-to-be-defined. The problem is: The science has not yet caught up with this worthy aspiration. The only truly validated disease-modifying targets are those being successfully addressed in Multiple Sclerosis. The symptomatic targets that have been validated are largely those that were explicated after the fact, for drug classes that are now long-in-the-tooth. And as for novel, validated symptomatic targets, there are a couple which now appear to be establishing themselves in the area of schizophreniform cognition, such as nicotinic alpha 7 and the glycine transporter, but otherwise, it's a short list. The hope of quickening the process via biomarker validation is at present a mirage, because truly validated biomarkers are equally nonexistent. It requires a leap of biomarker faith or mechanistic ideology to deem a novel drug as addressing a 'validated molecular target.' And the less chic alternative, animal phenotypic validation, while in some ways benefiting from the face-validity of overt behavior, rests on its own bed of quicksand, the predictive uncertainties attendant to animal models for most disorders. That may be less irrational than predicating programs on mechanistic hypotheses, but it still falls short of the goal. Over the next few years, validated targets and biomarkers will emerge, confirmed by posthoc observations of the human phenotype in response to novel drugs. But to the degree to which the goal is held up as the entrance criterion, the pace at which this can be achieved will in fact be slowed.

Autism: Enhancing Social Relatedness

Oxytocin/Carbetocin As was noted earlier, oxytocin is a peptide which appears to be an important, endogenous upregulator of affiliative/social drive, and/or a downregulator of social anxiety. The great appeal is that this activity appears to target one of the core areas of deficit in ASD: the orientation towards, and tolerance of, human interaction. There have been a number of pilot studies indicating that oxytocin can be of benefit in autism; improving eye gaze, social awareness, and interpersonal responsivity. One imaging study indicated an increase in activity in the fusiform gyrus, wherein the recognition of human faces appears to be centered, perhaps increasing the valence of human vs. nonhuman object responsivity.

Some question whether oxytocin's effect reflects a specific impact upon affiliative 'circuits', as opposed to more general anxiolysis. However, the latter cannot be the whole story, because if it were, SSRIs and benzodiazepines, which are effective anxiolytics, would enhance affiliation/interaction in ASD patients, and they do not.

The plasma half-life of oxytocin is only three minutes, but it is believed that the duration of CNS activation considerably exceeds that, perhaps tenfold. It is possible that one only needs an initial, facilitative effect that would allow someone to enter into interaction, after which both behavioral therapy and the intrinsic reward of human interaction would hopefully sustain that behavioral change. A federally funded trial of intranasal oxytocin is underway, with the goal of enrolling 34 adults. Data is expected in late 2012. Oxytocin, which is used as Pitocin in obstetric settings, has safety issues with chronic use, its effect on the vasopressin 2 receptor can lead to hyponatremia.

To work around oxytocin's deficits as a therapeutic payload, other approaches have been explored. Carbetocin is a synthetic form of oxytocin that is used via IV to address peripartum hemorrhage outside the US. It has the advantage of a 40 minute peripheral halflife, which they hope will translate into extended CNS effect--the goal would be to dose twice during the day. Cypress Biosciences licensed an intranasal formulation of carbetocin from Marina Biotech (formerly Nastech), and had planned to go into a pilot study in autism during 1Q:11. Cypress' hostile takeover derailed those plans, and the carbetocin program is being outlicensed to a startup founded by Cypress' CSO, Kyalin Biosciences. Carbetocin has had considerable shortterm Phase I testing, now Kyalin is raising the funding needed to run a Phase 1b trial of carbetocin in healthy subjects, which would appraise the effect of carbetocin on social interaction measures, as well as assessing dosing and duration of effect. That trial would take 8-10 months, the next step would be a Phase IIa trial in autism. The key endpoints would be measures of the interactive behaviors (e.g. eye contact) which represent a core deficit of autism, one not currently addressed via pharmacotherapy.

There is another key question: How does oxytocin, which does not appear to have BBB access, regardless of its mode of administration, exert CNS effects? Small molecule oxytocin-receptor agonists have received some attention, Wyeth developed WAY267464, a promising first-generation prototype, but that program demised at Pfizer.

Besides targeting oxytocin receptors, alternative tactics could involve increasing the release of endogenous oxytocin. The melanocortin-4 system, which has been heavily studied in the area of feeding/obesity, has been shown (by work at Emory University) to be a route by which oxytocin release can be increased downstream. Of course, given its linkage to key metabolic processes, melanocortin-4 will have its own safety/tolerability issues as a target.

A New and Improved Target in ALS

A paper published in Nature may transform the world of research regarding therapeutics for ALS. The investigators (the lead is from Northwestern University) identified ubiquilin-2, a protein involved in protein degradation by the ubiquitin-proteasome system, as a key pathological variable--and hence therapeutic target--in both familial and sporadic forms of ALS. For many years, research into the treatment of ALS has, to a large degree, rested on an unproven extrapolation of findings from rare familial forms to the vast majority of cases that are nonfamilial. SOD1 mutations have been utilized extensively as trangenic models for the disease, while TDP-43 defects have in recent years emerged as a more prevalent and perhaps explanatory pathological culprit. But SOD1 and TDP-43 mutations together appear to explain no more than 25-30% of ALS cases. Now, ubiquilin-2 may have been identified as the missing link underlying ALS in all forms. Ubiquilin-2 has been found to be in protein aggregates from the spinal cords of ALS patients, and in the brains of ALS patients who also show signs of frontotemporal dementia. Ubiquilin-2 co-aggregates with TDP-43, but is even more prone to toxic aggregation than is TDP-43. It also appears to aggregate with several of the other factors believed to play a role in some cases of ALS, such as optineurin, FUS, and ubiquitin. However, these ubiquilin-2 aggregates did not display iimmunoreactivity to SOD1 antibodies, indicating that SOD1 is not a component of those aggregates.

If confirmed, this would mean that therapeutic candidates that have been vetted by their activity in SOD1 transgenic models have been assessed in an invalid model. NIR has discussed this as a potential Achilles Heel of ALS research for several years now, and it may be that much ALS research has been based on a foundation of sand. The question remains open, as it does for the role of protein aggregates like beta-amyloid and alpha-synuclein in Alzheimer's and Parkinson's, as to where this target stands in the causal sequence of the pathophysiology. But at the very least, a transgenic model that utilizes ubiquilin-2 mutations may offer a more valid preclinical screen for ALS therapeutics, and interventions that address the clearance of ubiquilin-2 linked protein aggregates could become a promising new avenue for treatment.

Erratum and Apology: Avanir

In the July/August issue of NeuroPerspective, we were critical of Avanir Pharmaceuticals and their marketing of Nuedexta for Pseudobulbar Affect (PBA) in conditions beyond the Multiple Sclerosis and ALS populations for which it was tested in Phase III. We were incorrect in doing so. In fact, in spite of the relatively narrow breadth of populations assessed in Phase III, the FDA did not restrict the Nuedexta label to those two indications. Their reasoning (which was more progressive and reasonable than we would have expected given the Neurology Division's history) was that the extrapolation of benefit to PBA in other disorders would be acceptable, that MS and ALS are sufficiently different in their pathophysiology that the impact on this symptom-in-common does not depend upon population-specific underpinnings. Which means that the FDA will not take umbrage at a broader marketing of the drug, so long as the target symptom is PBA. Our critique was thus in error; our apologies to Avanir and its CEO for having stated that they were placing the Company in jeopardy with the FDA--such is not the case.

No Free Lunch

In American politics these days, one of the fundamental debates has to do with the scale and reach of government, both in terms of what it takes in via taxation, and what it provides in terms of services/benefits. The uproar over taxation greatly exceeds the expressed willingness to cut services/benefits, and while this is a gross oversimplification, to some degree the conundrum comes down to this: People want their governmental services and benefits, but do not want to pay for them. The same can be said for the pharmaceutical industry, where there is no dearth of discourse over the decline of industry pipelines, and the need to replace revenues lost or soon-to-be-lost to generics. But there is a real disconnect between the cited need and the demonstrated willingness to invest in the next generation of drugs. As the abyss has yawned ever more near, the pharma and investment communities have in fact shrunken their level of fiscal engagement. In 2009, licensing upfront payments totaled $921 million, in 2008, $655 million. CNS partnering upfronts during 1H:11 (for drug development, not post hoc marketing or royalty agreements) have totaled just $27.3 million. Funding via stock offerings or VC rounds has totaled $257.1 million during the same period. This pace contrasts with the $821 million and $917 million provided during 2009 and 2010 respectively. While we expect activity to modestly improve in both categories over the second half of this year, the trend indicates a dramatic shortfall in both categories, at a time that the salience of pipeline deficits is increasing. This is almost bizarrely short-sighted and self-defeating.

Machiavelli's Bio Hall of Fame

Presuming that the Teva acquisition of Cephalon is eventually completed, after the FTC has made its usual inquiries in the service of looking like they are genuinely concerned about maintaining competition, it is worth noting the panoply of innovations and accomplishments that can be ascribed to Cephalon:

1. The Trojan Horse Orphan: Modafinil/Provigil was initially tested and approved for the treatment of narcolepsy, an orphan disorder comprising a patient population in the tens of thousands, with a market potential that likely would have topped out at couple hundred million dollars annually. This foot-in-the-door set the stage for additional innovations (see below) and an eventual billion-dollar plus annual sales pace.
2. 'Doctors Without Borders': No, we are not referring to the commendable organization which provides medical services in some of the world's most desolate and devastated quarters; we refer to Aggressive Off-Label Marketing to physicians of all stripes. Cephalon promoted off-label uses for Provigil, Actiq, and Gabitril, boosting sales even as they carried out clinical trials to assess the validity of the claims. In 2008, they paid a $425 million penalty, a mere speeding ticket compared to the revenues gained.
3. Excessive Daytime Sleepiness: Who knew this was a disorder? Cephalon was the first neuro company that we know of that took a set of disparate symptom syndromes and successfully reframed them as an overarching disorder.
4. Pay-for-delay: Cephalon wrote the book on how to delay generic competition by cutting deals with generic companies, providing legal savings and certainty in exchange for another couple years of marketing exclusivity.
5. Minimally Differentiated Substitution: In the neuro sector, Cephalon was the first company to substitute a chemical relative with little or no clinical advantage (unlike Adderall's replacement by Adderall XR) in the hope of staving off a generic challenge to the forebear. Nuvigil, Provigil's enantiomer, offers no substantive advantage other than its patent life. But once approved, Cephalon jacked up the price of Provigil in order to steer patients to the newer option. We suspect that, once modafinil goes generic, this ploy will be revealed as a failure.
6. Confronting the FDA. When Myotrophin was stymied by the FDA, Cephalon loudly complained, and refused to run another trial. Instead, they rallied masses of patients, prescribers, and pundits to flood Washington D.C. and turn Congress against the FDA...OK, that did not work out so well. Myotrophin is still 'approvable.' But it did provide a teaching moment, where other companies learned that publicly 'dissing' the FDA was, and is, not a prudent tactical choice.
7. Hedging Against Risk: Cephalon created a separate business entity which held Myotrophin as an asset, and when Myotrophin demised, it was the holders of that entity that were burned far more badly than were Cephalon shareholders.
8. Inlicensing as a cheaper route to building a pipeline: Provigil, Actiq, and Gabitril were all inlicensed, indeed Cephalon never developed a neuro NCE other than enantiomer progeny one step removed from their parents.

One unfortunate dynamic is that Cephalon triggered what might be thought of as an allergic reaction at the FDA, sensitizing the Agency to future uses of the very tactics that served Cephalon so well. The FDA now sniffs out Trojan Horses, demanding that trials be run with a range of likely clinical populations, and off-label marketing has diminished, along with the lavish 'educational opportunities' (shrimp, skiing, scuba) that had greased the way. Pay-for-delay is under fire. Molecular tweaking is still attempted, but the pricing power now possessed by generics makes this look like a losing battle. The inlicensing model has become increasingly popular, as more companies eschew the costs and risks of CNS drug R&D. This is not a benign outcome.

All in all, Cephalon is a successful company which got there via clever maneuvers and opportunism rather than innovative science. And they essentially abandoned neuroscience, seeing easier paths in oncology and inflammation. Towards the end, there was a glimmer of a renewed taste for adventure (Mesoblast), but its viability has yet to be established. Ironically, when we first contemplated writing this piece, it was planned to be a congratulatory note of appreciation for a job well done. But it did not turn out that way. It is a sad statement that Cephalon is one of the best examples of a successful neuroscience company, in spite of the fact that its legacy is one that only a confirmed cynic could look at with unabashed pride. Provigil was, and is, a good drug which has provided benefit to millions. Other than that, Cephalon's lasting contributions to the CNS field are far outweighed by the tarnished history of its strategic maneuvers and opportunism.

'Nicotinics'

In the iconic American film of 1967, The Graduate, Dustin Hoffman is given one word of career advice: "Plastics." Had a remake been done in 2010, the word-of-choice might well have been "Nicotinics." Nicotinic alpha 7 modulation has become the mechanism which, at least for now, is at the head of the pack seeking a treatment for cognitive dysfunction associated with schizophrenia. What makes it all the more intriguing for longterm followers of the CNS world, is that there are two well-funded, quality-science companies who are neck-and-neck in their head-to-head competition to get there first. During May, the pairing took shape as EnVivo Pharmaceuticals reported positive results from their Phase IIb trial of EVP-6124 in schizophrenia: Statistically significant or positive trends were seen on a range of endpoints, including the MATRICS battery. At the same time, AstraZeneca decided to not exercise their option for Targacept's TC-5619, which had performed well--albeit with some dosing questions left unanswered--in its own Phase IIb. Our impression is that AZ did not want to spend $30 million for a program which may not be fully Phase III ready, and our guess is that they may come to rue that decision.

At this point, Targacept has buttressed its financial position with a $70 million secondary stock offering, while EnVivo has Fidelity as its sole owner. Which means that we may see these two relatively small companies enter pivotal testing in the same timeframe, with high-quality molecules, for a disorder which constitutes a huge 'unmet need.' There are other companies in the nicotinic alpha7 space, including Abbott, Roche, and BMS, but these are the two leading contenders at present. The word 'fun' has seldom come to mind in watching the neurotherapeutics area of late, but watching this competition will indeed be fun.

Ecosystem In Jeopardy

If there is a pattern emerging for 2011, it is the 'donut hole' between discovery stage and Phase IIb. Partnerships are burgeoning for discovery stage collaborations, many of them with academic researchers. These require very little upfront money, featuring research support in exchange for the option to buy in (cheaply) later. On the other side of the divide, there are the programs with Phase IIb data, where the hint of concept has turned to proof, the dosing is relatively clear, and while the expense of Phase III lies ahead, much derisking has taken place. In a pharma world hungry for commercial candidates, these programs are very popular. But there is the growing body of the preterite, the unloved programs that had the chutzpah to move into early clinical trials, thinking that a pilot study, yielding Phase IIa HOC, would earn them a partnership. Not anymore, or at least, far less often. They are too far along, with too much invested, to outlicense their prized asset for nothing upfront, but they have not yet been derisked, and do not have the resources to carry out a decently-scaled Phase IIa, let alone Phase IIb. VCs won't touch them, they rarely qualify for grant money, and never at the scale they need. Reviewing these opportunities, large and midsize pharma companies who do have resources see them as missing their sweet spots of cheapness and/or risk-mitigation. A few are fortunate enough to be adopted by a New England patriarch of the financial industry, or a wealthy recluse on the Isle of Man. But the group in the donut hole is literally starving to death, slowly and painfully.

By the time the industry realizes this, their fearful negligence will have taken a serious toll on the next generation of drugs that they need, and it will be too late for many of them. Big Pharma will bewail the sorry state of their pipelines, while turning to emerging markets where they can sell the products of yesteryear.

There are some in the industry who realize that the pharma drug development business, CNS and otherwise, is an ecosystem. Particularly with the downsizing and outsourcing that has roiled Big Pharma, the process of moving from discovery to commercialization now involves separate but interdependent parts, and the collapse of any component along the chain jeopardizes everything: If one component withers, the whole system is at risk. But some of the players do not seem to understand that. We have heard licensing professionals from the largest of Big Pharma chortle about being able to squeeze small companies into accepting small upfront payments. When small companies are nickel-and-dimed like that, they become indentured servants of a sort, bound to their licensee, and to VCs who have no exit. This cuts off the flow of capital to other small companies.

If one wants to build a culture of hostile dependency, this is a surefire route, and for those large companies who would like to have the same level of control over their partners that they had over their employees (and without having to fund their pensions), this is one way to do so. But they should be careful of what they wish for, because as a route to boosting creativity and productivity, this does not just fall short, it does quite the opposite. As a Novartis Business Development professional aptly noted in a recent meeting, shortchanging small companies jeopardizes the sustainability of the entire field. When the top of the food chain systematically imposes a starvation regimen on the lower strata of the food chain, in the long run, no one gets what they need.

Teva as White Knight

While our preferred outcome would have been for Cephalon remaining independent and entrepeneurial, its acquisition by Teva Pharmaceuticals for $6.8 billion is infinitely preferable to the attempted takeout by Valeant Pharmaceuticals, who had offered $5.7 billion. Valeant would have stripped all R&D from Cephalon, packaged it for shortterm earnings, and positioned itself for a buyout. Teva, while heavily oriented towards generic pharmaceuticals, does have a branded CNS drug business, featuring Copaxone, and we expect that that much (probably not all, the Mesoblast cell therapy partnership might be too much of a stretch for Teva) of Cephalon's drug development portfolio will survive. Compared to the scorched-earth dismantling that Valeant would have imposed, this is a benign dénouement.

AstraZeneca Opts Out of Targacept's TC-5619

Targacept had recently hinted that AZ would not exercise their option for the nicotinic alpha7 modulator TC-5619, and today, AZ confirmed that. This is in the wake of the January PhII data in schizophrenia, about which NI had made this comment in the February issue:

Targacept's PhIIb trial of TC-5619 in schizophrenia hit its primary endpoint, a computerized measure of frontal-lobe mediated problem solving/executive function (Groton Mazes). Perhaps more importantly in the long run, it also produced positive signals on global functioning and negative symptoms, as assessed both by a clinician and by patients themselves. It did not produce a signal on the overall cognition battery used (CogState), and Targacept has not yet completed a full analysis of the other six cognitive subdomains tested to see if changes occurred there (parenthetically, it is unlikely that the higher-order thinking required in mazes could improve if there were no changes whatsoever in lower-order domains like attention, memory, and/or processing speed, to name but three). It will be reassuring if positive trends are found in some other CogState subtests. The initial data summary raised a number of intriguing subplots and questions:

1. The first question emerged from the use of the pre-specified hurdle as bettering p=.10 in a one-tailed test, which is more easily reached than the typical two-tail, p=.05 criterion. This is a benchmark used by some pharma companies internally in making go/no-go decisions on furthering development of a program, and the fact is that the Mazes score came very close to p=.05 here.
2. The greatest divergence between drug/placebo came at the four week mark, when the lowest dose (1mg) had been utilized. This begs the question of whether, when it comes to dosing the nicotinic alpha 7 receptor, 'less is more.' Given that these were not independent groups, but rather, the same patients gradually escalating in dosing from 1 to 5 to 25mg (and thus perhaps experiencing some changes in receptor density or sensitization), that question is not definitively answered. Targacept believes that they are in the right dosing 'ballpark;' our suspicion is that ultimately, optimal dosing will be towards the lower end of the range--and the FDA may want them to prove they have identified the minimum effective dose.
3. The most counterintuitive finding was that non-smokers did not show benefit from TC-5619, only the 46% of patients who were smokers improved with the drug. Many observers had expected the opposite, thinking that smoking might obscure drug effects, perhaps due to nicotine saturation of receptor sites. Instead, the results leave open the question of whether smoking sensitizes receptors and allows greater response to alpha 7 binding, or if receptor density is different between the two populations. Targacept worked at having a schizophrenia trial with just 46% smokers (likely by including an Indian patient subgroup more likely to be nonsmokers) and in retrospect, this made achieving an overall positive signal all the more impressive, in that half the patient population consisted of a group that turned out to be nonresponders at this dose-range. With 75-80% of schizophrenics being smokers, this puts the vast majority of schizophrenics into the potential responder population, and powering the next trial will be made somewhat easier, simply by virtue of the proportion of smokers in the general schizophrenia population (offset by the need to hit a more exacting statistical hurdle).

The bottom line is that this TC-5619 trial provided something between hint of concept and proof of concept. There are some questions about breadth of cognitive effect and optimal dosing, but the drug appears to be very safe and well-tolerated. It is possible that the next trial could be powered to be a potentially pivotal Phase IIb/III, even with a dose-ranging component. The next step is for AstraZeneca to decide--they have through 1H:11--if they will pay the required $30 million and exercise their option on TC-5619. If they are at all serious about staying in psychiatric drug development, they will. Perhaps AZ will be influenced by the results--early 2Q-- from EnVivo Pharmaceuticals' Phase IIb schizophrenia trial of EVP-6124. Replicating success and safety there might provide enough additional validation of the mechanism's promise to seal the decision for AZ. Targacept has the resources and motivation to take the program ahead if need be, but we do not expect this will be necessary.

The nicotinic alpha 7 story, from Targacept and perhaps from EnVivo as well, has the potential to be one of the most important CNS therapeutics stories of the year, perhaps shifting the psychology away from what has become an atmosphere of learned helplessness.

NI had spoken to one of AZ's licensing heads last week (not about this specifically) and he had noted that AZ had terminated all inhouse psychiatry R&D, but was still open to licensing in sz and depression. I suspect that they felt that for TC-5619 to have fallen short of POC in a large Phase IIb, with substantial questions about dosing, means that the program will take more work to advance than they are willing to allocate. It is going to be difficult, if not impossible, to find psychiatry programs with that level of maturation and certainty.

Pillage

Being asked out by Valeant Pharmaceuticals is like having Dexter ask to friend you on Facebook: Be afraid, be very afraid. Having disemboweled Biovail, Valeant has now trained its sights on Cephalon, the long-ago bellwether of the nascent neurotherapeutics sector. Having been rebuffed in their initial 'friendly' overtures, Valeant has now launched a hostile takeover bid, offering $73 per share; $5.7 billion.

Cephalon's determination to remain independent is unlikely to be as resilient as it would have been under the late Frank Baldino. There is also some analyst disagreement as to whether another salvo at a higher price is likely. One argument against Valeant escalating its bidding (or having someone else compete) is the fact that Cephalon's longrunning hope of supplanting Provigil's $1.2 billion sales pace with Nuvigil ($240 million sales pace) is doomed to failure, leaving them vulnerable in 2012, when Provigil's exclusivity expires.

Beyond Cephalon's valuation is the question of what value would be added for the pharma industry, and CNS sector, if this eventuates. The answer is: None. Cephalon had excised its own CNS R&D over time, save for label-expansion programs. But the recent acquisition of Mesoblast, whose cell therapy portfolio includes CNS components, has signaled a willingness to invest once again in high-risk, high-reward scenarios. That kind of forward thinking is incompatible with Valeant's commercial agenda, wherein Valeant strips all extraneous (and creative) elements, in the hope that once sufficiently bloated, they will in turn be taken out by a larger company desperate for a quick fix. This is a cynical strategy, and we can only hope that it fails.

Captain Kirk's Enterprise

Randal J. Kirk is the master salesman of pharma, ever capable of convincing companies that they should buy something mediocre, because otherwise, someone else might get it. Back in 2005, Kirk convinced Shire, panicking because of Adderall XR's shrinking patent life, that if they didn't overpay to partner New River's Vyvanse, a drug offering marginal and overstated advantages, someone else would. New River also managed to avoid the head-to-head comparison with Adderall XR that would have been logical and informative. In 2007, he convinced Shire to buy the rest of the package, New River itself, for $2.6 billion (Kirk receiving 46%).

Now, he has convinced Forest Laboratories that they should acquire Clinical Data. Forest is undoubtedly anxious about 2012 and the end of Lexapro's patent protection, and bought the concept that they would not want someone else to get hold of vilazodone/Viibryd. Even though it is a drug with marginal advantages at best, never put through a Phase III with an active comparator, which would have been a logical and informative study. Forest paid $928.6 million net (Kirk receiving around 52%), with some contingent rights that will never come into play. Some observers think someone finally got the best of Kirk. That seems very unlikely to us. Even at this price, Forest overpaid.

Subtraction Through Addition

It wasn't a question of whether, but when. Sanofi-Aventis finally bagged Genzyme, for $20.1 billion and some potential added value via contingent rights attached to certain milestones. In theory, those rights ($14/share) could add up to almost another $4 billion. However, since most of that ($10 per share) is attached to Lemtrada/Campath MS sales goals that will likely never be reached, the final bill to Sanofi-Aventis will total US$21.2 billion. Sanofi-Aventis is hoping that adding Genzyme to a company structure that has never fully integrated its two namesake components, gives it the heft in biologics that will prevent stagnation in the next decade. But none of the Pharma mega-mergers has produced anywhere near the bonanza of lean productivity promised. Even the Roche acquisition of Genentech, which sought to preserve the cultural differences that made each company successful, receives mixed reviews. Someday, someone wiser than NI will analyze these huge pharma mergers/acquisitions, and will quantify just what was lost forever in the midst of all the additions, the sum ending up less than the total of its parts. To us, $20.1-21.2 billion could have been used in many other ways, many if not most of which would have provided S-A with a far wider array of options and pipeline assets.

The First Commandment of M&A: A merger or acquisition must provide more innovative CNS programs with the opportunity to show that they work--or that they do not--in human testing. Sanofi-Aventis had already cut back in CNS, and Genzyme has never made more than minuscule efforts in the area. This acquisition likely will reduce CNS program resources. Thus it fails to meet the litmus test of the First Commandment for M&A.

The Second Commandment of M&A: There is no Second Commandment.

Some may ask--Why should the enhancement of CNS drug development be considered the benchmark for all pharma M&A activity? Doesn't that reflect some kind of neurocentric tunnelvision? We would argue that a Big Pharma that avoids the challenges presented by the largest category of 'unmet need' in the pharmaceutical world is guaranteeing that they will not be a full-fledged player. It is like a car company failing to invest in an alternative fuels strategy. What may seem more profitable in the nearterm shirks both corporate and societal responsibility.

2010

Accelerating the Cycle: Returning CNS to the Spotlight

It is part of a recurring cycle, but knowing that does not ease its sting: CNS has fallen dramatically out-of-favor in the drug development world, losing much of its cachet and clout in the process. Because of the common perception that CNS is more difficult and risk-laden than other therapeutic areas, many larger companies have sought to redirect a shrunken resource pool away from CNS, with oncology and diabetes for the moment seen as more likely to produce an acceptable ROI. Lip service has been paid to the concept that small companies can work more efficiently, and thus should be entrusted with R&D formerly done inhouse by Big Pharma. However, outsourcing must be accompanied by resources, and in sharp contrast to what might thus be hoped for, upfront deal payments received by small CNS companies are down 70% YTD from 2009. While this is just another example of cyclicity, it makes life for all working in the CNS area more problematic.

But even if the flow of resources were to be reinstated to some degree, the neurotherapeutics area cannot afford to go back to its usual modus operandi: It is too redundant, expensive, and for the most part, has failed to generate truly valuable new CNS drugs. Here are some suggestions for accelerating the cyclical rotation of neurotherapeutics back to its place at the forefront of drug development; they are intended to spur discussion, comments and counterpoints are welcome.