Highlights from California Bioscience Business Roundtable

A number of topics was discussed at the recent California Bioscience Business Roundtable including the venture financing environment, follow-on biologics (biosimilars), and health care reform.

Doug Kelly, MD from Alloy Ventures gave a pretty bleak outlook on venture financing; he even used the word "Armageddon" in describing the current environment. I was actually surprised to hear that he was not looking at any biopharmaceutical drug investments at the moment. Uncertainty surrounding biosimilars regulation and the FDA approval process were making it difficult to make any big bets. Adding to that is the financial crisis that is limiting the ability of VCs to make investments. Bill Gurley from Benchmark Capital has a great explanation of how the financial environment is impacting VC on his blog. I thought I was relatively pessimistic but Doug Kelly really depressed me!

Lori Reilly from PhRMA and Sam Youngman, White House correspondent from The Hill, discussed health care reform. The Democrats have not been doing a good job advocating health care reform apparently. Although, the recent passing of Senator Ted Kennedy might be a catalyst that galvanizes the Democrats. President Obama should start making an even bigger push for reform as a result. It's difficult to see whether any legislation will get passed by the end of the year given the amount of time Congress has left, but eventually, a compromised bill that doesn't make anyone happy will get signed. If the Democrats cannot get something signed soon though, the opportunity for health care reform will eventually die, similarly to what occurred during the Clinton administration.

Geoff Eich, Director of Regulatory Affairs at Amgen, highlighted the success of follow-on biologics regulation in the EU. For example, interferon biosimilars had different characteristics than branded interferon and caused relapses in patients. Ultimately, the EU rejected the interferon biosimilars. Human growth hormone (hGH) biosimilars suffered problems with side effects initially until it was discovered that there were problems with the purification process. Once the problem was solved, EU regulators approved hGH biosimilars. These examples clearly show that there will be a number of technical hurdles for biosimilar manufacturers to overcome. Just imagine how difficult it will be to manufacture antibodies if it's this difficult to do more simple proteins.

AARP Got Follow-on Biologics Analysis Wrong

As the health care reform debate rages, I have been been looking at the potential impact of follow-on biologics (or biosimilars) on the drug industry. I came across an article from the AARP Rx Watchdog Report (May 2009) that made an argument in favor of follow-on biologics regulation. Granted, the AARP is not necessarily impartial, but the analysis from the AARP's Public Policy Institute is a bit misleading.

The AARP compares the treatment costs for small-molecule drugs and biologics and argues that biologics are too costly when used to treat the same condition, such as rheumatoid arthritis or multiple sclerosis. This argument can be misleading because the AARP does not compare the efficacy and safety of small-molecule drugs vs. biologics. It's like comparing an old Pinto to a brand new Mercedes Benz and saying that the Mercedes is too expensive. Of course, people are willing to pay more for the Mercedes because there is more value in such a car, as should insurers for better treatments.

The AARP also argues that sales of the top selling biologics more than cover the average cost of developing a biologic ($1.2 billion). First of all, the sales have to cover the development costs in addition to other costs. Otherwise, drug companies would not be in business for long. Secondly, it's unfair to cherry pick only the top selling drugs; it's not an apples-to-apples comparison.

I agree with the AARP that biologics have (to a certain extent) contributed to rising health care costs. I'm not a pricing expert, but some biologics (not all) do seem to be overpriced. It's obvious that rising health care costs are unsustainable. I also believe that follow-on biologics regulation is inevitable. Refer to the FTC findings on follow-on biologics competition for more analysis.

Top Life Science VCs

FierceBiotech just released a list of "top" life science VC firms. The article includes descriptions and different deals of each firm. It's a good resource to learn more about the life science VC firms listed, in particular what types of therapeutic areas and at what stage of development they are focused on. The definition of "top" here can be a bit misleading though. I believe that the term "top" used in the article really means most active. Nonetheless, all of the firms listed have a very good track record of making investments. There are many more VC firms that invest in life sciences, so entrepreneurs looking for financing shouldn't limit themselves to this list only.

Deathwatch update

La Jolla Pharmaceuticals recently announced its plans to liquidate assets. Its lupus drug Riquent failed to show efficacy in Phase III studies in February, and the company failed to find any additional financing.

TorreyPines Therapeutics will be shutting its doors and liquidating its assets, which include ionotropic glutamate receptor antagonist, tezampanel. The FDA had approved a Phase III study for tezampanel in acute migraine but required a QT/QTc study in parallel with the first Phase III pivotal trial. Unfortunately, TorreyPines was unable to secure a partner to help develop tezampanel before running out of money.

DiObex, which had a low-dose glucagon for diabetes entering Phase II, was also forced to shut down and sell its assets after investors decided that the valuation from new investors was too low.

Other life science companies that have struggled to find financing include: Nanogen, Isolagen, Oscient Pharmaceuticals, Luna Innovations, Biopure, and Epix Pharmaceuticals. Check out the WSJ's "Turning Out the Lights" series of posts for other venture-backed company shutdowns.