Will pharma exit from consumer health continue in 2019? Sure looks that way

The year 2018 might be remembered by the pharma world for a deluge of consumer health castoffs. And one doesn’t really need a crystal ball to see the trend continue into the near future as drugmakers turn their focus to higher-margin, innovative medicines.

Novartis, Merck KGaA, Bristol-Myers Squibb, Bayer and Pfizer each sold off all or pieces of their consumer franchises in 2018—and more deals are expected in the future, with Bayer and GlaxoSmithKline each expected to make additional divestment moves.

It started off with Novartis handing its stake in a consumer joint venture formed in 2015 with GlaxoSmithKline to the British pharma for $13 billion and culminated with GSK forming another consumer JV with Pfizer—only as a prelude to an eventual spinoff that’ll separate the business in three years.

The Novartis-GSK transaction came as a bit of a surprise to some, as then-Bernstein analyst Tim Anderson had reported only a few months before that outgoing CEO Joe Jimenez and successor Vas Narasimhan had told him they’d like to give the venture a few more years to grow in value before punting the company’s stake to GSK.

Clearly, Narasimhan’s intentions changed. Soon after taking the reins, he announced plans to focus the Swiss drugmaker as a “medicines company.” That meant the consumer franchise needed to go, and the time was “right for Novartis to divest a non-core asset at an attractive price,” the Novartis chief said in a statement.

Instead, the company is now allocating capital to bolt-on acquisitions in the innovative drug field. Just days after the consumer announcement, Novartis picked up AveXis for $8.7 billion for a spot in the hot-and-new gene therapy arena. The pharma giant says its lead candidate, AVXS-101, could potentially be a better option than Biogen’s Spinraza for spinal muscular atrophy patients. Later in October, Novartis put down another $2.1 billion for radiopharmaceutical player Endocyte.

For GSK, the Novartis deal served as a harbinger of a large consumer merger with Pfizer and a spinoff down the line.

After walking away from a chance to buy up Pfizer’s consumer business, citing a risk that it would “compromise our priorities for capital allocation,” as CEO Emma Walmsley put it at the time, GSK returned in December with an all-equity transaction to combine the two pharmas’ consumer portfolios into a new JV that will take GSK’s name.

Yet with a leading 7.3% share of the market, well ahead of competitors Johnson & Johnson, Sanofi and Bayer, and a combined $12.7 billion in sales by 2017 numbers, the scale of the combined business put it in line for a spinoff. GSK will split up to focus on pharmaceuticals and vaccines within three years, Walmsley said, providing music to investors’ ears. The consumer business will then become a separate shop and be listed on the London market. The move could free up cash for GSK to invest further in pharma R&D, a top priority Walmsley outlined soon after she took over.

GSK had already agreed to sell GSK’s Indian consumer business to Unilever for £3.1 billion ($3.9 billion). As Novartis did, it’ll plow some of the sale proceeds into pharma deals, such as the one it recently struck for cancer-focused Tesaro for $5.1 billion.

Concurrently with the GSK-Pfizer announcement, Bristol-Myers Squibb said it had found its French OTC business, Upsa, a buyer in Japan’s Taisho Pharmaceutical. Just like deals did for its Big Pharma peers, the $1.6 billion deal will free up some cash for BMS, which said it will use the money to “further refine its portfolio to focus on transformational medicines for patients facing serious diseases.” Those include lung cancer, a lucrative area BMS is looking to expand in with immuno-oncology duo Opdivo and Yervoy.

Perhaps a less-expected intent-to-sell announcement came from Bayer in 2018, although industry watchers had been buzzing about a selloff of some sort amid concerns that the German conglomerate’s pharma pipeline couldn’t pull off enough long-term growth.

As part of a major restructuring that involves a “comprehensive range of portfolio, efficiency and structural measures,” announced in late November, the company is getting rid of sun care line Coppertone and foot care products Dr. Scholl’s, which it said “have more favorable development potential outside of Bayer.”

Bayer picked up both brands in its $14 billion acquisition of Merck & Co.’s consumer portfolio just four years ago. But both brands have been struggling. Coppertone, in particular, posted the largest drop through the first nine months of 2018, and as Bernstein analysts observed in a Dec. 15 note to clients, the line has seen sales declines and market share losses for four straight years.

Bayer recently announced a €2.7 billion ($3.1 billion) impairment from the Merck acquisition, the analysts noted. “This implies that the business has been very poorly run since acquisition, or Bayer overpaid for this asset (21.0x EBITDA and 6.5x sales) … or probably both!”

Prior to the release, Bayer had already sold its prescription dermatology business, which was also managed under its consumer umbrella. The franchise, which delivered €280 million ($328 million) in 2017 sales, was sold to Leo Pharma for an undisclosed amount. Bernstein analysts figured the two dermatology brands together could be worth around €950 million, assuming a 2.5 multiple on sales.

Meanwhile, in a €3.4 billion ($4.2 billion) deal with Proctor & Gamble in April, Merck KGaA also sold its consumer health business, which the German company’s healthcare CEO, Belén Garijo, said was facing “increasing internal constraints to fund […] to reach the required scale.” For Merck, the deal was also a manifestation of its shift toward becoming “a leading science and technology company.”

Why the mass exit? Drugmakers may foresee the OTC landscape getting a little bit thornier thanks to a certain e-commerce giant. 2018’s deals—or talk of them—happened just as Amazon formed a venture with J.P. Morgan and Berkshire Hathaway to tamp down flying drug costs. Before that, it began selling OTC products online, and in June it purchased independent pharmacy PillPack. Amazon’s entry could put the heat on drugstores, which could in turn pile pressure onto OTC drugmakers.

But amid the flurry of consumer health deals, two major Big Pharma consumer players stood out as outliers. First, there’s Sanofi, which has gone radio silent on the front—understandable, given that it just came off a consumer acquisition through an asset swap with Boehringer Ingelheim.

Then there’s healthcare juggernaut Johnson & Johnson, which interestingly went against industry trend in 2018. Instead of selling off, it agreed to pay 230 billion Japanese yen ($2.0 billion) in cash to acquire the remaining share of Japanese cosmetics and skincare specialist Ci:z. The move gave J&J popular medical cosmetic products Dr.Ci:Labo, Labo Labo and Genomer and additional heft in Japan and other Asian markets. Moreover, instead of distancing consumer from pharma, in June J&J put the two units under one leader, former pharma chief Joaquin Duato.

J&J’s beauty brands have recently come to the rescue as its baby care franchise weighs on the overall consumer health unit, what with ongoing litigation against its talc powder. The company’s stock price tumbled by more than 10% on Dec. 14 after Reuters reported that the drugmaker knew for decades that the powder contained cancer-causing asbestos.

https://www.fiercepharma.com/pharma/will-pharma-exodus-from-consumer-health-continue-into-2019

Metformin and B12 Deficiency: A Bigger Problem Than Thought

Hello. I’m Dr Charles Vega, and I am a clinical professor of family medicine at the University of California at Irvine. Welcome to Medscape Morning Report, our 1-minute news story for primary care.

Patients taking metformin should have their vitamin B₁₂ levels assessed regularly to avoid peripheral nerve damage.

That’s the conclusion from a single-center observational study^[1] of more than 150 women conducted in the United Kingdom. On average, the women were 63 years old, were taking 2000 mg/day of metformin, and had been on the drug for about 6 years.

The majority of the women had not had their B₁₂ levels measured. However, upon testing, almost 1 in 10 were found to have a B₁₂ deficiency.

Although metformin is recommended for the first-line treatment of type 2 diabetes, it is associated with vitamin B₁₂ deficiency, which itself increases the risk for peripheral neuropathy. Current guidelines do not recommend routinely checking B₁₂ levels, although the British Society of Hematology recommends checking if there is a strong clinical suspicion.^[2] Many patients with diabetes have peripheral neuropathy, and treatment with vitamin B₁₂ in cases of deficiency can give clinicians something proactive with which to treat it.

Prior research has concluded that routine testing would not be cost-effective or clinically useful for people using this medication, but the authors of this study argue that it is time for that to change. While this one study may not warrant a guideline change, it is certainly something for those of us in clinical practice to keep in mind.

https://www.medscape.com/viewarticle/906525

Noose Tightens Around Kratom

In April, we reported on an FDA order to remove some kratom products from the market because of Salmonella contamination. That turned out to be the opening shot in a war that the federal government has declared on the herbal product — or, at least, that’s how kratom’s advocates see it. In this story, we review what has happened since with the opioid mimic and the government’s efforts to discourage its use.

Kratom comes from an Asian plant, Mitragyna speciosa, that has long been a mild recreational drug and part of folk remedies. In recent years, it has gained a following in North America with claims that it can relieve pain that conventional drugs can’t touch, and that it can also relieve symptoms of opioid withdrawal. It’s sold in smoke shops, “alternative medicine” storefronts, and, of course, online from countless vendors.

Its mechanism of action isn’t entirely clear. That’s partly because it’s an herbal product with dozens of possible active compounds. However, attention has focused on two alkaloids that bind to mu-opioid receptors, which are also the target for conventional opioids. But its activity is also different from opium derivatives, earning it the moniker “atypical opioid.”

The FDA has made no secret of its wish that kratom would simply go away. The agency’s ability to regulate herbal products is limited to ensuring safety and to prevent vendors from making overt unapproved health claims. But when it comes to kratom, the agency has pulled both of those levers as hard as it can.

‘No Proven Medical Uses’

Since that recall notice was issued April 3, the FDA pushed additional vendors of kratom products to pull products for safety reasons, some because of actual positive results on Salmonella tests and others “out of an abundance of caution.” The CDC also joined the effort, identifying nearly 200 individuals who developed Salmonella infections tied to kratom, including 50 who were hospitalized. Although the CDC declared the outbreak over on May 24, the FDA continued to issue recall announcements related to Salmonella for more than a month afterward.

In May, the FDA also took the campaign in a different direction, accusing three sellers of kratom products of making unapproved health claims. These companies, according to the agency, had asserted their kratom products had the “ability to help in the treatment of opioid addiction and withdrawal. The companies also make claims about treating pain, as well as other medical conditions like lowering blood pressure, treating cancer and reducing neuron damage caused by strokes.”

Perhaps concerned that the actions might be misinterpreted, FDA Commissioner Scott Gottlieb, MD, issued a lengthy statement in early July explaining the agency’s Salmonella testing procedures and also his thinking about kratom in general. “As we have previously stated, there are no proven medical uses for kratom and the FDA strongly discourages the public from consuming kratom,” Gottlieb said, adding, “Kratom is an inherently addictive product that can cause harm, which is reason enough not to consume it.” A few days later, in another lengthy statement about opioid addiction generally, Gottlieb lumped kratom together with fentanyl as dangerous products often shipped through the mail.

Another batch of warning letters for unapproved health claims went out in early September. In announcing them, Gottlieb hammered on the lack of “well-controlled scientific studies” to demonstrate kratom’s effectiveness for relieving pain or opioid withdrawal symptoms, or on how it may interact with other agents and the adverse effects that could result. “We cannot allow kratom products with unsubstantiated claims to prevent those with [opioid use disorder] from seeking treatments that have been demonstrated to be safe and effective,” he thundered.

In late November, the FDA raised another concern with kratom: “disturbingly high levels of heavy metals in kratom products,” an FDA release said. “Among the heavy metals we found were lead and nickel at levels not considered safe for human consumption.”

Schedule I Ban?

But the biggest impact the FDA has made on actual kratom use went unmentioned in the agency’s many press releases over the year. In 2012 and 2014, the agency included kratom on so-called import alerts for drugs and drug ingredients that are illegal to import. These alerts authorize federal agents to seize products at ports of entry. A Feb. 26 web posting noted several seizures occurring in 2014 and 2016, but nothing more recent.

But kratom consumers say they’ve found it increasingly difficult to find the product for sale, and they blame the import alerts for drying up supplies. At the online Pain News Network, a Nov. 16 article quoted the head of the American Kratom Association — an advocacy group for vendors and customers — as saying several suppliers had reported having tons of the product confiscated. The article’s headline, and the advocacy group’s leader, used the term “shadow ban” to describe the import crackdown.

The article’s readers confirmed the difficulty in obtaining kratom. “Two of my main suppliers that I have done business with for years told me and they lost thousands,” one wrote in the comments section.

An actual ban may also be coming. The Drug Enforcement Administration has been considering designating kratom as Schedule I, which would make it illegal to sell, manufacture, import, or possess. In early November, the Department of Health and Human Services sent the DEA a letter supporting such a designation.

Whether or when the DEA will reach a decision is unclear. The agency had previously announced its intention in 2016 to implement a Schedule I ban, but backed away after consumers and vendors objected that there was no scientific basis for such a move. However, the HHS declaration that kratom has no medical value and is dangerous gives the DEA more cover for a ban.

The online science-and-culture publication Inverse reported in November that the DEA appears to have made up its mind to take the step, but is still crafting an announcement. When the publication asked a DEA spokesman how the agency will rule, the response was: “I think that there’s a good indication based on what we already heard from [Health and Human Services], what they’ve provided, and what Dr. Gottlieb has been saying… That should have given everybody a good idea.”

https://www.medpagetoday.com/painmanagement/opioids/77083

British American, Philip Morris ready to light up, Barron’s says

British American Tobacco (BTI), maker of Lucky Strike and Newport cigarettes, and Philip Morris (PM), best known for its Marlboro brand, offer some stability for whipsawed investors, Simon Constable writes in this week’s edition of Barron’s. The shares of both British American and Philip Morris are “substantially undervalued,” generally less volatile than the overall market, and yield huge dividends, the report notes

https://thefly.com/landingPageNews.php?id=2840916

Relay hits VC jackpot with $400M Series C round for protein motion drug discovery

A discovery-stage biopharma startup focused on protein motion in drug discovery has raised a round of financing more than six times as big as the last one.

Relay Therapeutics, based in Cambridge, Massachusettts, said Thursday that it closed a $400 million Series C funding round, led by the SoftBank Vision Fund. New investors participating included Foresite Capital, Perceptive Advisors and Tavistock Group, while existing investors included Google’s GV, Casdin Capital, BVF Partners, EcoR1 Capital, Alexandria Venture Investments and an affiliate of D.E. Shaw Research.

The company’s Series B financing was completed on Dec. 14, 2017 and valued at $63 million. BVF Partners led the round, with participation from GV, Casdin Capital, EcoR1 Capital and Section 32. Prior to Wednesday, the company had raised $120 million in total, according to its website.

For now, the company has multiple discovery-stage programs, and it plans to use the funding from the Series C raise to advance them into the clinic.

“We are at a unique moment in the evolution of drug discovery where we can realize the promise of integrating ever more powerful experimental and computational discovery tools to tackle previously undruggable protein targets,” Relay CEO Sanjiv Patel said in a statement. “The success of our early programs validates the potential of our platform to create breakthrough therapies that address a broad range of diseases.”

The company’s allosteric drug-discovery platform is designed to detect and characterize interactions that occur anywhere on a protein, not only at the active site, according to its website. In other words, the idea is to unlock new, druggable targets by observing how the proteins within cells fold and unfold.

While it works off a very different kind of technology, Black Diamond Therapeutics – launched last week by Versant Ventures with a $20 million Series A round – is also focused on discovering and developing drugs based on allostery. In Black Diamond’s case, that means drugs that target allosteric mutant oncogenes, meaning they occur outside of traditional kinase domain mutations.

https://medcitynews.com/2018/12/relay-therapeutics-hits-vc-jackpot-with-400m-series-c-round-for-protein-motion-drug-discovery/

Pharma R&D productivity hits new low amid rising costs

Returns on pharma R&D investment are at a nine-year low, and the cost of developing a drug has nearly doubled since 2010, according to Deloitte’s yearly assessment of the industry’s pipeline productivity.

The productivity figures from Deloitte are the worst since it started publishing the report nine years ago.

R&D returns have declined to 1.9%, down from 10.1% in 2010, with the figures showing a steady decline.

Deloitte said the return on investment has been impacted by the growing cost of bringing a drug to market – this now stands at $2.168 billion, almost double the $1.188 billion recorded in 2010.

Deloitte said that increasingly complex drugs developed in therapeutic areas such as oncology and neurology were driving up costs and the length of development cycles.

This was despite the efforts of regulators such as the FDA, which has introduced a series of incentives hastening the development of badly-needed drugs.

Forecast peak sales have declined from last year to $407 million, less than half the 2010 value of $816 million said Deloitte’s Centre for Health Solutions, which analysed figures from 12 large cap pharma companies along with four smaller specialised companies for comparison.

The trend was the same in the cohort of smaller companies – they saw returns fall from 12.5% to a projected 9.3% in 2018.

The smaller firms continued to outperform their peers, producing higher value products that have added $70 billion of projected lifetime sales to the portfolio across the four companies.

This cohort of companies have also increased their forecast peak sales per asset from $952 million to $1.165 billion in 2018.

Deloitte urged pharma to act quickly to improve productivity, using new technologies and seeking out talented people with the right skills to maximise their return on investment.

Increased use of automation, natural language processing, and other cognitive technologies can improve the speed, accuracy and quality of repetitive tasks, Deloitte suggested.

This can free up staff to work on value-added activities such as interpretation of results – although Deloitte said that the changes will require a shift in workforce skills.

Companies should try and find new partners to increase trust and broaden access to patients, and build large R&D hubs to increase access to external talent and ideas. They should also partner with universities and tech companies, as well as other pharma, medical device and digital health firms.

https://pharmaphorum.com/news/pharma-rd-productivity-hits-new-low-amid-rising-costs/

Analysts Await Clarity On Perrigo Tax Liability Before Adjusting Ratings

Perrigo Company PLC PRGO 29.21% disclosed a possible $1.9 billion tax liability after Thursday’s close, prompting a plunge in share price.

The company plans to appeal Irish tax authorities on behalf of its Elan Pharmaceuticals, whose Tysabri intellectual property and Biogen Idec assets were said to be improperly reported in 2013. Perrigo’s management assured no payments are required and liquidity will remain unaffected until a final determination is reached.

Some analysts refuse to give in to despair until then.

What Analysts Say

Given Elan’s filing is historically consistent, Cantor Fitzgerald approaches the ordeal skeptically. “We would not read too much into the headlines because it is unclear that there is much of a case here,” the firm wrote in a note.

However, Wells Fargo suspects the Irish tax authorities have the upperhand in the dispute given that they craft the rules. As such, it models a 50-50 chance of payment.

“If the tax case does go against PRGO, a $1.9 billion tax bill plus penalties and interest would be challenging for a company with only approximately $440 million in cash and approximately $3.0 billion of long-term debt, especially during a time that has seen lower than historical growth for the business,” Wells Fargo wrote.

Morgan Stanley was not only concerned about related overhang, which could take years to resolve, but also about the delay in reporting.

“Might investors potentially question new management transparency considering the Notice of Amended Assessment (NoA) was dated Nov. 29, 2018 and investors were only made aware of this potential tax liability through the 8K published Dec 20?” its analyst wrote.

Wells Fargo expressed similar concerns, particularly as Perrigo’s CEO failed to raise the topic in a meeting last week.

“While there may be a simple explanation for the delay in telling investors, we believe without one, investors will be skeptical of why it had not been disclosed earlier,” it wrote.

Morgan Stanley awaits clarity around implications for the prescription spinoff and bolt-on deal strategy, length of resolution and settlement fee before adjusting its thesis.

The Ratings

Cantor Fitzgerald maintained an Overweight rating on Perrigo with a $107 price target.

Morgan Stanley maintained an Equal-Weight rating with a $67 price target.

Wells Fargo maintained a Market Perform rating but cut its price target from $64 to $46.

https://www.benzinga.com/analyst-ratings/analyst-color/18/12/12888586/analysts-await-clarity-on-perrigo-tax-liability-before-