If you’ve turned on your TV anytime in the last, oh, decade or so, you’ve no doubt been bombarded by ads imploring you to “ask your doctor” about Drug X. And you’re well familiar with the routine: You get treated to happy images of folks dancing, perhaps, or walking their dogs in pretty green meadows, while a soothing voice in the background tells you that Drug X may cause you to lose your ability to drive safely, lose your vision, or lose your mind.

Forgive the exaggeration but you get the picture.

Well, the FDA isn’t pleased with the pharmaceutical industry’s advertising practices. So it’s proposing a new set of rules that would not only limit the ability of drug advertisers to use so many cheerful images, but may indeed force them to place more emphasis on their products’ potential side effects.

The FDA actually proposed the new rules back in 2010. But it re-opened the matter to public comment on January 27, after it published the results from an experiment it sponsored to measure the impact of distraction on consumers’ ability to understand the risks and benefits of drugs being advertised. The rules would pertain to direct-to-consumer (DTC) ads for prescription drugs on television or radio.

The original proposal is rather bulky. But here are the basics of what the FDA is suggesting: The agency wants to amend the rules for DTC advertising to more clearly define the standards for determining whether side effects are presented in a “clear, conspicuous, and neutral manner.” For example, the new guidelines would dictate that the adds cannot include “distracting representations,” such as statements, images, or sounds that might draw the audience’s attention away from those laundry lists of potentially adverse events.

So what exactly makes an ad distracting? The FDA’s proposal doesn’t really spell it out clearly, but you can get a hint of what the agency was thinking in the newly released report on its study, which it titled, “Experimental Evaluation of the Impact of Distraction on Consumer Understanding of Risk and Benefit Information in Direct-to-Consumer Prescription Drug Television Advertisements.” The FDA planned the study to answer a number of questions. Among them: Do visual images that are positive in tone affect viewers’ ability to comprehend the risks inherent in a product? Do positive images influence how people feel about the product? And if the advertiser super-imposes text onto the images—spelling out the side effects—does that change how viewers perceive the product?

All good questions, to be sure. To answer them, the FDA asked 2,000 consumers to go online and watch an ad for a fake blood-pressure drug called Zintria. But the participants didn’t all see the same ad. Some heard the side effects cited while watching “mildly” positive images (rocks, chairs, metal arches), while others saw “strongly” positive images (babies, puppies, girls jumping with beach balls). Some viewers saw the side effects spelled out in superimposed text, while others didn’t.

Not surprisingly, those who watched cute babies and puppies while hearing about the side effects felt better overall about the product than those who watched the more boring images. Both groups, however, understood Zintria’s risks just fine—and they really got it when the side effects were displayed on the screen in clear text, too.

The FDA has published the study on the Web and re-opened the proposed rules to comments, which the public can submit up until February 27 (instructions below).

We here at Xconomy are plenty distracted by the plethora of peppiness in drug advertising. Here are our votes for … Next Page »

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—San Diego’s Amylin Pharmaceuticals says Bydureon, its new once-a-week drug for treating Type 2 diabetes can hit the market as early as next month, after the FDA cleared Bydureon. The FDA rejected the Amylin’s drug twice before. An estimated 26 million people in the United States, or roughly 8 percent of the population, have type 2 diabetes.

—San Diego’s life sciences sector has expanded since 2009, with employment increasing by more than 5,550 jobs, or 15 percent, over the past two years, according to a new economic report from Biocom, the local industry group. The comprehensive study counted more than 1,700 life sciences companies with a total of 41,937 employees throughout San Diego County in 2011, and says those numbers are expected to grow over the next two years.

—The FDA gave its approval to Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ: VRTX), which has substantial operations in San Diego, for a new drug called Ivacaftor (Kalydeco), developed to treat a rare form of cystic fibrosis. The twice-a-day pill targets about 4 percent of the 30,000 patients in the U.S. with cystic fibrosis.

—Johnson & Johnson’s reorganized R&D operation in San Diego, now known as Janssen Healthcare Innovation, is trying an experiment in innovation by creating an incentive prize challenge. Janssen is offering a total of $250,000 for technology that helps improve care for patients who have just been discharged from a hospital.

—The folks who produce the quarterly MoneyTree report on venture capital funding just released a deeper dive into the details of life sciences investments. The survey shows that VC funding for life sciences increased 21 percent nationwide in 2011, with a total of $7.5 billion going into 785 deals. San Diego ranked third among metropolitan regions in terms of capital invested in the fourth quarter. The top five are Bay Area ($498 million), Boston ($384 million), San Diego Metro ($193 million), NY Metro ($98 million), and Orange County ($97 million

—Optimer Pharmaceuticals (NASDAQ: OPTR) CEO Pedro Lichtinger outlined his plans for expanding the market for the company’s first product, the antibiotic fidaxomicin (Dificid), as a preventative therapy for hospital patients at risk for a nasty intestinal infection called C. difficile. San Diego-based Optimer is planning a clinical trial to prove the drug can help prevent severe diarrhea in patients undergoing bone-marrow transplants.

—A tweet from Bob More of Frazier Healthcare Ventures prompted Luke to delve into the importance of character among life sciences leaders in his BioBeat column. “Politics pretty similar to backing CEO’s,” More said. “Newt may be smart and a good debate guy. But Newt=Smug. Never back smug,”

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Bonnie Ramsey said three years ago that a cystic fibrosis drug from Vertex Pharmaceuticals was a huge medical advance in the making, and would end up being an achievement on par with putting a man on the moon, at least for her patients.

Yesterday, she says, was the day it truly felt like she was part of a team that reached the moon-shot goal. The good news came when the FDA approved Vertex’s ivacaftor (Kalydeco) as the first drug of its kind to work by treating an underlying genetic defect for cystic fibrosis.

“It’s a really big day,” says Ramsey, a leading CF physician/scientist at Seattle Children’s Hospital and the University of Washington. “Even though it’s for a small subpopulation, the treatment paradigm has completely changed. It’s no longer about just treating the symptoms, it’s about treating the genetic defect. That’s a real game-changer.”

The drug from Cambridge, MA-based Vertex (NASDAQ: VRTX) is now FDA approved for patients age six and older who have what’s known as a Class 3 gene mutation called G551D. This mutation is found in about 4 percent of the 30,000 patients in the U.S. with cystic fibrosis. The disease, the result of various mutations to a gene called CFTR, causes the poor transfer of water and salt across cell membranes, which leads to the buildup of thick, sticky mucus in the lungs, and poor absorption of nutrients. It means patients have to endure hours a day of treatment their entire lives, and the median life expectancy is about 39 years. Doctors currently treat the symptoms of the disease, through things like inhalable antibiotics, but Vertex’s drug is the first FDA-approved therapy that works by altering an underlying disease-related protein.

Bonnie Ramsey of Seattle Children's Hospital

Ramsey has had an instrumental role in developing this drug since its infancy. As the executive director of the Cystic Fibrosis Foundation’s Therapeutic Development Network, back in 2000 she began collaborating with the drug’s original developer, San Diego-based Aurora Biosciences (later acquired by Vertex.)

Ramsey was the lead investigator of a pivotal study of 161 patients, known as Strive, which yielded results in February that laid the foundation for yesterday’s FDA approval. The study showed that patients age 12 and older on the twice-daily pill from Vertex had about a 10.6 percent absolute improvement in their ability to force out air from their lungs in one second—compared with a placebo. The effect held up over the full 48-week course of the study. Researchers also saw significant improvements in being able to gain weight, while also reducing cough, sputum production, and the incidence of pulmonary exacerbations. Side effects included headache, and upper respiratory tract infections, researchers said, although more patients dropped out of the placebo group than the drug group. A second study verified the effect in younger patients, age six and above.

What excites scientists is that the drug has a compelling foundation in biology. It is designed to … Next Page »

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Good morning from Mountain View, CA, and from the close of the 2012 Personalized Medicine World Conference, which brought together thought leaders of business, government, healthcare-delivery, research and technology. Four themes that emerged from this year’s program:

• Greater optimism, triggered by the 2011 approvals of two major oncologic agents paired with companion diagnostics: vemurafenib (Daiichi Sankyo and Roche / Genentech) for patients with metastatic melanoma with a mutant biological pathway known as BRAF V600E and crizotinib (Pfizer) for patients with non-small-cell lung cancer that overexpresses a protein called ALK. Walter Koch from Roche and Hakan Sakul from Pfizer proudly discussed their development processes and speedy approval timelines. Those approvals were also cited by several other talks as examples of major progress made in the quest to deliver the right drug to the right patient.

• Greater clarity from the FDA. Although the FDA was not able to meet its self-imposed deadline of year-end 2011 to finalize guidance to industry on the best practices for developing companion diagnostics, Elizabeth Mansfield reiterated Commissioner Hamburg’s commitment to personalized medicine and told the audience to expect final guidance before the end of June. Mansfield also said that the FDA would provide guidance on how to co-develop a drug & test in parallel, as well as how to “enrich” clinical trials through careful selection of patients, based on their genetics. Both of these important regulatory steps could happen in 2012. The most surprising revelation, though, was Mansfield’s staffing: her group has just four people to evaluate all personalized-medicine-related medical devices.

• More sequencing. Just a few weeks ago at the JP Morgan Healthcare Conference, 800-lb sequencing gorillas Illumina and Life Technologies / Ion Torrent announced that scientists can expect the $1,000 genome by the end of 2012. Piggybacking on that announcement, Mostafa Ronaghi, chief technology officer of Illumina, presented a thorough overview of his company’s progress to date, bragging that 90 percent of all sequences produced worldwide had been produced on an Illumina instrument. Among other projects, Ronaghi’s team is working on techniques to accurately cover the 8 percent of the genome that cannot be sequenced because of repetitive regions. (Ronaghi made his presentation just hours before news broke of Roche’s unsolicited $5.7 billion takeover bid for Illumina.)

• More translational bioinformatics. Given the implied data glut that whole genome sequencing will produce, last week’s conference revealed more accomplishments in the application of bioinformatics to the remedy of disease. One of the unsung heroes of this year’s conference was Elizabeth Worthey from the Medical College of Wisconsin, who walked the audience through a case study of a pediatric patient presenting with undefined inflammatory bowel disorder. Worthey’s whole exome sequencing and variant analysis of the patient revealed a key mutation in the XIAP gene. A cord blood transplant ultimately cured the child, who was eating, drinking and playing again within four months.

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Cell Therapeutics suffered an embarrassing defeat the last time it appeared in front of an FDA advisory panel and today the company made a move that will enable it to avoid another public shellacking, at least for a while.

The Seattle-based biotech company (NASDAQ: CTIC) said today it has withdrawn its application to start selling pixantrone (Pixuvri) as a new lymphoma drug in the U.S. after saying today it needed more time to prepare for a Feb. 9 meeting of the FDA’s cancer drug advisory panel. The company said it asked the FDA to allow it to present at the March meeting instead, but when the agency said no, Cell Therapeutics withdrew the application. That means the agency’s April 24 deadline to complete its review of the application has been voided, although Cell Therapeutics said today it plans to resubmit its application later in 2012.

The last time Cell Therapeutics appeared at the FDA’s Oncologic Drugs Advisory Committee (ODAC), in March 2010, the panel voted 9 to 0 against the company’s pixantrone application. The chair of the FDA panel at the time, Gail Eckhardt of the University of Colorado at Denver, said the Cell Therapeutics application was “disturbing,” partly because it only enrolled 140 of the 320 patients needed to generate a statistically valid result. The head of the FDA’s cancer drug office, Richard Pazdur, said at the time that the Cell Therapeutics application depended on “a single incomplete trial.” The initial application was turned down by the FDA in April 2010.

By withdrawing the application just before the next advisory panel, Cell Therapeutics contradicted one of its own statements from less than a month ago, when it said it believed it had addressed the concerns raised by the FDA.

“We are pleased the Office of Oncology Drug Products (OODP) chose to bring our pixantrone new drug application back to ODAC for review now that we have provided additional information and data recommended by the Office of New Drugs (OND) that we believe addresses the issues raised in the OODP Complete Response Letter of April 2010,” James Bianco, the company’s CEO, said in a Jan. 3 statement.

Shares of Cell Therapeutics fell 18 percent today to $1.09 in early trading.

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It’s that outlook time of year, and Mark Heesen, president of the National Venture Capital Association (NVCA), was in San Diego earlier this week, talking about the 2012 outlook for venture capital. Today he’ll make a similar presentation to the New Jersey Technology Council. Next week,  John Taylor, the NVCA’s director of research is set to talk in Florida about the 2012 outlook.

Heesen began his presentation in San Diego by saying, “Be prepared for a roller coaster ride here, because that’s where we’ve been for the past year—and that’s where we’re going.”

In a conversation with Xconomy yesterday, Heesen talked about some of the broader trends he’s charting throughout the United States. Here are some of the takeaways from our talk, and from Heesen’s presentation in San Diego:

—The VC industry continues to contract. Venture capital investments in U.S. startups peaked in 2000, when VCs sank $99 billion into emerging companies of all kinds. There were 1,022 venture capital firms at that time, and they were collectively managing $220 billion worth of invested capital. In 2010, VCs invested more than $20 billion into startups of all kinds. The number of VCs had plunged by almost 55 percent—to 462 VC firms with $177 million under management.

—VCs are raising more capital from their limited partners, but it isn’t enough to sustain current investment levels. In 2011, U.S. venture firms raised a total of $18 billion. That was up significantly from the $14 billion that VCs raised in 2010—but it falls $10 billion short of covering the $28 billion that VC firms invested in 2011. As a result, Heesen says he expects venture investments in U.S. technology and life sciences companies to decline in 2012.

—A handful of VC firms accounted for … Next Page »

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It was a busy news week in the New England life sciences scene, with acquisitions, clinical data, and partnership deals.

—Thanks to a new co-promotion deal, Genzyme will begin marketing a diagnostic test for thyroid cancer developed by South San Francisco-based Veracyte. Genzyme, the Cambridge, MA-based unit of Sanofi (NYSE: SNY) makes a common drug for treating the disease.

—Cambridge-based Infinity Pharmaceuticals (NASDAQ: INFI) presented data from a 16-patient study indicating saridegib, its experimental once-daily pill, could potentially shrink tumors and help people live longer when combined with chemotherapy.

—Millennium, also of Cambridge, nabbed FDA clearance to begin selling a version of the multiple myeloma drug bortezomib (Velcade) that can be injected just under the skin, as well as intravenously. It’s significant because the under-the-skin drug seems to be more tolerable, reducing the drug’s side effect of nerve damage in the fingers and toes.

—Xconomy national biotech editor Luke Timmerman wrote about how Cambridge-based Vertex Pharmaceuticals (NASDAQ: VRTX) and its South San Francisco-based partner Alios Biopharma are positioning themselves to defend their share of the hot growing market for hepatitis C treatments.

—And my colleague Arlene wrote about the family-run business that is Woburn, MA-based Courtagen Life Sciences. Three brothers fill the roles of CEO, president, and chief scientific officer, while their dad chairs the board. Read about more about how it all came together.

—Bedford, MA-based Avila Therapeutics, a maker of so-called covalent drugs for treating cancer, was bought by New Jersey-based Celgene (NASDAQ: CELG) for $350 million upfront. Potentially $575 million more could come to Avila through milestones. The startup’s venture investors included Polaris Venture Partners, Atlas Venture, Abingworth Management, and Advent Venture Partners. Check out investors’ and friends’ reactions to the deal across the Web here.

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Millennium is the house that Velcade built, and today it’s gotten the green light to start marketing what it considers to be a new and improved version of the hit drug for multiple myeloma.

The Cambridge, MA-based cancer drug developer, part of Japan-based Takeda Pharmaceuticals, said today it has gotten clearance from the FDA to start marketing a version of bortezomib (Velcade) that can be injected just under the skin, in addition to the usual form given intravenously. Today’s approval means the subcutaneous form of Velcade can be used in every setting where the existing drug is prescribed, for patients with multiple myeloma and mantle cell lymphoma.

While this would ordinarily be considered an incremental advance by providing patients and physicians with a more convenient option, the new Velcade approval could be more meaningful. That’s because the new subcutaneous form of the drug appears to be more tolerable, causing fewer cases of nerve damage in the fingers and toes, which is the most common severe side effect of the existing product. One of the key trials Millennium submitted to the FDA showed it could reduce the rate of moderate to severe peripheral neuropathy from 16 percent to 6 percent by putting patients on the new subcutaneous form. By offering a version that’s equally effective, yet more convenient and tolerable, Millennium is hoping to neutralize one of the advantages that South San Francisco-based Onyx Pharmaceuticals (NASDAQ: ONXX) is playing up for its competing proteosome inhibitor, carfilzomib, that’s being reviewed by the FDA.

“Considering this new subcutaneous route of administration for Velcade is important for our patients, including those with poor vein access and those with pre-existing peripheral neuropathy or a high risk of developing peripheral neuropathy,” said Noopur Raje, director of the Center for Multiple Myeloma at Massachusetts General Hospital Cancer Center, in a Millennium statement. “It’s important to have a range of treatment options to provide the best possible care to each individual patient.”

The Millennium drug was approved by the FDA in 2003. It generated $1.4 billion in worldwide sales in 2009, and is on pace to eclipse $3 billion by 2015, according to BCC Research. About 20,000 people are diagnosed with myeloma each year in the U.S., and 10,000 die from it annually, according to the American Cancer Society. For more background on how the new version of Velcade could change the multiple myeloma landscape, see the FDA approval preview story I ran here last Friday.

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The drug that made Millennium into a biotech power is on the verge of getting a subtle but meaningful upgrade, just in time to help the company fend off a serious new competing therapy from South San Francisco-based Onyx Pharmaceuticals (NASDAQ: ONXX).

Cambridge, MA-based Millennium, the cancer drug unit of Takeda Pharmaceuticals, is awaiting word from the Food and Drug Administration on whether it can start marketing a new version of bortezomib (Velcade) that can be injected just underneath the skin. The U.S. drug regulatory agency has a deadline of Jan. 23 to complete its review of Millennium’s application for the subcutaneous form of the treatment, which would be a new option beyond the current version that’s given intravenously.

Ordinarily, this kind of application would be an incremental advance. But the FDA’s decision could mean a lot to Millennium, because the new subcutaneous form is not only faster and more convenient for hospitals to administer, but clinical trials show it causes less nerve damage in the fingers and toes than the conventional IV product. If the FDA agrees to allow Millennium to market the new version, then Millennium will have a stronger defense against emerging competition from Onyx Pharmaceuticals, which is angling for FDA clearance of a rival drug that has long claimed to have an advantage with its milder side effects.

The Millennium drug, approved by the FDA in 2003, generated $1.4 billion in worldwide sales in 2009, and is on pace to eclipse $3 billion by 2015, according to BCC Research. About 20,000 people are diagnosed with myeloma each year in the U.S., and 10,000 die from it annually, according to the American Cancer Society.

“There are all kinds of ramifications that will make this quite an attractive option for patients,” Deborah Dunsire, the CEO of Millennium, said last week in an interview at the JP Morgan Healthcare Conference in San Francisco.

The whole idea of packaging Velcade in a new way wasn’t something that came from Millennium scientists, and they didn’t expect it would make much difference. The idea for developing a subcutaneous form came after a nurse in France improvised when it was too difficult to find a vein in an elderly patient, Dunsire says. It turned out the patient did well on this improvised injection, and the doctor decided to try to study the new injection mode further, she says.

When Millennium got wind of some promising early results, it designed a study of 222 patients to compare those on standard Velcade with patients on the new subcutaneous version, to see if they were roughly the same. A subcutaneous version, after all, has a natural convenience advantage in that patients don’t have to … Next Page »

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Here’s our weekly roundup of San Diego’s life sciences news.

—Jeff Shuren, director of the FDA’s Center for Devices and Radiological Health (CDRH), briefed reporters in San Diego on his efforts to make the regulatory review of new medical devices more predictable, transparent, and efficient. Shuren is undertaking reforms at a time when eight out of 10 biomedical CEOs say they “agree or strongly agree” that the FDA regulatory approval process has slowed the growth of their organizations.

—More than 500 people turned out Monday evening for the open house that Johnson & Johnson’s (NYSE: JNJ) new Janssen Labs startup center. The first four startups to be inducted are Diomics (diagnostics, integrated DNA analysis); Neurolixis (drugs for schizophrenia, Parkinson’s and other CNS disorders); Tem Systems (comprehensive blood test for anti-coagulants); and Yolia Health (optometry device company).

—San Diego-based Auspex Pharmaceuticals, which is developing deuterium-based drugs, has raised $3 million of a $6 million round of debt and convertible promissory notes, according to a regulatory filing. Previous investors include CMEA Ventures, Costa Verde Capital, and Thomas McNerney & Partners. Auspex uses deuterium to replace metabolically sensitive hydrogen atoms in compounds to create new versions of existing drugs.

—BrainCells, a San Diego developer of neurological drugs, raised $2 million toward an $8 million round of debt, rights and securities, according to a regulatory filing. BrainCells previously raised $77 million from Alexandria Real Estate Equities, Bay City Capital, MedImmune Ventures, Mitsubishi UFJ Capital, Mizuho Capital, NeuroVentures, New Enterprise Associates, Oxford Bioscience Partners, Pappas Ventures and Technology Partners, according to VentureWire. The company says it is developing novel therapies for treating central nervous system (CNS) diseases, based on the principal of blocking select metabotropic glutamate receptors (mGluR).

—To have the skills needed in 2022, San Diego Xconomists Robert Noble and Larry Bock recommend that students should “learn how to learn.” Drew Senyei says students should study anything they are passionate about; Duane Roth would like to see a new major that encompasses engineering, biology, chemistry, physics, law, business, humanities and communications; and Ramesh Rao would emphasize studying new techniques for sensing data, as well as data analysis. They all offered their views for an Xconomy special report on education, and what students should be studying today to be prepared for 10 years from now. Their comments are available online here.

—In a talk with Sanofi CEO Chris Viehbacher, Luke explained the company’s strategy since it acquired Cambridge, MA-based Genzyme, and cut back on its internal research and development.

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After the stock market closed last night, New York-based Bristol-Myers Squibb (NYSE: BMY) announced that a cocktail containing two of its experimental drugs to treat hepatitis C obliterated the virus in some patients in a Phase 2 study. The results were so compelling the company used the “C” word in a press release, declaring, “This study was the first study to demonstrate the possibility that hepatitis C can be cured,” without interferon, which has to be injected and can cause side effects.

But the good news was quickly overshadowed by bad news from the FDA on another Bristol drug, dapagliflozin, which the company and its development partner, AstraZeneca (NYSE: AZN), had submitted for approval in Type 2 diabetes. At about 2 a.m., the companies announced that the FDA had issued a dreaded “complete response letter,” requesting additional data to help better assess the risk/benefit profile of the drug.

The FDA’s response was no surprise. In July, an advisory panel to the FDA voted nine-to-six against approving dapagliflozin. Although the agency doesn’t have to follow the recommendations of its advisory panels, it usually does. Dapagliflozin is part of a new class of drugs designed to inhibit SGLT2, a protein that promotes glucose absorption. The July assessment of Bristol’s drug was so harsh some Wall Street analysts declared the death of the entire SGLT2 class. In today’s statement, though, Bristol and AstraZeneca said they “remain committed to dapagliflozin and its development.”

Investors will be more likely to find something to cheer about in Bristol’s experimental hepatitis treatments, daclatasvir and asunaprevir. Both drugs target a subset of patients who have a particular genotype and who haven’t responded to the commonly used treatments interferon and ribavirin. With this recent study, the company reached its goal of proving that the combination would render the virus undetectable in some patients. A Phase 3 study of the dual treatment is now underway, meaning investors looking for some indication of how it works in a large patient population will have to wait a while.

Not surprisingly, Wall Street is focusing today on the bad news in diabetes. Shares of Bristol dipped about 1 percent to $33.42 in pre-market trading, and shares of AstraZeneca were down nearly 2 percent to $47.30.

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Alan Frazier has been on record for a long time saying that the traditional biotech venture model is broken, and in severe need of updating. He’s been working on a new strategy for the past seven years or so, but the approach is facing its biggest test ever as Frazier prepares to raise his first fund in the wake of the Lehman/Fannie/Freddie/AIG financial calamity of 2008.

Frazier is the founder and managing partner of Frazier Healthcare Ventures, a 20-year-old Seattle and Menlo Park, CA-based venture firm that has $1.8 billion under management. The firm’s last fund, Frazier Healthcare VI, assembled $600 million in November 2007 to put to work in biotech, medical device, and healthcare growth equity opportunties. Frazier hasn’t formally initiated a fundraising process with pensions, endowments and other institutions, but on average he has raised new venture funds roughly every three years. “It’s time for us to raise a new fund,” he says.

The big story this year in biotech venture capital is the sheer number of funds—most estimates are between one-fourth and one-half—that are thought to be slowly winding down as they struggle to show the returns that are needed to keep raising new funds. Frazier, during an interview at the JP Morgan Healthcare Conference last week, said he expects many peer firms—but not his—to “go into hibernation.” He’s forecasting his fund will be one of the survivors because it decided back in 2005 that it no longer made sense to build biotech companies that intend to go public, and that they needed to be tailor-made to be acquired by Big Pharma and Big Biotech companies.

“For a long time, we in the venture business created the wrong companies for [big companies] to buy,” Frazier says. “We’d build something with 150 employees and four projects, when what they want are 25 people and one project.” The payoff, he says, “has been pretty dramatic. Obviously, it takes a while for that kind of strategy to evolve.”

Like any firm that’s been around for a while, Frazier has its share of wins and losses (and it obviously prefers to talk about the wins). Seattle-based Calistoga Pharmaceuticals represented a 3.74x return on Frazier’s investment when it was acquired by Gilead Sciences last year for $375 million up front, although the return could rise to 6x Frazier’s investment if certain milestones are met. Other portfolio companies like Oakland, CA-based Cerexa, San Diego-based Calixa Therapeutics, Carmel, IN-based Marcadia Biotech, and Cambridge, MA-based Alnara Pharmaceuticals all ended up getting acquired in the last two years at multiples between 3.39x times original investment on the low end (Alnara) through 10.67x times investment on the high end (Marcadia), according to data published in a Frazier newsletter. There was even one rare IPO in the portfolio, from Boulder, CO-based Clovis Oncology (NASDAQ: CLVS).

Of course, there were less-happy events for Frazier in the past year, too. Seattle-based Calypso Medical Technologies—which raised more than $175 million in venture capital since its founding in 1999—was sold for $10 million last year, plus undisclosed milestones. And just a few months after … Next Page »

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Since he set out last year to revamp the way the FDA reviews medical devices, Jeff Shuren of the FDA’s Center for Devices and Radiological Health (CDRH) has often met with industry leaders to hear their feedback and ideas for how to improve medical device regulation. Last week, he met with industry leaders in San Francisco, and this week he’s in Southern California.

Shuren’s schedule in San Diego yesterday included a stop at Nuvasive (NASDAQ: NUVA), a pioneer in innovative spinal surgery products, which must have been an interesting meeting. Last week, Nuvasive CEO Alex Lukianov told an audience in San Francisco that FDA regulatory delays in reviewing Nuvasive products are costing the company an estimated $70 million a year.

Shuren, who has overseen the FDA center for just over two years, also met with local reporters, and provided an overview of the steps he’s taken to make the regulatory review of new medical devices more predictable, transparent, and efficient. The way the industry has been talking, though, it sounds like Shuren has taken only the first steps on what must be a 1,000-mile journey.

Eight out of 10 biomedical CEOs say they “agree or strongly agree” that the FDA regulatory approval process has slowed the growth of their organizations, according to a new survey from PwC [PricewaterhouseCoopers], BayBio, and the San Diego-based California Healthcare Institute (CHI). BayBio and CHI released some early results of the annual survey at an event timed to coincide with the JP Morgan Healthcare Conference, the biggest annual gathering of life science investors and executives.

Frustration throughout the life sciences industry has been mounting, but Joe Panetta, who heads San Diego’s Biocom industry group, sounded a more conciliatory theme as he sat next to Shuren during the media briefing. “Both industry and the FDA agree that we need to provide safe and effective products for patients and physicians,” Panetta said. “We’re definitely partners in that initiative, and it doesn’t do anyone any good to keep beating up on each other.”

The FDA’s Shuren is “trying to take specific actions to improve the decision-making process at the FDA, and also the decision-making culture,” says Ross Jaffe of Versant Ventures, who was among the Bay Area VCs who met with Shuren last week at a dinner organized by CHI. “To his credit, he’s willing to … Next Page »

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Johnson & Johnson’s West Coast research leader, Diego Miralles, has met with a lot of biotech entrepreneurs who are curious about what J&J is doing to foster more startups at its facility in San Diego. At some point, a skeptical question usually comes up.

“What’s the catch?” Miralles says he’s sometimes asked.

He insists there isn’t any catch.

“We are genuinely trying to help the industry,” Miralles said last week in a meeting at the JP Morgan Healthcare Conference in San Francisco. “We think helping the biotech industry helps us. We strongly believe that a rising tide lifts all ships.”

J&J (NYSE: JNJ), which is based in New Brunswick, NJ, has been moving quickly the past few months on a new initiative to help biotech startups get up and running, through its new 30,000 square foot Janssen Labs startup space on the Torrey Pines Mesa. As Bruce first reported here in October, the idea is to create a space at J&J’s facility where 18-20 fledgling companies can get modern lab space, supplies, professional facilities management, and equipment that is supposed to free up the entrepreneurs to focus more on their science.

The life sciences industry has been buzzing about the concept since then, and Monday night more than 500 people turned out to see the new Janssen Labs in San Diego during an open house at J&J’s renamed Janssen Research & Development facility.

J&J insists that it won’t take equity stakes in the startups, or attempt to direct them, but that it hopes the industry, and eventually its shareholders, will benefit by “fertilizing the soil” for more innovation. At Monday night’s soiree, J&J publicly named the initial four startups settling into the space, selected from the first 100 applications that have rolled in from around the world since October.

Big Pharma companies have gotten some heat from entrepreneurs and VCs over the past couple of years for taking advantage of them, essentially by harvesting the best ideas at bargain rates as the startups struggle to raise more venture capital to keep going. But as biotech startups are now less able to fill up Big Pharma’s product pipeline, those same Big Pharma companies are experimenting with new ways to stir up more early-stage R&D. Sanofi CEO Chris Viehbacher has outlined a strategy to shift resources toward startups and academic collaborators, Pfizer has set up a network of academic collaborations around the country, and Bayer has sought to become a landlord to promising startups in San Francisco’s Mission Bay.

Here’s how the J&J startup space is supposed to work. Companies apply for space that can be configured to house one to three people, or as many as 25, Miralles says. Prescience International, the group that runs the San Jose BioCenter, will provide professional management of the space, and to handle … Next Page »

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Chris Viehbacher has seen plenty of ideas come and go from people trying to shake up the pharma R&D model. No matter how much people have tried to fix things, it still takes a notorious amount of time, money, and risk to create new drugs.

Now, as the CEO of Paris-based Sanofi (NYSE: SNY), Viehbacher is blowing up the traditional R&D model at a huge, 110,000-employee company. Last year’s big strategic move was the acquisition of Cambridge, MA-based Genzyme, which gave Sanofi a lot more biotech products and expertise. Since then, Sanofi has done what a lot of other pharma companies have done—made cutbacks on its own internal research. And now the company is setting aside an increasing percentage of its $6.5 billion-a-year R&D budget for bets on collaborators doing edgy scientific work in universities and at biotech companies.

I sat down to interview Viehbacher last week at the JP Morgan Healthcare Conference in San Francisco, where we talked about the Sanofi R&D plan, and how the company can help support biomedical innovation more broadly outside its corporate walls. Here are excerpts from the interview, edited for length and clarity.

On Sanofi’s outreach strategy with U.S. researchers, particularly in the Boston area following the Genzyme acquisition:

One of the main rationales for doing the Genzyme deal was to have a strong presence in research in the U.S., and clearly the first choice is Cambridge. Our vision for research is one of open collaboration. How companies do research is evolving, and certainly we are evolving. Traditionally, we’ve had big research centers, and we are trying to get a lot more balance between internal research and external research. Right now, it’s about a 70/30 ratio between internal to external. My objective is to bring that to about a 50/50 balance.

That fits with a number of trends in research. First, there’s a lot of funding for new ideas drying up as venture capital is leaving biotech. Second, is that as we look for innovation, we look for where people are doing basic science experiments that are defining causes of diseases. What you are seeing is that a number of people in the value chain of research are specializing. Not everybody is trying to do everything.

In Cambridge, you’ve got all those things. Being the No. 1 life sciences employer in Boston is great, but we didn’t want to just do the same thing we did everywhere else, having everybody inside our walls. So we created this concept of a hub. There’s a core, with a lot of competencies that a big organization can bring, but the idea of a hub is that we can manage the relationships we have with everybody from Dana-Farber Cancer Institute to Harvard to MIT to the Joslin Diabetes Center to some of the biotechs we work with. And we put our own oncology research team in Cambridge. There’s a whole ecosystem in Boston, and we feel integrated and at the center of it.

On joining Third Rock Ventures and Greylock Partners in a $125 million financing of a new startup called Warp Drive Bio:

The Warp Drive Bio project is interesting because it demonstrates where we want to go. It was certainly an unusual deal for Sanofi, because essentially what we’ve done is jointly fund a startup biotech company. It was very much on the basis of saying we want to work with (Harvard University chemical biologist) Greg Verdine. Someone like that isn’t going to come work for Big Pharma, but we liked the science he was doing. We have a strong interest and expertise in natural products, and he had a genomics screening tool.

We will contribute expertise. I don’t want to be a venture capitalist, or have a venture fund, like some other companies do. But I want to actually partner, where we bring some of what we know, and combine it with what Warp Drive has. The fact that we are trying to bring people from Sanofi into the collaboration, at such an early stage of research, is unusual. The single factor for success will be whether you can take a company like Warp Drive, with a handful of people, and make it work with an organization of 110,000 people without smothering it.

On how Sanofi hopes to change traditional university/industry collaboration templates:

We have some interesting partnerships with UCSF, in diabetes, brain trauma, and oncology. When you look at UCSF, we are trying to do true collaborations. Sometimes you look at academic collaborations and it’s essentially outsourcing a true piece of the research. That’s not … Next Page »

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

The FDA is the easy target for those of us who are in drug development. But what I am most mad about is the unwillingness of our industry to focus and invest in innovative, high-impact drugs instead of “me too” knockoffs. Thus, my “anger” is focused on institutions that myopically insist on investing in low-risk, copycat ideas that undermine the true strength of our industry over the long term.

Risk-taking and innovation in drug discovery are critical to our field. Aspiring merely to be fast followers instead of striving for innovation is putting our competitive advantage at risk. The entrepreneurial spirit has been key to America’s success in many industries, especially biotech, but there have been several recent events that are stifling innovation.

The downturn in the economy has obviously dampened the financing of new ideas. Changes to patent law arguably encourage long, drawn-out opposition hearings that could be detrimental to the smaller inventor. However, my key concern for our industry is the lack of new and innovative drugs, despite the stunning pace of scientific progress over the last several decades. Not enough companies are focused on innovation and not enough people in charge are taking the right level of risk to actually come up with a new idea that can have a substantial impact on human health. Innovation is the alpha and the omega of our industry and should always be cherished as a way to create valuable and meaningful high-impact drugs.

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

It takes a lot to get me riled-up—I’m overly rational, if anything. Outside of the bad behavior we were supposed to outgrow in kindergarten—dishonesty, disrespect, etc.—there are few professional issues of sufficient emotional magnitude. One of the most frustrating issues today is the FDA situation. While easy to say, “The FDA is at fault and needs to be reformed in order to speed the approval of new medicines,” that is a dramatic oversimplification of the problem. All parties in the ecosystem are at fault to some extent, and it will take concerted efforts and change by each in order to fix it.

For example, the FDA has absolutely been more/overly safety conscious in recent years, but I believe we all would act that way if faced with being hauled in front of Congress to justify the risk-benefit of a drug approval that positively impacts more than 99.99 percent  of the people who use it. Why should we, as a country, require or expect that medicines be as safe as clean water? At the core, sick people, whether with cardiovascular issues, autoimmune disease, or other afflictions, are taking a medicine in order to improve their condition, so while absolutely safe drugs would be wonderful, a level of risk is warranted based on the improvement in the disease. If we can cross that bridge and accept that medicines will have risks, then we have the tools to deal with the safety vs. speed of approval conundrum. We can shorten commercialization timelines while dramatically improving safety monitoring if we test for efficacy and major safety during development, while tracking long-tail safety issues in the commercial setting—perhaps the first 100,000 people prescribed a new product?

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Canaan Partners was fortunate to raise its last big venture fund just before the global financial crisis hit in 2008, and now it has a real reason to be thankful again.

The Menlo Park-based venture firm is announcing today that it has closed on Canaan IX, a new $600 million venture fund. Canaan plans to carry on with business as usual, as it expects to put about two-thirds of the money into tech companies, and one-third into healthcare startups, just like it did with the previous $650 million Canaan fund that closed in December 2007. The firm, founded in 1987, now has about $3.5 billion in capital under management.

Canaan’s new fund couldn’t come at a more critical time, as the venture industry has been in crisis for a couple years. Most venture firms—running low on cash from funds they raised prior to the downturn—are desperately angling for support from the pensions, endowments, and other limited partners that provide the capital that keeps them in business. Limited partners have carefully scrutinizing whether they should keep betting on VCs—who are supposed to take big risks, yet most can’t deliver returns that consistently beat the S&P 500, T-bills, or commodities. An estimated one-third to one-half of venture firms are thought to be slowly going out of business as they have struggled to deliver enough big-ticket IPOs and acquisitions to justify the risks they take.

“We truly do feel lucky,” says Brent Ahrens, a general partner at Canaan. “We’re delighted to have such a great group of LPs who are backing us, this time and historically. We owe it all to them. We are truly thankful to be in position to continue to do what we love to do. But at end of the day, to get there, you gotta produce results.”

Brent Ahrens

Canaan, like most venture firms, doesn’t disclose the actual returns it has generated for its backers, although it has clearly strung together some hits during the tumultuous past few years. Its portfolio saw a big acquisition (Shire’s $750 million takeover of Advanced BioHealing) and a sizable IPO with Active Network (NYSE:[[ticker: ACTV]]) in the past year. A couple of its drug developers, BiPar Sciences and Calixa Therapeutics, were acquired in the past several years. This month, SandForce, a maker of flash-storage devices, was bought by LSI for $370 million.

Canaan has long stuck to a position as a diversified venture fund, which bets on different sectors (tech and biotech) as well as different geographies (U.S., Israel, India). Many venture firms have recently leaned toward technology during the go-go era of Facebook, Groupon, Zynga et al., and away from biotech in a period of tough FDA regulation and fears about healthcare insurance price controls. Scale Venture Partners recently said it is getting out of healthcare investment, Morgenthaler Ventures and ATV are spinning out/pooling their healthcare teams into a separate fund, and Prospect Venture Partners declined to continue with its plan for a new fund. But Ahrens said Canaan has seen good balance to the returns from both its tech and biotech investments, and its LPs like its diversification strategy, which enables it to dial up one sector, and dial down investment in another when it chooses.

Still, Canaan plans to allocate its capital in the next fund as it has previously, with two-thirds going to tech and one-third to healthcare, Ahrens says. Healthcare includes drugs, devices, and health infrastructure or health IT ideas, he says. The breakdown largely reflects the expertise of the people at Canaan, who are mostly sticking around for the 10-year commitment to oversee this newest fund mature. Eric Young, a general partner who co-founded Canaan in 1987, is one exception, as he … Next Page »

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Biotech pilgrims are gathering today for the biggest industry frenzy of the year, the JP Morgan Healthcare Conference. This confab in San Francisco’s Union Square is the singular place each year where essentially all industry mover/shakers—and many wannabes—gather for a marathon week of investment scouting, dealmaking, publicity seeking, job-hunting, and schmoozing.

I’ve been going to this conference for at least seven or eight years (but who’s counting?) and look forward to meeting lots of interesting people and digging up all kinds of news every year. It’s the best time to meet industry players face-to-face, and hear about the latest trends at work, in an action-packed few days. Most everybody here is brimming with optimism—or least putting on their best game face—about how they’re going to make new drugs, devices, or diagnostics that will leap tall buildings with a single bound in the coming 12 months.

Some of these dreams will be fulfilled, but the odds aren’t good. Hope and hype are a couple essential ingredients in this business, and every year both are on display at this conference. Sometimes the wishful thinking can congeal into conventional wisdom. So with that, I thought I’d try to anticipate a few popular myths you can expect to hear circulated, in order to debunk them. Here goes:

1. “The biotech IPO market will pick up.” Every year this line gets repeated, and every year it’s nothing more than wishful thinking. All you need to know about IPOs is that Groupon raised more money in its initial offering last year than the entire class of 2011 biotech industry IPOs. Facebook is on the docket this year, and it will dominate the news. Many biotechs that went public last year were weak, and didn’t perform well for investors, which only serves to dampen enthusiasm. And most importantly, it’s always good to remember who will be spreading the positive word about the IPO market, and consider the sources. It’s the investment bankers, lawyers, and consultants who stand to put a lot of money in their pockets from fees every time one of these transactions occurs. Just because they want it to happen, doesn’t mean it will.

2. “Amgen will make a mondo acquisition.” The biotech industry’s biggest company was sitting on a massive stockpile of $17.6 billion in cash and investments at the end of September. Common sense says that Amgen has got to do something with the cash other than collect interest. Shareholders might like getting dividends or seeing share buybacks to lift the stock price, but this won’t excite anybody for long. The company is getting a new CEO, Robert Bradway, who might be interested in putting his own stamp on the company once he takes over in May from Kevin Sharer, who had a lackluster record in the acquisition department. And Amgen might be feeling the need to compete in the acquisition arms race, especially since Gilead Sciences (NASDAQ: GILD) scooped up Pharmasset for $11 billion.

It may sound logical, but this all feels like wishful thinking to me on the part of bankers with vested interests. Amgen will think long and hard before it attempts to do any monster acquisition, especially after seeing the organizational indigestion mega-mergers have caused in Big Pharmaland (see Pfizer/Wyeth, Merck/Schering-Plough, and Roche/Genentech). My hunch is that Amgen may buy a company in the $1 billion ballpark, but it will not pull the trigger on a really audacious mega-merger in 2012.

3. “The FDA is going to be more supportive of innovation.” I’m not sure how many people are really going to go out on a limb and take the FDA at its word that it wants to be more supportive of medical innovation. But a small group of high-powered VCs and industry advocates have pushed for this for a long time, and commissioner Margaret Hamburg has been making more noises about how the agency’s mission is to ensure the safety and efficacy of new drugs, while also helping stimulate biomedical innovation. Just like anything in politics, though, talk is cheap and the record is … Next Page »

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As the time draws near for the annual J.P. Morgan Global Healthcare Conference in San Francisco, it seems as if there has been a surge in deals for local life sciences companies. Here’s our rundown:

—Biogen Idec (NASDAQ: BIIB) agreed to pay Carlsbad, CA-based Isis Pharmaceuticals (NASDAQ: ISIS) $29 million, with the potential for more payments down the road as part of a new drug development partnership. Biogen and Isis agreed to collaborate to advance an experimental drug that Isis has identified for treating spinal muscular atrophy, a rare genetic disease that causes severe muscle atrophy and weakness in newborns. The deal could eventually be worth as much as $299 million for Isis.

—Denmark’s Novo Ventures led a $30 million Series B financing for San Diego-based Elevation Pharmaceuticals to fund development of an aerosol therapy Elevation has been developing for patients living with chronic obstructive pulmonary disease (COPD). Heath Lukatch, a San Francisco-based partner of Novo Ventures told me the funding should be enough to carry development of Elevation Pharmaceutical’s aerosolized bronchodilator drug to the threshold of final-stage trials.

—San Diego-based Santarus (NASDAQ: SNTS) asked the FDA to approve its new drug application for budesonide (Uceris), an oral tablet it has been developing with Italy’s Cosmo Technologies for treating mild cases of ulcerative colitis. If the FDA accepts the new drug application for review, Santarus says it has agreed to make a $4 million milestone payment to Cosmo. Ulcerative colitis is a form of inflammatory bowel disease that causes painful inflammation and ulcers inside the colon.

—Proacta, a San Diego-based cancer-drug developer has raised $500,000 toward a $3 million round of financing, according to VentureWire. The biotech was founded at least six years ago to advance a new group of anti-cancer molecules that are active in hypoxic tissue, which were identified by researchers at New Zealand’s University of Auckland and Stanford University. The company says it has raised $43 million through two private financings, and its investors include Alta Partners, Clarus Ventures, Delphi Ventures, Endeavour Capital (New Zealand), GBS Venture Partners (Australia), Genentech, No 8 Ventures (New Zealand) and Roche.

—San Diego-based Afraxis, which is developing drugs to treat Fragile X syndrome and autism, secured $300,000 toward a $2 million round of debt, rights and securities, according to a recent regulatory filing. The startup is pursuing a … Next Page »

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