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by Cynthia Robbins-Roth, Ph.D.
Still Turning: Racial Profiling, Harassment, VC Execs Get Hip
By Cynthia Robbins-Roth
BioWorld Today Columnist
Welcome back to the summer snippets of As BioWorld Turns. While many innocent bystanders think that the biopharma biz is way too technical and stodgy, the sector spent the early summer getting into trouble and generating lots of plotlines for that TV series we plan to pitch to the SciFi channel. A sampling follows:
- Earlier this summer, Chiron Corp. had an employment discrimination suit reinstated against it by a California appeals court. The suit was brought by a Jewish employee claiming to have been harassed, demoted and eventually forced to quit by a Christian boss who took umbrage with her religious beliefs. Complaints to higher-ups were not helpful, said the plaintiff.
While we often focus on hot topics like drug pricing, SOX and public market valuations, we keep getting reminded that biotech is not immune to all those problems afflicting companies in every industry.
- Schering-Plough Corp. found itself in the spotlight when a hepatitis patient advocacy group accused the company of unfairly excluding patients identifying themselves as African-Americans from Phase II testing of a new protease inhibitor to skew the data and speed approval. The company spokesman answering that challenge: Cecil Pickett, then president of the Research Institute at Schering-Plough and one of the very few blacks to reach senior executive levels in the industry. (Pickett now is president of research & development at Biogen Idec Inc.)
The reasoning behind the company's trial design includes the observed poor response rate of blacks to interferon drugs, typically part of the current hepatitis C treatment. Pickett pointed out that the combination of a new drug with low doses of interferon (part of the trial design) could generate mutations in the virus and make it resistant to future treatments.
Pharmacogenomics and personalized medicine demand that we count a patient's individual genetic background heavily in treatment design. Social justice advocates worry that can become an excuse to avoid treating certain members of society. Some folks actively are trying to prevent scientists from even studying racial or gender differences in a range of medical settings.
Other biopharma companies have found themselves in the interesting position of finding a balance between social justice concerns and hard-core scientific issues. It will be a growing challenge for the industry. (Maybe this is what Sloning meant by white biotechnology?)
- In an interesting role-switch, India is accusing the U.S. drug industry of infringing its national medical intellectual property. India officials claim that 400 of the 5,000 U.S. patents on medicinal plants are based on Indian traditional ayurvedic medicine. The government is creating a database of traditional medicines for patent officers to peruse while looking for prior art. Other nations are planning to follow India's model.
- Jean-Pierre Garnier, GlaxoSmithKline's CEO, must be keeping his PR folks chugging Maalox. Over the past several months, Garnier has made some entertaining comments about his hopes for the company and suggestions for how to handle sky-high drug prices.
Earlier this year at an investor meeting, Garnier declared that it was time for the governments of all industrialized nations to require taxpayers to pick up the drug cost slack. While discussing the upcoming new GSK drugs with $1 billion in annual sales potentials, he was concerned that governments are forcing drug prices down because they don't have enough money to pay.
Garnier said that charging a co-pay for treatment would help eliminate waste, as people will think twice before using health care. It's hard to see how that approach could work, especially in a setting like the extreme pricing of today's cancer drugs. Getting patients to avoid treatment doesn't seem like a good idea.
Garnier, of course, is not the only biopharma insider to look outside the industry for answers to pricing problems. At last November's BIO-Europe conference, BIO's Jim Greenwood called for drug prices to rise in Europe, thus allowing them to fall in the U.S. Hmmm, can you think of any examples in the drug world that would support this expectation?
Garnier continued his PR barrage by telling a reporter at The Independent of his desire to make GSK the Microsoft of the drug world. Given the view of Microsoft by any who have thrashed their way through the ever-expanding Word updates and cursed the Microsoft lock on PC operating systems, that might seem like a strange goal.
- I recently strayed from my usual adherence to baseball/Stargate/House MD TV viewing. While wandering through regular channels, I saw the current spate of No really, we are the good guys ads put out by big pharma. The emotional ads brought a tear to my eye with their glowing focus on today's drug prices paying for tomorrow's miracles.
It seems like a very expensive way to tell people something they already know. I have yet to meet anyone who does not believe that the biopharma industry is generating amazing, life-altering treatments. That's not your marketing problem.
Your marketing problem is that informal polls by BioVenture Consultants and associates show that the public believes that the biopharma companies are run by greedy executives whose humongous stock option packages and hefty pay are moving them ever further from living in the world the rest of us inhabit.
You don't need to educate folks about the cost and risk and difficulties of discovering and developing new drugs. The tricky part is convincing them that you deserve unlimited upside in return.
- The Wall Street Journal recently ran a great piece titled How Venture Capital is Trying to Get Down With Young CEOs. It described venture firms trying to shed their fuddy-duddy images and ingratiate themselves with this younger generation by going to keg parties, taking entrepreneurs to hip-hop concerts, joining an Internet start-up bowling league and hiring under-30 associates to look cool and hang out with the new entrepreneurs.
Ok, admit it - you just had a mental image of Brook Byers and Sam Colella saggin' at a Bubba Sparxx concert. Does biotech have the crop of young entrepreneurs to lure our VCs into such behavior? Please share your way cool biotech VC sightings with me!
- After moaning about vulture capitalists and those really mean institutional investors, biotech CEOs should watch out for the newest group opening its pocketbook for the sector - private equity funds. While VCs extract tough terms and hefty management fees, The Wall Street Journal just gave pretty explicit information on behavior that I am amazed is even legal!
Though the public markets are nasty and that money might be tempting, you might want to look at the experience of Burger King, Warner Music, Dade Behring and other companies that went through a private equity acquisition. Burger King, reported WSJ, paid its acquirers $22.4 million in fees upon acquisition in 2002 - even though it was not generating any net cash. BK paid the group quarterly management fees that reached $29 million by this year (I just knew my consulting fees were too low). Three months before its May IPO, BK paid a $367 million dividend to the private equity investors on the basis that it had cash in excess of its needs and then borrowed money to make the payment. And just in case the firms hadn't gotten enough cash from the deal, BK paid them a $30 million management termination fee.
The private equity funds raked in $448 million in fees and dividends, plus the $1.8 billion value placed on their BK stock with the IPO. Not a bad take from a company that was unprofitable.
- In a great example of playing both sides, Novartis has juiced up its Sandoz Generic division to churn out biogenerics. Sandoz was first into the international market with its generic version of human growth hormone. Merck and Pfizer hit the news with plans to launch heavily discounted versions of their Zocor and Zoloft, which both lost patent protection recently. The idea is to beat generics firms at their own game.
Meanwhile, biogenerics firm BioPartners GmbH, created via acquisition of Merck Biopharmaceuticals, ran into exactly the problem predicted by biotech manufacturing experts. Its version of alfa-2 interferon was turned down by the European Medicines Agency over major concerns regarding comparability with Roferon-A, including impurities, stability and process validation.
- And finally: Biotech is making an impact in the world of fashion! The World Congress on Industrial Biotechnology and Bioprocessing in Toronto in mid-July included what had to be the first fashion show billed as part of an industry conference. Ensembles were included from designers Halston, Oscar de la Renta, Stephen Burrows, Heatherette and Elisa Jimenez - whose clients include Courtney Love, Cher and Parker Posey.
I see a whole new world of advertising opportunities opening up for biotech! Forget those boring, no really, we're good guys! ads in Good Housekeeping! Go for full-page, full-color fashion ads in W and Vogue! Fashion sells! And couture customers don't complain about high prices!
Have a great summer, and I'll see you in September.
-- August 1, 2006
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by Cynthia Robbins-Roth, Ph.D.