As big pharma binges on biotechs to feed anemic pipelines, at least one major player isn't getting indigestion.Wyeth has been in the biotech game for more than a quarter-century, and while it makes up only a small slice of the company's headcount, biologics now account for more than a third of total revenues, with Enbrel bringing in $1.4 billion and Prevnar $1.9 billion last year. While Wyeth made its big biotech acquisitions early, picking up Genetics Institute and American Cyanamid in the early '90s, having a big biotech business is hardly unique among big pharma these days. Roche boasts Genentech, along with a host of smaller and more recent acquisitions, while Johnson & Johnson has two biotech companies—Ortho Biotech and Centocor. Lilly has Icos, Novartis has Chiron, Merck KGaA has Serono and so on. But where other pharmas have broken out their biotech divisions, Wyeth is trying something different, integrating its biologics operations into a unified, multi-platform machine built around disease targets rather than ways of getting there.
“We spent an awful lot of time debating early on whether or not the biotech division should be a separate company like Genentech, a standalone group or integrated into the whole company,” says Cavan Redmond, EVP and general manager at Wyeth BioPharma. “We decided it should be integrated to try and take the best of pharmaceutical, vaccine and biotech, and share the technology and processes and innovation across the three to give us a competitive advantage. This is where the future is really going to be.”
This three-pronged assault on a disease state is already producing promising fruits for Wyeth in the areas of oncology (the firm just launched Toricel for renal cell cancer) and Alzheimer's research.
“Biotech has a way of going after a target, small molecule has another way and vaccines has a third way,” says Redmond. “So in Alzheimer's, we know there's a potential that amyloid plaques may play a role. You can take a small molecule approach, a vaccine approach or a biotech approach. Our approach was to say, What if we want to take any of those platforms with the goal of eliminating or reducing or creating a status quo against amyloid plaque, and that has allowed us to have multiple products in the discovery and clinical development areas in order to attack Alzheimer's. So if one approach fails— say small molecule—I've still got my vaccine and my biotech. You're getting more leverage out of the basic science by using three platforms in an integrated framework, with the scientists working side-by-side in a single team.”
Wyeth's reasoning, in large measure, boils down to scale. Biotech, Redmond notes, is a young science, with most of its promise ahead of it. But the scale required to research, develop, commercialize and finance biologics is enormous. “Biotech is a radically different business than small molecule,” he says. “It requires a different set of risks and a different set of investments along the way. In an R&D meeting, we'll spend as much time on the manufacturing side as on the clinical side, because in a manufacturing process, historically, you could spend anywhere from a million to $20 million to make your clinical batches.”
The cost of manufacturing biologics is forbidding in part because production typically requires new facilities, often purpose-built for a particular biologic. To get out in front of those costs, Wyeth has poured $3 billion into building facilities over the past six years with the goal of having the capacity to work on as many protein-based products as can make it through the pipeline without building new digs to house them. “We wanted to replace stainless steel with science,” he says, “to use the scientific innovation in manufacturing to replace capital investment.”
Wyeth may be the biggest spender on manufacturing in recent years, but it's hardly the only company to splash out on facilities. Bristol-Myers Squibb is spending $750 million on manufacturing in Massachusetts, while Abbott announced it would build a $450 million complex in Puerto Rico, and Lilly, which has vowed to develop its in-house biologics capability, is building a $560 million facility at its Indianapolis home.
In addition to its $2.5 billion manufacturing plant in Grange Castle, Ireland, Wyeth has also built a 1.2 million-square-foot biotech R&D campus in Andover, MA, that can house six to 10 proteins at any time. “Our goal is to manufacture proteins, whether for the clinic or for commercial purposes, at the same cost as a modern pharma product,” says Redmond, “and through the science, we think we're going to get there.”
Risks and returns
It's a crucial hurdle at a time when manufacturing proteins for the clinic alone can set companies back $20 million, while the costs and risks involved in manufacturing even a traditional chemical compound can frequently exceed $1 billion. “The scientific risk for innovative biologics is even higher than for small molecule products, which use mechanisms of action that are well understood,” says Murray Aitken, senior vice president, healthcare insight at IMS Health.
The returns on a successful biologic, of course, can be enormous. Amgen sold $5 billion worth of the world's best-selling biologic, Aranesp for anemia, in 2006. Enbrel, on which Wyeth partners with Amgen, racked up global sales of $4.9 billion, while J&J and Schering-Plough saw $3.8 billion in Remicade sales.
With thousands of biologics in development, the $70 billion field has nowhere to go but up. However, the value of individual products could soon hit some barriers to growth, as pricing becomes an issue, even for innovative, first-in-class products.
“Pricing is receiving more scrutiny than it has in the past, as some of these products have potentially more extensive usage than niche products, where per-patient cost wasn't that critical,” says IMS Health's Aitken. “We may have seen a peak in terms of per-patient costs, and we're definitely seeing more evidence of patient assistance programs and other means by which manufacturers limit costs.”
And biologics makers are beginning to see competition from other biotech products in the same category, particularly in some increasingly-crowded areas of oncology and immunotherapy.
“It will be a much more competitive environment than you've had in the past,” says Aitken, citing the proliferation of anti-TNF products like Enbrel, Humira and Remicade.
Proteins go global, makers team up
Biotechs have scarcely begun to exploit international markets. Global expansion presents enormous opportunity—and challenges—to the industry. “Products remain very skewed toward usage in the US, and that remains a significant opportunity that will be a benefit to patients in other countries,” says Aitken.
“Traditionally in biotech, most companies have carved out a region of the world in which to work,” says Wyeth's Redmond. “Some work well in the US, or some did Europe and some did Japan, but it was a rare company that was able to do the R&D work, get drugs registered and commercialize them on a global basis.” That's where having a global pharma company comes in handy. Wyeth, Redmond notes, won two approvals of biologics in notoriously tricky Japan within the same year —for Enbrel, on which it partnered with Takeda, and chemo agent Mylotarg for acute myeloid leukemia.
Partnerships have served Wyeth well with Enbrel. “Amgen is able to see the market differently,” says Redmond. “They have a very strong heritage in a lot of specialty markets. We had a lot of hospital and other experience we could bring to it.
Cross-platform partnerships have also helped the company bring its products to market. In the early '90s, when Wyeth was working on commercializing rhBMP-2, the firm faced a choice: to pour resources into developing a device capable of delivering the protein in-house, or to partner with a device maker. They ended up making a deal with Medtronic Sofamor Danek, which had expertise in spinal implants, and in 2002, launched the INFUSE Bone Graft in the US. The product brought in $308 million in revenue for Wyeth last year.
“That was taking advantage of our science and their commercial understanding of the field,” says Redmond. “It's created a tremendous breakthrough—it's one of the largest products in the field.”
Last year, the company partnered with start-up Trubion Pharmaceuticals to develop Trubion's Small Modular Immunopharmaceutical platform, including a compound in Phase II clinical trials for rheumatoid arthritis. Wyeth paid $40 million up front for the rights, assuming future development and commercialization costs, while Trubion retains co-promotion rights for some indications and a package of milestone payments, royalties and a stock purchase on IPO.
“They realized they wanted somebody that had process development,” says Redmond. “They had what we considered to be the second generation monoclonal antibody. Instead of trying to become a full-fledged pharma or biotech company with all the commercial arms right away, we took a look at what would be beneficial to them and us in the long term if one of those proteins actually made it through, and how to let them grow as an independent company.”
Partnerships could become still more attractive to pharmas as the number of acquisition targets dwindles and larger companies size up products in earlier stages of development. For the time being, the acquisitions spree continues unabated. Already this year, AstraZeneca plunked down $15.6 billion for MedImmune, while Roche mounted a $3 billion hostile takeover bid for Ventana Medical Systems.
“Large pharma is aggressive as ever in looking for acquisitions and licensing opportunities that will help supplement their internal R&D pipeline,” said Aitken. “They're willing to place earlier bets and pay more for access to promising innovation from biotechs, and they need to be willing to assume more risk than they might have in the past, because the earlier the stage of clinical development, the higher the risk. The days of licensing a strong Phase III product are over.”
The buyouts increase the pressure on the remaining independents, says Jeff Sweeney, president of Regan Campbell Ward • McCann West. “You've got the really small guys that are doing everything they can to stay afloat, just hoping their baby lives to see the light of day, and then you've got the ones in the middle, just coming of age. They're the ones experiencing most of the growing pains. They've got a lot of issues that pharma has figured out, like how to work efficiently and field a sales force and conduct a promotional review committee efficiently without being ultraconservative.”
“A biotech, in order to be successful, is going to have to have partnerships with larger companies or other areas that have the financial resources to fund it,” says Redmond. “The public markets are a little thin right now in terms of opportunities for funding.”
But partnerships, says Redmond, can only take you so far. Wyeth boasts that just half of the 22 candidates in its biologics pipeline came through in-licensing, while fully half were discovered and developed in-house. An integrated approach is the cause, he says.
“Our researchers have always asked, could you take the same process approach that chemical manufacturing does, which is to take a look at high through-put screening or ways of looking at screens and apply them to the protein area? And that's one of the advantages we think we have.”
SIDEBAR: Personalized medicine: this will be in the test
The FDA trumpeted its August label change on warfarin, advising that genetic factors could impact the drug's effectiveness and should be tested for, as the dawning of the era of personalized medicine.
“This means [it] is no longer an abstract concept but has moved into the mainstream, where it is recommended as a factor in a drug used by millions of people every day,” said Dr. Larry Lesko, director of the office of clinical pharmacology at CDER. The political message was clear: See? We're making progress on our Critical Path initiative!
But beyond the politics of biomarkerhe field of genetics-based diagnostics is exploding, as evidenced by last month's announcement by Celera of its planned $195 million purchase of Berkeley HeartLab, which offers genetic diagnostics and disease management services for patients with cardiovascular diseases. The projected value of genetic diagnostics has been placed at $3-$5 billion in the next few years, such consolidation seems inevitable.
SIDEBAR #2: Biosimilars: one of these things is not like the other
With Congress set to codify the rules on biosimilars, biologics manufacturers are sweating.
In the House, a bill fashioned by Rep. Henry Waxman has sputtered, but legislation currently moving through the Senate, though a vast improvement, has major blemishes. The Biologics Price Competition and Innovation Act of 2007, or S. 1695, would leave biologics with less patent protection than chemical compounds and leave doctors out of the loop when biosimilars are substituted for innovator drugs at the pharmacy.
“Because a follow-on biologic is never going to be exactly the same, we think it's necessary that doctors remain involved and know exactly which biologic their patients are going to get,” says Sandi Dennis, deputy general counsel for healthcare regulatory affairs at the Biotechnology Industry Organization (BIO). Biologics are more compli-cated than traditional small molecule drugs, and biosimilars, unlike generic drugs, are not exact copies of existing products but new ones requiring a much more rigorous testing regimen. This makes them even more expensive and risky to develop and manufacture than chemical compounds, so any constraints on the incentive to produce them could impact innovation, BIO says. The bill, sponsored by Sens. Kennedy (left), Clinton, Hatch and Enzi would allow biologics 12 years of exclusivity where small molecule compounds get an average 15.5 years.