The Stalwart

Derek Lowe On Takeda

Old friend Derek Lowe offers some thoughts on last week's buyout offer for Millenium Pharmaceuticals from Japan's Takeda. Worth a read, if that's your bag. Also, some good stuff on the dead industry once known as inhalable insulin.

Long -- long -- time readers of The 'Wart may remember us flagging some early warning signs.

Pills For Gamers

Here's something to wash down with your Red Bull:

Gaming addicts with sore eyes and tired brains may be able to perk up with "Game Suppli", a new Japanese supplement developed specifically for the country's thousands of fanatic players.

Pricing Art Auctions

Felix Salmon has a good post up on the "idiocy" of the way certain news orgs, in this case Bloomberg, report on art auctions. His point of contention is that Bloomberg decided to post the price of a certain work of art ex-auction house fees. So while Sotheby's announced that a certain item had sold for $7.15 million, Bloomberg reported it as $6.2 million, because they decided to strip out Sotheby's commission. They actually did the math wrong -- it should have been $6.5 million -- but that's not even the real idiotic part. The idiotic part is thinking the commission doesn't matter.

The key fact is that a buyer was willing to pay $7.15 million. Imagine a fee-less art auction, would the piece then have gone for just $6.5 million? Probably not, because the buyer doesn't care how much of their bill goes to the seller and how much goes to the house.

It's similar to the situation with gas taxes. You don't quote the cost of gas ex-taxes, or for that matter, you don't quote the cost of a gallon of gas ex-the amount that the gas station receives. All those things are part of the cost of gas, and the fact that people are willing to pay $3.50 for a gallon of gas is just that. If people weren't willing to pay that much, the price would come down.

Yes, I Support The Vytorin Investigation

The big news in pharmaceutical marketing this week is the fact that Congress is set to investigate the advertising for the drug Vytorin on the grounds that it's misleading. You might think -- shameless corporate apologist that I am -- that I'd be shocked and appalled by this blatant abuse of Congressional power. Note, in fact it's just the opposite.

First of all, you know the ads right? They're the ones that explain how there are two sources of cholesterol: food and family. So they offer some amusing images of people that look like food, along with clever lines like, "You don't just cholesterol from eating beef Wellington, you also get it from your grandfather... Wellington." etc. That's fine, except when they have lines like this "You don't just get cholesterol from eating a ballpark frank, you get it from your uncle... Frank."

Um, What!?

Unless my understand of genetics and heretibility is totally wrong, there is no way -- repeat: no way -- to inherent a gene from your uncle, barring some sort of weird familial relationships. Now obviously, you can manifest a gene inherited from your grandfather that's also displayed by your uncle (Frank), but that's a totally different thing.

So yeah, I'm not shocked that these commercials are now being investigated. Of course, the real harm is the damage these spots are doing to our national understanding of genetics.

No Moore's Law For Medicine? No Linux For Drugs?

Saw a very interesting post this week over at  VentureBeat Life Sciences taking Intel Chairman Andy Grove to task for his views on medicine and the pharmaceutical industry. Grove's view is that medicine should be like semiconductors and that the only reason it's not is that the industry isn't trying hard enough:

Is Grove really under the impression that pharma and biotech executives spend their days sitting around twiddling their thumbs and inventing new roadblocks to toss in the path of life-saving therapies? Or that drug companies aren’t eager to take apart clinical-trial results in order to salvage some shred of success from failure?

The fact, of course, is that chip development and drug development are so different that you have to take great care with direct comparisons lest your argument collapse in a ludicrous mess, and there’s no evidence that Grove has taken that sort of care here. Semiconductors are based on well-understood principles of solid-state and quantum physics a century or more old, whereas our fundamental knowledge of human biology is still in its infancy, notwithstanding the advances of the past several decades. Engineers know more about how even the most complex Intel CPU works than anyone does about how biochemical signals direct the activity of individual cells — much less tissues, organs, or, God forbid, networks as complex as the immune or central nervous systems.

Chips can be improved by tinkering, whereas the same is rarely true of a drug, since even minor changes can cause toxic side effects. (A commenter at Derek Lowe’s blog In the Pipeline likens drug discovery to writing software for a buggy operating system — only you can’t test your code on the OS until the very end, and can never, ever let it crash.)

The software/pharma comparison has actually occurred to me before, but from the opposite perspective. It occurred to last year when reading this post on software bugs by Vinnie Mirchandani. Basically, as a software package goes through successive iterations, it becomes buggier. It's not just Microsoft either. At every incumbent software vendor, development cost and times continue to spiral, while the number of bugs only proliferates. When I read that post, it struck me as being similar to what's going on right now at any big pharmaceutical maker.

There is a countervailing force in software, which is based on some combination of on-demand, lightweight or open source,. Though none of this is a panacea, all this stuff, I think, puts us back on the right direction. I'm not sure, though, what an open source pharma would look like. It's a great idea, in theory, but obviously the software business and the drug business aren't the same. Anyone can think of a million reasons why the Linux model wouldn't work for drugs, particularly given modern regulatory structure.

Congrats to Derek Lowe

No, not that Derek Lowe.

The Derek Lowe that writes the excellent pharma blog, In The Pipeline, had been looking for work since January, when he was laid off from his job at the "Wonder Drug Factory" as he called it -- presumably a major pharmaceutical maker, though I'm not sure he ever indicated which one it was.  Well, the good news is that he's found a research position in Boston somewhere.  Hopefully, he'll still have plenty of time to blog.

Here's his latest take on Avandia.

Poison From China

I've been thinking for some time that all of this allegedly poisonous pet food coming from China could could instigate fresh protectionism as our politicians erect shrouded trade barriers in a bid to "keep us safe".  Can't wait for the Protecting our Pets from Poison Act of 2007, which will probably contain all kinds of clauses and riders that do a lot more than the title would suggest.   Meanwhile, stories about poisoned generic pharmaceuticals from China will only make things worse:

The syrupy poison, diethylene glycol, is an indispensable part of the modern world, an industrial solvent and prime ingredient in some antifreeze. It is also a killer. And the deaths, if not intentional, are often no accident. Over the years, the poison has been loaded into all varieties of medicine — cough syrup, fever medication, injectable drugs — a result of counterfeiters who profit by substituting the sweet-tasting solvent for a safe, more expensive syrup, usually glycerin, commonly used in drugs, food, toothpaste and other products.

Toxic syrup has figured in at least eight mass poisonings around the world in the past two decades. Researchers estimate that thousands have died. In many cases, the precise origin of the poison has never been determined. But records and interviews show that in three of the last four cases it was made in China, a major source of counterfeit drugs.

Interesting too, that in both the pet food and the pharmaceutical makers, the low-cost distributors still need to resort to substitutions in order to keep their prices in line.

Trading Drug Trials

Found via a July article from Dealbreaker, we're given an excerpt from ex-hedge fund manager Andy Kessler's new book The End of Medecine. Its gives some quick insight into how one might trade drug trials for pharmaceutical companies.

I was eavesdropping on two guys I recognized from the past. One guy used to run some tech money, I think I remember him getting blown out in 2000 for being long and wrong. But he’s obviously still in the business. I strained to read his name tag, without luck. The other guy was a classic popcorn hedgie. Always showing up where the action in, figuring out some angle and trading rapid fire looking for returns.

“For me, it’s just one thing.”

“Market size?”

“Nope, these are all billion dollar markets.”

“Management?”

“Nope, they’re all trying to hit fish with a baseball bat.”

“True. So what is it? Balance sheet? Partners? Their logo?”

“You just play the trials. I don’t give a shit what drug it is, it almost always works the same way.”

“Get out of here.”

“No, check it out. Preclinical is bullshit, you could get gum off the sidewalk to reduce tumor size in rats. So what? Even Phase 1 is a load. They are mostly bent around to get decent enough results so you can get to Phase 2. I’ve tried to time Phase 1 announcements, but no dice. You always wait until you are about a third of the way into Phase 2, then you buy the shit out the stock."

“C’mon.”
“It works. The first few press releases are almost guaranteed to be positive. Companies will do anything to get their stock up before the final results hit. Phase 3 is just so damn expensive, they want to sell stock or converts or something so they don’t have to give the damn drug away to big pharma.”

“OK.”

“Look, the stock almost always pops. I usually sell into it, unless the press release is blow-away efficacy numbers, then you can stick around. But not forever.”

“No?”

“Hell no, you almost always sell right before the Phase 2 trial is over. Everyone figures it’s gonna work, so the stock goes up until the day of the announcement. It almost always gets whacked when they announce the real results, people already know. The doctors have been trading the stock ahead of you and dump it on the news.”

“That’s it?”

“I sometimes do Phase 3, but that’s harder. Even if something works, the costs kill you. The stocks going
down.”

“But it pops on the news at the end of Phase 3.”

“Sometimes. Not always. You can get killed if the trial fails.”

“Can’t you play that?”

“Nah. I don’t like to gamble. Not even in Vegas.”

Well at least sounds plausible. We'll let others take it from there.

Looking Back On Drug Predictions

Everyone who's ever analyzed a drug stock has probably put together an Excel spreadsheet, made a list of existing drugs on the market (for a given company) and added in a few from the pipeline, followed by some predictions about sales for each one.  If you're lazy, you can just enter in a growth rate. and then drag and drop the formula across a few columns, but really, that's just lazy.  Unfortunately, it's really hard to predict the future.  Derek Lowe takes a look back:

Looking through my files, I found a chart which I clipped out of Genetic Engineering News back in late 2004 or so. It's a table of expected drug launches and sales potentials, based on data from Mehta Partners (a well-known and often-quoted pharmaceutical-sector investment and consulting firm).

Now that we're in the last quarter of 2006, this little document has gone from looking hopeful to looking downright creepy. The Y axis is sales potential, divided into eight tiers, and the X axis is a timeline, quarter-by-quarter. Let's take it from the upper left corner and look at the expected big winners from 2005 and 2006:

Macugen: Expected launch 1Q 05, sales potential 1.25 to 1.5 billion. The reality: the launch went off pretty much as expected, but the sales, well. . .they're running at about 10% of that peak estimate. OSI bought the drug's developer, Eyetech, and people wondered at the time what they were thinking. Maybe they're wondering now, too. . .

Indiplon: Expected launch 4Q 05, sales potential 1.25 to 1.5 billion. The reality: oh, dear. Neurocrine is trying to go it alone until they find a new partner, and they're still in there pitching, but this has been a real development disaster.

Let's pause a moment to note that both of these were printed in green type, which the chart helpfully informs us were considered "low risk" at the time.

Kinda makes your drag 'n' drop method for extrapolating drug sales look pretty good.

Dude, Let's Totally Arbitrage This Dank

I'm fascinated by pricing on illicit substances.  Earlier I wondered whether commodities, like marijuana went up and down with general inflation.  Chris Dillow points to a fascinating study:

The law of one price doesn't apply - at least for cannabis.  According to this survey (pdf), cannabis resin costs twice as much in Manchester as in Liverpool. Which raises the question: why isn't there arbitrage?  Why don't traders buy blow from Scousers, drive 35 miles, and sell it to Mancs?

Dillow offers a few possible theories including:

2. Quality differences. Maybe the good is better quality in Manchester.

Perhaps.  In college, people we knew had all kinds of theories about where the best stuff was grown.  Oddly, most of their reasons were totally contradictory (that place is great, cause it's really cold in the summer... the heat makes for great stuff... you get the point).

Hey, no wonder George Soros is such an advocate of drug decriminalization.