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Notes from the JPM19 Vortex: Price Apocalypse, Celgene Fallout & More

Xconomy National — 

[Editor’s note: Ben Fidler and Sarah de Crescenzo coauthored this report.] It is here, and then it is gone. But by the time everyone staggers to the airport or back home to sleep in their own beds, the annual few days of the J.P. Morgan Healthcare Conference and everything that mushrooms around it seem just as long as the holiday break—a distant memory!—that came just before.

In 2020 (yes, that’s really a year), San Francisco might have a new mayor. A new plan to help its chronic homeless population. A glimmer of hope to solve its income inequality and soaring housing costs. But it will still have J.P. Morgan week, centered around Union Square.

Until then, the tone for the year has been set. The issues have been defined. The receptions have been cocktailed. And Xconomy was there, conducting dozens of interviews that will play out in stories across the year. For now, we present what’s top of mind, a bit off the cuff but no less serious for it, what older generations of journalists liked to call a reporter’s notebook. Since 2015, we’ve liked to call it “Notes from the Vortex,” and now, four years on, we’re hitting publish just before we finally negotiate a decent night’s sleep.

ADIOS, CELGENE

Celgene (NASDAQ: CELG) has traditionally occupied the starting-gun slot at J.P. Morgan, the first big presentation Monday morning. It made perfect sense this year, because Bristol-Myers Squibb’s (NYSE: BMY) proposed $74 billion acquisition of Celgene could be the ne plus ultra in the current wave of drug industry consolidation that everyone expects to continue this year.

(Indeed, hours before the presentation, Eli Lilly (NYSE: LLY) said it would grab cancer drug maker Loxo Oncology (NASDAQ: LOXO) for $8 billion.)

Celgene CEO Mark Alles took the podium with Bristol CEO Giovanni Caforio and told the sea of attendees that the Bristol-Celgene combo (SquibbGene? BristolCel?) would create a “scientific powerhouse” and that “it’s the right deal, it’s the right time.”

Investors have had a week to digest the news. Celgene stock has settled into a holding pattern, up about a third from its pre-merger state, to $86.95 a share at Thursday’s close. Bristol-Myers’s share price has been choppier, currently down about 9 percent to $47.72.

Biotech executives and venture capitalists had mixed emotions. Many whom Xconomy interviewed this week hoped that the loss of Celgene would unlock talent, leaving veterans to join startups or form their own. George Golumbeski, the longtime Celgene dealmaker who left last year to become president of cancer diagnostic firm Grail, said it was sobering to see the big biotech ranks diminish. “These things are always bittersweet,” he told Xconomy.

Under Golumbeski and president of research & early development Tom Daniel, who left in 2016, Celgene amassed its pipeline through alliances that often left its smaller biotech partners in control of their own destiny. Will the new company still deal with partners creatively and flexibly?

“That’s a legitimate concern,” said Versant Ventures managing director Tom Woiwode, whose firm has done several transactions with Celgene. “Hopefully Bristol will recognize that the way Celgene got their hands on all of these assets is doing these creative transactions.”

Agios Pharmaceuticals (NASDAQ: AGIO), Acceleron Pharma (NASDAQ: XLRN), Bluebird Bio (NASDA: BLUE), BeiGene (NASDAQ: BGNE), Jounce Therapeutics (NASDAQ: JNCE), and many more are now on watch. The biggest risk comes to those whose drugs have “obvious overlaps” with Bristol’s existing pipeline, said Third Rock Ventures partner Abbie Celniker. Some of those could be Third Rock-backed companies, and Third Rock is evaluating what to do if Bristol ends those partnerships, Celniker said.

One of those companies is Jounce, whose lead drug JTX-2011 is designed to stimulate a patient’s cancer-killing T cells by latching on to a protein called ICOS. (Observers were not impressed with an update last year at ASCO, and Jounce shares have not recovered.)

In 2016, Celgene paid $225 million upfront for opt-in rights to JTX-2011 and more; it has yet to exercise them. Bristol has its own ICOS program, not quite as advanced as JTX-2011. CEO Richard Murray characterized the decision essentially as a yes or no from Bristol, if the merger goes through. “It’s nonmaterial to us at the moment because Celgene paid us upfront.”

SYNERGY WATCH

We asked investor Brad Loncar, who runs a fund dedicated to the immuno-oncology space, about the post-merger fallout. He focused in part on the $2.5 billion in “synergies” (read: programs to cut, people to lay off) that Celgene and Bristol highlighted in their pitch. While some big-cap biotechs have fine-tuned their R&D engines like Teslas, Celgene, relying on price hikes for its multiple myeloma treatment lenalidomide (Revlimid), “is like an old 1970s Buick,” Loncar said. (Never mind that some people would kill for one of these.)

Loncar’s prediction: Celgene’s $10 billion bet on Seattle’s Juno Therapeutics is going to blow up and “be worth zero one day.” CAR-T cell therapy, where Juno has fallen behind rivals Kite Pharma (now part of Gilead Sciences) and Novartis, is proving to be complicated business, as Xconomy explained last week. Even if Juno shows that its still-experimental lymphoma CAR-T is better than the approved products from Gilead and Novartis, the logistics of the treatment, which requires weeks to produce, special onsite training, and safety precautions, could make it hard for hospitals to switch. That’s the near-term danger.

Longer-term, all the first-generation CAR-T players are at risk of getting lapped by newer technology. If other developers figure out how to make allogeneic cell therapies from pools of healthy donors—a big if—they will deliver treatments faster and more cheaply. Loncar made another prediction: That his Juno prediction would be controversial.

YEAR OF THE FEMALE EXECUTIVE?

Three years ago at J.P. Morgan, the life-science industry’s gender gap was exposed in ugly fashion. A now-notorious cocktail party sparked not just anger but action, including a new women’s mentoring network, and penance on the part of the party’s sponsor, now deeply involved in recruiting women for biotech boards—no easy task, thanks to the systematic imbalance perpetuated by venture capitalists.

California recently mandated that its public companies have at least one woman on their boards by the end of 2019, boosting the debate about the need for quotas. Legal challenges haven’t surfaced yet, but life-science executives aren’t waiting around, recruiter Robin Toft told Xconomy this week. She’s calling 2019 “the year of the female executive.”

“A lot of people are not aligned with the fact it had to be legislated, but at the same time appreciative that it’s the only way it’s really going to change,” said Toft.

For the last 12 years, Toft’s firm, the San Diego, CA-based Toft Group, has tried to help; 40 percent of its 2018 recruits were female. Historically, biopharma companies have filled their boards with people their top executives already know: middle-aged white men. But things are changing, Toft said. “I have people at public companies coming up to me saying, ‘I’m very embarrassed that my entire board is white men, and I have to change this immediately.'”

Studies continue to reinforce the financial and cultural advantages of a more diverse workforce, and Toft, who is moving headquarters to South San Francisco, is hopeful that this realization will finally pay off for aspiring female executives. “These women are amazing, they just lack confidence to compete or are not plugged into the right networks. They are going to shine if given the opportunity to interview. But if you’re never given the opportunity, you won’t win the job.”

ONE-CHEEK SNEAK

Outrageous prices were all the talk this week, amplified by Stat’s preview piece that described how the biopharma world comes to town every year, despite the litany of San Francisco’s ills. Hey, the world gets to complain about life-saving drugs that parents can’t afford for their kids. Drug companies get to complain about $170 gallons of coffee. Seems fair.

The shameless gouging did seem more egregious this year. Adaptimmune (NASDAQ: ADAP) CEO James Noble said his firm’s $1,000-a-night rented room, at a hotel known for its rock-and-roll memorabilia, smelled like it hadn’t been aired out in many weeks—a suspicion confirmed, he said, when a handyman mentioned that the room was on his list of fixer-uppers.

More examples: A bar-and-grill joint called Jasper’s imposed a 1.5 hour limit on tables; anything more would rack up a $50 charge per half hour. Hotels like the JW Marriott and Nikko turned their posh lobbies into rented affairs. A few minutes early for a meeting at the Nikko one morning, we went looking for a place to type out a few sentences on our laptops. The chairs were roped off at $30 an hour. So we opted for a very cheap staircase, all the while waiting for a tap on the shoulder. Any minute, we feared, we could get a warning that we were running up a tab of $5 per 15 minutes. Just in case, we were careful to sit on only one cheek, figuring we could argue for a 50 percent discount.

WORDS MATTER

At J.P. Morgan presentations, every word you say—or don’t say—matters.

During his Monday talk, Sarepta Therapeutics (NASDAQ: SRPT) CEO Doug Ingram said his company had FDA permission to start a pivotal, placebo-controlled study of its experimental gene therapy for Duchenne muscular dystrophy. That’s big news. Sarepta’s gene therapy is the furthest along of three such treatments.

But Ingram said something else, too: Sarepta must also run a separate study to test the gene therapy in much larger batches as if it were a commercial product. To make an approval decision, the FDA wants to see that the therapy manufactured at a different scale—a tricky proposition with biological products—is as safe and effective as the therapy being produced in small batches for clinical trials.

Ingram wasn’t clear whether the second trial represented a delay, but that’s how investors interpreted it. Shares promptly fell 9 percent amid concerns that Sarepta could lose its lead over rivals Pfizer (NYSE: PFE) and Solid Biosciences (NASDAQ: SLDB).

Ingram was perplexed. “It’s all very positive,” he told Xconomy in an interview later that day. Instead of having to run one study after the other, as Sarepta first expected, the FDA will let the company run the studies in parallel. While the commercial-scale study might run longer, Ingram says Sarepta can potentially launch the product by the end of 2020 if all goes well. What’s more, Ingram claims Sarepta can’t be leapfrogged by someone else looking for a short cut.

“Before the FDA meeting we were very confident we were in the lead,” he said. “After the meeting, that’s in concrete.”

So… the program hasn’t been set back in any way? “It’s on the same track that it was,” said Ingram, who then paused, turned to Ian Estepan, head of investor relations, shook his head and added, “I really wish I had said this at the meeting…I know, shut up.”

ALNYLAM CEO: TRUMP A “DISASTER”

Remember “getting away with murder“? And hints about Medicare “bidding”? Then president-elect, Donald Trump slammed the drug industry in his first press conference two years ago, sending chills through the 2017 J.P. Morgan gathering. (“Trump pandemonium just hit stocks,” one prominent investor told Xconomy, begging out of a meeting.)

Two years later, it’s well established that the administration has done little to nothing to hamstring the industry, even with its 2018 proposal of an international index to control drug prices. If anything, drug makers keep benefiting. Many raised prices again to ring in 2019.

The Trump administration has been good for biopharma, right? Wrong, said Alnylam Pharmaceuticals NASDAQ: ALNY) CEO John Maraganore, who is also the chair of the powerful biotech lobbying group BIO. (He said his thoughts were his own, not the official position of BIO.)

Sure, there are positives, he said. Corporate tax reform has freed up cash for drug makers. The economy keeps humming. And under Trump’s FDA commissioner Scott Gottlieb, the agency has continued a brisk pace of drug approvals that began in the second half of the Obama administration.

But for Maraganore, the positives are far outweighed by constant uncertainty. Trade problems with China. Volatile markets. Populism. Anti-immigrant stances. Complete “chaos” surrounding the drug pricing debate. “We went from a blueprint in the summer that had a comprehensive list of things to, right before the election, ‘Oh, [here’s an] international pricing index,’ which wasn’t even in the blueprint,” Maraganore said, throwing his hands up. “What sort of approach is that?”

Alnylam itself is having problems hiring qualified foreign candidates because of current immigration restrictions. Maraganore is also worried that his current employees from foreign countries “don’t know if they can feel comfortable in this country.” On the financial side, Maraganore says the self-inflicted market volatility adds more burden to drug makers like Alnylam. The firm just won FDA approval of its first product but won’t see a profit for a few years and must continue to raise cash by selling equity.

“This has been a disaster administration for this industry,” says Maraganore, “and I can’t wait until it changes.”

YANCOPOULOS AND THE INNOVATION APOCALYPSE

What a difference a year makes. Or two. At #JPM17 (was it even a hashtag?), drug executives were all a-fluster with mea culpas about pricing. Allergan (NYSE: AGN) CEO Brent Saunders led the way, telling Xconomy that his industry peers were missing a “common-sense gene” about the optics of high prices. Biogen’s (NASDAQ: BIIB) $750,000 initial price for the newly approved nusinersen (Spinraza) was sticking most notably in Saunders’s newly-bearded craw.

Around the same time, Regeneron Pharmaceuticals (NASDAQ: REGN) CEO Leonard Schleifer lambasted his peers for high prices.

This year, another Regeneron founder was in no mood for in-fighting, let alone self-reflection. Just the mention of the phrase “drug pricing” sparked a heated response from Regeneron’s president and chief scientific officer, George Yancopoulos. Prices and, in turn, the value society places on biomedical innovation are “the most important thing not just for the drug industry but for the future of society and mankind.”

But wait, there’s more. “The little pricing discussions that people are worried about now are so freaking short-sighted that it drives me crazy. Society won’t be able to deal with the future challenges of impending disease”—he cited the tens of millions of people slated to have Alzheimer’s in coming decades—“unless we increase the rate and incentives of innovation. People’s lives are at stake. We could kill the future of mankind.”

Wait a moment, we asked. Aren’t people’s lives at stake now because they can’t afford healthcare, with drug prices being one component of those spiraling costs? “I’m not saying that current costs and access aren’t important,” answered Yancopoulos. “But it’s a rounding error in terms of future challenges that society faces. It’s penny-wise and dollar-foolish.”

INCOMING: DRUG-PRICE TSUNAMI

Elsewhere, a top drug executive surveyed the political scene and said price interventions, like it or not, were inevitable. “The champions in the Republican Party who used to understand the value of innovation and the need to stay away from controlling pricing are being dwarfed by a president who believes that drug prices are too high, because that plays to his base, and he is or will be singing in harmony with the left wing of the Democratic Party, which has a more emboldened approach,” said Bill Newell, CEO of San Francisco, CA-based Sutro Biopharma (NASDAQ: STRO) and chairman of the California Life Sciences Association.

Democrats and Republicans are as polarized as ever, but they can agree that drugs cost too much and that “some sort of pricing mechanism is going to be necessary,” Newell said during a lunchtime discussion at the Biotech Showcase, a separate conference that takes place adjacent to J.P. Morgan. (Disclosure: Xconomy’s parent company Informa owns Biotech Showcase.)

“We’ve held that argument at bay as an industry for a long time, and I’m here to tell you that what I hear is that the wave is going to come in and it’s going to hit the shore,” he said. “The only question is what’s it going to look like? What’s the new normal, how will we adjust to the new normal, and how will the markets adjust to the new normal?”

His advice to biotechs: Furiously save cash, because drug-pricing legislation could hit earnings at big companies, dwindle resources for deals, and scare investors away from the sector.

Photo by Prayitno via a Creative Commons 2.0 license.