Even before Switzerland's Basilea started arbitration proceedings a year ago against its now former partner Johnson & Johnson on antibiotic ceftobiprole, the biotech would have been drawing lessons on what to avoid - and what to insist upon -in future license agreements.
Some of those lessons are suggested in Basilea's Feb. 24 tie-up with Japanese drug firm Astellas on the Phase III anti-fungal isavuconazole (1 'The Pink Sheet' DAILY, Feb. 24, 2010).
The key this time around is participation. Participating in development, for instance, was a condition of the deal, according to management. "We are going to be there, we've been willing to pay to be there," summed up Basilea Chief Financial Officer Ronald Scott. "We'll be able to see and understand what's happening in the clinical trials and their monitoring, which is very, very important."
In its deal with Astellas, Basilea will pay a significant yet minority share of development costs, and will "absolutely" attend regulatory meetings as well, emphasized CEO Anthony Man on a conference call announcing the deal.
One Lesson: Don't Be A Bystander
This emphasis could be expected, given the biotech's apparent lack of control throughout its five-year deal with J&J, which in 2005 paid $25 million upfront and promised up to $310.4 million in milestones for worldwide exclusive rights to ceftobiprole. Although the deal involved a joint steering committee for drug development, the Big Pharma clearly held the reins as the sole development funder and the drug's official sponsor.
Of course, Basilea in 2005 was in a far weaker negotiating position than it is today, with limited resources and a handful of other programs it wanted to progress. "If we'd had access to more capital, we would have had more flexibility on the kind of deal we could do," Man said during an early 2009 interview. At the time, then, the company considered the J&J deal structure to be the best way to create shareholder value overall.
With the benefit of hindsight, that looks questionable. The deal left Basilea as a bystander, forced to be satisfied with letters from its partner regarding the content and outcome of meetings with regulators, for example. "We used to ask [Basilea's management] questions about the drug's progress, but so often they just didn't know," recalls one analyst.
But Basilea's leaders, doubtless aware of the credibility hit they took as a result, have staked out some ground-rules in the Astellas deal. And even if the biotech, as a minority funder, won't have final say on some issues, "hearing first-hand the regulators' feedback is more important," said the analyst.
This kind of participation would have given Basilea more, and earlier, insight into the problems brewing between J&J and the contract research group running the ceftobiprole trials. The partnership was soured by reports from both the U.S and European regulators of poor data integrity and sub-standard trial site and data monitoring. These issues have delayed ceftobiprole's approval, pushing its earliest launch date well behind that of key competitors likely to snap up precious market share in the interim, in turn shortening the drug's effective patent life, and fuelling Basilea's decision to enter arbitration and seek compensation for the delays (2 'The Pink Sheet,' March 2, 2009).
That arbitration process continues, with a final report due at year-end. A year-long transition period has now begun with J&J, per the partners' contract, which provides a further twist in the tale, and possibly some more lessons for Basilea
The J&J/Basilea transition raises a number of questions. A significant one is whether J&J, with both feet out the door and a very shaky track record with this drug to date, will respect its commitments. In particular, having handed back rights to the drug to Basilea, how diligent will J&J be in its meetings with regulators, for which it still remains in the driver's seat? And what will be the timing of the two additional trials requested by FDA (and likely further work as well that the European Medicines Agency will demand), and the added costs, if any, that might fall on Basilea?
The bottom line is that Basilea has little idea of what to expect from J&J during the hand-over period, just as the news of the divorce came as a complete surprise to the company on Feb. 19. As of Feb. 26, Basilea's management had not heard from the Big Pharma about when their first discussion of these issues would occur. We have no information on the specifics of the transition," said Man during the Feb. 24 conference call on the deal with Astellas. "All we know is that it's a one-year process, per the contract."
Such a hand-over period is apparently not unusual; transitions can range from 9 to 24 months depending on the resource and experience of the biotech licensor.
But in the meantime, per the original contract, Basilea doesn't get a dime in termination payments which it could have used to tide it over during a highly uncertain period financially, notwithstanding the Astellas deal.
Basilea's management won't reveal whether the contract with Astellas includes a termination fee, but it's a fair bet that it does, and that Basilea took a careful look at the timing and conditions of any transition period.
Basilea's Future Rosier, But With Uncertainties
Many analysts are bullish with regard to the outcome of the arbitration, if it continues to its year-end conclusion date. Some expect Basilea to win significantly more than CHF100 million ($92 million). Most, though, now expect a near-term settlement.
"I think they'll give [Basilea] a wodge of money for the arbitration and cost of future trials," one analyst commented, "in order to get the drug off their hands for good and avoid the risk of escalating trial costs."
According to Piper Jaffray's Richard Parkes, such a settlement could land Basilea at least CHF200 million, although it's unclear whether this would cover lost milestones, royalties, opportunity cost and future development/regulatory costs.
There's no question that the Astellas deal improves Basilea's prospects, both financially and in validation that management, and the pipeline, sorely needed.
But remaining uncertainties over the development paths for both isavuconazole and cetfobiprole are prompting caution from some corners, notwithstanding the biotech's 15 percent share price rise since the J&J news broke and its ongoing rollout of chronic hand eczema treatment Toctino (alitretinoin), which is forecast to bring in CHF 35-45 million this year.
Philippa Gardner, an analyst at Jefferies in London, points in a Feb. 25 report to remaining development risks to isavuconazole. Most stem from the early-2009 discontinuation of trial recruitment, which was due to batch supply/quality issues, according to management, but which was followed by some minor trial protocol amendments and slightly altered inclusion criteria.
"Manufacturing issues, including potential process changes, and protocol amendments raise a few alarms," said another analyst. That said, the fact that isavuconazole is small molecule should minimize the impact of manufacturing changes, and one of the protocol amendments is inclusion of a diagnostic test for fungal infections that has become almost standard.
Meanwhile, ceftobiprole's prospects have been irreversibly damaged; Jefferies' forecasts for the drug are now just $140 million globally in complicated skin/skin-structure infections, down from initial estimates that topped $1 billion. The drug will face significant competition from Cubist's by now well-entrenched Cubicin , which has dosing advantages, Theravance's Vibativ (telavancin) which is approved in cSSSI, and Forest's ceftaroline, submitted to FDA in late 2009 in the same indication and subject of a deal with AstraZeneca (3 'The Pink Sheet' DAILY, Aug. 12, 2009).
Ceftobiprole's story is a rare one. Few if any Big Pharmas in recent history have received FDA warning letters over good clinical practice, as J&J did. And according to EMA, this is the first time the CHMP has done a U-turn on an initial positive recommendation for marketing authorization, in this instance given in November 2008.
But the tale is still worth noting for biotech licensors. Regulators' scrutiny of trial design and data quality will only increase; "you can't assume you can just slip stuff by; you have to be there, at the table, and do a good job," concluded an executive close to the situation.
- Melanie Senior ( 5 m.senior@elsevier.com )
This article also appeared in "The Pink Sheet" – Mar 1, 2010
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