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Author: Jean-Claude Muller, 穆卓Executive Editor at BtoBioInnovation, jcm9144@gmail.com

Walking back from the patent cliff?

Published in the May 2018 issue of MedNous in the Business Strategy Section

European pharma plans new strategies for R&D

The chief executives at three of Europe’s largest pharma companies are installing new management in a push to put the patent cliff behind them and set out new strategies for research and development. While it will be some months before the details of the R&D strategies are known, the people who will executive them have already been chosen.

In this article, we review changes taking place at Sanofi SA, GlaxoSmithKline Plc and Novartis, all of which have installed new chief executives over the past 36 months.

Sanofi’s chief executive Olivier Brandicourt has been in place for the longest period of time, having assumed the CEO job on 2 April 2015. On 24 April this year, the company announced the retirement of Elias Zerhouni, a scientific advisor to Sanofi since 2009 and head of global R&D since 2011. He will be succeeded on 1 July by John Reed, previously the head of global pharma research and early drug development at Roche.

At GSK, Emma Walmsley, CEO since April 2017, has also taken steps to recharge R&D. On 18 April, she announced the appointment of Kevin Sin as head of worldwide business development for pharma R&D with a remit to strengthen the pharma pipeline and identify new technologies. Mr Sin will join GSK in July from Genentech (Roche) where he is currently head of global oncology, responsible for partnering and licensing activities. He will report to Hal Barron, the chief scientific officer. Dr Barron, also a Roche alumnus, was appointed as CSO in November 2017. He joined GSK from California Life Sciences LLC, an Alphabet-funded company that uses technology to increase scientists’ understanding of lifespan biology. Prior to this, he was chief medical officer at Roche, responsible for all of the products in the combined Roche and Genentech portfolios. Finally, Ms Walmsley reached outside pharma in August 2017 to appoint Karenann Terrell to the new position of chief digital and technology officer. Ms Terrell is an electrical engineer and a former executive at Walmart.

The new Novartis CEO, Vasant Narasimhan, who started on 1 February, has made three top appointments. Elizabeth Barrrett, poached from Pfizer Inc, has become head of oncology and a member of the executive committee. At Pfizer she was global president of oncology. The second new executive, announced on 19 April, is John Tsai who has been appointed chief medical officer. Dr Tsai was recruited from Amgen Inc where he was CMO, overseeing all of the company’s clinical and medical businesses across the globe. Finally, like GSK, Novartis has created the new position of chief digital officer. Bertrand Bodson, formerly of the UK retailer Argos, took up this job on 1 January.

The new executives assume their positions at a time when the patent cliff is receding, but by no means out of the picture.

Sanofi continues to experience generic competition to its diabetes franchise, and in 2017, had the additional shock of having two of its insulin glargine projects excluded from the CVS Health formulary in the US. On 2 November 2017, Sanofi issued a revised forecast for its diabetes products, predicting a compound annual sales decline of 6% to 8% in the period from 2015 to 2018.

GSK, meanwhile, is bracing for the launch in the US of a generic competitor to Advair, an asthma drug that accounts for about a third of its respiratory medicines sales. The company has hedged its financial forecast for 2018 dependent on the timing of the market entry of an Advair generic. If no generic is introduced this year, GSK expects adjusted earnings per share to increase by 4% to 7%. However if a generic is introduced this year per-share earnings could be flat, or decline by 3%.

Novartis continues to face generic competition for its leukaemia drug Gleevec and a drop in productivity at its Alcon eye care division. Alcon reported higher sales and profit in the first quarter, but Novartis is keeping the division under review as a possible candidate for divestiture.

The asset swap strategy

The new chief executives at GSK and Novartis have inherited more vertically integrated portfolios than existed in the past as the result of novel asset swap transactions that were executed by previous managements. The transactions were in agreed in 2014 and completed in 2015. Under the swap, Novartis sold its vaccine business (excluding influenza vaccines) to GSK and GSK sold its portfolio of marketed oncology drugs to Novartis. The two companies then set up a joint consumer products venture in which GSK had a majority interest. Novartis had a put option on this venture, giving it the right to require GSK to purchase its stake by 2035.

In late March, the two companies agreed to drop the option and do a direct deal giving GSK full control of the venture. Announcing the decision, Ms Walmsley said it would ‘remove uncertainty’ about ownership of the venture and free up resources that the company could invest in pharma R&D.

In late 2015, Sanofi’s Dr Brandicourt initiated a similar asset swap with Boehringer Ingelheim GmbH. Under this deal, Sanofi exchanged Merial, its animal health assets, for Boehringer’s consumer healthcare business and received a cash payment of €4.7 billion to reflect the difference in value of the two businesses.  In a further reorganisation, Sanofi and Merck & Co Inc closed down a 22-year-old joint venture vaccine company and integrated the assets into their respective portfolios.

The next steps

GSK is expected to unveil a new R&D strategy on 25 July coinciding with the release of its second quarter financial results. Thus far, Ms Walmsley has been tight-lipped about management’s thinking, apart from saying that the company has three pillars of activity: pharmaceuticals, vaccines and consumer healthcare. Within pharmaceuticals, respiratory and HIV medicines are priorities while oncology and immune-inflammation drug are sub-priorities.  According to one source close to GSK, an important question going forward will be how the new CSO will allocate his time. Dr Barron will be based in the US, while operating from offices in both San Francisco and Stevenage, UK. This suggests either a lot of travel by the new executive, or a bigger US focus for GSK.

Sanofi’s strategy has been more visible because of the company’s recent merger activity. In 2016, the company made a bid for the US oncology company Medivation Inc but lost out to Pfizer. A few months later it bid for Swiss Actelion Pharmaceuticals Ltd, but lost out to Johnson & Johnson Inc. Then in January of this year, Sanofi splashed out with a $11.6 billion bid for the US producer of haemophilia drugs, Bioverative Inc, as well as a €3.9 billion bid for the Belgian nanobody company Ablynx NV. Ablynx has a product in registration at the European Medicines Agency for a rare blood clotting disorder known as acquired thrombotic thrombocytopenic purpura (aTTP). A decision is expected by the end of June. The two acquisitions will strengthen Sanofi’s position in speciality care, a franchise that it has been building since the acquisition of Genzyme in 2011. At the end of the first quarter, Dr Brandicourt said the acquisitions will establish the foundation for a “global rare blood disorder franchise.”

Finally, Sanofi announced on 17 April that it has entered into exclusive negotiations with the private equity group Adavent International to sell Adavent its generic medicines business for €1.9 billion. It is understood that Sanofi will use the proceeds to invest in new products and technologies such as its digital medicine platform.

But will this be enough? A source close to the company said Dr Reed, the new head of global R&D, will have his hands full first, in finishing initiatives started by Dr Zerhouni as well as integrating the Bioverative and Ablynx platforms into the company’s in-house research programmes. The ongoing initiatives include drug discovery in the cross-over territory between biology, miniature medical devices, artificial intelligence and digital medicine. Dr Reed will need to make sure that the flow of products generated by Sanofi’s former alliance with Regeneron Pharmaceuticals Inc, gets replenished from other sources and also sustain Sanofi Pasteur’s position at the forefront of vaccine discovery. Decisions will also need to be taken on how to re-build the company’s oncology franchise and whether or not to enter the field of cell and gene therapy.

At Novartis, at least one piece of the strategic map is filled in. After getting the first cell-based gene therapy, Kymriah, on the US market for two cancer indications, Novartis appears ready to double-down on the advanced therapy medicinal product sector. On 9 April, it announced plans to acquire US-based AveXis Inc, a company with a late-stage gene replacement therapy for treating spinal muscular atrophy. Novartis has agreed to pay $8.7 billion for the company, which will give it ownership of the lead product, gene therapy manufacturing capabilities for  adeno-associated virus deliver systems and products for Rett Syndrome and a genetic form of amyotrophic lateral sclerosis.

The risk for Novartis is that scaling up cell and gene therapies for commercial distribution is a costly and complex process. But the company appears ready to invest in the technology. And it is building up marketing muscle by way of a deal with Spark Therapeutics Inc. Earlier this year, it reached an agreement with Spark giving it commercialisation rights outside the US for Spark’s recently approved gene therapy for an inherited retinal disease.

Digital medicine

All three companies are positioning themselves to take advantage of the new digital technologies by using machine learning and artificial intelligence to improve drug discovery. Digital devices can also be used to monitor patient compliance with drugs in a clinical or real-world setting. The potential applications of the new technologies increase by the day. In March, Onduo, a joint venture diabetes company set up by Sanofi and Verily Life Sciences LLC (an Alphabet company), launched a virtual diabetes clinic for people with Type 2 diabetes who will use mobile apps to monitor their disease. That same month, Novartis announced an agreement with Pear Therapeutics Inc of the US to develop digital therapeutics for patients with schizophrenia and multiple sclerosis using mobile and desktop software. The new products will deliver clinically-proven treatments such as cognitive behavioural therapy to patients as adjuncts to existing drug therapy. In the first instance, the companies’ digital medicine strategies will extend the value of existing drugs by making them part of a new holistic approach to healthcare. This strategy could also delay competition from generic drug producers. Later on, the technology is expected to produce truly innovative products.

One thing is clear: the new R&D executives at Novartis, GSK and Sanofi will have a lot on their plates in the coming months.