Replies to post #80416 on Biotech Values

[DewDiligence]

ELN JNJ – Those are great questions, p3, but they go well beyond the scope of the matter I was addressing, which is who got the larger piece of the Bap wishbone. I’ll defer to one the “Tysabri specialists” who posts on this board for the answers to your questions (and feedback on your own answers). However, there are some additional points I can make about the Bap deal that may not have been made:

1. I don’t consider the share price of JNJ’s equity purchase to be a bona fide premium to the market price even though it works out to $9 and change. Why not? Because ELN could surely have sold the entire company at that price when the company was shopped around by the IB’s. Moreover, if ELN’s management were competent, they ought to have been able to raise money at that price in a well-timed conventionally underwritten financing with an investor roadshow.

2. The first $500M of expenses that JNJ will contribute toward Bap development is worth only half that amount to ELN because JNJ owns roughly half of the JNJ-ELN JV. Absent this provision in the deal, each company would have contributed $250M toward the first $500M of development expenses. This provision is thus worth $250M to ELN.

3. ELN no longer has any material say in Bap policymaking because JNJ is the majority owner of the JNJ-ELN JV with a 50.1% stake. In the event of a disagreement between JNJ and ELN over development policy, JNJ’s desires prevail and JNJ effectively becomes a 50/50 partner with WYE for policymaking purposes. (Under the old scheme where ELN and WYE were equal partners, a policymaking deadlock could have been settled by arbitration.) I would submit that policymaking control of the JNJ-ELN JV has substantial economic value—perhaps as much as the $250M value to ELN of item #2 above.

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When you add it all up, items #2 and #3 above essentially offset one another. The net result, therefore, is that the JNJ-ELN deal is effectively a large financing transaction in which ELN ceded 25% of the Bap program in return for nothing. That’s why I maintain that this was a great deal for JNJ and a desperation deal for ELN.

[srsmgja]

My response to the three questions-

Numero uno- When the updates cease at the end of July (3 year anniversary) will BIIB/ELN have enough data to establish the long term PML rate??

Answer - No..... I believe it will probably take another 2 years to fully appreciate the long term rate. What is becoming obvious is that there appears to be a tiered risk. The stronger and longer the history of strong immunosuppression, the greater the risk.

Numero dos- Will FTY-720 and Cladribine compete effectively with Tysabri?

Answer - The more immediate question is will FTY-720 and Cladribine get to the market? No, IMO ...... at least not any time soon.

Very briefly -

1. Cladribine - a cytotoxic drug already on the market for leukemia with a known, established cancer risk. Also with a teratogenic risk (great when your prime demographic is child-bearing females. Oh and BTW, there is also a teratogenic risk for the male MS patient). In the ONLY ONE phase 3 trial they reported 4 cases of solid tumor malignancies versus 0 in the placebo arm. It doesn't have the efficacy of Tysabri. It's one claim to fame - an oral agent. Not exactly an unmet medical need when there are 4 other oral agents in late phase 3 trials. I won't even get into the infection risk, and the irreversible leukopenia risk (see PML).

2. FTY-720

The side effect profile of this drug is too long and cumbersome. Again, its efficacy does not match Tysabri. It's one claim to fame - an oral drug (see above).

If it ever comes to the market, the risk management program will make Tysabri's look like a walk in the park. Not only will the neurologists need a Touch-like program, they will also need a good compass and an ouija board.


Numero tres - What will it take to move Tysabri into first-line MS, eg a head-to-head trial of Tysabri and Copaxone?


I don't expect a head-to-head trial any time soon. WHY?

Because Tysabri's greater efficacy is already an accepted fact by more than 90% of the practicing neurologists (see recent surveys). Tysabri has been and is currently 1st line for about 5% of MS naive population. That would be the most aggressive cases. For the remainder of the MS population, Tysabri is essentially 3rd line, even through the label says 2nd line.

Most neurologists will first try both an interferon or copaxone before starting Tysabri. Their reasoning - if the patient can be controlled with either an interferon or copaxone, why place the patient at a greater safety risk (especially when the precise risk is still not known). Most MS patients will eventually experience break- through disease activity on the CRABs and need stronger therapy. It's only a matter of time, IMO.