Scientists Find Genome Structure Responsible for Gene Activation

In the January 28 issue of Cell, the researchers report that:

-- Much of the human genome is organized into small chromatin structures that are remarkably similar to those found in single-celled budding yeast.
-- Striking exceptions are found, however, for certain clusters of genes that control the body plan of the developing embryo. These "Hox" gene clusters are organized into huge active chromatin domains.
-- Both the small and large chromatin structures are nearly identical in umans and mice, indicating that they have important functions that have been preserved over nearly 100 million years of evolution.

The chromatin data "will be an invaluable resource in our effort to define the regulatory network of the genome," said Michael Kamal, co-lead author on the study and a computational biologist at the Broad.

Forbes - Big Pharma's Ails Could Spread To Biotech - Magazine Article

Genome map Issues Posted by Hello

The New York Times - 60 Companies Plan to Sponsor Health Coverage for Uninsured

The New York Times > Business > 60 Companies Plan to Sponsor Health Coverage for Uninsured

Wanna launch a Drug? Got 8 years and $1.7 Billion?

Posted by Hello Six Drugs To Watch In 2005 Six Drugs To Watch In 2005

Big pharmaceutical companies might be in a slump, but some of their research laboratories aren't. And, as ever, small biotechnology companies are gambling everything on products that could either become miracle cures or duds. Month in, month out, our list of New Drugs To Watch helps sort out some of the noteworthy medicines in human trials. This month, we've added six new medicines to our database of more than three dozen experimental drugs. Among them are potential treatments for Alzheimer's disease, skin cancer and rheumatoid arthritis. The drug developers include Bristol-Myers Squibb (nyse: BMY - news - people ), which has two new additions, as well as Pfizer (nyse: PFE - news - people ) and Wyeth (nyse: WYE - news - people ), but tiny biotechs also make their presence felt. All of them face long odds--most drugs that make it into clinical testing still don't reach the market

FDA Clears First of Kind Genetic Lab Test

The Food and Drug Administration (FDA) today cleared for marketing the first laboratory test system that will allow physicians to consider unique genetic information from patients in selecting medications and doses of medications for a wide variety of common conditions such as cardiac disease, psychiatric disease, and cancer.
“Physicians can use the genetic information from this test to prevent harmful drug interactions and to assure drugs are used optimally, which in some cases will enable patients to avoid less effective or potentially harmful treatment choices,” said Dr. Lester M. Crawford, Acting FDA Commissioner.
The new test is the AmpliChip Cytochrome P450 Genotyping Test made by Roche Molecular Systems, Inc., of Pleasanton, Calif. It was cleared for use with the Affymetrix GeneChip Microarray Instrumentation System, manufactured by Affymetrix, Inc., of Santa Clara, Calif.

Yahoo! News - Stem Cell Research Lines Contaminated

Yahoo! News - Stem Cell Research Lines Contaminated

JPMorgan Healthcare Conference Jan 2005

JPMorgan Healthcare Conference - Welcome

GO here for FREE access to a large number of the presentations from this, THE main Biotech/Pharma conference of the year

Yahoo! News - New Colon Cancer Marker Found

Yahoo! News - New Colon Cancer Marker Found

Evaluating Marketing Agencies

Evaluating Marketing Agencies

Meet the Street: How to Name a Blockbuster Drug

Meet the Street: How to Name a Blockbuster Drug - What's a Drug Worth? By Charly Travers

After taking a detour to write about some of the legal woes facing the industry, I'd like to return to talk about biotech valuations. In my recent articles Unraveling Biotech Potential and Biotech's Full Monte I went over a few methods for predicting future drug sales. The idea behind those articles was that if we're going to invest in drug companies, then we have to have some idea of how well the products will sell if they make it onto the market.

Sales estimates are only a starting point, though, as a company should not be valued on sales alone. For the most part, large biotech companies such as Amgen (Nasdaq: AMGN) and Genentech (NYSE: DNA) are valued on earnings and expectations for earnings growth. Unfortunately, placing a value on small biotechs such as Abgenix (Nasdaq: ABGX) or OSI Pharmaceuticals (Nasdaq: OSIP) is not nearly as straightforward. To arrive at a value estimate for these unprofitable firms, we have to put in a bit more effort.

Despite the lack of earnings and the fact that valuation methods for small biotechs can be more art than science, I think we can arrive at a reasonable estimate for what these companies are worth. At the very least, we will have a rough idea that is much better than picking a number out of the air.

What's in the pipeline?
After taking a peek at the balance sheet to see how much net cash the company has, the best starting point is to look at a company's product pipeline. Biotech companies are investing shareholder money to hopefully one day have a tangible drug that it can sell for a profit. Therefore, the value of these companies, outside of net cash, is largely based on what these drug programs are worth. What we want to do is derive a net present value for a drug incorporating the costs of its development and the operating profits it will generate if approved.

Before I go into the details, I'd like to mention that there has been a lot of excellent work done that covers the net present value of drug programs. I want to point everyone to the following invaluable resources for additional information:

Biotechnology valuations for the 21st century
Milken Institute: rNPV Excel spreadsheet
Recombinant capital bDEV 1.1
BioGenetic Ventures' technology valuation model and an article in "Nature Biotechnology"
As is discussed extensively in the articles above, the value of biotech R&D projects can be determined by using a modified discounted cash flow analysis. It is different than a straightforward net present value (NPV) calculation, as it accounts for the likelihood that the drug will fail in clinical trials and not make it to market. Therefore, it is called risk-adjusted NPV (rNPV). This is an adjustment that must be made as experimental drugs have a high failure rate, and it is inappropriate to assume that a drug will work.

Value of a drug
To calculate the rNPV, we have to model potential costs and revenues over the lifetime of the drug and also take into account the probability that the drug will succeed in getting on to the market. I recommend using one of the Excel spreadsheets referenced above to aid in this process as the framework of the models has already been set up.

There are two stages in the drug's life that we need to consider separately to get the rNPV. The first is the clinical trials stage where the company is sinking money into the drug's development. From the current stage of clinical trials until the drug is approved, the project is costing the company a lot of money with no immediate return on the investment. The exception is if the drug is partnered prior to commercialization where the milestone payments provide near-term revenue in exchange for giving up future rights. It can be difficult to estimate the costs of clinical trials, so I recommend using the expenses provided in the spreadsheet from BioGenetic Ventures as a guide.

The second stage is after the drug is approved and starts generating revenue for the company. We can consider this stage as having a duration from the date when the drug gains FDA approval until the year its patent expires. Since generic drugs quickly erode branded drug sales, the vast majority of a drug's value lies in the period between approval and patent expiry.

Costs of going to market
Once the sales have been modeled, the next step is to estimate the drug's operating profit if it is not yet partnered and the company will market it themselves. The operating profit is simply sales minus the costs of manufacturing and selling the drug and also subtracting any royalties or licensing fees that must be paid. It is here that we see the impact of a high cost of goods or the burden a small company faces trying to build out its own sales force. If the drug has been partnered and the company receives a royalty off of net sales, then use the approximate percentage that the company will receive and don't worry about any of the expenses, as the partner will cover those costs.

After all of the annual costs and revenues have been laid out from now until the drug goes off patent, these figures must be risk adjusted based on the likelihood that they will occur. For example, a company that just started phase 2 trials with their drug will have a 100% likelihood of having to pay the cost of those trials. However, they will only have to pay for the phase 3 trials if the drug successfully completes phase 2. If the drug fails in phase 2, the company won't have to incur the costs of running phase 3 trials.

Factoring in failure
Because of the high failure rate in clinical trials, drugs are not guaranteed to ever make it to the market. Therefore, the revenue estimates must be adjusted by the probability that the drug will eventually be approved. The odds of success in the different stages of clinical trials can be roughly approximated using historical data. A good reference on success rates for drugs in clinical trials is this article by Joseph DiMasi. For example, on average, a drug entering phase 2 has approximately a 30% chance of eventual approval, while a drug entering phase 3 has about a 67% chance of eventual approval. If a drug is currently in phase 2 trials, the operating profits must be multiplied by 30% to account for the odds of the drug making it to market. This risk adjustment greatly reduces the NPV and is why the rNPV is a better reflection of a drug's present value than a straight NPV.

The rNPV is the value of future cash flows from a drug after discounting today's money. Choosing a discount rate is arbitrary, but in reviewing articles on this subject I tend to see rates between 10% and 20% used. For this type of project I tend to stick close to 15%.

After modeling expenses and operating profits and then discounting to a present value, it is possible for a drug to have a negative rNPV. Unfortunately, that is a common result, as many drugs do not recover their development costs. As investors we should be able to identify these situations and avoid them like the plague.

The drug companies that I want to invest in are the ones where the aggregate rNPV of their pipeline is positive. If the pipeline does not have a positive rNPV, then the company is just a vehicle for destroying capital. There has to be a return on the investment in the drug programs that warrants the risk of financing R&D. As investors we want to participate in value creation, not in value destruction.

Final thoughts
Calculating the rNPV is just a tool for estimating the value that a drug program brings to a company. However, it can underestimate the drug's value. If a drug launches successfully, it can bring indirect value that is difficult to quantify. For example, the initial formulation can be leveraged to open other doors such as second-generation products, which have value not reflected in the rNPV of the first-generation product.

Building out such complicated models requires making a lot of assumptions. One big assumption is that drug companies will be able to retain the current level of pricing power. That may be an erroneous assumption given the current climate toward prescription drug costs.

In my approach to investing in biotech, the value should be completely obvious. Such as when a company has a few interesting drugs in the pipeline, yet the company is trading close to the cash on the balance sheet. That's a rarity right now, but it was common a year and a half ago. You don't need sophisticated models to swing at those fat pitches. In those cases, the models do have usefulness in pointing out when the company becomes fully valued again, and that can be helpful in setting up a selling strategy.

To learn more about the biotech industry, check out Charly's recent articles:

Biotech's Full Monte
Unraveling Biotech Potential
Don't Be a Biotech Gambler
Avoiding Biotech Land Mines
Fool contributor Charly Travers does not own shares of the companies mentioned in this article. The Motley Fool is Fools writing for Fools.

Yahoo! News - Medicare To Cover Cardiac Device

Yahoo! News - Medicare To Cover Cardiac Device

Yahoo! News - Clinical Trials Update:�Jan. 20, 2005

Yahoo! News - Clinical Trials Update:�Jan. 20, 2005

'NIH Open access' announcement delayed By Ted Agres, the Scientist

The National Institutes of Health (NIH) abruptly cancelled a teleconference with director Elias A. Zerhouni scheduled for Tuesday (January 11), at which he was to announce "a new policy designed to accelerate the public's access to published articles resulting from NIH-funded research."

Zerhouni had planned to unveil the final version of the agency's long-awaited and controversial policy regarding publication of NIH-sponsored research results. The agency's draft version, issued September 3, 2004, requested that electronic copies of all final manuscripts based on NIH-sponsored research be made available through NIH's PubMed Central database 6 months after being accepted for journal publication.

It was anticipated that the final policy would have extended the time frame to 12 months, several sources said yesterday. The change was intended to be a compromise with scientific journal publishers and nonprofit research societies that had argued that open access would negatively affect their businesses or abilities to continue operating as membership organizations. The NIH did not say when the announcement might be rescheduled.

NIH spokesman Don Ralbovsky yesterday refused to discuss why the planned announcement had been cancelled. But Bush administration officials were reportedly concerned that the controversy might become an issue during confirmation hearings of Michael O. Leavitt, nominated to become the new secretary of the Department of Health and Human Services (HHS), of which NIH is a component. Leavitt is scheduled to appear next week before the Senate Health, Education, Labor, and Pensions Committee, as well as the Senate Finance Committee.

Officials at several biomedical research organizations yesterday said they had heard reports that the White House, concerned about Leavitt's confirmation, had instructed NIH to cancel the open-access policy announcement—a matter that was first reported by Washington Fax, a daily science policy news service. "I have to question their logic," said one association official, who did not wish to be named. "With all the issues Leavitt will face, including Medicare, Medicaid, and Social Security privatization, why are they so concerned about open access? They already have a controversial draft proposal in place. Why wouldn't Leavitt be asked about that?"

White House spokesperson Maria Tamburri yesterday declined to discuss the matter, as did HHS spokesman Bill Pierce.

"It's a shame NIH didn't have the press briefing, because then we'd know what we're dealing with," said Martin Frank, executive director of the American Physiological Association and coordinator of DC Principles Coalition, a group of nonprofit scholarly publishers critical of NIH's publication policy. "If they change the timetable [for submitting final manuscripts], we'll look at it and decide if it's good, bad, or whatever."

The existing draft policy requests but does not require investigators whose research was supported in whole or in part by NIH to deposit the final, peer-reviewed manuscript with the National Library of Medicine's PubMed Central after it has been accepted for publication. NIH would embargo the manuscript from release for 6 months after the publisher's date of publication. Extending this time frame to 12 months, however, would make the policy coincide with the practice of many scientific associations.

"We already make content available on the Web at 12 months through links at Medline," said Alice Ra'anan, American Physiological Society spokesperson. "They'd be better off using the definitive article rather than the manuscript. NIH could create a better service less expensively by linking to the finished articles rather than creating a huge database of authors' manuscripts," she said.

Links for this article
National Institutes of Health, "Notice: Enhanced public access to NIH research information," September 3, 2004. html

Speeding UP Clinical Trials

Speeding UP Clinical Trials

MAGI members represent more than 100 life science organizations, including Duke Clinical Research Institute, ICON Clinical Research, ImClone Systems, ISIS Pharmaceuticals, PPD Development, Quintiles Transnational, Stanford University and the Veteran’s Administration. The organizations have come together to help develop a flexible, multiple-choice CTA template that will suit the needs of both clinical sites and sponsors.

“In a 2002 study, the Association of Clinical Research Professionals (ACRP) asked about the most challenging steps in study start-up and the two biggest challenges cited were clinical study agreements and IRB negotiations,” said Richard Jenkins, General Manager for Life Sciences at IntraLinks. “MAGI members are using IntraLinks to collaborate to create a standard study agreement that can be used across all studies and all sponsors, eliminating the need to negotiate the same details every time a study is started. The vision is that you’ll be able to negotiate study agreements electronically and, eventually, sign them electronically, shortening the process and taking away much of the administrative burden for both parties.”

Norman Goldfarb, President and CEO of First Clinical Research and Chairman of MAGI, said speeding the clinical trial initiation process will benefit sponsors, clinical sites, CROs and patients.

“As it stands today, every sponsor has its own clinical trial agreement,” Goldfarb said. “They all say pretty much the same thing, but they say it in a million different ways – and not always in the clearest way. They use legalese and different nomenclature and they order the paragraphs differently – so just trying to figure out what each contract says is a real challenge.”

To address the problem, Goldfarb set out recruit others to help him create an industry-wide solution.
“An industry-wide agreement has two big benefits,” he said. “First, it helps all of the companies in the industry – not just the sites, but also the sponsors. Second, and most importantly, it helps the public. The slogan of our organization is: ‘We can agree to save lives.’ Reducing contract negotiation means we can get life-saving drugs to the market quicker – and that’s a motivator for me.”

With the existing contract negotiation process, it takes sponsors, on average, 35 days to secure an agreement with community-based sites and about 96 days to reach an agreement with academic centers.

“We estimate that we can speed that up by at least 2 weeks and by as much as 80% in some cases,” Goldfarb said. “When you figure that every day of delay in approving a drug costs a drug company an average of $1.3 million, if we save two weeks, we’re talking serious money.”

Goldfarb said the response from investigative sites has been “fabulous,” with more than 100 organizations signing on to IntraLinks to participate in the process of developing a standard template for clinical agreements. Even CROs readily see the benefits, he said.

“Sponsors understand the benefits in principle,” Goldfarb said, “but they get bogged down in the practicalities of corporate legal departments and so on. As we develop the text, which will be very flexible with multiple-choice options, the sponsors will see that it’s not scary and they’ll realize the sites prefer it, because they’re all going to be asking for it. MAGI member sites are conducting more than 18,000 clinical studies, so it’s going to be a lot of project managers saying ‘please use the MAGI language’.”

Pharmaceutical Marketing -

Pharmaceutical Marketing -

Building a diagnostics market: One molecule at a time (IVDT archive, Sep 01)

Building a diagnostics market: One molecule at a time (IVDT archive, Sep 01)

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