With all the talk about healthcare reform going around Washington, one thing that has been overlooked is an industry in which tens of billions of dollars is spent annually with relatively limited federal oversight-namely dietary supplements, or "complimentary medicine." In 1994, to regulate the burgeoning marketplace in "natural" health remedies, Congress passed the Dietary Supplement Health and Education Act (DSHEA). Formalizing the regulation of dietary supplements as food, the intent of DSHEA was to protect consumers from snake-oil salesman while allowing access to a large and legitimate category of health options. DSHEA also gave the FDA more enforcement tools-like the mandate for supplement-specific Good Manufacturing Practices, and a provision that provided FDA with the ability to remove unsafe products from the market.
    
  To address the issue of food vs. drug, it's important to understand "structure and function" claims. In February 2000, FDA published regulations defining the types of structure and function claims permitted on dietary supplement labels. During the rule-making process, the agency considered what factors make for a suitable structure and function claim, as well as a disease claim. A structure and function claim, for example, is, "Arouses or increases sexual desire and improves sexual performance," or "Helps promote urinary tract health," or "Promotes relaxation."

Disease claims include statements like "Improves urine flow in men over 50 years old," "Lowers cholesterol," "Reduces joint pain," or "Relieves headache." This includes claims that are explicit-made as statements on the label-as well as claims that are implied in the name of a product (e.g., "Natural Prozac").

More than a few manufacturers of dietary supplements purposely blur the distinctions between structure and function claims and disease claims. Here are just a few from a recent Google search: "Herbal dietary supplements and depression treatment," "Alternative medicine from Japan helps curb malignant tumor growth," "How a dietary supplement can help protect against Alzheimer's Disease." And my personal favorite: "Get the same effects of real extacy without the risks-our all natural herbal ecstacy can keep you up and active at raves all night long."

Are these products foods or medicines? Well, to paraphrase the great Hoosier poet James Whitcomb Riley, "If it walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck."
  The truth is that none of those claims refer to products that bear any resemblance to food. Rather, these products are being marketed-and consumed-as treatments for medical conditions or as lifestyle enhancements. They should be regulated as such-and at least as rigorously as over-the-counter products.

Consider also that under DSHEA, FDA does not approve manufacturers' claims on the labels of such products, as it does with drugs. This must change, along with dietary supplement marketing and promotion. Compared to FDA's oversight of pharmaceutical advertising, "complementary medicine" communications are a free-for-all.

Companies that blur the line between structure function claims and disease claims are making illegal claims under the law.  And, under the law, FDA has the authority to take action against companies that make treatment claims. 

Yet another DSHEA reform issue concerns dietary supplements and adverse-events reporting. Under the law, dietary supplement manufacturers are required to report serious adverse events to FDA. Hydroxycut, a popular weight loss product, was recently recalled by its manufacturer in the wake of adverse events reports that included liver damage and one death. If we want greater safety when it comes to health-related products, the reporting of adverse events for dietary supplements must be diligently policed.

As in all industries, there are good and bad players and, when it comes to supplements, it’s unfortunate that it is often the outliers who generate most of the publicity. To those who would peddle dietary supplements as medicine, the message must be that FDA has the authority to stop you if and when you cross the line. Responsible companies play by the rules and abide by the laws. DSHEA already has provisions in place to take care of those bad actors-and so perhaps it’s not the law that needs to be revisited-maybe it’s time for us to ensure that FDA gets the staff resources and funding necessary to ensure that existing laws can be more fully enforced.

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Dietary supplements function like drugs and are marketed like drugs. They should be regulated like ducks.

If It Walks Like a Duck

The pharmaceutical industry faces a clear trade-off in the current healthcare reform debate. On one hand, expanded coverage for some 45 million Americans would greatly enlarge the pool of customers for drugs and medical products, and enhance compliance with prescribed treatments. On the other hand, higher rebates and regulatory modifications could open the door to price controls and erode revenues. Industry has offered up concessions to help pay the trillion-dollar cost of achieving universal coverage, with an eye to staving off even harsher curbs on revenues that could jeopardize innovation. 

While nothing comes easy in healthcare reform, devising ways to increase coverage is relatively uncomplicated. Congressional leaders have proposed broadening access to care by expanding Medicaid, requiring all individuals to obtain coverage, mandating that employers provide insurance or pay a penalty, reforming the insurance market to limit exclusions based on pre-existing conditions, and forming an insurance exchange that offers coverage options to the uninsured, including some kind of government-supported public plan.  

That last item, in particular, has been a lightening rod for opponents of government involvement in healthcare. Pharma companies are alarmed over proposals authorizing government negotiation of prices for drugs covered by the public plan. While that's not as threatening as a full-scale repeal of the non-interference clause (which prevents federal negotiation of drug prices for Medicare Part D), it does open the door to a larger government role in pharma pricing. And even without a public plan, Congress is likely to establish some kind of federal health authority to make difficult decisions on payments and benefits, including medical product coverage, cost-effectiveness standards, and pricing decisions.  

Devising a way to pay for the enormous cost of the program is even more difficult. The scope of that difficulty finally hit home in June when the Congressional Budget Office (CBO) issued a much-higher-than-expected cost estimate for reform legislation under development by the Senate Health, Education, Pensions and Labor (HELP) Committee. The draft proposal of that legislation would cost $1 trillion over the next decade, and extend coverage to only 16 million people. The Senate Finance Committee, facing an even higher $1.6 trillion CBO estimate for its proposal, went back to the drawing board to curb expenditures and identify more savings.  

Meanwhile, House leaders rolled out a reform bill developed jointly by three committees:  Education and Labor, Energy and Commerce, and Ways and Means. Democrats applauded its broad coverage and extensive benefits, and moved to pass the 1,000-plus-page measure as quickly as possible; Republicans predicted skyrocketing budget deficits, higher taxes, and government rationing of healthcare. Once again, CBO was the spoiler, testifying that little in the House legislation would curb federal spending on healthcare. 

President Obama then went on the offensive, pressing hard for a reform bill with a $1 trillion, 10-year price tag that covers at least 75 percent of the uninsured. That proposal has expanded the hunt for every possible source of savings and revenue, putting pharma costs and coverage directly in the line of fire.  

Last May, the Pharmaceutical Research and Manufacturers of America (PhRMA) joined a high-profile provider group that promised collectively to decrease the annual growth in healthcare outlays by 1.5 percent—a move calculated to save $2 trillion over 10 years. The group offered a list of  "soft" savings strategies, including reducing unnecessary hospitalizations, promoting evidence-based best practices, managing chronic disease, and adopting health information technology.  

Subsequently, PhRMA rolled out a plan to generate $80 billion in healthcare savings, starting with a striking proposal to give 50 percent discounts on drugs prescribed to Medicare patients who fall into the notorious Part D "doughnut hole." That proposal is attractive to reformers because it could save an estimated $25 billion off the cost of eliminating the coverage gap altogether. The discount plan was thus incorporated into the House bill's provision for phasing out the doughnut hole over 15 years. (Most biotech drugs are not affected because they are administered in hospitals or clinics, and thus covered under Medicare Part B. But as more biologics shift to outpatient use and gain coverage through Part D, the gap would become a greater hurdle.) 

Drug companies are also slated to provide another $20 billion over 10 years by giving higher rebates on Medicaid drugs. Legislators propose to increase the basic rebate from 15 percent to 22 percent, extend rebates to new formulations of existing therapies, boost rebates on generic drugs, and require manufacturers to pay rebates to states for drugs provided to Medicare managed care plans.  

Pharma companies had hoped the discount plan and higher rebates would defuse support for a proposal by House Energy & Commerce chairman Henry Waxman (D-CA) to impose an additional rebate on Part D drugs prescribed to low-income beneficiaries. Waxman is seeking to recoup the "windfall" gains manufacturers have enjoyed since Medicare shifted "dual eligible" seniors from Medicaid drug benefits to Part D. The additional rebate in the House bill is intended, once again, to offset the high cost of closing the doughnut hole.  

In what would represent a win for pharma, Congress may support biotech innovation in establishing a legal pathway for FDA approval of follow-on biologics (FOBs). The Senate HELP committee has approved an FOB measure with 12 years' market exclusivity—close to the goal of brand-name firms. That guideline will yield less savings than CBO's estimate of $7 billion to $10 billion over 10 years for FOBs with seven years exclusivity, but even a modest savings will be enough to spur negotiations and likely get an FOB measure into the final reform bill. 

At the same time, policymakers may seek to encourage generics use by banning payments from brand-name firms to generics companies in order to delay competition. According to Federal Trade Commission chairman Jon Leibowitz, a curb on pay-for-delay settlements would save the federal government $12 billion over 10 years, and yield even greater savings for consumers and states. Leibowitz further supports a ban on authorized generics, but evidence that these products may actually lower drug prices could keep that issue out of healthcare reform legislation.  

Pharma companies have also deflected early proposals to curb the corporate tax deduction allowed for drug advertising. Industry may be disappointed, however, with "sunshine" provisions that require disclosure of virtually all payments made to physicians and healthcare providers. Manufacturers had hoped that federal sunshine legislation would establish a national standard and common reporting requirements that would pre-empt a growing number of state disclosure policies. But that kind of relief could be compromised by opposition from Waxman and others. In its current form, the House bill permits states to enforce their own disclosure policies that differ from federal rules.  

Additional reforms promise improvements in healthcare, but no real savings in the near term. For example, there is wide-ranging support for comparative effectiveness research (CER) to better inform medical treatment and ensure appropriate use of medical products, but there has been considerable disagreement over how CER should be governed and how the data should be used. (See "Comparing Costs," above.)  

Yet another tricky issue for Congress to address is drug reimportation. In July, the Senate approved language in a budget bill that permits US consumers to purchase drugs from Canada through the Internet. However, it remains to be seen if the policy will make it through the whole Congress; Senate leaders may move to include an import proposal from Sen. Byron Dorgan (D-ND) in final legislation, especially if FDA devises a strategy to enhance import safety.  

The important details in reform legislation will  be hammered out on Capitol Hill in coming months by a committee formed to reconcile differences between House and Senate bills. Such negotiations will involve considerable horse-trading and maneuvering over health exchanges, public plans, tax reforms, and price controls, with all parties keeping a sharp eye on costs and coverage.  

The push for more government funding of comparative effectiveness research has generated heated debate on Capitol Hill over how payers and insurers will utilize the resulting information. Democrats prefer to keep language on CER applications vague, while Republicans want explicit restrictions against using CER data to determine treatment and reimbursement; the alternative, they warn, is one-size-fits-all prescribing and healthcare rationing. 

There has also been considerable disagreement over the structure of a CER governing body, as well as its authority. Some members of Congress propose to position a CER agency within the Department of Health and Human Services, while others prefer an independent public–private entity. Recent reports from both the Institute of Medicine (IOM) and the Federal Coordinating Council for Comparative Effectiveness Research emphasize the importance of building infrastructure to facilitate CER studies and to disseminate their findings. The IOM report lists a number of CER priorities that seek evidence comparing the effectiveness and costs of prescription drugs to other treatments. These proposals bolster those who consider cost-effectiveness a valid CER research subject. 

's Washington correspondent. She can be reached at 

Washington Report

Pressure to expand healthcare puts drug pricing, marketing, and innovation on the negotiating table.

Coverage Vs. Control

With the unemployment rate edging toward 10 percent and the aftershocks of the housing crisis still rattling the foundations of our economy, a strange thing has happened:  Many of America's young people (and a few older people) have enrolled in business school. This generation of business students is different, however, because they are embracing new challenges instead of clinging to tired power structures.  They are running toward the fire, rather than fleeing from it. They're asking, "What can I do?" 

Educators must rise to the task. Who is going to train these students to meet the demands of a post-recession economy? Who is going to help them turn today's lemons into tomorrow's lemonade? 

Frankly, not a lot of deans are stepping forward. Too many business schools seem content with their curriculums even as their portfolios suffer. At the University of Michigan's Ross School of Business, students can take an elective called, "Finance 633: Securitization." This course teaches the ins and outs of collateralized mortgage obligations, commercial mortgage-backed securities, and international securitization, thoroughly preparing students for the business world of 2003. 

At Notre Dame's Mendoza College of Business, students can sign up next spring for "Finance 70660: Advanced Derivatives," which "prepares students for employment with firms where derivatives are either of primary importance (e.g., investment banks, trading firms) or secondary importance (e.g., corporations having interest rate or foreign exchange rate exposure that requires hedging)." Thrill as you sit through lectures on swaps, options, and—are you sitting down?—swaptions. Complete this course next year and you'll be well on your way to a brilliant career in the year 2005. 

If the next generation of business students is going to be successful—and their success is critical to our future—we have to do better than securitization and derivatives.  Deans must refocus curricula, placing greater emphasis on innovation and entrepreneurial workshops. 

Emory's Goizeuta Business School is one of a few that offers a modern take on entrepreneurship. The course description for the school's "Entrepreneurship" elective asks the three most important questions in business today: "How do you realize value from a good business concept or idea? What business ideas are worth investing in? How do you finance a growth company?" The course explores how e-commerce has changed the rules of launching a business and ends with students writing their own business plan. 

At the Fordham Leadership Forum, we use the IDEO of San Francisco approach, and put our MBAs into five-person Hot Teams to develop new products and services. The mission is to find a real problem and develop a business model to overcome it. Last semester, a Hot Teams group developed a company to have licensed specialists train unskilled plumbers, electricians, and auto mechanics. The team proposed a 12-week program with a regional launch, and announced plans to expand the course across the country.  

 At Cornell's Johnson School, the Cayuga hedge fund is run by students interested in asset management; they receive guidance from professional portfolio managers and equity analysts throughout the year. The University of Wisconsin's School of Business has run a similar program since 1970. 

 Some students entering business school have little interest in hedge funds. Many plan to  use what they learn to improve their communities or serve their country. To that end, the University of Pennsylvania's Wharton School in June announced the creation of a summer internship program for students pursuing careers in socially focused ventures. Not only will this program provide students with real-world experience in socially conscious organizations, it will also help promote business literacy and education in groups that have struggled to learn those lessons on their own. 

The world is changing, and so are business school students. It is incumbent upon educators to serve their evolving needs. The alternative is to board up the ivory tower and look out the window as the country falls behind. 

 is managing partner of Flaum Partners and chairman, Fordham Graduate School of Business, Leadership Forum. He can be reached at 

Column

Business schools must prepare students for the post-recession economy, not teach them principles applicable to 2003.

Lemonade 101

Reports of the death of biotech as a result of the global recession may have been exaggerated, but the flight of venture capital over the past 18 months has taken its toll, especially for startups. Meanwhile, almost half of the 330 publicly traded biotechs in the US report that they are operating with less than a year's worth of cash. Still, there are signs that the sky may be clearing, even if the IPO window remains shut. VC investments rose almost 50 percent in the second quarter of '09, while the NYSE Arca Biotechnology Index is up nearly 30 percent for the year. Of course, the main driver is Big Pharma's panic to fill its pipelines—the more desperate the giant drugmakers become, the brighter the prospects are for biotech.  

    For this year's annual "hot biotech" cover story, 

 picked 10 companies with bright prospects indeed. They run the gamut of disease states, including cancer (two), Alzheimer's, women's health, superbugs, and good old-fashioned obesity. The lead products for two of the companies have already completed Phase II trials, while three have Phase II in the works. The other five are still in early-stage development, including two in preclinical, albeit with science of exceptionally high interest.  

    Beyond this diversity, these biotechs share two critical features: a medical goal that will make a major difference if met, and a management team that recognizes that a good business model is every bit as important as good science. All but one is privately held, but all remain interested in partnering with a Big Pharma (several already have codevelopment deals)—if the price is right. So let the bidding begin. 

As big drugmaker's profit margins have fallen back to earth, cancer R&D has emerged as one of pharma's best investments. The science may be as hard as ever, but the regulatory hurdles are at least predictable, additional indications are often forthcoming, and the pressure on payers to reimburse remains high—even for products with five-figure price tags whose benefits amount to a few extra months of patient survival. The ongoing national debate about healthcare reform, may eventually scuttle that status quo, but for now the sun is shining on biotechs with products in Phase II oncology trials.  

 Carol Gallagher, CEO, Calistoga Pharmaceuticals (CASSIE REDSTONE)			

Calistoga Pharmaceuticals is one of the most promising. The three-year-old, Seattle-based company's lead product, CAL-101, targets the PI3K pathway—a very crowded area of cancer R&D. PI3K, or phosphoinositide-3 kinase, is an enzyme that plays a key role in a cell's growth, differentiation, and survival; mutations and other dysregulations along the pathway result, not surprisingly, in cancer.  

But Calistoga shows no sign of suffering from a little-fish-in-a-big-pond complex. "We're first-in-class and, we believe, best-in-class," says Carol Gallagher, the pharmacologist who took over last fall as CEO. CAL-101's data appear to back her up, showing a 50 percent response rate across a range of different blood cancers, including chronic lymphocytic leukemia, acute myeloid leukemia, non-Hodgkin's lymphoma, and multiple myeloma. "The first patient enrolled a year ago, and there was an almost immediate regression of tumor," she recalls. "Since then, we've seen 12 out of 24 patients show improvement." 

PI3K may be a big target, but scoring a clean hit is tricky. Precisely because it is involved in critical cell functions, messing around with it can cause plenty of unwanted effects. Unlike many of its rivals, CAL-101 is highly selective for a single variation of the enzyme, allowing for more drug and greater efficacy before toxicity sets in. 

Calistoga has deep roots in Seattle's biocluster. It was launched in 2006 by a team of local scientists, including Michael Gallatin, the company's president, who had joined ICOS Pharmaceuticals in 1990. Calistoga's chief medical officer, Albert Yu, and Clifford Stocks, chief business officer, are also ICOS alums. ICOS is famous for developing Cialis, and then being bought by Lilly and promptly shut down, casting a temporary pall of unemployment over the Seattle-area biotech community. On its way to erectile-dysfunction riches, ICOS shelved its PI3K-inhibitor platform (including 700 compounds), which was inherited by local VC firm Frazier Healthcare and would later become Calistoga's dowry.  

Gallagher hooked up with Gallatin and company via Frazier, but her claim to fame dates back to her days at IDEC, where she headed the team that made Rituxan, a cancer blockbuster, and helped design the program for the monoclonal antibody's successful transition into rheumatoid arthritis. "Rituxan offers benefit everywhere you add it in a malignancy, and it has low toxicity. It's a great drug," she says. "That's the model we are looking at." 

With Cialis and Rituxan in its corporate DNA, Calistoga boasts some serious commercial smarts to inform its scientific work. Gallagher has no illusions about the challenges, especially in crafting one version of the compound for blood cancers and another for autoimmune disorders. "You have to think strategically and long term," she says. "It's essential to have squeaky clean data. But because the markets are so different, you need a dose that is more about modulating immune cells." 

At the annual American Society of Clinical Oncology confab in June, this class of compounds made headlines—though less for the data than the deals. San Francisco-based biotech Exelixis said that it was licensing its two lead PI3K inhibitors to Sanofi-Aventis for up to $1 billion in milestones, while Merck and AstraZeneca seemed eager to codevelop two of their candidates in a single program. But when the glitter had settled, the actual results from Phase I were less than glowing, with only a single patient response among the Exelixis, Merck, and Genentech candidates. (The trials were in solid tumors, a much tougher target than blood tumors. Calistoga is preparing its own solid-tumor PI3K inhibitor for Phase 1.) 

Gallagher says that the biotech has met with potential Big Pharma partners, and is weighing that option. But after a $30 million series B in May from Frazier and other top-tier VC firms, Calistoga may have pockets deep enough to bankroll its own Phase II trials, taking on greater risks in the short term for greater potential gain in the down the road.  

"If there's a signal across all these cancers, how big do we want to go with the trials?" asks Gallagher. That's a question every young biotech would love to have to answer. "I don't want to sound boastful. It always takes a little luck. And in the end, we have to wait and see what the data tell us." 

EnVivo Pharmaceuticals, based in Watertown, MA, has its eye on improving the treatment of Alzheimer's disease and schizophrenia, but it wouldn't mind being out in front of the coming "smart pill" craze. "Our focus is on the diseases. And yet the use of these treatments as lifestyle drugs is inevitable," says EnVivo CEO Kees Been. Been previously headed Bionaut Pharmaceuticals, a biotech focused on cancer and inflammation; he also spent four years at Biogen Idec, where he ran the oncology business, including the collaboration with Elan on MS blockbuster Tysabri. 

Kees Been, president and CEO, EnVivo Pharmaceuticals			

The cognitive-enhancement market is estimated to be worth $20 billion. Although FDA currently shows no sign of smiling upon the use of "smart pills" for patients with no health problems, the working assumption is that consumer demand will eventually force the agency to create some kind of mechanism for approval.  

Meanwhile, Been and his team, including Michael Ahlijanian, Pfizer's former head of CNS discovery, and Jean-Marie Vallet, former VP of Bristol-Myers Squibb's European business, have their hands full with Alzheimer's and schizophrenia—two diseases in which incremental treatment advances define success.  

EnVivo's pipeline boasts five early-stage agents, most bought from Bayer when the German drug firm was selling off its entire CNS group. EnVivo's chief scientific officer, Gerhard Koening, had headed dementia research at Bayer, "so we kind of had the inside track," says Been. 

The demographics and dynamics of Alzheimer's remain devastating. In the developed world, rates of Alzheimer's in people 65 and over range from 5 to 10 percent; the annual cost of treatment is close to $100 billion in the US, to say nothing of its psychological burden on caregivers.  

Alzheimer's R&D is intense, with more than 500 clinical trials ongoing. Yet little about its medical profile is clear. There are two competing hypotheses regarding cause, based on the two hallmarks of its pathogenesis: amyloid plaques (deposits of the amyloid beta protein between brain cells) and neurofibrillary tangles (twisted forms of the protein tau in the cells). The standard treatment, acetylcholinesterase inhibitors, led by Aricept (which nets about $2.5 billion in global sales) works by blocking the enzyme that breaks down the neurotransmitter acetylcholine. While these drugs can help slow the symptoms of memory loss, they don't make a dent in disease progression. 

EnVivo had good news to report at July's International Conference on Alzheimer's Disease. Its lead product, a nicotinic alpha-7 acetylcholine receptor agonist, showed positive Phase Ib/IIa results on six of eight standard cognition measures. The alpha-7 nicotinic receptor has emerged as a popular target for cognitive enhancement because it plays a role in the transmission of messages between neuronal synapses. The nicotine chemical stimulates these receptors. "In Alzheimer's patients, who are typically diagnosed after they've already lost half their brain, the drug can make the remaining brain fire harder," Been says. 

Accordingly, Big Pharmas have teamed up with alpha-7 biotechs in the race to market. Last November, Roche snapped up Memory Pharmaceuticals, whose alpha-7 candidate was the first to reach proof-of-concept. AstraZeneca recently inked a deal to co-develop several of Targacept's neuronal nicotinic receptors, while Mitsubishi is helping EnVivo with it's alpha-7 trials in Japan.  

EnVivo is testing four other compounds in Alzheimer's, including a second alpha-7 and a gamma-secretase modulator (GSM) that also targets the amyloid beta protein, reducing the number of longer pieces while increasing the shorter ones. This down-with-the-bad, up-with-the-good mechanism may prove to be disease modifying, although the first-in-class GSM, codeveloped by Myrial Genetics and Lundbeck, crashed and burned in Phase III last year.  

The biotech is also working on a phosphodiesterase-10 (PDE 10) inhibitor for schizophrenia that fuels neurotransmission from the cell membrane to the nucleus, which may translate in the clinic to decreasing the delusions and other so-called positive symptoms of the disease.  

Further along is a histone-deacetylase (HDAC) inhibitor, which shows evidence of improving memory by increasing synaptic plasticity and possibly by targeting the tau protein. EnVivo has exclusive rights to the neurodegenerative corner of the HDAC inhibitor field, which it licensed from MethylGene, complete with biomarkers. 

Yet EnVivo's fate will likely be determined by its alpha-7's performance. Next up for the nicotine drug are Phase IIb efficacy trials in both Alzheimer's and schizophrenia, at a cost of $10 million to $30 million per disease. "We are debating about whether to partner—it depends largely on the specifics of the deal," says Been. 

The biotech also put its most profitable asset on the auction block: its collection of flies. EnVivo started in CNS drug-discovery in 2001 with transgenic fruit flies, whose genome is easy to manipulate. Been spun it off as a fee-for-service gadget after he came onboard, and now the collection may help bankroll the company's next big push into the smart-drug market.  

When Pfizer yanked Exubera, its billion-dollar inhaled insulin fiasco, in 2007 and dumped it back on Nektar, ending a 13-year-long partnership, the drug-delivery shop in San Carlos, CA, promptly lost 150 people, including the head of its top-selling pegylation business. Thus began Nektar's transformation into what CEO Harold Robin is pleased to call "a world-class drug development company." With all that belt-tightening, which included the sale of its pulmonary business unit to Novartis for $115 million, Nektar ended 2008 $400 million in the black—not bad for a born-again biotech. By July, its stock had almost doubled in price. Now the company's lead product, a pegylated version of the pain drug Naloxone, has completed Phase II trials; if approved, it would be the first oral analgesic for opiod-induced constipation. 			

This San Francisco biotech is developing a new antibiotic arsenal against the growing global superbug crisis, including methicillin-resistant Staphylococcus aureus (MRSA) and Gram-negative bacteria. Achaogen's lead product, a tricked-out, new-dosing version of the old aminoglycoside class of antibiotics, is set to enter Phase II next year against K. pneumoniae, E. coli, and MRSA. The biotech also has several preclinical programs, including broader spectrum follow-on neoglycosides, the first-ever oral antibiotic for community-acquired MRSA, and novel agents against Gram-negative and biothreat bugs. Under CEO J. Kevin Judice (a veteran of both Genentech and Theravance, where he led the team that discovered telavancin), Achaogen has snagged $100 million in backing from VC firms, the NIH, the defense department, and other public funds. 

After the giant flop of Sanofi-Aventis' Acomplia, pharma has lost its appetite for a chemical approach to weight loss. Targeting the brain has proved too complicated, while aiming at the bowels, like Alli, is too messy. This Boston-based startup deserves at hand, at least, for finding a wholly original approach: with angiogenesis inhibitors that failed to eliminate cancer tumors but might just shrink adipose tissue enough to win FDA approval for obesity. Zafgen's preclinical success in mice models—obese critters not only lost 25 percent of their fat cells but also reduced caloric consumption as much as 80 percent—has garnered considerable press this year. The startup also hired a high-profile CEO, Tom Hughes, who helped win EU (though not FDA) approval for Novartis' DPP-4 inhibitor, Galvus, in the equally sticky category of diabetes; plus an even newer CFO, Matthias Jaffe—signs that it's serious about partnering on clinical trials. 

If a Big Pharma were looking for a late-stage drug to plug a leak from patent loss, it could do worse than shopping at Neurocrine. The San Diego–based biotech has completed a whopping four out of five Phase II studies of its GnRH antagonist, elagolix, for endomitriosis, a painful condition occurring mainly among women of childbearing age when endometrial cells are deposited outside, rather than in the lining of, the uterus. Elagolix would be the first orally administered version of the hormone. Although elagolix missed hitting one end point with statistical significance, Phase III trials are expected to get rolling early next year, including a head-to-head comparison with standard-of-care injectable Lupron. A nod from FDA would certainly help Neurocrine forget the pain of the NDA for its insomnia drug indiplon, which  got torn apart two years ago. 

Many self-respecting biotechs complain of not having the cash to unlock the awesome potential of their amazing platforms. ArQule may be able to back up its claim. This combinatorial chemistry shop is developing small-molecule drugs for oncology via its so-called Activated Checkpoint Therapy technology. After inking a deal with Daiichi-Sankyo to take its lead product, a highly specific kinase inhibitor against non-small cell lung cancer and related tumors, through late-stage trials, the Boston-based biotech got $75 million in up-front payments (and up to $560 million in potential milestones) to boost the rest of its pipeline. The new management of CEO Paolo Pucci and Chief Medical Officer Brian Schwartz, who helped shepherd Bayer's kinase inhibitor Nexavar to market in liver and kidney cancers, may be able to shake its second kinase inhibitor from the preclinical tree.   

A top competitor in the race for "the $1,000 genome," this San Francisco biotech was started in 2004 with venture capital from Silicon Valley firm Kleiner Perkins, among other investors. PacBio is developing technology that does third generation, "Single Molecule Real Time" sequencing of DNA—the goal being creation of an affordable, half-hour diagnostic tool in the personalized-medicine bag. After raising $120 million last year, the biotech hired new chief scientific officer Eric Schadt, the big-deal biomathematician who cofounded Rosetta InPharmatics in 1999 (and sold it to Merck, in 2001, for $600 million). Schadt will presumably help define and refine the PacBio platform's commercial applicability with his experience as a leading innovator in  data integration and model building. 

The political and ethical thicket ensnaring embryonic stem cell research has led some enterprising scientists to focus on an alternative: the body's own largely dormant adult stem cells. However controversial the original spur to this action, the result has been a cascade of electrifying scientific breakthroughs from which not only new drugs but a whole new way of studying disease and developing drugs might proceed.  

Scientific and Executive Team Founders, Fate Therapeutics (GEOFF SCOTT)

Six pioneers in the field from Harvard, Stanford, MIT, the University of Washington, and Scripps Research Institute gathered their brain power, intellectual property, and other synergies to form Fate Therapeutics in 2007. Based in La Jolla, CA, and backed with $25 million in top-tier VC funds, Fate made news in May when it announced that its lead product was entering human trials, edging out Novartis with the first ever adult stem cell therapy for blood and marrow transplants. Fate calls this platform stem-cell modulation; a second drug candidate, for bone regeneration, is already in the works. The most interesting aspect of all this may be that Fate is using not only conventional pharmaceuticals, but failed or otherwise abandoned ones to try to spark such remarkable results.  

Says CFO Scott Wolchko: "The business model around stem cell therapy as a delivery has been very difficult, so our approach is appealing to investors. After all, we're talking about discovering and developing pills." 

Fate's lead product is a fatty-acid derivative that was shelved as a treatment for peptic ulcers in the 1990s. The dud gained immortality last year as "the first small molecule ever shown to activate stem cells to transplant better," according to Harvard's Leonard Zon, director of the Stem Cell Program at Children's Hospital Boston and a Fate confounder. While screening some 2,500 chemicals in zebrafish embryos, Zon discovered that it had a knack for making stem cells multiply and move toward bone marrow. The hope is that when added to human umbilical blood, the chemical will boost the quantity and quality of stem cells, and improve the odds for post-chemo blood cancer patients who are without of a marrow donor. As many as 6,000 such patients die each year because of the cost and risk of the procedure.  

Embryonic stem cells have one huge advantage over the adult version: Their so-called pluripotency. That means they have the potential to develop into any one of the body's 200 different kinds of cells; a mature stem cell can grow into only a cell of its resident tissue. Yet scientists have succeeded in overcoming this limitation by reprogramming adult stems through the use of genetic manipulation—essentially turning back the developmental clock and restoring the adult cell to its embryonic state. In 2007, the Scripps Research Institute's Sheng Ding (a Fate co-founder) improved upon this remarkable feat of induced pluripotent stem cell (iPSC) by returning a mature skin cell into its original, pre-skin state without touching its genetic makeup.  

In April, Fate teamed up with Stemgent (which makes reagents for stem cell therapeutics), to launch Catalyst, an open-source group of biotechs and pharmas to industrialize iPSC technologies. Based on a pre-competitive IP-sharing model, Catalyst aims to develop and test the concept of induced pluripotent stem cells as an alternative method of drug discovery. 

Features

With the biotech industry reeling from the recession, big drugmakers hold all the cards when it comes to making deals, but picking a winner is still a gamble. Here are 10 to place stakes on.

Betting the Pharma

				Once upon a time, brands had two, or perhaps three, agencies disseminating their message. Today, there can be as many as 10, each charged with a different aspect of brand communication (online professional, online consumer, professional promotion, promotional medical education, etc.) Brand managers are faced with an extraordinary challenge managing this  abundance of channels, audiences, and messages related to a single brand.    

Additionally, the wealth of data available through multiple channels and in multiple formats has led, in the pharmaceutical industry, to a blurring of channels and the audiences we reach through those channels. The result is that brand managers have found it necessary to evolve a new way of marketing in healthcare—a truly unified message strategy that can appeal to multiple audiences with a unified effect. 

But of course, the blurring of audiences works two ways. Thanks primarily to the Internet, consumers have access to "doctor-focused" information, ranging from early study results from Phase II trials to professional advertising. Perhaps in response to shorter physician visits—and certainly reflecting the move toward "do it yourself" information gathering—patients are conducting their own research on their health and healthcare options. The notion that "physician messages" are only seen by physicians is a fallacy.  

Physicians, for their part, are also exposed to "consumer" messages. Doctors are people too, and they watch the same TV shows, read the same newspapers, listen to the same radio programs, and surf the same Internet sites as patients do. As a result, consumer-directed material can, and often does, end up in the hands of healthcare professionals. This can have far-reaching and unintended consequences for the physician, the patient, and the brand.  

For a brand manager, the consequences of an unaligned brand strategy in this environment range from the inconvenient to the disastrous. For one thing, the "information age" is also the age of "information clutter," and exposing audiences to multiple messages can create confusion. If we have multiple messages, then what, exactly, does the product stand for? Without a simple, consistent value proposition, the brand might get lost in the noise; it may, in fact, be creating noise.  

If the patient and physician platforms are misaligned, we may actually be impeding positive dialogue. If a patient is exposed to a "safety and tolerability" message about a drug, and the physician with whom she speaks has been exposed to "efficacy" messages for the same drug, it could be difficult for them to communicate about why that drug is the best therapy. 

The most serious problem with independent message strategies is, however, related to the inferred intent of the messages. We often speak to doctors with a professional detachment that patients find alienating; when we speak to patients in a public forum about "asking their doctor," we risk implying to doctors that we are cutting them out of the diagnostic loop. These messages engender the opposite reaction to what we intend, resulting in resentment, or at a minimum, confusion.  

On the other hand, choosing a single entity working with an aligned strategy can create a unified brand value proposition, shared across stakeholders, which in turn can foster a positive dialogue.   

This was the case with a certain medication for a highly stigmatized and misunderstood condition. As the complete agency of record for the medication, CommonHealth created a unified messaging campaign designed to unfold over time in specific ways, to prepare both physicians and patients to initiate an effective dialogue. One of the core insights that cut across both professional and consumer audiences was that neither side knew how to initiate or engage in a conversation about diagnosis and treatment of this condition, largely due to misconceptions about the nature of the condition and types of patients who suffer from it. In fact, in many instances, the condition was not viewed as a disease at all. 

With these insights, the marketing plan began by preparing physicians to recognize and treat these patients, and subsequently to activate consumer-directed messaging that would drive potential patients to the physician. An initial challenge was the limited number of treating physicians in any given area, leading to a two-step messaging approach—once a critical mass of physicians was created in a given area, localized DTC would be activated to drive patients in that region to seek help.  

Channel planning was key to ensuring that the right type of patient was reached (one who was prepared to be treated in a primary care, outpatient setting) in an area where there were physicians to treat them. To this end, consumer messaging was channeled through the Internet, including a "find a doctor" feature, and localized DTC aimed at working professionals (drive-time radio, bus kiosks, etc.) The campaign has been tremendously successful.  

Forecasts were initially modest, but the brand has completely changed the perception of how the condition is managed within the healthcare system. Revenues are just under $500 million, and the brand has become the leader in a newly invigorated category. One of the key drivers of this success was the campaign coordination—including timing, channel planning, and messaging—to create a positive interaction at the moment of diagnosis.  

The lesson? A unified strategy has the intended effect upon each audience. Patient-directed advertising can help patients understand the nature of their condition and set expectations for treatment. And physicians appreciate the fact that patients are educated when discussing their disease state.  

Creating unified messaging and designing for multiple audiences is not as difficult as it sounds. In all forms of communication, we frequently talk simultaneously to more than one audience, each with a different stake in the conversation. 

For example, when one parent tells another about a child's misbehavior in front of that child (Do you know what Mary did in school today?), the second parent understands that the child's behavior is now his or her responsibility, and the child understands that parent No. 2 is now being called onto the case.  

There are times when this "one message, many audiences" strategy is simply a time-saver, but there are other times when it is an unavoidable reality. Either way, it is a common and highly effective means of communicating to multiple audiences about a topic of shared interest.  

The problem faced by brand managers is not theoretical; as users of language, we instinctively know how to talk to different audiences simultaneously, varying tone and content to achieve effect. Rather, the problem is more structural: The companies for whom brand managers work, and the agencies serving them, are designed with audience separation, not unification, in mind. This stems from historical separations and the reality that different audiences have different needs and abilities.  

However, with the blurring of channels, the distinctions have become less meaningful, and in many cases the historic separations have become counter-functional. At the very least, building and rebuilding cross-functional teams with overlapping responsibilities is inefficient. Working with multiple agencies for the same brand but different targets can result in both muddled messages and runaway fees arising from difficult collaboration.  

The good news is that the solution to the "multiple audiences, multiple channels" issue is straightforward. Instead of staffing in incrementally more complicated ways to meet multiplying responsibilities, you can simplify the structure to a single point of reference: the brand itself. In such a model, seamless integration is not the goal. Seamlessness is the goal.  

This, then, is the vision of 21st century medical marketing: a unified team executing a unified vision. When a single strategy is produced, execution becomes a question of right iteration in the right context. As our traditional views of professional and consumer messaging become a thing of the past, the brand manager who can create an internally unified team, supported by a single external vendor that is organized to service multiple needs, will ultimately succeed.  

 is vice president, strategic planner at EvoLogue, part of CommonHealth. He can be reached at 

Columns

In an era of blurred channels and information clutter, it is critical for brand managers to develop a unified strategy that bridges the gaps between audiences.

With One Voice

In any consumables market, producers rely on consumers to use their products in order to create continuing demand. In the petroleum and food industries, to cite two examples, demand is maintained by the burning of fuel and the consumption of foodstuffs. The reasons are elementary: Cars cannot run without gasoline, and people cannot survive without food; therefore, those industries don't have to convince consumers of the 

 for their products. (There is, of course, much competition within these industries, but the basic demands of the market remain the same. People need food, and cars—for the most part—need gasoline.)   

Not so, pharmaceuticals. Despite the cost and time involved in getting diagnosed, 50 to 60 percent of patients are noncompliant with their medication regimens, including one-quarter that never even fill their prescriptions to begin with. Reasons for noncompliance run the gamut from high costs of copay to lack of visible symptoms or benefits to (believe it or not) difficulty opening a pill bottle. But by far the most often cited reason for patients not following their treatment regimen is simply that they forget to take their medication. How often does that happen with food? 

And the costs are staggering. Some estimates put the price of prescription noncompliance as high as $300 billion, with one-third of that bill coming from hospitalizations, emergency room visits, and repeat physician visits.  

Yet according to Andrèe Bates, managing director of Eularis, pharmaceutical companies spend 97 percent of their marketing budgets to capture initial market share. But with fewer blockbusters coming out of the pipeline and the patent cliff looming in 2011 and beyond, revenues from first time users are going to slow to a trickle. Bates points out that because it costs six times as much to attract a new patient as it does to retain a current patient, it only makes sense that manufacturers focus on increasing yields through better patient compliance. 

And in fact, many pharma companies are directing their attention toward improved patient compliance. In "Hard Pill to Swallow," page 30, News & Online Editor George Koroneos takes a look at some of the most innovative and effective patient compliance programs in the industry, utilizing strategies such as peer-to-peer outreach, online social media, and physician education. Through these programs, manufacturers are taking steps to meet the future needs of patients and the pharmaceutical industry.   

's longtime editor, Patrick Clinton, recently left to take a position at Oliver Wyman consulting. After an extensive search, we are pleased to announce that William Looney has accepted the position of editor-in-chief, and will take the helm effective August 4. 

Bill comes to us from Pfizer, where he served as a senior director on the public affairs and global public policy team. Prior to that, he served a stint as a manager at Warner-Lambert, and held various editorial positions at The Economist Group, including senior editor at 

. He has a unique reputation in the biopharmaceutical industry as a communicator with strong content expertise, and brings a distinctive, global perspective to the magazine, along with a powerful voice to address the challenges pharma faces at this critical juncture in its history. 

Look for Bill's first editorial in the September issue of 

From the Editor

Through innovative patient compliance programs, manufacturers are taking steps to meet the needs of patients and the pharma industry.

Pharmaceutical Executive-08-01-2009

If It Walks Like a Duck

Coverage Vs. Control

Lemonade 101

Betting the Pharma

With One Voice

Sweeten the Pill