Thought Leader: Room for Improvement

October 1, 2005

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-10-01-2005, Volume 0, Issue 0

When you have a workable technology, the question becomes ‘To what do you apply this technology?’ and ‘Where do you spend your time?’ We really believed we would be most successful by spending a lot of time figuring out which drugs to work on and then working assiduously on those few products with huge potential.

In an era when me-too drugs proliferate and blockbuster drug launches have slowed, some pharma companies have spotted an opportunity to focus their efforts on the generational improvement of large-category drugs. Randal J. Kirk, founder of New River Pharmaceuticals, and his drug technology team have made it their goal to do just that—introduce safer, more efficacious and reliable models of existing franchise drugs. Furthermore, these improvements, which often only involve adding one molecule, can shorten the length of time and the cost per clinical trial significantly, Kirk says. He is particularly excited about New River's drug for ADHD (NRP-104), which is currently in Phase III trials. Known for its unique dose-limiting feature that helps protect against overdosing and drug abuse, the drug has the potential to be the best ADHD drug on the market, according to Kirk. In addition, the company recently announced the filing of an investigational-drug application with FDA for its hydrocodone drug (NRP-290), which is an alternative to Lortab, Vicodin, and Vicoprofen. New River also has its oxycodone drug (NRP-360)—an alternative to OxyContin, Percocet, Percodan, and Endocet—in the preclinical-testing phase.

Randal j. Kirk

Pharm Exec: How do you determine which drugs need or could benefit from drug improvements?

Kirk: In this market, safety moves share. So if you can match or exceed the efficacy of a given drug with a well-established market, but make it safer, then you've really got every reason to believe you're going to have the best product in that segment. It's a matter of trying to invest our resources in the best way and targeting low-hanging fruit and low-risk opportunities that could be really big if they succeed. When you have a workable technology, the questions become, "To what do you apply this technology?" and "Where do you spend your time?" What we decided to do was pretty unusual compared with most other pharmaceutical companies. We really believed that we would be most successful by spending a lot of time figuring out which drugs to work on and then working assiduously on the few products that we thought had huge potential. It's all about focus. All of the drugs we look at have the same kind of dynamic—they all have enormous markets. One of the products in our pipeline is an improved version of the thyroid hormone drug, in which there are three billion doses per year in the United States. There has been no significant new development therapeutically for 50 years in this category. By liaising with a lot of the top thyroidologists, we were able to identify what the drawbacks were on the existing therapies and figure out how to develop and design a drug that should be more efficacious, safer, and more reliable.

Why spend your time improving drugs that have already proven effective?

This is something that Big Pharma used to do. In the 60s and 70s, a company like Pfizer would have never put out a product like Lipitor without already having Lipitor's replacement in development—and that product's replacement also in development. They would have had a commitment to the therapeutic category and would have been thinking about how they could improve it. But they've given up on that.

Overdose Protection Technology

Why do you think Big Pharma has stopped focusing on drug improvements?

It's a two-edged sword. I think their desire to do really sexy science overrides commercial concerns. Sometimes they'll overlook a pretty straightforward, elegant improvement on a product because it's just not very exciting to their scientists. So when you have companies like Merck and Pfizer, where the budgeting for R&D is top-down, there isn't anybody else in Merck who can authorize R&D expenditure. But when you look at Merck research labs that are given around $8 billion—you realize that these are some of the most sophisticated life scientists in the world. They want to work on things that they think are fun. Naturally, what they think is fun is cutting-edge stuff, which probably isn't the leading-edge technology. Rather, it's bleeding-edge technology.

New River recently partnered with one of your competitors, Shire, a global specialty-pharma company. What motivated this partnership?

We had done all of our planning based on the idea that we would self-market NRP- 104, our most advanced compound that is a stimulant used to treat ADHD. But then we were approached by a major pharmaceutical company that wanted to discuss collaboration, and it was then that we decided to open it up and talk with everyone who might have an interest in collaborating. We thought, let's get their proposals on the table and see if any of them beat what we think we can do on our own. We were very skeptical that any of them would do so but in the case of Shire, it was a peculiar alignment of the stars. Shire has the number-one market position in the space, as well as the best sales organization and marketing expertise in this category. But its lead product, Adderall XR, another treatment for ADHD, can be reasonably forecast to lose patent coverage in 2006, which is the very year in which NRP-104 is coming up. So it really made for a very interesting dynamic and an once-in-a-lifetime opportunity. We have a product that we think should really clutch the space. It really should be the best ADHD drug in the market if we continue to hit our marks and get it out there based on the data we have now. And here's an opportunity to commercialize it in a way so as to cannibalize the number-one franchise, while actually having it as your partner. In every other circumstance, the company would have been our principal competitor.

What are the effects of co-promoting a drug?

When we ran the numbers, we concluded that Shire could be adding more value to our shareholders than they would be taking out in profits. Furthermore, if we had not believed that the underlying economic performance of the drug on the market would be better for our shareholders than we could have done for ourselves, we would not have done this deal.

Many of these deals often have venture-capitalist backing. Why did you not allow VC involvement?

The VCs are just looking for some kind of evaluations pop so they can exit and get better bonuses based on the portfolios they have. The VCs have got a very short time horizon, and they want to de-risk as soon as possible. Because a VC investment is very risky the day it's made, they're looking for opportunities to monetize that as soon as possible. If they could monetize it the day after they made it and get 15 percent, then every one of them would take it. So that's their mentality. That wasn't our mentality. That's why we never allowed any VCs to become owners of New River Pharmaceuticals. We were looking at this in terms of long-term value appreciation. We knew we had a very interesting platform technology that could really produce a lot of value for society and for our shareholders, so we didn't want anything mucking that up.

You have developed a drug technology that helps protect against overdosing. How do you expect this to be received?

The reason our analysts are so excited about NRP-104 is because it's a molecule that is completely inert, inactive, and nontoxic. It does absolutely nothing at all until it's absorbed through a mammalian digestive system. That's when it becomes a bioactive, and almost no other method will liberate that bioactive. What we engineered into this molecule is a dose-limiting feature. While obviously you can't do overdose studies on humans, our rat data shows that we've never been able to kill a rat, no matter how many doses we have given it.

And with 15 million Americans now admitting to abusing prescription pharmaceuticals—according to recent government data—there is a clear opportunity for us to really do something socially and medically meaningful and offer consumers an advantage. Frankly, physicians are inhibited from writing for this drug category because they fear that the patient will abuse it. So we're able to reduce that concern and allow more consumers who really need these medicines to get them.

Pain specialists, for example, believe that opioid narcotics are significantly underutilized. Physicians know they could write you a prescription for Lortab (hydrocodone bitartrate/apap) for a sprained ankle and basically eliminate your pain for the next five days. But they usually don't do it because they're scared.

Can this overdose-protection technology work for several therapeutic categories?

It depends on the type of product. In the chronic pain space, it's really difficult to figure out how to use our technology appropriately because one person's therapeutic range would be another person's toxic range. So it's not really possible to think about—in the case of a chronic drug—something that a terminal cancer patient may be on for the last years of his or her remaining life.

Plus, there is an opioid-tolerance effect, so they end up having to take more and more of the medication. Our technology is less useful in that area. There certainly are medical applications for walloping doses of opioids, and certainly people who really need them, and clinicians who need to provide them. So, if you have an overdose-protection technology, then they wouldn't be able to get the therapeutic advantage. We've been struggling with this issue because one of our pipeline drugs is actually a carrier with oxycodone. As we learned that a lot of people really do need very high doses, we think we identified what is the real problem that is worth fixing, which is opioid tolerance. It's not really a question of, what's the therapeutic range or what's the therapeutic dose of opioid for a given patient. It's the fact that opioids have a tendency to induce the patient to require more and more to get the same level of analgesis.

How would you describe your interactions with the DEA?

People are so cynical about the government that sometimes they forget that you don't really need to know anybody. Our tactic is to go in the front door and talk to them and tell them what we want to do. And if they think that what we're trying to do benefits society, they'll work with us. Because we went to them early with a technology that offered some promise and asked them what kinds of tests they'd like to see for them to be comfortable with the drug, they were receptive.

Would you ever consider partnering with Big Pharma?

I can't rule it out, but it would require something more than somebody just writing a check and licensing out a drug. We're not interested in validation. But that's not to say that there couldn't be a relationship with Big Pharma on some product in the future, like we experienced with the Shire deal. It would have to be a situation where the other company is contributing more than it's taking out.

We're really not interested in empire building—we're mostly focused on our value per share. When you have that focus, it's going to change how you analyze these opportunities. We would have to evaluate each opportunity in terms of what such a transaction really does for our shareholders.

Randal J. Kirk is founder of New River Pharmaceuticals. He has served as the company's director since August 1996, as chairman of the board since 1996, and as president and CEO since October 2001. He has over 20 years of experience in the healthcare industry. Previously, in 1983, he co-founded General Injectables & Vaccines, a pharmaceutical distributor, and served as chairman of the board until the company was sold in 1998. He also was a member of the board of directors at Scios (recently acquired by Johnson & Johnson), between February 2000 and May 2002.

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