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Lilly, Glaxosmithkline moves shake up partnering prospects

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By Marie Powers
News Editor

Under Dave Ricks, sworn in at the outset of the year as CEO and elevated to the chairman's job on June 1, Eli Lilly and Co. shook up biopharma on Tuesday with its decision to de-prioritize a broad swath of early to mid-stage oncology assets. That revelation was nearly upstaged Wednesday by Glaxosmithkline plc's (GSK) disclosure, under newly minted CEO Emma Walmsley, that it will terminate, partner or divest at least 13 clinical programs and 20 additional preclinical assets and essentially place its rare disease business on the auction block.

Although the pharmas met their second quarter goals, as discussed on their respective earnings calls, their shares dipped as analysts sought to digest the changes and investors mulled the implications. Lilly (NYSE:LLY) closed Tuesday at $82.19, off $1.55, in heavy trading and slid another 35 cents Wednesday when GSK (NYSE:GSK) closed at $40.85 for a loss of $1.11.

Lilly, which promised a pipeline update in its earnings release, kept analysts waiting until the middle of its slide deck for the skinny on its new oncology strategy, the result of a review that began at the outset of Ricks' tenure. Despite persistent unmet needs in cancer treatment, "the field is becoming intensely competitive," explained Susan Mahony, senior vice president and president of Lilly Oncology. "And with the financial pressures payers are facing, the bar for innovation has increased. We recognize that we must provide drugs that deliver larger increases in survival than we've traditionally seen in the past, and we are adapting our approach to respond to these trends."

Going forward, Lilly will focus on two oncology "pillars." The first will include what Mahony called "foundational" oncology assets – key therapies on or near the market. She cited Lilly blockbusters Alimta (pemetrexed) and Erbitux (cetuximab) along with Cyramza (ramucirumab), first approved by the FDA in 2014 as monotherapy to treat individuals with advanced or metastatic gastric cancer or gastroesophageal junction adenocarcinoma; Lartruvo (olaratumab), the company's platelet-derived growth factor receptor alpha, or PDGFRa, monoclonal antibody, which received accelerated approval last year to treat adults with soft tissue sarcoma; and abemaciclib, the cyclin-dependent kinase (CDK) 4/6 inhibitor that reported success this year in a phase III study in advanced breast cancer. (See BioWorld Today, Oct. 20, 2016, and March 21, 2017.)

The second pillar, Mahony said, was designed to encompass "new standard of care-changing agents that create a very high bar." Lilly intends to pursue "breakthrough molecules across a variety of mechanisms." That definition includes immuno-oncology (I-O) assets, of course, plus candidates focused on "targets that attack human dependencies or overcome resistance in reaching the target population to drive a larger benefit."

Levi Garraway, who also joined Lilly this year as senior vice president of global development and medical affairs for oncology, said the company will fill its oncology pipeline with candidates that inhibit "a key dependency within a tumor of interest," offering meaningful clinical impact in an "index" malignancy while anchoring a regimen with the potential to change the standard of care.

"We expect that fewer assets will clear the high bar set through this decision framework," Garraway acknowledged. "However, we should be in a position to drive those assets that do clear the bar more aggressively. We simply can't afford to spread ourselves so thin that we lack the speed and focus required to accelerate potential breakthrough agents and regimens that do meet these criteria."

That yardstick left three Lilly assets – the multi-kinase inhibitor, merestinib, now in a registrational phase II study, along with a CSF1R antibody in exploratory studies and an early stage AIM2 antibody – in limbo pending near-term data.

And Lilly disclosed a basket of phase I and II assets, including wholly owned and partnered programs, "where we've already engaged or will be seeking external partners," Garraway said. For these candidates, which include ralimetinib, galunisertib and emibetuzumab, "the optimal development path will be best implemented in partnership with external entities that have specific or niche biological expertise," he explained.

"By prioritizing our assets in this way, we are giving ourselves flexibility to bet more aggressively on portfolio assets with the highest foundational potential while de-risking others externally, and importantly, making room to bring external innovation into our oncology portfolio," Garraway added.

'Targeting 80 percent of our R&D capital' in four areas

GSK unveiled its strategy during a 90-minute presentation – the first quarterly commentary for Walmsley, who took the helm in April following Andrew Witty's retirement – before taking questions. Walmsley stated up front that most of her remarks would lay out GSK's "pathway to better return," acknowledging that "longer-term performance has been weaker than we all would have liked." Sales growth was limited by slow starts or missed launches, she added, while lower contribution to profits and cash flows from GSK's largest product, Seretide/Advair (salmeterol/fluticasone proprionate), was not sufficiently balanced by R&D output. Although not mentioned directly, 2015 data from the much-anticipated SUMMIT study of the expected Advair follow-on, Relvar/Breo Ellipta (fluticasone furoate/vilanterol), failed to show statistical significance in extending the lives of chronic obstructive pulmonary disease patients, taking the shine off GSK's respiratory disease franchise. (See BioWorld Today, Sept. 10, 2015.)

On a comparative basis, GSK also allocated R&D capital "to a much broader range of projects vs. our peers," Walmsley said. Although the average spend per project was low, the company "arguably" gave back key assets with sufficient resources for strong enough data packages. Too, she said, development cycle time for GSK appeared longer than the industry average, notably in phase II.

"All of these point to the need for a significant overhaul and reevaluation of how we develop our clinical assets, and most importantly, our commercial and R&D interface," Walmsley conceded, noting that across the company's three business lines, "our priority is clearly pharma."

To that end, GSK plans to invest in a "priority list of assets," especially in the therapeutic areas of respiratory disease and HIV, where the company has a commanding market presence. HIV could bridge to a larger role in infectious diseases, Walmsley suggested, and the company will continue to seek near-term opportunities in oncology and immuno-inflammation.

"We're targeting 80 percent of our R&D capital to be allocated behind these four areas over time," she said.

Reinvestment in "more focused priorities" will be funded, in part, by halting investments "in areas and assets where we see less opportunity for GSK," Walmsley added. The 13 programs the company plans to terminate, partner or divest – others are under review and may also fall – include seven in its prioritized indications, along with five in metabolic disease and one in dermatology. Although most are phase I or II assets, the list includes retosiban, a phase III oxytocin antagonist targeting spontaneous pre-term labor. GSK also disclosed that it handed back its North, Central and South America commercialization rights to rheumatoid arthritis candidate, sirukumab, to partner Janssen-Cilag International NV. Last month, the companies presented long-term data from the pivotal phase III study of the anti-interleukin (IL)-6 antibody, expected to gain FDA approval this year, at the European Congress of Rheumatology 2017 in Madrid, Spain. (See BioWorld, June 16, 2017.)

In a single sentence, Walmsley also indicated that the fate of GSK's rare disease unit also was sealed, stating, "We've completed a strategic review of our rare diseases business and for the assets currently in our pipeline, intend to secure opportunities for further development and generation of financial returns outside of GSK to give them the very best possible chance of successful clinical development."

'Pharmas will pay out massively'

None of the revelations surprised Christiana Bardon, managing partner at MPM Capital and managing director of the firm's Oncology Impact Fund.

"Both companies feel they're being spread too thin," Bardon told BioWorld. "They both believe their productivity has been too low, and they really want to focus on their respective foundational franchises."

The Lilly and GSK moves are just the opening shots across the big pharma bow, she predicted.

"In the future, we're not going to have pharma companies which are diversified across therapeutic areas," Bardon said. "They're going to focus on their strengths and on their strongest products, and they're going to build franchises around them."

The movement of big pharma in new directions provides both opportunities and challenges for potential partners, especially small to mid-size biotechs, she suggested. For example, combination therapies will continue to develop around core assets in major indications, but pharmas will seek to maintain tight control of those assets to leverage their commercial infrastructure.

"Too, once you get into combinations, reimbursement becomes more complicated," Bardon pointed out. "If you have one drug for an indication, you get paid 1X. But if you have a second drug for use in combo, you might only get reimbursed .8X, and if you have three-drug combos that are all branded, that third drug might only get .6X. Pharmas want to control as many components of the combination as they can around their foundation franchises."

On the flip side, the Lilly and GSK realignments telegraphed tacit admission of their failure in early stage R&D.

"They recognized that they're not doing a good job and they're not getting their money's worth," Bardon said. "That's probably a conclusion we've all drawn from following pharmas for years."

But with that acknowledgement behind them, Lilly and GSK – and, likely, other pharmas to follow – will turn even more aggressively to early stage biotechs for early stage R&D. One way that may play out is "more dollars that will be moved from the R&D group into the business development group," she predicted. Pharmas also may sign more early stage partnerships – a trend that's been in the works for several years, according to data from Cortellis Deals Intelligence presented in January in conjunction with the 35th Annual J.P. Morgan Healthcare Conference. (See BioWorld Today, Jan. 10, 2017.)

On the back end, "late-stage assets, if they're still available, are going to be incredibly competitive," Bardon said. "Pharmas will pay out massively for those because they want to pay for lower risk – especially for future foundational assets."

In short, big pharma's R&D wake-up call "is great for the biotech industry," she added.

In separate notes, J.P. Morgan analyst Cory Kasimov assessed some of the impact to potential partners in the wake of the Lilly and GSK reveals. Lilly, he agreed, will look actively to bring "interesting" oncology assets in house, with the intention of increasing its activity in oncology business development. Importantly, however, Lilly "doesn't look at BD from an asset-by-asset level but looks at what could boost its strategy and where the company could add value in scientific areas where advances have been made," Kasimov pointed out.

M&A, he added, "isn't limited by size but by logic – where the company could add new value," since Lilly won't look to add value through cost synergies.

For GSK, where "business development remains focused on bolstering [the] early stage pipeline," the story is slightly different, Kasimov concluded.

"Specifically in oncology, GSK will not be looking at material transactions in this space before seeing some pending readouts from their own internal pipeline," he wrote.

Bardon advised early stage biotechs to get to proof of concept as early as possible, emphasizing that big pharma is highly focused on de-risking product pipelines.

"The ultimate proof of concept is efficacy in patients," she said. "That's the gold standard. But as an industry, we need to think about how we can better show proof of concept from biomarkers, histology and other surrogate endpoints. Sometimes we're in such a rush to get to clinical data that we may not do a good enough job of making sure we get tissue from patients and making sure we have all of the biopsy samples to assess, for example, what a given drug is doing in a tumor and what it's doing to the immune system microenvironment. Every biotech needs to think creatively outside the clinical data box."