The Friday Five – 5 questions raised this week in pharma

July 31, 2014
Ref: Friday Five Desk

Latest earning | Pfizer's M&A game | A biotech hero? | AstraZeneca's respiratory push | Restructuring at Amgen

What happened with the latest Q2 results?

Pharma moved into the third week of the Q2 earnings season, but in many cases discussion of financial results was overshadowed by broader strategic narratives.

Focus on Pfizer and AstraZeneca was natural in the wake of Pfizer's failed takeout efforts in May (see below), while Bristol-Myers Squibb and Merck & Co. utilised Q2 investor calls to tout further R&D progress (see ViewPoints: Perlmutter's pipeline narrative continues to gain momentum at Merck & Co.).

Bayer remained something of an exception, with its pharmaceutical division continuing to perform strongly due to a handful of newer products, with AbbVie and Sanofi also reporting Q2 data.

Within the biotech sector Celgene delivered a robust quarterly performance, but failed to fall into the slipstream of Gilead Sciences and Biogen Idec's earlier impressive results – indeed, the company's share price suffered as a result of comparison, while Amgen delivered a strong set of Q2 financials that were nevertheless overshadowed by the announcement of 2900 job cuts (see below for more discussion).

What game is Pfizer playing?

Pfizer's Q2 investor call was expected to be intriguing and did not disappoint. Rather than push a very public reset button as some had hoped for, CEO Ian Read opted for flexibility, suggesting that the company continues to aggressively assess business development opportunities of any size if they are conducive to adding shareholder value. Whether this was gamesmanship towards AstraZeneca or genuine suggestion that its M&A optionality is wide open remains conjecture at this point – see ViewPoints: Pfizer forced to answer some big questions.

The likes of Actavis and Mylan have been touted as potential alternative targets large enough to support a tax-inversion strategy should Pfizer not approach AstraZeneca a second time. Whether these companies hold the strategic rationale is debatable, argues Bernstein analyst Tim Anderson, and Pfizer's ability to successfully deliver innovative new drugs to the market fell under the spotlight once again this week.

In light of the recent positive data for Puma Biotechnology's neratinib (out-licensed by Pfizer in 2011) and the position of tremelimumab as a key component within AstraZeneca's immuno-oncology pipeline (also out-licensed in 2011), Pfizer was questioned over its ability to successfully identify the most important drugs in its early-to-mid stage pipeline – see ViewPoints: Pfizer defends out-licensing strategy as discarded molecules deliver compelling data.

Alan Auerbach – biotech hero?

In defending its product selection process, CEO Ian Read let slip an interesting detail – that neratinib had been offered to around 10 companies but Puma Biotechnology had been the only player interested in taking the compound on.

Defensive mindset of Read aside, Puma's decision to pick up neratinib where others saw little potential only serves to bolster the reputation of its CEO Alan Auerbach. Having sold his first company – Cougar Biotechnology – to Johnson & Johnson, a tripling in Puma's share price two weeks ago, when new Phase III data for neratinib were top-lined, has effectively made Auerbach "biotech's first self-made billionaire," says ISI analyst Mark Schoenebaum. Analysts are now increasingly confident that Auerbach can replicate his first company sale with Puma.

Feedback from oncologists polled by FirstWord this past week supports the view that neratinib holds significant commercial potential in the extended adjuvant setting for HER2-positive breast cancer patients; an indication where it will (initially at least) escape competition with Roche's suite of market-leading HER2 therapies – see Physician Views Poll Results – Oncologists bullish on opportunity for Puma Biotechnology's neratinib in HER2-positive breast cancer extended-adjuvant setting.

AstraZeneca – defensive or aggressive?

The flip side to Pfizer's ambiguous stance on future M&A optionality is continued defensive posturing at AstraZeneca, illustrated by its acquisition of Almirall's respiratory business and reinforced during the company's Q2 investor call on Thursday – see ViewPoints: Summer sale or shopaholic? – AstraZeneca's defence-minded spending spree continues as Pfizer lurks.

The Almirall purchase sends a warning shot not only to Pfizer, but also GlaxoSmithKline, which delivered a weak Q2 performance driven primarily by AstraZeneca's increased competitiveness in the US respiratory market.

Does Amgen have an identity crisis?

Amgen has for some time been recognised as the company that sits most comfortably on the fence between the biotech (what it was) and Big Pharma (what it has steadily become) sectors.

Restructuring –specifically this week's announcement that Amgen is to shed up to 2900 jobs over the next two years – thus becomes a key focus as the company makes a notable transition into 2015 when six new products could be launched.

The goal is to reallocate resources from legacy investment areas to high-growth, high-return areas, with the majority of savings generated in 2016 to be reinvested in supporting the launch of new drugs.

Whether the "confusing" restructuring initiatives are a positive development for shareholders who are looking for Amgen to re-characterise itself as a biotech player over the next few years is debatable, argues Bernstein analyst Geoffrey Porges. The savings leave "little upside in terms of future margins, cash flow or return of capital to investors. Conceptually this announcement recognizes that as Amgen moves into bigger and more competitive categories (such as cardiovascular), they will need to invest in pharmaceutical company-sized budgets, sales forces and infrastructure. Investors are likely to be surprised that such cuts are apparently necessary just to keep operating margins stable, which is our interpretation," Porges noted.

Porges has previously argued for Amgen to explore a break-up to exploit the robustness of its legacy products and deliver a separate higher risk growth company shaped around a rich but – in Porges' view – mixed late-stage pipeline.

Amgen's best chance to impress on the pipeline front remains the PCSK9 inhibitor evolocumab, the launch of which is expected to be supported by significant investment via the restructuring initiative. Although Amgen retains likely first-to-market status for this potential cardiovascular blockbuster therapy, the race continues to intensify.