Not many events have sufficient gravitas to move shares in £64bn ($103bn) GlaxoSmithKline these days, a fact that puts the significance of today’s 3.5% gain into perspective. The trigger was news that Sandoz is backing away from developing a generic version of asthma drug Advair in the US, a decision that dealt a painful blow to its partner Vectura, whose market value plummeted by a fifth in response.
However, Sandoz’ move is about more than simply making a call on a development deal with a smaller partner. The FDA’s cautiousness in approving new combination drugs and lack of clarity on regulatory pathways, on top of misgivings about certain products already available, is whipping up a perfect storm for companies trying to take new respiratory medicines, branded and generic, to the US market. Sandoz clearly views the waters too choppy to justify a crossing at the moment, a decision that validates Glaxo’s confidence in the robustness of its most valuable asset (Glaxo banking on Advair longevity, January 14, 2010).
Sandoz gave no reasons for its decision to hand back US rights to the product, called VR315, but given a development deal covering Europe remains in place, this suggests the regulatory climate in the US is to blame.
Vectura has been working with Sandoz on the project since 2006 and although it has never been officially confirmed by either party as an Advair generic it is widely accepted that this is the case. The product uses a different inhaler device, Vectura’s GyroHaler.
The presence of a new device throws up one of the main hurdles generic combination respiratory products face – in this case establishing that the two drugs are delivered in exactly the same way as with Glaxo’s Diskus inhaler. The FDA has yet to give clear guidance on how this should be proven, despite the situation being under review for some time.
A generic drug needs to establish bioequivalence to the marketed branded version for it to be processed by the FDA’s generics division via an abbreviated new drug application (ANDA). Stefan Hamill, an analyst at Execution Noble, believes that Sandoz may have come to the conclusion that the ANDA pathway, representing the most profitable route to market because the product could be substituted for branded Advair, is too hard to travel.
The alternative route, using the so called “branded generic” or 505(b)2 pathway, is unlikely to appeal to Sandoz. “It is less profitable because you have to set up a competing brand, and you don’t get direct substitution,” he said.
Towards the end of trading today shares in Vectura were trading 14½p lower at 49p, betraying understandable disappointment from investors who see the company shouldering all the risks, and the costs, of this project in the US, the uncertainties about which have been laid bare by Sandoz’ decision.
The British respiratory specialist company, however, maintained a note of optimism, pointing out that it now holds all the rights to a potentially very valuable opportunity, which it fully intends to pursue. Vectura will receive $9.5m next quarter as the deal unwinds, on top of which Sandoz will put a $25m loan facility in place to fund US development.
“As far as we are concerned this is not a decision that was data driven,” Chris Blackwell, chief executive of Vectura, told EP Vantagetoday. He said the move will help the company fulfil its ambitions in the US, to establish a small marketing operation.
Should approval ultimately be won Vectura will not take on all the marketing and Sandoz has first right of negotiation over co-promotion in the US, if it wants to buy back in. “As soon as this product gets close to market there will be a lot of competition for companies that want to take co-marketing rights,” Mr Blackwell said.
However, as with most generic projects the progress of VR315 remains a closely guarded secret and Mr Blackwell declined to reveal how close to filing the product is or which regulatory pathway might be pursued. This final detail could make a big difference to the ultimate value of VR315 in the US, and to Vectura.
Of course, as well as regulatory hurdles there is the issue of the FDA’s concern over the safety of long-acting bronchodilators, one of the components of Advair and VR315. The regulator came out surprisingly aggressively against their use earlier this month, and demands for further testing are now expected. This is less of an immediate worry for Vectura, but it does add to the climate of uncertainty and quite possibly helped Sandoz make its decision (Nervous months ahead as FDA verdict on LABA asthma drugs awaited, March 15, 2010).
There is no question that VR315 remains a valuable asset and should the regulatory mists clear favourably in the US, that value could grow considerably.
However, despite Vectura’s positive mental attitude the fact that one of the biggest and wealthiest generic companies in the world has decided not to pursue the project in the US is hardly encouraging.
For Glaxo, of course, this is all good news, and the US Advair franchise continues to look surprisingly bullet proof.