A J&J Copycat Could Extend Old Drug's Life

With the FDA set to act today on the marketing application for paliperidone, a once-a-day schizophrenia drug from Johnson & Johnson, the company hopes it will pass muster handily. There's reason for optimism: The new drug is derived directly from Risperdal, a blockbuster schizophrenia drug and J&J's best-selling product last year, with sales of $3.55 billion.

But Johnson & Johnson plans to market the new treatment as a significant improvement over Risperdal. As a result, J&J and paliperidone have drawn scrutiny from the medical community and raised doubts on Wall Street.

Risperdal's rebirth as paliperidone is the latest wrinkle in the quest by pharmaceutical companies to extend sales and profits from aging blockbusters whose patents are about to expire by tweaking and relaunching them under new names. Generic Risperdal, or risperidone, could be available as soon as next year or 2008. J&J hasn't yet selected a marketing name for paliperidone.

The issue has broad implications as consumers, employers and government programs struggle to pay for rising prescription-drug bills. Pharmaceutical companies extol their commitment to ground-breaking research, but some of their leading drugs are spitting images of previous hits.

After a patient swallows a dose of Risperdal, usually a tablet a day, the liver transforms the medicine into paliperidone, the active substance inside the body. By marketing paliperidone as a new drug, J&J would perform this act of metabolism inside the lab; the new pill would release the chemical over 24 hours. J&J expects paliperidone, if approved, to bring five more years of marketing life to its antipsychotics line.

As drug makers' research labs have sputtered in recent years, many companies have propped up sales by marketing reworked versions of older products that are set to go generic. Chemically, the new drugs are just different enough to win more patent life. But they offer scant medical advantages over their predecessors despite costing much more than generic versions of the old hits, critics say.

Copycats have included Schering-Plough Corp.'s Clarinex, an antihistamine that in 2002 replaced the megahit Claritin, which rode a wave of direct-to-consumer advertising to $3.2 billion in annual sales at its peak in 2001 before going generic. Likewise, in 2002, Forest Laboratories introduced the antidepressant Lexapro, a derivative of the antidepressant Celexa that has gone on to supplant Celexa as the company's best-seller. AstraZeneca PLC's purple Nexium pills replaced Prilosec. Nexium has become AstraZeneca's best-selling drug, as Prilosec once was, with $4.63 billion in sales last year.

Drug maker Wyeth is seeking FDA approval of desvenlafaxine, derived from the main ingredient in the antidepressant Effexor XR, which is Wyeth's No. 1 medicine, with sales of $3.46 billion last year. Effexor XR is facing the prospect of generic competition in a few years.

A backlash is brewing among payers. UnitedHealth Group Inc., the managed-care giant, decided this month to stop paying for Nexium, citing the availability of less-expensive and equally effective options. UnitedHealth says the move could save it $150 million.

J&J executives, through a company spokesman, declined to be interviewed about paliperidone, citing today's deadline for FDA action on its marketing application. In July, Joseph Scodari, J&J's world-wide chairman for pharmaceuticals, told analysts during an earnings conference call that paliperidone will hit the "sweet spot" in the market for antipsychotic drugs by "combining best-in-class efficacy with an excellent safety and tolerability profile, in a convenient dose."

Earlier this month, at a Bear Stearns conference, Vice Chairman Robert Darretta said J&J sees paliperidone as "the best-in-class antipsychotic," according to a Thomson Financial transcript. It "will give us the opportunity to compete for business not simply with Risperdal users, but users of all antipsychotics."

Is paliperidone better than risperidone? A lot of money is riding on the answer. Medicaid and other government insurance programs pay a big portion of the drug bill for the mentally ill. Some 30% of Risperdal's $1.35 billion in U.S. sales through August this year were to Medicaid, according to data from WoltersKluwerHealth. The most popular doses of Risperdal cost about $4 a pill. When a generic version of Risperdal becomes available, these plans and consumers could save millions of dollars by using the less expensive alternative.

David Norton, a J&J pharmaceutical executive, acknowledged doubts at a Merrill Lynch conference in London last week. "Everyone is asking the question, So how does this fit, and how will it fit, into our market? Is it better than risperidone?" he said, according to a Thomson transcript. Paliperidone has "a more benign side-effect profile," he said, adding, "We are feeling pretty confident about the drug in terms of efficacy."

The research backing J&J's claims for paliperidone seems a little thin. Clinical tests, involving 1,600 patients, pitted it against a sugar pill, not Risperdal or other antipsychotic drugs, a company spokesman confirmed.

"They can't claim it's better than risperidone because they didn't do the comparison," said P. Murali Doraiswamy, a psychiatry professor at Duke University, who reviewed the publicly available clinical data on paliperidone and wasn't involved in testing it.

In presentations at medical meetings over the past year, J&J has said that, as expected, paliperidone was more effective than a placebo in relieving symptoms of schizophrenia at six weeks, delayed recurrence of symptoms when measured as long as 11 months, and was well tolerated. Common side effects included rapid heart beats and insomnia.

Paliperidone "doesn't represent any kind of quantum leap in efficacy or tolerability" over existing antipsychotic drugs, said Norman Sussman, a professor of psychiatry at New York University, who wasn't involved in testing it. He said he expects J&J's marketing of "fine distinctions" will sway some doctors but said he plans to use it mainly for patients who have had bad reactions or haven't responded to other drugs.

J&J has cited dissatisfaction with existing medicines as an opening for paliperidone to gain traction. "We need more choices, and we need better medicines," said John Kane, a psychiatrist at Zucker Hillside Hospital in New York and a paid consultant to J&J. "No one medicine is going to work for everyone."

The antipsychotic drug market is highly fragmented because few of them work well for a large percentage of patients. Jeffrey Lieberman, a professor of psychiatry at Columbia University, confirmed that in a landmark study last year but said, paliperidone "is not producing much in the way of advances."

J&J declined to discuss pricing. Analysts expect the new drug's prices to be similar to or slightly less expensive than Risperdal. A generic version of Risperdal would be significantly less expensive than either Risperdal or paliperidone.

In the absence of comparative studies, doctors are left to their own devices in evaluating paliperidone. Next year, the picture could get a bit clearer. J&J has begun head-to-head tests of paliperidone against AstraZeneca's Seroquel, the most-prescribed antipsychotic in the U.S., for treatment of schizophrenia and bipolar disorder. Those results won't clarify whether paliperidone is better than Risperdal.

Some analysts have forecast sales for paliperidone as high as $2.5 billion in 2010. Tony Butler, a Lehman Brothers' drug analyst, said he questions J&J's ability "to grow future antipsychotic sales" with paliperidone. "We're unaware of any substantial additional value in paliperidone over Risperdal," he said. Lehman estimates annual sales of paliperidone will peak at $1.5 billion compared with a peak of $4.5 billion for Risperdal.

How Merck Saved $1.5B Paying Itself For Patents

SOUTHAMPTON, Bermuda -- Merck & Co.'s medications Zocor and Mevacor have been used by millions of people to help lower their cholesterol. But Merck also used the drugs to lower something else: its U.S. tax bill.

Thirteen years ago, Merck set up a subsidiary with an address in tax-friendly Bermuda, in partnership with a British bank. Merck quietly transferred patents underlying the blockbuster drugs to the new subsidiary, according to documents and people familiar with the transaction. Merck then paid the subsidiary for use of the patents.

The arrangement in effect allowed some of the profits to disappear into a kind of Bermuda triangle between different tax jurisdictions. The setup helped Merck slash $1.5 billion off its federal tax bills over roughly the next 10 years.

Now, the complicated transaction -- never publicly disclosed -- has sparked one of the largest tax disputes ever involving a U.S. corporation. The Internal Revenue Service is challenging the tax benefits from the arrangement, which the company code-named "Project Ryland," after a fancy restaurant near the company's New Jersey headquarters. Merck anticipates it will be ordered to hand over a total of $2.3 billion in back taxes, interest and penalties, according to its filings with the Securities and Exchange Commission, which give the amounts in dispute but virtually no other details.

Merck says it did nothing wrong and that the deal was simply a way of raising financing for its 1993 acquisition of a pharmacy-benefits management firm, Medco Containment Services Inc. "We believe the partnership transaction is in full compliance with IRS rules and regulations and we vigorously disagree with the proposed IRS adjustments," says Merck spokesman Raymond Kerins, who declines to discuss details of the dispute.

The IRS won't discuss its objection to the Merck partnership. But it is pursuing actions against Dow Chemical Co. and General Electric Co. over similar arrangements they set up within a few months of the Merck deal. Those, federal tax authorities have argued, weren't real partnerships with foreign banks but just well-disguised loan agreements, designed to avoid taxes by maneuvering between the tax laws of different countries, with no economic substance.

The Second U.S. Circuit Court of Appeals last month reversed a trial court and declared that foreign banks in the GE deal were not "bona fide equity partners," a victory for the government in its battle over $62 million in back taxes. GE is seeking a rehearing. Meanwhile, in a little-noticed dispute in U.S. District Court in Baton Rouge, La., the IRS claimed last year that Dow improperly lowered its tax bill by about $130 million by shifting income, through a partnership, to a consortium of German, Dutch, U.K. and Belgian banks. Dow says the arrangement was legitimate financing and is suing the government to try to keep the money.

As part of that case, the Justice Department says in a court filing it anticipates taking "extensive discovery" from investment bank Goldman Sachs Group Inc., which helped structure both the Dow and Merck deals. Goldman spokesman Peter Rose said, "We take enormous efforts to ensure our transactions comply with applicable tax laws."

The cases are part of an attempt by U.S. authorities to crack down on what is often called "tax arbitrage." The usual strategy: lower a company's tax bills by structuring transactions so certain types of income or expenses are classified as one thing by the IRS, but something very different by another country's tax regulators.

Often the strategies are aided by overseas banks or nonprofit organizations that use complex legal structures to effectively share their tax advantages with U.S. companies. U.S. and U.K. banks also have teamed up to devise structures that lower each other's taxes. IRS Commissioner Mark Everson warned a U.S. Senate panel in June that strategies like those are "on the rise."

Mr. Everson named tax arbitrage as among the most significant enforcement problems the agency faces. He said the IRS has formed a team to consider crafting new international treaties, as well as performing tax audits that would simultaneously look at a company's tax obligations in multiple countries.

Proponents of the deals say it's only smart business to take advantage of U.S. loopholes and the differences among tax rules around the world. Technology and pharmaceutical companies, for instance, are aggressively shifting intellectual-property assets to countries with far lower tax rates, such as Singapore and Ireland.

Merck's potentially costly dispute with the IRS comes as the company battles more than 14,000 lawsuits related to its now-withdrawn Vioxx pain reliever, with its projected liability topping $4 billion. Like other big drug makers, Merck's biggest sellers are losing patent protection while its newer drugs are not expected to make up the lost revenue.

Many of the strategies like the ones used by Merck, Dow and GE were inspired by one man.

In 1988, longtime tax attorney and New York University law school professor R. Donald Turlington published an influential article in the proceedings of a tax conference. Subtitled "The Art of Tax Avoidance," the article began with a 1931 quote from the late Chicago Mafia boss Al Capone: "A good lawyer with a briefcase can steal more than ten men with machine guns."

In the article, Mr. Turlington laid out ways companies could lower their taxes by exploiting a loophole in the way income was allocated within partnerships for tax purposes. He focused on the concept of depreciation, a key tool to lowering taxes.

For example, in the U.S. a factory is considered to have a finite life of 39 1/2 years and loses its value gradually during that life. An owner is allowed to deduct a portion of its cost each year, so if the factory cost $39.5 million, the company can deduct $1 million a year from the plant's taxable income. But after that, a company can end up with considerable income from the asset and no offsetting deductions. In the case of pharmaceutical patents, tax write-offs generally are used up during research and development.

Mr. Turlington pointed to a way around such problems by putting the already-depreciated asset into a partnership, and allocating some of its taxable income to a member of the partnership that for one reason or another wouldn't mind shouldering it. That could reduce the tax bill for the company contributing the assets.

Mr. Turlington called on the government to close this loophole, and in December 1992, the U.S. Treasury Department decided to do just that, proposing an "anti-abuse" regulation. But before the government finalized the new regulations a year later, several companies moved to shift assets and establish partnerships to exploit the loophole.

Mr. Turlington himself helped structure the Merck deal, counseling Goldman Sachs on the transaction, despite his call for the law to be changed.

Merck, GE and Dow Chemical also were aided by some of the country's most prominent partnership tax lawyers, who also once served in high government tax posts. William Nelson, a former IRS chief counsel, advised Merck and GE on their deals, according to people with knowledge of his involvement. The firm he founded with William McKee, a former University of Virginia law professor and U.S. Treasury Department tax legislative counsel, litigated the GE dispute with the government at trial. The firm also is representing Dow in the litigation over its disputed partnership. Mr. Nelson and Mr. McKee declined to comment on the Merck deal.

In July 1993 -- about six months after the government identified the partnership loophole -- Merck announced a $6 billion deal to acquire Medco, the pharmacy-benefits manager. It had cash on hand to fund only part of the giant purchase, and said at the time it would need additional financing.

Sometime before the Medco deal was announced, a Goldman banker named David Ackert, along with Mr. Turlington, presented Merck officials with the partnership idea as a way to raise financing and enjoy significant tax savings. Mr. Ackert, who no longer works for Goldman Sachs, referred questions to the investment bank.

At the time, Merck's Mevacor and Zocor were two of the company's biggest-selling drugs. Merck no longer had deductions to write off against the patents, according to a person familiar with the matter.

A few weeks before the Medco deal was announced, Merck transferred ownership of the patents to a new Delaware subsidiary, MSD Technology LP, and then registered other Merck subsidiaries that were partners in MSD to do business in Bermuda, according to U.S. patent records and Bermuda company records.

For its deal to work, Merck needed a partner willing to absorb taxable income. It chose a midsized British bank, a unit of Abbey National PLC. The negotiations with Abbey took place in London, Toronto and Bermuda, according to people familiar with the talks. They were held overseas to forestall any issue about whether the partners and the partnership were doing business in the U.S., which could jeopardize the deal's tax treatment. Merck and Abbey's lawyers and investment bankers hammered out much of the complex structure between bowls of fish chowder at Bermuda's posh Southampton Princess hotel.

According to a document filed in an unrelated lawsuit, Abbey took a limited partnership interest in MSD. The arrangement, according to people familiar with the situation, involved Abbey contributing several hundred million dollars in cash to the partnership in exchange for a minority stake. Merck then began paying royalties to the MSD partnership to use the patents covering the anti-cholesterol drugs, these people said.

In effect, Merck was paying itself -- its subsidiaries still owned a majority of MSD -- for the right to use drugs its own scientists had developed. The royalties it paid then largely went straight back into its own coffers, as much of the money was lent to Merck through another subsidiary, according to the people familiar with the transaction. A subsidiary of MSD collected the interest, most of which effectively was returned to Merck when the partnership was liquidated.

The convoluted arrangement gave Merck a sizable tax reduction for roughly a decade. On MSD's internal books -- and only there -- a portion of the incoming royalty payments were allocated as taxable income to Abbey. That reduced Merck's tax liability.

In a crucial element of the deal, Abbey wasn't liable for those taxes either, because U.K. authorities didn't recognize tax allocations within the books of U.S. partnerships.

In return for its initial cash contribution, Abbey received a stream of payments from MSD. Mr. Turlington and companies that have set up similar transactions liken the payments to preferred dividends. The government has called deals like these loan agreements, not partnerships with the foreign banks, and argued that the cash payments to the banks are really loan interest. In that case, the tax burden can't legally be shifted.

Mr. Turlington, now retired, says the Merck deal with Abbey was a tax-advantaged way to raise significant capital, and not simply a tax-saving measure. "In my mind the question with a deal like Merck was, and still should be, 'Can a taxpayer who decides to do something for a legitimate business reason, like raising [money], do it in a way that's tax efficient by taking advantage of a rule that the government wrote?'" He added: "Merck's obligation is to do the best it can for its shareholders. If you were going to write that Merck is under some higher social obligation to maximize its taxes, that would probably catch Merck by surprise."

The deal also had another benefit: The money raised from Abbey wasn't recorded as debt, so didn't jeopardize the company's stellar credit rating.

Abbey, which has since been purchased by Spain-based Banco Santander Central Hispano SA, said it had no comment on the transaction.

In April 2004, the IRS gave Merck a preliminary notice that it was disputing the company's taxes for four years beginning in 1993, the year the Bermuda partnership was established. Late last year, the tax agency finalized that decision for 1993, and proposed disallowing tax benefits from the following three years, according to Merck's SEC filings. Merck says in the filings that it expects similar final notices for subsequent years.

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Savings Plan How drug maker Merck's tax-saving partnership worked with U.K. bank Abbey National PLC: -- Merck sets up MSD Technology LP and contributes its patents for Zocor and Mevacor. -- Abbey unit buys a portion of MSD for cash; the majority is owned by Merck subsidiaries. -- Merck pays MSD royalties to use patents it formerly owned. -- On MSD's books, some taxable income is technically allocated to Abbey, reducing Merck's tax liability. -- Abbey isn't taxed by the U.K. on the allocation. It also receives smaller, taxable cash payments from MSD. -- MSD indirectly loans Merck back much of the money Merck paid it for patent use. -- Merck pays interest but largely recaptures it when the partnership is liquidated.

Finland's Culture Makes For Great Medical Trials

When a major medical study requires years of intensive patient participation, such as daily injections or weekly hospital visits, researchers head to Finland.

This chilly country of 5.3 million people is a key place for research, doctors and drug companies say, citing a national culture of reliability and meticulous records on the population's health history.

"Finnish patients don't just disappear and drop out of studies like in other countries," says Juhani Ramoe, medical director of Sanofi-Aventis SA's Finnish unit, which focuses on psychiatric, cardiovascular, and diabetes medications.

Groundbreaking Finnish studies already have helped uncover some of the causes of heart disease. Much of the current drug research in the country is focused on cancer, capitalizing on a trove of detailed case records and population data. Every Finnish cancer case since 1953 is logged in a database kept by the Cancer Society of Finland. Minute details are recorded, from the type of tumor to the course of the patient's illness, giving researchers a crucial baseline for identifying larger cancer trends or measuring the effectiveness of experimental treatments. The country has separate databases for heart disease, diabetes and a range of other illnesses.

"I call it our gold mine," says Eero Pukkala, the cancer registry's director of statistics. "We can take the exact coordinates of every landfill site, magnetic field, and polluted area and records on people's residential history and cross-reference all of this with our cancer registry."

John Boice Jr., a cancer epidemiologist at Vanderbilt University in Nashville, Tennessee, and the scientific director at the International Epidemiology Institute in Rockville, Maryland, has been conducting research in Finland for more than 20 years. In one study, he cross-referenced the country's cancer and population databases to determine whether people who use mobile phones have a higher risk of cancer; they don't, he found. Finland has "phenomenal health registries that facilitate high quality medical research," Mr. Boice says.

Finland's databases are the legacy of centuries of population registration, first used by a ruling Swedish king in the 1500s. Other Nordic countries have similar databases, but Mr. Pukkala said Finland's databases are more easily cross-referenced and were the first to go digital, starting in 1961, when 80 characters from each case were stored. By the mid-1980s, every case since 1953 was fully digitized, including doctors' handwritten notes.

"You can't have these kinds of registries in the U.S.," says Sanofi's Dr. Ramoe, who trained as a chest surgeon and spent part of his career as a researcher in Ohio and Florida. "The system is too big, and there is too much variation in the quality" of care and research methods. He says Finland is a better environment than the U.S. for clinical studies.

For this reason, pharmaceutical companies are placing large bets on Finland. Thirty-seven drug makers conduct clinical trials in the country, with 410 studies involving almost 34,000 patients under way at the end 2005, according to Pharma Industry Finland, an industry lobby group. By comparison, in the U.K. -- Europe's largest site for drug trials -- between 1,000 and 1,110 trials are approved every year, though not all are carried out, according to the Medicines and Healthcare Products Regulatory Agency in London.

Heart attacks first put Finland on the medical-research map. The country long suffered from one of the world's highest rates of cardiovascular disease. In the early 1970s, Pekka Puska led a research team that set out to understand why. Dr. Puska, who now heads Finland's National Public Health Institute, studied Northern Karelia, a region in eastern Finland where men in their 40s were dying from heart attacks. He used what was then a novel approach, looking at broader features of the community rather than just examining sick patients.

"We had a huge advantage doing the research in this area," Dr. Puska says, citing reams of health records and the population's homogenous habits that included a diet heavy in butter and sausages. Dr. Puska and his team urged people to eat less fat. They lobbied local dairy farmers to switch to crops like apples and berries and passed out leaflets in local supermarkets detailing the benefits of a healthier diet. Smoking and alcohol also were singled out as risk factors.

Because of Dr. Puska's work, overall life expectancy for Northern Karelian men is now 73 years, up from the 65 years seen when the study began. Meanwhile, mortality rates for males in their 40s have dropped by more than 80%.

Thirty years ago, Ilpo Antikainen, a financial adviser from Northern Karelia, would have been a prime candidate for a fatal heart attack. Today, the 46-year-old, a burly man with a brush of blond hair and a neatly trimmed mustache, has better prospects. "I don't eat too much grease or salt, and I try not to drink too much," he says over a single beer with colleagues in Helsinki. No one at the table is smoking. "It's because of Pekka Puska," he adds, without prompting.

This kind of dedication to healthier living shows a diligence that makes Finns ideal research subjects. Dropouts -- the patients who quit taking medicines or stop showing up for tests -- are the bane of medical research. They are expensive since they often receive special medical care or costly drug compounds without contributing to a study's final results. Dropouts can also skew crucial data, especially if they disappear without giving a reason. Dropouts are rare in Finland, according to Anita Leppamaki, who coordinates Sanofi's drug trials in the country. While she admits that middle-aged Finnish men can be a "difficult breed" who often resist going to the doctor, she says they almost always show up for tests and follow-up appointments, sometimes dragged in by their wives. "Their sense of duty prevails," she says.

National culture shouldn't be underestimated, doctors and researchers say. Finns are famous for a quality called "sisu," a term that has the sense of never giving up and was long used to describe to the country's world-class long-distance runners, according to Stephen Mitchell, who heads Harvard University's folklore and mythology department.

A heart study in the U.S. typically has a 20%-30% dropout rate, according to Eric Topol, a cardiologist at Case Western Reserve University in Cleveland. The dropout rate for similar studies in Finland is half that or less, Sanofi's Dr. Ramoe says.

"Over the past decade there has been an attrition of trust in clinical research in many countries," says Dr. Topol, who blames well-publicized disasters like a recent U.K. study where several patients almost died after taking an experimental anti-inflammatory drug. Finland has never had such a scandal, and patients remain enthusiastic test subjects, researchers say.

Admittedly, Finland is a bad choice for some next-generation pharmaceutical research, such as trials for new drugs to treat high blood pressure or diabetes. The country's health system provides high quality, free care, so patients with such problems typically are already taking proven medications, making them reluctant to try experimental drugs. For so-called naive patients who aren't receiving existing treatments, companies like Sanofi look to Eastern Europe or India, according to Dr. Ramoe.

Finns are better suited to long-term, strenuous testing. A daily insulin injection demands discipline, especially for people who don't have diabetes. That is just the sort of thing Finns are good at, making them ideal guinea pigs in a current study at the Helsinki University hospital probing the link between elevated blood-sugar levels and cardiovascular disease.

More than 200 patients are keeping their plasma blood-sugar levels in a tightly controlled range, said Mikko Syvanne, one of the lead investigators in the international study, which includes about 13,000 patients world-wide. Dr. Syvanne, a cardiologist, says Finland likely will provide key data for the study, due to finish in two or three years. He notes that an earlier blood-sugar trial in the U.K. was plagued by dropouts and turned up inconclusive results. "Finns have benefited from medical research," Dr. Syvanne says. "My patients often tell me how they feel they should give back, how they have an ethical purpose in participating."

Glaxosmithkline:FDA OKs New Indication For Epilepsy Drug

GlaxoSmithKline PLC's (GSK) anti-seizure medicine received approval to treat Primary Generalized Tonic-Clonic, or PGTC, seizures from the Food and Drug Administration.

The U.K. pharmaceutical company said the drug, Lamictal, was approved to treat children age two and older, as well as adults.

GlaxoSmithKline said PGTC seizures are are among the most-serious and most-common type of generalized seizures, occurring in about 20% of patients with epilepsy.

Epilepsy is a recurrent, unprovoked seizure characterized by a change in sensation, awareness, or behavior brought about by an electrical disturbance in the brain.

This is the fifth FDA approval for Lamictal, which has also been approved to treat partial and generalized seizures and can be used as maintenance therapy for adults with bipolar I disorder.

GlaxoSmithKline said the FDA's approval was based on a multicenter trial in pediatric and adult patients, and was shown to be "highly effective" in reducing the frequency of generalized tonic-clonic seizures by 66%.

More recent approvals at Drug Pipeline

Booming Russian Pharma Market Set For Further Growth

Improving economic conditions and a billion-dollar state healthcare initiative helped to make Russia Europe's fastest-growing major pharmaceuticals market last year, and that growth looks set to continue, analysts say.

Pharmaceutical companies are seeing rampant sales growth, highlighting the steady transformation in Russia's economic fortunes and increase in individual wealth. Russians' disposable income grew by an inflation-adjusted 8.7% in 2005, far in excess of European or U.S. growth rates, while its pharmaceuticals market saw sales of $9 billion last year, up 35% from 2004, according topharmaceutical research and development company DSM in Moscow.

Add to this a state-run drug program and Russia's aging population, and multinational corporations looking to increase sales have an attractive mix analysts say.

Large-scale foreign investment in Russian pharmaceutical manufacturing has yet to emerge, but industry experts say this could change if sales growth continues to accelerate, European manufacturing standards are more widely adopted and local companies continue a wave of new investment.

Already, major European pharmaceutical companies are benefitting from rising Russian demand for their products, and with the average price of medicinein Russia last year just $1.90, compared with $4.39 in Poland, $15.05 in Italy and $31.46 in Germany, there is plenty of scope for margin growth.

French company Sanofi-Aventis SA (SNY), Europe's largest pharmaceutical company by sales of prescription drugs, is "expanding rapidly" in Russia, according to the company.

Patrice Layrac, general manager for Sanofi-Aventis in Russia, told Dow Jones Newswires that the state drug program, given the acronym DLO in Russian, now accounts for around 25% of the company's sales in Russia.

"The federal reimbursement program is a very important step for Russia's healthcare system and is having a great impact on the development of the country's pharmaceutical market," said Layrac.

The DLO program, which provides pensioners and low-income families with free medicines, received $1.4 billion from the state on its launch in 2005. Around 85% of the program's 2005 budget was spent on foreign-made drugs, but the government is trying to reduce this figure to provide a stimulus to local manufacturers. Although a small proportion of the $9 billion Russian pharma market, this could tempt more foreign companies to invest in local production, analysts say.

"The DLO program will be widened in 2007 and 2008 to include all men over 65 and all women over 60, and other social groups including pregnant women and young children," said Ramil Khabriev, the head of Roszdravnadzor, the Federal Supervisory Service for Health and Social Development Issues.

And the country's older citizens are rapidly increasing in number. "The fastest-growing section of the population is the 60-64 year olds, which is expected to expand by 78.5% over 2006-2016, while the second fastest-growing group, 50-64 year olds, should increase by 39.3%," according to a report by Moscow-based investment bank Troika Dialog.

DSM sees Russia's pharmaceutical market generating revenue of $15.5 billion by 2010. Already, the 35% growth in pharmaceutical sales generated in Russia in 2004-2005, albeit from a lower base, far outstrips growth of 4% in the U.S., between 2% to 9% in Western Europe and 28% in China.

European pharmaceutical companies with a Russian sales presence are already benefiting from this growth. France's second largest pharmaceutical company after Sanofi-Aventis, privately-held Servier, posted a 58% increase in its Russian sales to $146 million last year, and it has started to build a $45 million drug manufacturing plant outside Moscow.

A spokeswoman for Novartis AG (NVS) of Basel, Switzerland, the world's fourth-largest pharmaceutical company by prescription drug sales, called the Russian market "very exciting." Novartis has categorized Russia, along with China, India and Turkey, as a priority emerging growth market.

Still, despite strong sales growth, the Novartis spokeswoman said that it was too early to talk about acquisitions or large-scale investment in manufacturing. Analysts agree the principal focus right now is sales.

"Most big drug companies already have a sales presence in Russia, but many are hesitant about going that one step further and actually establishing a Russian manufacturing base," said Mitra Thompson, a London-based analyst with consultants Global Insight.

Thompson said aging infrastructure and few production sites with European-standard Good Manufacturing Practice, or GMP, mean few European companies are prepared to invest in manufacturing. But Khabriev said this will change.

"We are definitely going to switch the sector to all-GMP, starting with infusion drugs, although we don't have a specific date at this stage," said Khabriev, adding that all new producers must meet the standards.

About 60% of intravenousdrugs manufactured in Russia conform to GMP standards, according to Khabriev.

One of Russia's most attractive manufacturers, Nizpharm, was snapped up by Germany's Stada Arzneimittel AG (SAZ.XE) for EUR80 million in 2004. Nizpharm saw revenue surge 51% to EUR36.26 million in the first half of 2006.

Since then, though, M&A from abroad has been limited to the U.K. company Alliance Unichem's - now known as Alliance Boots PLC (AB.LN) - GBP20 million acquisition of Russia's fifth-largest distributor, Apteka Holding, in February. Only Hungary's Richter Gedeon RT (RICHTER.BU) and Slovenia's Krka (KRKG.LJ) so far have direct manufacturing capacity in Russia. Richter Gedeon and Krka retain a strong presence originally gained during the Soviet era when medicine production was farmed out to Eastern Bloc countries.

In terms of acquisitions, "wholesalers could be a more attractive option (compared with manufacturers)," said Global Insight's Thompson, given their involvement in supplying medicines to the DLO program.

Local manufacturers are starting to find their feet after struggling over recent years because of a lack of financial clout. The demand stimulated by the DLO program is encouraging them to raise money to invest in growth.

"The situation is changing," said Vadim Muzayev, chief executive of the country's top pharmaceutical distributor, Protek. "Companies now have access to cheap financing and are preparing to list their shares, if they haven't already," he said. Protek, with 2005 revenue topping $2 billion, also produces four products for Sanofi-Aventis at a new GMP-standard production facility in Moscow, built and owned by Protek.

Generic drug manufacturer OAO Verapharm, controlled by OAO Pharmacy Chain 36.6 (APTK.RS), sold just under 50% of its shares domestically in April for $140 million, while OAO Otchestvenniye Lekarstva, Russia's second-largest drug maker, has plans to go public in the next couple of years.

"Russia was the world's 12th largest (pharmaceutical) market last year and it still has huge potential," said Muzayev.

Nycomed Buys Altana Drug Unit For Around EUR4.5B

German drug and chemicals maker Altana AG (AAA) said Thursday it will sell its pharmaceutical business to Danish drugmaker Nycomed for around EUR4.5 billion.

Altana, based in Bad Homburg, put the unit up for sale last year because the business is lacking is lacking scale to successfully compete in a global pharmaceutical market, marked by ever rising costs for the development of new medicines.

The price of around EUR4.5 billion is below the EUR5 billion to EUR6 billion, which the company and analysts had originally expected, but at the high end of the EUR4 billion range, which German media has speculated about over the past two weeks.

Nycomed said in a statement that the transaction will be financed by new equity and committed debt financing from a consortium of leading international banks. It did not elaborate.

Analysts welcomed the deal.

Sal. Oppenheim's Peter Duellmann said Altana and its employees are no doubt relieved that months of uncertainty has come to an end, with, in his view, an acceptable purchase price. Duellmann rates Altana at neutral.the deal, which is subject to approval from regulators to close by the end of this year. Altana plans to distribute the net gain on the transactions to shareholders in 2007.

According to Nycomed, the combined entities have EUR3.1 billion in sales and earnings before interest, taxation, depreciation and amortization, or EBITDA, of EUR848 million based on 2005 figures.

The headquarters of the new entity will be in Zurich, Switzerland, while the site for research and development will be in Konstanz, Germany, where Altana's R&D was based.

Nycomed is owned by Nordic Capital, Credit Suisse Group's (CSR) private equity arm and Blackstone Capital Partners, an affiliate of the Blackstone Group (BGP.XX). Nycomed has Morgan Stanley as its financial adviser on the deal.

The Danish company developed a product called Zycomb to treat the common cold. It was approved in Sweden in April and is in the process of approval throughout Europe. Zycomb targets a market of around EUR200 million in Europe, Nycomed said in April.

Another drug, called Fentanyl, is aimed at treating pain and is currently in late stage clinical testing.

Three other drugs, partnered with Medicines Co. (MDCO), Acusphere (ACUS) and Xenova Group Plc (XEN.YY), are also in the final stage of clinical testing, and are targeted to treat heart diseases and brain tumors.

The German company Altana has been under pressure ever since mid-2005, when U.S. drug giant Pfizer Inc. (PFE) terminated a cooperation to jointly develop respiratory drug Daxas, which Altana hopes will replace sales of its top-selling ulcer drug Pantoprazol, when the latter will lose patent protection in 2009. Altana is continuing the development of Daxas on its own, and maintains that it has the potential to generate at least EUR1 billion in annual sales.

Pantoprazol contributed nearly 60% to Altana's pharmaceutical sales in the first half of 2006.

Altana, controlled by billionairess Susanne Klatten of the Quandt family, has for months been looking for a strategic partner for its pharmaceuticals unit, arguing that it lacks the financial clout to develop big-selling drugs on its own.

Last November it mandated Goldman Sachs (GS) to find a strategic buyer for the pharmaceutical business. More recently it opened the auction to private equity firms.

Swedish private equity group EQT, in alliance with Bernhard Scheuble, former head of Merck KGaA (MRK.XE), and the Struengmann brothers - former owners of generic drug company Hexal which was sold to Novartis AG (NVS) last year - had bid just under EUR4 billion, people close to the situation had told Dow Jones Newswires.

Altana reported EUR3.27 billion in sales in 2005. Nycomed posted pro-forma sales of EUR747.5 million in 2005.

Altana shares closed Thursday at EUR45.17, up EUR0.52 or 1.2% before they were suspended from trade at 1520 GMT. Deutsche Boerse said Altana shares will remain suspended until 1600 GMT. The German blue chip Dax index ended slightly firmer Thursday.

Merck To Take Over Rival Serono

German pharmaceutical and chemical company Merck KGaA (MRK.XE) Thursday said it has bought the majority of Swiss pharmaceuticals firm Serono SA (SEO.VX) from the controlling Bertarelli family, and launched an offer for the company's remaining shares.

Merck paid CHF1,100 a share in cash to the family, which held 64.5% of Serono's capital and 75.5% of the company's voting rights. Merck also said it will make a public tender offer of CHF1,100 under Swiss law.

The Merck offer values Serono at more than CHF16 billion, or EUR10.6 billion. The offer price represents a 20% premium to Serono's price at Wednesday's close.

The Swiss Exchange suspended trading in Serono Thursday, while Merck shares were down EUR4.46, or 5.7%, at EUR73.90, in a slightly higher German market at 0925 GMT.

The deal is a good one for Serono shareholders, analysts said, but they were skeptical about the benefits for Merck.

"This is more a deal out of desperation than one of real strategic logic," said Denise Anderson, analyst in Zurich at Kepler Equities, who has a reduce rating on Serono. Merck is certainly increasing the size of its pharmaceutical business, but there is no overlap between the two businesses, and consequently little cost cut potential, she said.

Both companies have relatively weak pipelines, and simply merging the two businesses won't change this. Still, the combined group will have an annual budget of EUR1 billion.

Serono's pipeline suffered several setbacks last year, when a number of product candidates failed in late stages of clinical testing.

Merck's pipeline virtually dried up in June when its Parkinson's disease drug Sarizotan failed in late-stage clinical tests, leaving only some cancer drugs in early-stage trials.

Merck will also have to take on Serono's exposure to the rapidly-changing multiple sclerosis market. The company, which had more than $2.5 billion in sales, is depending on MS drug Rebif for growth. The drug is still growing at handsome double-digit rates, but is facing competition from oral treatments that are in development at several companies, including Serono itself, and Swiss drugmaker Novartis AG (NVS).

Over the past year, Serono has changed its strategy several times.

Last year, the company put itself on the block, hiring Goldman Sachs (GS) to find a buyer, but no deal materialized. Then, in April, Serono decided to instead grow on its own through takeovers, and asked shareholders for permission to raise $5 billion in new equity to finance possible acquisitions.

Serono Chief Executive, and member of the founding family, Ernesto Bertarelli told Dow Jones Newswires in May that although there had been a lot of interest from potential buyers, nobody offered a deal that would have benefitted the company and its shareholders.

Beyond the price, another sticking point was that Serono wanted to keep its headquarters in Geneva.

"If a big pharma company had bought it, there would have been a big chance that the Geneva headquarters would at least be decimated," said Bob Pooler, analyst in Zurich with private bank Lombard Odier Darier Hentsch, who has a hold rating on Serono.

Merck said Thursday the headquarters of the biopharmaceutical business of the combined group - to be called Merck-Serono Biopharmaceuticals - will be in Geneva. Boston, Mass will remain the combined operation's U.S. headquarters.

Merck filed a hostile takeover offer for German rival Schering AG (SHR) in March, but was outbid 10 days later by its rival Bayer AG (BAY). Already then, Merck had also considered bidding for Serono, but pulled out of the bidding process, when at least two big U.S. pharmaceutical companies placed higher bids, said a person familiar with Merck's negotiations.

The combined pharmaceutical business will have pro-forma sales of EUR3.6 billion and the new Merck Group will have pro-forma sales of EUR7.7 billion.

Merck, which is itself 75% family owned, said the acquisition will be paid for by a combination of cash and bridge financing, comprising a syndicated loan, a bond issue and a capital increase of EUR2 billion to EUR2.5 billion.

The Merck family will participate in the capital increase with up to EUR1 billion.

"Details of the financing will be provided prior to closing, early 2007," a Merck spokesman said when asked which banks are participating in the finance. The company said it expects to keep its investment grade rating.

Merck, produces chemicals such as liquid crystals and drugs such as cancer treatment Erbitux. The company, advised by Goldman Sachs, had been actively seeking an acquisition as its drug pipeline dried out.

The company's best seller, cardiovascular treatment Concor, booked EUR87.1 million in second quarter sales and its third leading drug, diabetes treatment Glucophage, booked sales of EUR73.3 million in the quarter.

Merck booked total second quarter sales of EUR1.52 billion, up 4.5%, and net profit of EUR538 million, some EUR400 million of which was a one-off gain from selling its Schering shares to Bayer.

Serono published second quarter sales of $628.7 million, up 2.8% and a net profit of $189.3 million, up 8%.

The company's lead product, multiple sclerosis treatment Rebif, contributed $361.6 million to those sales, up 10.9% on the year.

Low-Price Generic Drug Strategy Seen From Wal-Mart

Retail giant Wal-Mart Stores Inc. (WMT), eyeing a long list of brand-name pharmaceuticals about to lose patent protection, is expected Thursday to announce a low-price strategy for generic drugs sold at its pharmacies, according to people familiar with its plans.

The Bentonville, Ark., company has scheduled an announcement Thursday morning at a Wal-Mart store in Tampa, Fla., to detail what it is promoting as a "major health-care initiative." A spokeswoman declined to comment.

It is unclear whether the company, which operates pharmacies inside its discount stores, has struck exclusive agreements with generic drug makers to lock in prices. The generic drug business is a $27 billion-a-year business and is a key part of efforts to lower health-care costs.

A low-price guarantee by the company, because of its sheer size, could affect the pricing of existing and new generics coming to market. The generics made up about 56% of all prescriptions filled last year, but only 13% of spending on drug spending. Exclusive agreements to provide Wal-Mart's more than 3,000 U.S. stores with a particular drug could prove a boon for those selected.

Over the next two year, analysts estimate patents on about 75 brand-name drugs, including such multibillion-dollar-a-year drugs as antidepressant Zoloft and high-blood-pressure drug Norvasc, will lose patent protection. The resulting wave of new generics will help pharmacies, which get the majority of their profits from generic drugs. Profits on brand-name drugs are typically less because of the manufacturers' control over pricing and distribution.

Prices of generic drugs, however, vary widely from pharmacy to pharmacy. A Wal-Mart pledge to offer the lowest prices on widely used generics could spur other retailers to do the same, say industry observers.

The pledge could also benefit Wal-Mart. Its pharmacy business has stagnated recently. It reported pharmaceutical revenue of about $19.94 billion in the fiscal year ended Jan. 31, compared with $20.61 billion a year-earlier.

The company has been delving into offering convenience clinics at its stores. It has signed agreements to open about 50 in-store clinics with companies including Intrepid Holdings Inc. (ITPD) and InterFit Health, both Houston-based, to provide care for common, minor maladies.

All about Generic Drugs and Generics Market

Birth-Control Patch Label To Have New Risk Data

The Food and Drug Administration said a Johnson & Johnson birth-control patch will carry information about the possibility the product might increase the risk of blood clots in women beyond that seen in typical birth-control pills.

Drug Pipeline

The agency said the label will carry a discussion of two recent clinical studies of the patch that were conducted in the wake of concerns about possible increases in clot risk. The two studies show conflicting results, the FDA said.

One study suggests the birth-control patch doesn't carry a blood clot risk higher than a birth-control pill, while the other suggests an almost twofold increase in the risk of venous thromboembolism, or blood clots. Preliminary results of the studies were released in February, and the updated findings released yesterday are similar.

Agency officials said they are asking that the studies, involving nearly 500,000 women from two large insurance databases, continue for at least an additional 18 to 24 months. The Johnson & Johnson unit that makes the patch and is paying for the studies agreed to do so.

"Even though the results of the two studies are conflicting, the results of the second epidemiology study support FDA's concerns regarding the potential for Ortho Evra use to increase the risk of blood clots in some women," the FDA said. "The label has recommended and continues to recommend that women with concerns or risk factors for thromboembolic disease talk with their health-care provider about using Ortho Evra versus other contraceptive options."

Because of those concerns, Ortho Evra's label was previously updated last November to warn of a possible increased blood clot risk from the patch. The new label update will contain the information from the two studies.

"Let us be clear. We cannot conclude that there is a greater risk," said Daniel Shames, the FDA's director of the division of reproductive and urologic drug products. He said the FDA still believes that the birth-control patch carries an "acceptable" risk-benefit profile and that women and their doctors need to weigh a possible increased risk of blood clots with the risk of getting pregnant.

Dr. Shames said the typical hormone contraceptive user faces a higher risk of developing blood clots. About three to five women in 10,000 using contraception for a year would be expected to develop a blood clot compared with one in 10,000 women not on contraceptives.

Even if the patch truly does double the risk of blood clots, Dr. Shames said in actual numbers it would translate into about six women in 10,000 using contraception for a year actually getting a clot.

Some women have trouble remembering to take daily birth-control pills, thereby increasing their risk of getting pregnant. The patch, which has been used by more than five million women since it was approved in 2002, is applied to the skin and is changed once a week.

Hospira To Pay About $2 Billion For Mayne Pharma

Hospira Inc. agreed to acquire Australian generic-pharmaceuticals maker Mayne Pharma Ltd. for about $2 billion, the companies said.

The deal is the largest corporate move yet for the two-and-a-half-year-old Hospira, which is a hospital-products spinoff of health-care giant Abbott Laboratories. Hospira has a big business in injectable pharmaceuticals, which package medications in prefilled syringes while also creating vials of medicine used in standard doctor's needles.

It also makes and sells products such as intravenous drug-delivery equipment and patient-controlled drugs for pain management.

Melbourne-based Mayne is a world leader in generic injectable pharmaceuticals, with its strongest presence in cancer treatments. Last year, the company registered sales of about $517 million, an increase of more than one-third from the previous year.

Hospira is expected to pay a 32% premium to where Mayne's shares closed on Sept. 18, marking a total price of about $2 billion. That figure represents about one-third of Hospira's overall market capitalization, making the deal a significant step for the Lake Forest, Ill., company. The company plans to finance the purchase almost entirely with new debt.

Prior to this transaction, Hospira has been weighted heavily toward domestic sales. In 2005, for instance, U.S. sales made up 83% of the business, with international sales constituting the other 17%.

The company said it hopes to create annual savings of at least $50 million by 2008 and predicted the deal would add to earnings in 2007.

But its measure of earnings accretion excludes transaction-related costs and the amortization of intangible assets. As measured by more rigorous generally accepted accounting principles, the deal won't add to earnings during 2008, Hospira said.

The market hasn't been favorable to Hospira this year. Since January, its shares have declined 14%, while an index of other health-care-equipment makers fell 5%. Investors also value Hospira below its peers, assigning it a price-to-earnings multiple of 19.9, compared with a 21.6 sector multiple, according to data provider Baseline.

Morgan Stanley and law firm Baker & McKenzie advised Hospira. Merrill Lynch & Co. and law firm Clayton Utz advised Mayne.

Israelis Gain Claim To Erbitux

In a dual blow to ImClone Systems Inc. and its distribution partner Bristol-Myers Squibb Co., a federal judge in New York ruled that three Israeli scientists are the true owners of the patent covering the big-selling cancer drug Erbitux. Other patent cases

ImClone is expected to appeal the 140-page decision issued late last night by U.S. District Judge Naomi Reice Buchwald that awards sole ownership of the Erbitux patent to the Israeli scientists.

Spokesmen for ImClone couldn't be reached. A spokesman for Bristol, which is still reeling from woes related to generic-drug competition and the firing of its chief executive, declined to comment, saying he hadn't seen details of the decision.

In 2003, Yeda Research & Development Co., the technology-transfer arm of Israel's Weizmann Institute, sued ImClone, challenging its exclusive license from patent holder Sanofi-Aventis to the tumor-inhibiting drug patent. Aventis had claimed ownership of a method of using the drug, a monoclonal antibody, in combination with chemotherapy. But an award of sole ownership would give Yeda power to license the drug to others.

The decision casts doubt on who will reap future profits from Erbitux, which is used to treat late-stage colorectal cancer. In March, the drug won an expanded label for the treatment of head and neck tumors. Some analysts expect 2006 world-wide sales to top $1 billion, of which ImClone receives a 39% royalty from partner Bristol on U.S. sales and a 9.5% royalty from its European partner Merck KGaA on sales outside the U.S.

The ruling is more bad news for Bristol, which has been reeling from a failed deal to delay generic competition to its best-selling drug, the blood thinner Plavix. Last week, Bristol-Myers fired its CEO, Peter Dolan, after the company disclosed that a Plavix knockoff launched by Canada's Apotex Inc. Aug. 8 would cost it as much as to $600 million in lost sales. Though a court has ordered Apotex to stop selling the generic, enough of it has been shipped to wholesalers to satisfy demand through the beginning of next year.

Under a 2001 deal with ImClone, Bristol is Erbitux's co-marketer. Erbitux brought Bristol $172 million in revenue in the second quarter. If ImClone loses patent rights over the drug, that revenue could be in jeopardy. Bristol also owns a 20% stake in ImClone that it paid $2 billion for under the 2001 deal. Bristol faces the risk of having to further write down the value of that stake, which would also affect its earnings.

But ImClone, practically a one-product company, lacks Bristol's variety of products to cushion the potential blow.

"This can only be bad for ImClone," HSBC biotech analyst Gene Mack said. "It will be a hit to their earnings." Among immediate questions: Does ImClone owe Yeda scientists a penalty or back royalties? Also unclear is who will win a license from Yeda, and longer term, who will win on appeal. But a forecast of hundreds of millions of dollars at stake may be overblown, he said.

"Realistically, what's going to happen? Yeda doesn't have wherewithal to commercialize the drug. ImClone is going to have to keep making and selling it. It is in both parties' interests that the drug remain on the market. Royalties on zero is still zero," Mr. Mack said. He said filing of an appeal is "absolutely" certain.

Under one scenario, Mr. Mack said, ImClone might license the drug from Yeda and pay a 3% royalty on projected 2006 Erbitux sales of $1.1 billion, amounting to about $34 million of ImClone's anticipated royalties stream equaling $314 million. "So it would be over a 10% hit."

Still, Erbitux is ImClone's only real asset, and analysts like Mr. Mack have expressed concern that the company's pipeline holds few other candidates for near-term growth. After a disappointing response to its invitation to suitors this year, ImClone's management has decided to go it alone. Investor Carl Icahn recently increased his stake in the company to nearly 14% and proposed a slate of three directors facing election at ImClone's annual meeting this week. In trading before the court's decision yesterday, the company's stock was down 25 cents to $30.52 on the Nasdaq Stock Market.

Whoever now owns it, Erbitux faces competition from Amgen Inc.'s rival colon-cancer drug Vectibix (panitumumab), which has received priority review from the Food and Drug Administration, pointing to possible market approval as soon as late 2006 or early 2007. The Amgen drug is expected to be Erbitux's equal in efficacy, with a potential edge in patient tolerability.

FDA OKs Schering's Noxafil For Fungal Infections

The U.S. Food and Drug Administration said Monday it approved a new type of drug by Schering-Plough Corp. (SGP) to prevent invasive fungal infections in patients with weakened immune systems.

The drug, Noxafil, is designed to prevent fungal infections caused by certain molds and yeast-like fungus called Aspergillus and Candida. More recent approvals at Drug Pipeline Database

The agency specifically approved the drug for use in patients with weakened immune systems following bone-marrow transplants and for patients with decreased white blood cell count following chemotherapy treatment for cancer.

"Most healthy individuals are unaffected by these common fungi," said Dr. Steven Galson, director of FDA's Center for Drug Evaluation and Research. "However, individuals with severely weakened or abnormal immune systems may become seriously ill when exposed. These infections are often fatal for this population."

The FDA said Noxafil includes an active substance that has never before been approved for marketing in any form in the United States.

The drug was studied in 1,844 patients between 13 and 82 years of age in two studies. Those patients had compromised immunity and were at high risk for invasive fungal infections. Patients who received Noxafil had comparable or lower rates of invasive Aspergillus and Candida infections than those patients who received other antifungal medications.

The most common side effects in patients receiving Noxafil were nausea, vomiting, diarrhea, rash, a decrease in potassium blood levels, and platelet counts and abnormalities in liver function tests. The agency said rare side effects possibly related to the drug include abnormal heart rhythm and liver-function impairment.

The agency said Noxafil must be taken with a full meal or nutritional supplement to allow adequate absorption of the drug into the body so it can take effect. The FDA also said doctors prescribing the drug need to be aware that Noxafil can interact with several other medications.

Cell Therapeutics Soars On Novartis Pact

Shares of Cell Therapeutics Inc. (CTIC) surged 16% in Monday premarket trading after the company said it signed a licensing and co-development agreement with Novartis AG (NVS) for lung-cancer drug Xyotax.

Under the deal, Cell Therapeutics could receive up to $270 million depending on sales milestones. Novartis also has agreed to make a $15 million equity investment in Cell Therapeutics.

Shares of Cell Therapeutics recently changed hands at $1.95, up 32 cents from Friday's close of $2.27.

Symbol Technologies Inc. (SBL) was up 6.5% at $13.54 on rumors the $3.2 billion wireless-equipment company is winding up an auction to sell itself.

People familiar with the matter said the transaction could happen in a matter of days, according to a Wall Street Journal report. Motorola Inc. (MOT) is in the best position to win the company, though other bidders could also circle as the situation comes to a head, these people said.

One person said the deal could come in at a per-share price of roughly $15, representing a premium of around 20% to Symbol's Friday trading price.

Specialty retailer Charlotte Russe Holding Inc. (CHIC) was up 2% at $26.50 after the company priced 5 million shares at $26.25 a share Friday.

Shares of automaker General Motors Corp. (GM) were up 0.13% at $31.66 in early trading, while Ford Motor Co. (F) rose 0.2% to $8.04.

Crain's Automotive News reported on its Web site Monday morning that the two companies in July discussed a merger or alliance. The report cited sources familiar with the matter. According to the report, one source says that there is a small chance that the talks will lead to anything. Automotive News said the two sides aren't currently holding talks.

Also, Ford recently announced that for the first time since 1982, it will stop paying a dividend on its common and Class B stock.

Class A shares of Freescale Semiconductor (FSLB) jumped 6.7% to $37.16 in premarket trading after the company agreed to sell itself to a private-equity group led by Blackstone Group for $17.6 billion, or $40 a share.

The purchase price represents a 36% premium over Freescale's average share price in the 30 trading days before Sept. 8. The board can still solicit other offers for the next 50 days.

The deal is said to be the largest-ever leveraged buyout in the technology sector.

UBS downgraded the stock to neutral from buy early Monday based on valuation.

In other news, Sharper Image Corp. (SHRP) shares have yet to trade before the bell. Monday, the specialty retailer announced it will be delaying its second-quarter 10-Q report due to a previously disclosed review of stock option practices.

Also, the company will restate its three fiscal years ended Jan. 31, and the fiscal quarters ended April 30, 2006 and 2005 to reflect a pretax noncash compensation charge associated with the issuance of options.

Shares of Sharper Image closed Friday at $9.69, up 5 cents, or 0.5%.

Shares of Premium Standard Farms Inc. (PORK) jumped 15% to $20.32 after the No. 1 U.S. hog producer, Smithfield Foods Inc. (SFD), said it will acquire smaller rival in a cash and stock deal.

Shares of Smithfield were down 0.21% at $29.18.

The deal, valued at about $810 million, including the assumption of about $117 million in debt, comes at a time when the pork industry is attempting to recover from an oversupply of meat in the marketplace that has hurt margins and eroded earnings. Both Smithfield, of Smithfield, Va., and Premium Standard, of Kansas City, said last month that their most recent quarterly earnings fell by 50%.

Meanwhile, Morgan Stanley (MS) plans to beef up its operations in Australia, which now accounts for about a third of Asia's mergers-and-acquisitions business.

Shares of Morgan Stanley were yet to trade from their Friday closing price of $70.95.

Semiconductor-equipment maker Applied Materials Inc. (AMAT) was up 2.3% at $17.59 after the company bought 145 million shares as part of an accelerated stock-repurchase plan.

The Santa Clara, Calif., company said the buyback, combined with the repurchase of another 9 million shares in the current quarter, has reduced its shares outstanding by about 10% since the end of the third quarter.

Also, Applied Materials said its board approved an additional authorization to buy back up to $5 billion worth of stock over the next three years.

Meanwhile, PepsiAmericas Inc. (PAS) on Monday cut its profit forecast for the year, citing lower-than-expected net pricing due to mix and higher cost of goods sold in its U.S. business.

Shares of the Minneapolis-based manufacturer, seller and distributor of PepsiCo beverages were down 6.5% at $21.10.

In other news, Intel Corp. (INTC) was down 0.31% at $19.45. Researchers at Intel and the University of California at Santa Barbara are claiming a breakthrough in creating lasers on computer chips, a development that could lead to sharp reductions in the cost of ultrafast data communications.

Shire Looks To Latin America, Eastern Europe For Growth

Shire PLC (SHPGY) has plans to expand its geographical footprint and is looking to establish itself in a number of emerging markets, Chief Financial Officer Angus Russell said Monday.

Speaking on the sidelines of the Financial Times Global Pharmaceuticals conference in London, Russell said that the highest growth potential for the drug industry will not come from traditional markets in Europe and the U.S., but from other parts of the world, such as Latin America and China.

As a result, the U.K.'s third-largest pharmaceutical company is establishing a direct presence in Latin America - initially in Argentina - but will also look at expanding its sales force into Eastern Europe.

Traditionally, Shire has derived most of its sales from the U.S., where its best-selling drug Adderall XR has gained the largest share of the hyperactivity drugs market. Business Intelligence

But the acquisition last year of U.S. biotech company TKT has brought in new drugs that will be marketed in Europe as well as the U.S.

Shire has already said it plans to reduce its dependence from the U.S. market by increasing the portion of European sales to 40% going forward.

Longer term, Shire expects to enter China in around five years' time, once there is demand for higher cost medicines, Russell said.

Shire, headquartered in Basingstoke, England, sells specialist drugs that treat hyperactivity and rare conditions, as well as kidney disease treatment Fosrenol.

AstraZeneca: Looking To Boost Product Pipeline

AstraZeneca PLC (AZN) will continue to look for deals to boost its drug pipeline, even though it expects that the majority of its new products in 2010 will come from medicines discovered in its own laboratories, its director of development said Tuesday. Drug Pipeline of 600 companies is available at Drug Pipeline Database

Speaking on the sidelines of the Financial Times Global Pharmaceuticals conference in London, John Patterson said that only around 20%-30% of AstraZeneca's drugs will come from in-licensed or acquired products, while the bulk of them will have been developed by the company's own scientists.

However, this doesn't signal that the company is slowing down the search for new products to add to its portfolio, Patterson said.

"We need to be prepared to do more deals," he said. "We are not going to stop looking."

In the last year AstraZeneca has stepped up the number of drugs in its portfolio through licensing deals and the acquisition of Cambridge Antibody Technology, the U.K.'s largest biotech company.

The move was spurred by the failure of a number of previously promising drugs, such as blood thinner Exanta and diabetes treatment Galida.

Patterson noted that AstraZeneca is facing strong competition from its rivals in the search for new products to in-license.

"I don't know of any deals in the last year where we have been on our own," he said.

He also attributed the high prices that such deals have fetched to the sizable cash resources some U.S. drugmakers have accumulated through profit repatriation.

Last week AstraZeneca, the U.K.'s second largest pharmaceutical company by sales, signed a partnership with German drugmaker Bayer-Schering AG to develop new breast cancer treatments.

Glaxo's Avandia To Prove Its Mettle At Medical Meeting

GlaxoSmithKline PLC (GSK) will report results Friday from a much-anticipated study on its blockbuster diabetes treatment Avandia, which is likely to show that the drug could be a preventative as well as a treatment for the disease.

The data, to be reported at a medical conference in Copenhagen, Denmark, could help GlaxoSmithKline boost flagging sales of its second best-selling drug, which posted sales of GBP1.3 billion in 2005. The extension of Avandia's existing use would also help the U.K. drugmaker fend off competition from newer drugs, such as Galvus, by Novartis AG (NVS) and Januvia, by Merck & Co. Inc. (MRK). Other Extensions

If the study is successful, Deutsche Bank said that it could increase its GlaxoSmithKline sales forecast for 2010 by more than GBP400 million and its earnings per share forecast in the same year by more than 4%.

However, some analysts have questioned whether the study could, in fact, change clinical practice and boost Avandia's sales, which contributed 6% to the company's total revenue in 2005.

The GlaxoSmithKline study evaluated whether Avandia can reduce the risk of type 2 diabetes and its complications. Type 2 diabetes is a disease characterized by high blood sugar levels resulting from a lack of the hormone insulin in the body. Unlike type 1, or juvenile diabetes, type 2 is preventable through weight-control and diet.

In the U.S. alone, there are around 20 million people with type 2 diabetes and an additional 41 million who have slightly elevated sugar levels, which are often precursors to full-fledged type 2 diabetes, according to the American Diabetes Association.

Earlier studies have shown that if this condition, called prediabetes, is addressed early enough, it's possible to delay or prevent the onset of type 2 diabetes.

The Avandia study followed just more than 5,000 patients diagnosed with prediabetes for three-to-five years, and is expected to show a 22% reduction in the risk of developing diabetes.

Potentially, Avandia's use as a preventative is an enormous opportunity but some analysts are skeptical whether even a positive trial could boost Avandia's prospects.

JP Morgan noted that even though Avandia generates most of its revenue in the U.S., the American Diabetes Association doesn't say that preventative therapies are cost-effective in low-risk patients, when compared with simple lifestyle changes such as diet and exercise.

GlaxoSmithKline may also face hurdles in accessing this potential patient pool, since two-thirds of patients with prediabetes are undiagnosed, making the market opportunity much smaller than it appears, say analysts at CSFB.

No drugs are currently approved specifically for use in patients who have prediabetes though other treatments, such as Actos, a diabetes pill sold by Japanese drugmaker Takeda Pharmaceutical Co. Ltd (4502.TO), have shown positive effects in clinical studies on diabetes prevention.

Another clinical study, due to be showcased in early December at a conference in South Africa, could be a far better hope for Avandia's future, according to Goldman Sachs.

The second study aims to show that using Avandia in patients recently diagnosed with diabetes is superior to using older antidiabetics, metformin and sulphonylureas.

Only GlaxoSmithKlines' asthma inhaler Advair sells more than Avandia, but the antidiabetic drug's growth has stalled, in part, due to manufacturing problems at a plant in Puerto Rico last year, which disrupted supplies for several months.

Wyeth's PremPro 'Fertilized' Cancer, Woman's Lawyer Says

Wyeth's (WYE) PremPro hormone-replacement drug "fertilized" what eventually became breast cancer in a 66-year-old Ohio woman who has sued the company, her lawyer said Wednesday at the start of a trial.

A Wyeth lawyer disputed the claim, saying the woman had numerous other risk factors for breast cancer, such as a family history of cancer, that made it 10 times more likely she would develop the disease compared with other women in their 60s.

Jennie Nelson, of Dayton, Ohio, took Prempro to treat menopausal symptoms from October 1996 until October 2001, when she was diagnosed with breast cancer. Before that she had taken a similar regimen including the Wyeth drug Premarin since February 1995.

Nelson's lawyer, Ken Suggs, told an 8-member jury in a state courtroom in Philadelphia that more than two dozen studies have shown PremPro increases the risk for breast cancer. Suggs asserted that Nelson's use of PremPro transformed a mass in her breast known as hyperplasia into cancer.

"You'll hear how the defendant's pill took a hyperplasia and fertilized it," Suggs said in a somewhat subdued opening statement Wednesday morning. He added that the case was about "costs and consequences."

Nelson's lawsuit against Wyeth, the Madison, N.J., pharmaceutical company, is the second PremPro case to go to trial. Jury deliberations are underway in the first case to go to trial in federal court in Little Rock, Ark.

Wyeth faces about 5,000 lawsuits filed by women claiming their use of PremPro and Premarin led to breast cancer and other diseases. Most were spurred by government studies linking the drugs to increased risk for various diseases. The drugs are still on the market, but publicity surrounding the government studies has caused Wyeth sales of Premarin-related products to drop to $909 million last year from $2.1 billion in 2001, the last full year before the key government studies began emerging. Wyeth maintains that it's impossible to prove that PremPro caused individual cases of breast cancer.

Suggs said Nelson, who was in the courtroom, had invasive breast cancer and had to have both of her breasts removed and undergo chemotherapy and radiation therapy.

Wyeth attorney Michael Scott acknowledged Nelson had gone through a lot, but he said the key question was whether there's any evidence PremPro caused her cancer. He said the answer was "no."

"The evidence is not going to support the idea that Mrs. Nelson got cancer because she used PremPro," Scott told jurors.

Scott said Nelson's mother had breast cancer, her father had pancreatic cancer and a sister had eye cancer. Family history of cancer is a risk factor for cancer. Other risk factors were her age and gender.

Scott also said there is evidence that her breast tumor was present before she even started using hormone-replacement therapy. Nelson, like many other women, took hormone therapy to relieve menopausal symptoms such as hot flashes and night sweats.

Nelson had a particular type of breast cancer that can be linked to hormone therapy, Suggs claimed, which is called hormone-receptor positive breast cancer. PremPro is a combination of versions of the hormones estrogen and progesterone. Suggs suggested that the medication fed the breast cancer.

But Scott countered that 70% of all breast cancer cases are hormone-receptor positive and include many women who never took hormone drugs.

Scott also told jurors Nelson was "doing well" following her treatment and there was no further evidence of her cancer. Suggs, who gave his opening statement first, didn't address Scott's claim in court and he declined to speak to reporters.

Testimony from expert witnesses was expected to begin Wednesday afternoon.

Wednesday's proceedings marked the start of the first phase of the trial, in which jurors must determine whether PremPro caused the breast cancer, and whether damages should be awarded for any harm caused. If the jury rules against Wyeth in this phase, the trial would enter a second phase in which the jury would consider what Wyeth knew about PremPro's risks and whether it properly disclosed them, and possibly award further damages.

Judge Norman Ackerman, who is presiding over the trial, said the first phase is expected to take less than two weeks.

There are two alternate jurors in addition to the eight regular jurors. Overall, there are seven men and three women among the regular and alternate jurors.

Wyeth shares fell 14 cents to $49.78 Wednesday.

Cardiome's Phase II Trial Successful, But Not Enough

Investors had been hoping the Phase II trial of Cardiome Pharma Corp.'s (CRME) lead RSD1235 drug would show the same remarkable results as in previous studies.

But while the trial was clearly a success, the results weren't statistically different between the 600-milligram and 300-milligram levels. And given the stock has had a 32% runup so far this year, some investors voted with their feet.

On Nasdaq Wednesday, Cardiome is down $1.31, or 9.8%, to $12.00 on 1.9 million shares.

"People were just expecting the 600-milligram dose to be better," said one analyst. "Expectations were really high."

When Cardiome unveiled the interim study of RSD1235 in the 300 mg dose in July, the data showed the drug - a treatment for atrial fibrillation (irregular heartbeat) - was well-tolerated and had a significant efficacy.

The final Phase II trial data released Wednesday were from patients who received a higher 600 mg dose. Other Drugs in Phase II

Of the 49 patients who took the higher dose, 30, or 61% completed the study in normal heart rhythm, as compared to 43% of all patients receiving placebo.

Those percentages were statistically equal to the results obtained from patients taking the lower dose. Of the 54 patients who took the 300 mg dose, 61% completed the study in normal heart rhythm, compared to 43% receiving placebo.

"While we are disappointed that the high-dose group did not shoot the lights out, this study was a CLEAR success," Sprott Securities analyst David Dean said in a note.

The data from both groups show that oral RSD1235 reduced the risk of recurring atrial fibrillation by 32%, he noted, attributing the lack of statistical difference to the number of patients involved in the trial.

Dean said he doesn't believe the lack of dose response in the 600 mg group will present any issues moving forward. He said the beginning dose of 300 mg was likely "higher than typical because of the drug's safety profile."

Douglas Loe of Versant Partners said the trial result was positive. "However, the market was likely pricing in potential for an accelerated development path based on improved efficacy from the high dose," he wrote in a note. "This did not materialize and we expect COM (Cardiome) shares to be weak until Phase IIb clinical strategy is further defined."

Neither analyst owns Cardiome stock nor do their firms have investment-banking relationships with the company.

A Phase IIb study of RSD1235 is likely to take place in the first quarter of 2007.

"We are thrilled with the outcome of this study," Cardiome's chief executive, Robert Rieder, said on a conference call. "When we envisioned this study, it was to get a sense of the safety and efficacy."

New Ear-Infection-Treatment Approach Cuts Antibiotic Use

The majority of parents instructed to take a "wait-and-see" approach to treating their children's ear infections opted against filling antibiotic prescriptions, a new study showed Tuesday.

The so-called "wait-and-see" or watchful waiting approach was adopted in 2004 by a joint committee of the American Academy of Pediatrics and the American Academy of Family Physicians for treating acute otitis media, or ear infections in children, partly to cut down on the proliferation of drug-resistant bacterial strains. Most ear infections also clear on their own without antibiotics.

As part of the wait-and-see approach, most parents with children over age 2 are given an antibiotic prescription but then instructed to fill it only if their child either doesn't improve or gets worse over the following 48 hours. Doctors also advise parents to give children over-the-counter pain medication like ibuprofen for pain and fever.

Now a new study, published in this week's Journal of the American Medical Association, suggests many parents are comfortable skipping the antibiotics. Before the new policy was adopted, an estimated 15 million prescriptions were filled annually to treat children's ear infections. New Drugs in Development

David M. Spiro, formerly of the Yale University School of Medicine, New Haven, Conn., and colleagues studied children who had been diagnosed with an ear infection during an emergency-room visit between July 2004 and July 2005.

Overall, 138 children aged 6 months to 12 years were put into the wait-and-see group and 145 were assigned to a "standard prescription" group where they were given a prescription and told to fill it. In both groups the prescription expired three days after the visit unless it was filled. All patients received ibuprofen for pain as well as eardrops for pain.

Researchers found that 62% of parents in the wait-and-see group never filled the prescriptions, reporting that kids got better on their own, while just 13% of parents in the "standard prescription" never had it filled.

Spiro, who now heads the pediatric emergency medicine department at the Oregon Health and Science University in Portland, says while the wait-and-see approach is still controversial among many doctors but that he finds his patients are fine with the policy.

He explained that study results showing that nearly two-thirds of parents opted to not have their prescriptions filled in an emergency-room setting where they have no relationship with a doctor was significant. He believes patients are even more likely to go along with the wait-and-see approach in an office setting because they typically trust their pediatricians.

Bristol-Myers's Board Fuels Takeover Rumors

Having fired its chief executive, Bristol-Myers Squibb Co. ignited speculation that the drug maker could be opening the door to a takeover by selecting an interim successor who sold off the last company he led.

Bristol-Myers's board named one of its members, James M. Cornelius, as interim chief executive officer yesterday after firing CEO Peter R. Dolan and General Counsel Richard Willard following the recommendation of a federally appointed outside monitor.

In his last job, Mr. Cornelius oversaw the sale of medical-device maker Guidant Corp. -- where he also served as interim chief executive -- to Boston Scientific Corp. for $27 billion earlier this year. During those sale negotiations, Mr. Cornelius successfully played Boston Scientific off Johnson & Johnson to get a better price for Guidant shareholders despite a scandal affecting the company's heart defibrillators.

Investors have long speculated about a takeover of Bristol-Myers, which is considered to have one of the best research pipelines in the pharmaceutical industry but is struggling to maintain profits from its blockbuster drugs. The choice of Mr. Cornelius, 62 years old, gives such a scenario more credence, analysts say.

"We believe, given Cornelius's background, that the market will continue to raise the possibility of Bristol as a takeover candidate," said Chris Schott, an analyst with Bank of America, in a research note he sent to clients yesterday.

Exasperated by the repeated missteps that occurred under Mr. Dolan's watch, some shareholders have been urging the board to sell the company. Last month, Dan Flaherty, a longtime shareholder and former Bristol-Myers executive, wrote a letter to Chairman James D. Robinson III, copied to eight other directors, in which he called a sale of Bristol-Myers "a no-brainer."

In a conference call with reporters, Mr. Robinson said the board would "deal with any bona fide proposals that anyone wants to make" with proper consideration, but he declined to comment further on takeover speculation.

In firing Messrs. Dolan and Willard, the Bristol-Myers board gave in to the demands of Frederick B. Lacey, a former federal judge who has been overseeing the company since last year at the behest of the U.S. attorney for New Jersey, Christopher Christie. Mr. Lacey concluded that the two executives had failed to adequately apprise the board of actions they took to try to delay the launch of a generic version of the company's best-selling drug, the blood thinner Plavix.

Bristol-Myers didn't technically violate the terms of the deferred-prosecution agreement that Bristol-Myers reached with Mr. Christie last year after his three-year investigation into a previous financial scandal at the company. But "there were serious issues of concern" about the way top executives communicated with the board during the Plavix negotiations, said a person familiar with the situation.

Because Bristol-Myers was operating under the constraints of the deferred-prosecution agreement and a consent decree from the Federal Trade Commission, Messrs. Dolan and Willard should have consulted with the board every step of the way when they sought to negotiate a deal with Canada's Apotex Inc., the maker of generic Plavix, the person familiar with the situation said. Instead, they kept the board only vaguely informed, said this person, who attended a meeting of Mr. Lacey with directors late Monday.

The deal with Apotex, intended to settle patent litigation between the companies and to push back the introduction of generic Plavix to 2011, unraveled in late July when the Justice Department's antitrust division opened an investigation into it and state attorneys general rejected it.

In particular, Messrs. Dolan and Willard should have checked in with board members before letting Andrew Bodnar, one of Mr. Dolan's lieutenants, travel on his own to Toronto twice in May for one-on-one negotiations with Apotex Chief Executive Barry Sherman, said the person familiar with the matter. Those trips were approved by the two executives, but the board only learned of them later.

"There was a failure by some folks to fully appreciate the downside risks from a legal and business perspective" of the Bodnar trips and other actions taken during the talks with Apotex, the person said.

Mr. Lacey is working on a report summarizing his review of the Apotex negotiations and may make further corporate-governance recommendations to the board as he compiles it.

On the conference call, Mr. Robinson declined to go into the details of why the monitor recommended that Messrs. Dolan and Willard be dismissed. He said Mr. Lacey's recommendation had been a factor in Mr. Dolan's firing but "not the driver" because the board had already been considering removing him. "Any CEO is held accountable for both the successes and the failures," Mr. Robinson said.

Apotex launched its cheaper, generic version of Plavix on Aug. 8 by exploiting concessions it wrung from Bristol-Myers during their negotiations. Although the federal court in New York overseeing the patent case between the companies ordered Apotex to halt its sales of the generic version on Aug. 31, it didn't force it to recall the product it had already shipped. Bristol-Myers has said the sales it has lost to the generic could approach $600 million.

Mr. Robinson said he would lead a committee that will search for a permanent successor to Mr. Dolan. In accepting his interim assignment, Mr. Cornelius told the board that he didn't want to be considered a candidate for the permanent job, Mr. Robinson said. Bristol-Myers has picked Egon Zehnder International as its recruiter for the search.

Mr. Cornelius joined the Bristol-Myers board last year. He was chairman and chief executive of Guidant from September 2004 through April 2006, during which time he oversaw the sale of Guidant to Boston Scientific after the prolonged bidding war involving J&J. Before joining Guidant, Mr. Cornelius spent 28 years at Eli Lilly & Co.

Mr. Robinson said Mr. Cornelius planned to make no change to Bristol-Myers's strategy of focusing on 10 specialty-disease areas, which Mr. Dolan instituted early in his tenure. He said the company would first and foremost focus on continuing to protect the Plavix franchise, which brings nearly $4 billion in revenue a year to Bristol-Myers. The Plavix patent case goes to trial in January.

Though he was dismissed, Mr. Dolan wasn't fired for cause, Mr. Robinson said. That means Mr. Dolan, who holds 425,000 shares of restricted stock valued at $10.2 million and 3.1 million stock options, will likely be given a severance package and a pension, said Brian Foley, a compensation consultant in White Plains, N.Y. Mr. Robinson said the package hadn't yet been negotiated.

Bristol-Myers shares were up 4%, or 93 cents, at $24.32 in 4 p.m. New York Stock Exchange composite trading.

FDA Drops Panelist In Conflict-Of-Interest Case

The Food and Drug Administration took the unusual step of removing a member of one of its influential advisory committees after the maker of a drug under consideration complained about a potential conflict of interest.

Thomas Fleming, a prominent statistician at the University of Washington, said the FDA late last week rescinded his invitation to serve on a committee that yesterday reviewed a new use for Factive, an antibiotic made by Oscient Pharmaceuticals Corp. In a Sept. 1 letter, Oscient complained to the FDA that, among other things, Dr. Fleming was biased against a type of trial design the company used.

The panel voted 11-2 against FDA approval of Factive's use to treat sinusitis. The FDA, which expressed skepticism about that use of the drug, tends to follow its committees' advice.

Dr. Fleming, a longtime FDA committee member who has served in dozens of meetings, said the agency waived two potential conflicts that he initially disclosed.

But last week, according to Dr. Fleming, the agency asked him to review his records for any other possible conflicts. He found that in late 2002 and early 2003, he had been paid $6,000 to review completed studies of Factive for a predecessor company of Oscient, though not about its use in sinusitis, he said. He had also consulted on another drug for a different Oscient predecessor. He said he earlier hadn't recalled the past relationships, and the FDA had originally asked about ties to Oscient, not specifically mentioning the names of predecessor companies.

Late last week, the FDA told Dr. Fleming that because the agency didn't have time to weigh whether the newly disclosed issue deserved a waiver, it couldn't allow him to serve on the committee.

Dr. Fleming said the agency didn't tell him that before its most recent inquiry about conflicts, it had received a letter from Oscient. Dr. Fleming said the letter raised concerns about his past consultation with Oscient's predecessor companies and said he might have a conflict of interest because he has publicly questioned the type of study used to prove Factive's efficacy, known as a "noninferiority trial."

In a noninferiority trial, used in FDA approvals of antibiotics, a new drug's efficacy has to be shown to be roughly equal to an old drug. Critics argue that it isn't always clear how much better the old antibiotics are than placebo pills. So if a new drug is approved because its results are slightly, but not significantly, worse than those of an old drug, there is a risk that it hasn't actually done better than a sugar pill.

Defenders of noninferiority designs say that patients with infections, even less-serious ones such as sinusitis, can't ethically be asked to take placebos in a study. Congress is scrutinizing the FDA's use of such trials, but the agency is also under pressure to grant fewer conflict waivers to committees.

The FDA said that after recently being informed about Dr. Fleming's potential conflicts, it didn't have time to "resolve the issue before the start of the meeting," so the agency decided "in order to protect the integrity of the process, the most prudent decision was to have the individual refrain from participation in today's meeting." The decision wasn't connected to Dr. Fleming's views on any particular trial design, the agency said.

A spokeswoman for Oscient said it "intends for all of our communications with the FDA to remain confidential" and declined to comment about its interactions with the agency.

Dr. Fleming said that he believes the FDA has granted waivers for conflicts of similar or greater magnitude, and he has in the past supported approval of some drugs tested in noninferiority trials. "This opens the door for a sponsor to make an allegation so late that even if it isn't substantive, the person is disqualified," he said, adding that there are "substantive concerns that the integrity of the advisory committee process . . . would be significantly compromised if there is a possibility that a company could intervene in the committee-making process."

Drug Pipeline

Studies Raise Questions Over Merck's Vioxx, Novartis Drug

A new study identified kidney-related risks for Merck & Co.'s (MRK) withdrawn Vioxx painkiller, while another study said the drug's cardiovascular risks began soon after treatment and not until long-term use, as the company has claimed.

One of these studies also found increased cardiovascular risks for an older painkiller, diclofenac, and suggests the drug's regulatory status should be reviewed. Diclofenac is marketed by Swiss drug company Novartis AG (NVS) under the brands Cataflam and Voltaren. This finding also raises questions about the design of a Merck study of a newer painkiller, Arcoxia, because it was compared with diclofenac.

Both studies were analyses of previous clinical trials, and were published online Tuesday by the Journal of American Medical Association. They were published a few weeks ahead of schedule due to what JAMA called "the public health implications of the findings."

Merck, based in Whitehouse Station, N.J., is in the midst of defending itself against thousands of lawsuits claiming that Vioxx use caused heart attacks and other injuries. Merck withdrew Vioxx from the market in September 2004 after a study showed it elevated the risk of cardiovascular events in people taking it for at least 18 months.

One government-funded study, conducted by researchers at Harvard Medical School and Harvard's public-health school, sought to analyze the kidney-related risks of several drugs including Vioxx and Pfizer Inc.'s (PFE) Celebrex. Vioxx and Celebrex are so-called Cox-2 inhibitors and were designed to provide pain relief without some of the gastrointestinal side effects of older painkillers.

The Harvard researchers analyzed the results of 114 clinical trials of the various drugs to identify such kidney-related problems as peripheral edema, which involves fluid buildup, and renal dysfunction and hypertension. They also sought to identify cases of arrhythmia, or irregular heartbeat, which sometimes occurs after kidney problems. Some 116,094 people participated in the trials.

The Harvard researchers concluded that Vioxx was associated with increased kidney and arrhythmia risks. But other Cox-2 inhibitors, including Celebrex, weren't associated with a statistically significant increased risk, so the researchers concluded there was no "class effect."

"Vioxx seems to increase renal and arrhythmia (risks) more than any of the other drugs," Eric Ding, one of the Harvard researchers, said in an interview.

The study also concluded that Vioxx's kidney-related risks could have been identified as early as 2000, and the arrhythmia risk could have been identified by the end of 2004. The authors suggested post-marketing surveillance of drugs should be improved in order to detect risks sooner.

The finding of an arrhythmia risk was significant because the first Vioxx trial last year, which Merck lost, involved a man who took Vioxx and died of arrhythmia. Merck had argued during the trial Vioxx wasn't linked to arrhythmias.

Another JAMA analysis was conducted by researchers at the University of Newcastle in Australia. It sought to compare the cardiovascular risks of Cox-2 inhibitors and such older painkillers as diclofenac. The researchers, who received funding from the National Health & Medical Research Council of Australia, analyzed previous clinical trials of the drugs.

The second study confirmed the elevated cardiovascular risks associated with Vioxx, and said the risks could be observed during the first 30 days of treatment. The authors said that finding was consistent with a recent re-analysis of a study that was halted in 2004 and prompted Merck to withdraw Vioxx. Merck has argued that study showed an increase in risk only after 18 months of use, but a recent re-analysis published in the New England Journal of Medicine contradicts Merck's claim.

Also, the JAMA analysis conducted by the Australian researchers found an elevated risk of cardiovascular events associated with diclofenac. "We believe there are grounds for reviewing its regulatory status," the authors wrote.

A Novartis spokeswoman couldn't immediately be reached.

The finding of a higher heart risk for diclofenac has implications for Merck too. Last month, Merck said preliminary data from a study of its painkiller Arcoxia showed its heart risks were no different from diclofenac. Arcoxia is approved in some countries but hasn't yet received U.S. Food & Drug Administration approval. Merck indicated last month it would continue seeking FDA approval.

But experts have criticized Merck's choice of diclofenac as a comparator, and the new JAMA analysis would seem to bolster the criticism.

In an accompanying JAMA editorial, a Food and Drug Administration drug-safety reviewer, David Graham, said Merck should have chosen other drugs for the Arcoxia study, such as naproxen. He said if naproxen had been used, it's highly likely that Arcoxia would have shown similar cardiovascular risks to Vioxx. Graham has been a vocal Merck critic, and he has been subpoenaed by Vioxx plaintiff attorneys to provide testimony. His editorial wasn't written on behalf of the FDA.

In a written statement, Merck defended its study of Arcoxia, noting it's the most widely used non-steroidal anti-inflammatory drug in the world. Merck didn't immediately address the findings about the kidney and arrhythmia risks of Vioxx in the other study.