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As you all know by now, Roche, last month, rocked the biotechnology world by tendering an offer to purchase the remaining shares of Genentech that it doesn’t already own.  The first offer made by Roche was summarily rejected by Genentech because its board felt that the offer undervalued the company.  I have no doubt that Roche and Genentech will eventually agree on a purchase price. That said, when companies are purchased, employees of the purchased company are typically laid-off or re-organized out of jobs. In marked contrast, Genentech announced (as expected) that it would offer virtually all of its 10,700 employees retention bonuses to remain with the company if it is purchased by Roche. These bonuses could cost Genentech as much as $371 million.  It was reported that the retention bonuses will be paid whether or not the merger goes through, and are in lieu of 2008 stock option grants.

Even with the bonuses, keeping employees could be a challenge for Genentech. Many Genentech employees (especially those who have been with the company for many years) are expected to become much wealthier if Roche pays a high price for their stock, particularly if unvested stock options vest immediately. That might mean some employees would no longer have to work for a living or might start their own companies to compete with Genentech. Many small biotech startups in the Bay area were started by Genentech alums.

Regardless of the outcome, Genentech’s retention bonus offer is another example of why Genentech was able to seperate itself from the rest of the biotech pack.  It is evident that CEO Arthur Levinson (one of the company's founders) understands something that many CEOs don’t—that employees are a company’s greatest asset.

Roche’s eventual acquisition of Genentech will signal the end of an era for one of the biotechnology industry’s most successful pioneers. It will truly be a sad day in the biotech world when the deal is finally consummated.

Until next time…

Good Luck and Good Job Hunting (try Genentech next Fall—there will be a mass exodus)

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 As expected, Genentech summarily rejected Roche’s offer to purchase it for $43.7 billion. Genentech executives claim that Roche’s offer is too low and it undervalues the actual worth of the company. Roche offered Genentech about $88 per share for remaining 44% of the outstanding shares of stock that it doesn’t already own. Many Wall Street analysts think that the actual value of Genentech stock is roughly $100 per share. As any business person knows (with or without an MBA), the first offer is usually not the last offered that is tendered in any deal.

 

Because Roche owns a majority controlling interest in Genentech, it is not clear whether Genentech can avoid actually being purchased by Roche. Genentech executives have publicly stated that earlier agreements between the two companies that guide the sale of Genentech may no longer be in effect and that they will not abide by them.  I suspect that only time (or perhaps the courts) will tell.

 

Roche has already indicated that if it acquires Genentech, there will likely be job cuts to its 10,700 member workforce (something that Genentech wants to prevent). I suspect that Genentech’s rejection of Roche’s offer is the first in a series designed to maximize shareholder value for Genentech (not to mention the large sums of money that company workers and executives who own stock options will make as a result of a sale).

 

I predict that Roche will ultimately buy Genentech. The only thing that remains to be determined is how much Roche will have to pay to acquire the biotech giant. Roche cannot afford to let this deal go south—a bright and successful future depends on it!

 

If I were a Genentech employee, I would be dusting off the old resume right about now.

 

Until next time….

 

Good Luck and Good Job Hunting!!!

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Earlier this week, Roche announced that it wanted to buy the remaining portion of Genentech that it doesn’t already own. On Friday, one of Europe’s largest pharmaceutical companies, Sanofi-Aventis, announced that it was buying the UK-based vaccine manufacturer Acambis for $547 billion.

Like Roche and Genentech, Sanofi-Aventis was already partnered with Acambis and by purchasing Acambis, Sanofi gains a smallpox vaccine that was contracted by the US government for $425 million. Sanofi is the world’s largest manufacturer of influenza vaccines and last month announced plans to open a $157 million manufacturing facility in France, citing projections that demand for vaccines will double by 2016. In case you didn’t know, vaccines, once the scourge of the pharmaceutical industry, are now the hottest”pharmaceutical” products on the market!

Because of growing demand and lucrative margins for biologics and biotechnology products, many big pharma companies are attempting (through acquisitions and mergers) to quickly enter the biologics and biotechnology markets. These days, small molecules are passé and biotech is the next big thing (where have all the pharma execs been for the past 20 years).  

Europe has long wanted to dominate the biotechnology market. This has not been possible because of the US’s large lead in the space. However, all this can change because of a weak dollar and a surging Euro! Rather than attempt to create their own biotechnology companies, large cash-rich, European pharma companies can simply buy profitable US biotechnology companies with strong product pipelines.

I suspect that the weak dollar and failing US economy contributed to Roche’s decision to buy Genentech and Teva to buy Barr Pharmaceuticals last week. I would not be surprised if there are more acquisitions of American biotechnology and pharma companies in the very near future. I think that it may be time for Amgen and Bristol-Myers Squibb employees to begin to brush up on their French or German.

Until next time….

Good Luck and Good Job Hunting (in Europe)!!!!!!!!

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On the heels of yesterday’s announcement that it wants to buy Genentech, Roche, in a surprise move, announced today that it will move its Nutley, NJ-based US corporate headquarters to California. According to a report, research and development activities in oncology and metabolism at the Nutley site will be expanded. However, the company will consolidate all Nutley-based finance and information-technology operations and close manufacturing facilities on the site by 2010. It is not clear how many of Roche’s 3,240 New Jersey employees will be affected by the proposed move to South San Francisco. Suffice it to say, more than a few Roche employees are likely to lose their jobs after the company’s headquarters heads west.

Once dubbed the”nation's medicine chest”, New Jersey has steadily been losing pharmaceutical jobs since 1990 when 20% of all US pharmaceutical jobs were in NJ—at present 13.7% of  American pharmaceutical jobs reside in NJ. It has been a long, slow burn for the pharmaceutical and biotechnology workforce in the Garden State.

The Roche announcement comes as several other New Jersey drug makers, including Schering-Plough and Johnson & Johnson's Ortho Biotech unit, have been laying off workers because of the economic downturn and tough times in the industry. It also comes several days after Barr Pharmaceuticals, headquartered in Montvale, announced that it is being acquired for $7.5 billion by Israeli generics giant Teva.  

The growing scarcity of pharmaceutical and biotechnology jobs coupled with the highest property taxes in the US may cause a mass migration from the state. Not that there is anything wrong with that!!!!!!

Until next time….

Good Luck and Good Job Hunting!!!!!

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At lunch the other day, I was telling a bunch of people about how brilliant Roche’s biotechnology strategy has been for the past 20 years or so. All of this changed for me on Monday, when Roche announced that it wanted to buy the remaining shares of Genentech that it already doesn’t own for $ 43.7 billion —Roche currently owns 56% of Genentech’s stock. More importantly, Roche doesn’t have control of Genentech’s board of directors nor does it influence corporate strategy or product development.

Unlike many other pharma companies who have historically purchased  biotechnology companies and then integrated them into existing corporate structures, Roche previously opted to buy controlling interests in companies and then allowed them to continue to operate independently with little corporate input or guidance. Unlike pharma culture, which is very structured and inherently conservative, the most successful biotechnology companies have been built on cultures that promote creativity and “thinking outside the box”.   If Roche buys Genentech and attempts to integrate it into the existing Roche family of companies, I suspect that all of this will change dramatically.

For the past 30 years or so, Genentech has been one of the brightest stars in the biotechnology universe.  Genentech’s management team worked long and hard to implement and maintain a vision that was formulated way back in the late 1970s when the company was first formed. Even though it is the world’s largest and most financially successful biotechnology company, Genentech has steadfastly resisted the temptation to go “corporate” and has worked diligently to maintain its “biotechnology identity” —symbolized by innovation, creativity and employee-centric policies.

I have no doubt that if the Roche-Genentech deal is approved, there will be a mass exodus of talent from the company. Based on my experience, a publicly-treaded biotechnology employee’s greatest fear is the dreaded corporate takeover! I have yet to meet a biotechnology company employee who is willing to sacrifice freedom and creativity (despite a possible financial upside) for more structure, discipline and an endless plethora of rules! 

In my opinion, the deal makes sense for Roche—competition in the cancer space is intense and they want to hedge their future success on Genentech’s oncology franchise. In the best case scenario, Roche will buy Genentech but allow it to operate as a wholly owned subsidiary with an independent management team that spends as little time in Basel as possible. I think the old adage “If it ain’t broke, don’t fix it” is particularly apt here!

Until next time….

Good Luck and Good Job Hunting!!!!!!

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Monoclonal antibodies (MAbs) directed against vascular endothelial growth factor (VEGF) receptors on cancer cells, have been found to slow the growth of a variety of cancers including colorectal, breast and lung.  While a number of blockbuster biotechnology products( based on these MAbs (Avastin by Genentech/Roche and Eribitux by Bristol-Myers Squibb/ImClone/Merck KGA) have been approved to treat a variety of different cancers their effectiveness as cancer treatments has been the subject of intense debate since their approvals.

Although numerous human clinical trials have shown that VEGF inhibitors slow the growth and development of tumors, they, as a class, don’t seem to significantly increase the survival time for most cancer patients. Further, Avastin and Erbitux are generally not used as stand alone treatments but are used in combination with more tradition anti-cancer chemotherapies. The high costs of these drugs, (Avastin’s worldwide sales hit $ 3.5 billion last year) and their variable effectiveness have caused many to question the usefulness of this class of drugs to treat cancer patients.

The well-publicized use of these drugs as cancer treatments coupled with anecdotal evidence about their effectiveness has put practicing oncologists between a rock and a hard place when it comes to treating patietns with cancer. In an article in Sunday’s New York Times one prominent oncologist said that depsite the controversy,  “I still use Avastin routinely. It’s not a slam dunk and, in fact, the incremental benefit may be more modest than we want to admit.” Others are more sanguine about VEGF inhibitors as cancer treatments “Even when these drugs ‘work,’ what kind of impact are you talking about?” said Fran Visco, president of the National Breast Cancer Coalition. But we market them and give them to everybody.”  

Nevertheless, most oncologists find it difficult to withhold Avastin or Erbitux from cancer patients seeking hope. As one oncologist put it “ When I am not sitting in front of a patient, I think about whether drugs like Avastin are worth it to society. But when facing a seriously ill patient, who, based on clinical trial results, might benefit — even if only a little — from Avastin, I think about the patient’s needs.” 

Regardless of their therapeutic value, the main issue with this class of anti-cancer drugs is cost. Avastin treatment costs patients about $4000-$9000 per month— Eribitux treatment is even more costly! While Medicare and most private insurers cover 80% of the cost, patients can be responsible for 20% or more of treatmetn costs.  As posited in the Times article “If Avastin were inexpensive or if it cured cancer or even held it at bay, as the drug Gleevec does for blood cancer, few might care.”

Are anti-VEGF drugs real cancer treatments or expensive red herrings? Clearly, the jury is still out on that one. That said, I think that only cancer patients can truly provide an accurate response to that question!

Until next time…

Good Luck and Good Job Hunting!!!!!!!

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Each year Fortune publishes a list of the top 100 companies that it believes are the best to work for. A quick perusal of the 2008 list reveals that only two drug companies cracked the top 100 this year. Genentech was ranked number 3 (second place in 2007) and Astra Zeneca finished a distant 83rd. The only other big pharma company to ever make the list was Eli Lilly in 2006 which came in at number 52. I guess that in general, big pharma companies aren’t great places to work?

As Ed Silverman at Pharmalot points out, “Amgen wins the award for taking the biggest dive. The biotech ranked #39 in 2006 and #40 in 2007, but this year doesn’t rank at all.” I suspect that Amgen’s hasty exit from the list has a lot to with large job layoffs, a grossly over paid CEO, a flagging stock price and a weak pipeline. One company that I think ought to be on this year’s list is Massachusetts-based Genzyme which has a reputation for having outstanding employee development and retention programs. It made the list in 2006 (no. 51) and 2007 (no.43) but was conspicuously absent this year. Maybe things have changed at Genzyme?

Until next time

Good Luck and Good Job Hunting (try Genentech, houses are currently cheap in the Bay area)!!!!!!!!!!!

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Until recently, Amgen dominated the biotechnology industry and was anointed the world's largest biotechnology company.  However, Amgen recently lost its number 1 ranking to Genentech.  Over the past year or so, Amgen, which is now ranked number 2,  has been acting a lot  like Avis,  the car rental company , which in the 1970s adopted the slogan  “Avis: We Try Harder” when it was number 2 to Hertz in the car rental rankings.  Like Avis, which never overtook Hertz to claim the number 1 spot,  Amgen’s efforts to regain its number 1 ranking are failing.

Today, market analysts noted that, for the first time, Gilead Sciences had overtaken Amgen as the world's second most highly-valued biotech company. Genentech still maintains its comfortable number 1 ranking with an extraordinary market capitalization of more than $83 billion. That said, it is still somewhat of a horse race between Gilead and Amgen for the number 2 spot– as of this morning, Amgen's market cap was approximately $43.5 billion whereas Gilead's was $45.5 billion. Amgen is still ranked highest when it comes to annual revenues: $14.8 billion in 2007 versus Genentech's $11.7 billion and Gilead's $4.2 billion.

Are rankings really that important? Maybe we should ask the Georgetown and Duke men’s basketball teams after this weekend’s NCAA second round tournament games! They might have some interesting insights to share.

Until Next Time….

Good Luck and Good Job Hunting (Stay out of A Thousand Oaks)

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As many of you know, the pharmaceutical industry has been trending downward for the past year or so. Weak pipelines, uncontrolled corporate expansion and soaring drug prices have been offered to explain the recent down turn. However, the real back story to the downturn is the loss of  future revenues that is expected to occur starting in 2010 when many current blockbuster pharmaceutical products, e.g., Lipitor (Pfizer), Plavix (Sanofi Aventis), Avandia (GlaxoSmithKline), Zyprexa (Lilly), and others lose patent protection.

The loss of patent protection of branded blockbuster products is almost always accompanied by the development and subsequent, regulatory approval of lower cost, generic versions of the drugs. The Hatch Waxman Act permits generic manufacturers to begin to develop generic versions of branded products five years prior to patent expiry. This allows generic manufacturers to develop and gain regulatory approval of their products well in advance of a patent expiry date. Further, generic manufacturers usually launch their products (and flood the market) with generic versions of a branded product on the same day that its patent lapses. To induce and hasten generic development, Hatch Waxman grants market exclusivity for 180-days (6 month) to the first company that gains US regulatory approval for a generic version of a branded product that has lost patent protection.

Revenue generation and a company’s market share of branded drug products generally fall precipitously following introduction of less costly, generic versions of the drugs. From a financial standpoint, this is not surprising—why would anybody chose to pay more for a branded product when there is a cheaper and therapeutically efficacious generic alternative available?  In the past, most pharmaceutical companies chose to neglect (and ultimately abandon) blockbuster products after generic versions were introduced.  Many companies chose this strategy because, in the past, there was always another blockbuster in the pipeline that would replace the lost revenues caused by generic competition.

Unfortunately, as we all know, the days of the billon-dollar-a year blockbuster drug are long gone! This realization has caused many pharmaceutical companies to rethink their business strategies when a blockbuster drugs lose patent expiry. Many pharmaceutical companies are experimenting with a relatively new kind of product called an authorized generic–a copycat version of a company’s branded drug that is sold through a licensing agreement between the innovator company and a generic-drug manufacturer. This type of arrangement allows the innovator company to hold on to a larger share of a revenue stream from the drug once it loses patent protection and it falls prey to generic manufacturers.

Authorized generics have always made sense to me–who knows how to manufacture, market and distribute a drug better than the company that originally created it? Further, why would a company choose to give up on a revenue stream simply because a product can no longer generate billions each year due to generic encroachment– wouldn’t hundreds or even tens of millions suffice? Much to my surprise, late last week, Merck & Co announced that it had inked a deal for an authorized generic form of its blockbuster osteoporosis drug  Fosamax after the US patent expires on February 6. Merck did not disclose the terms of the deal or the identity of it generic manufacturing partner.

Industry analysts have suggested that cheaper generics will not only batter sales of Merck’s Fosomax but could also hurt rival Actonel (Proctor & Gamble Co/Sanofi-Aventis) and Boniva (Roche/GalxoSmithKline). Generic manufacturers.  Barr Laboratories and TEVA are expected to launch their own generic versions on February 6 and share the 180-day market exclusivity for their respective products.

Merck, once a champion of the old pharma blockbuster model, is slowing emerging as an industry innovator. The company’s recent decision to authorize a generic version of one of its former blockbuster drugs may be a harbinger of things to come in the pharmaceutical industry. That said, I don’t understand why big biotechnology companies like Amgen, Biogen/IDEC and Genentech are unwilling to consider the authorized generic model to stave off generic competition for blockbuster biotechnology products like EPO, Avonex and Rituxan. Whether these companies like it or not, I believe that biogenerics aka follow-on biologics will be a reality in the US in the next five years. Maybe Amgen can bolster is rapidly falling stock price by inking an authorized generic deal for EPO—rather than spending hundreds of millions on patent litigation—“whadda ya think?”

Until next time…

Good Luck and Good Job Hunting!!!!!!!!!!!

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The New York Times reported today that Genentech resolved a dispute with ophthalmologists that will allow its cancer drug Avastin to continue to be used to treat macular degeneration. As you may recall, the dispute began in October when the Company announced that it would change the distribution of Avastin which would have made it difficult to use the drug. Many ophthalmologists felt that the policy change was an attempt to force them to used Genentech’s newly approved macular degeneration drug Lucentis which has the same mechanism of action but is much more expensive than Avastin. Although Avastin is not approved to treat macular degeneration, many ophthalmologists use it as an off-label alternative to the more costly Lucentis.

According to the agreement, Genentech will sell Avastin directly to ophthalmologists rather than to compounding pharmacies as it previously had (Avastin which was meant as a cancer treatment must be divided into tiny portions for use in the eye under sterile conditions). Physicians who purchase Avastin will have to send it to compounding pharmacies at their own expense to prepare it for patient use. However, the American Academy of Ophthalmology and the American Society of Retina Specialists cautioned that some states might have regulations that would make it difficult to use the new arrangement.

I guess Genentech wanted to spread some “good cheer” before the holidays.

Until next time….

Good Luck and Good Job Hunting!!!!!!!!!

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The NY Times reported today that a federal advisory committee voted that Genentech’s drug Avastin should not be approved as a treatment for metastatic breast cancer.

By a 5-4 vote, the committee decided that Avastin’s ability to delay the worsening of cancer did not outweigh the drug’s toxic side effects, especially since women getting Avastin did not live significantly longer in the end. Although the committee recommended against approval for Avastin, FDA has the final word. That said, FDA usually follows the recommendations of its external advisory panels.

FDA’s staff reviewers had been critical of the drug in an analysis released on Monday. Nevertheless, many Wall Street analysts thought the committee, made up mainly of cancer experts and physicians, would vote in favor of approval.

Analysts were expecting an approval in breast cancer to add $1 billion or more to annual sales of Avastin. Genentech’s stock price has been steadily declining for the last two years because its once explosive growth appears to be slowing.

Avastin is already one of the world’s best-selling cancer drugs, with United States sales alone of $1.7 billion in the first nine months of 2007.

Until next time....

Good Luck and Good Job Hunting

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All good things must come to an end. Yesterday, FDA regulatory reviewers suggested that Avastin, Genentech’s anti-cancer drug, may not be an effective treatment for breast cancer. FDA reviewers determined that Avastin did not help women with breast cancer live significantly longer, and it caused serious side effects, including a few deaths.

An advisory committee to the F.D.A. will meet tomorrow to discuss whether Avastin, already a blockbuster drug for colon and lung cancer, will win an additional approval for breast cancer. The drug had $1.7 billion in United States sales in the first nine months of 2007.

It is unlikely that the advisory panel (composed of practicing physicians, other healthcare professionals and community advocates) will recommend approval of Avastin given the analysis provided by agency reviewers. That said, stranger things have happened at FDA over the past 9 years or so! My sources at FDA tell me that agency reviewers recommended against approval for Vioxx (Merck’s Cox-2 inhibitor that was subsequently withdrawn from the market) but the recommendation was not heeded by agency administrators.

The analysis by the agency’s staff appeared to dim the prospects that Avastin would win an approval as a treatment for breast cancer. Genentech’s stock fell $2.75, or 3.6 percent, yesterday, closing at $73.50.

Until next time....

Good Luck and Good Job Hunting!!!!!!!!

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Genentech announced yesterday that it is delaying a plan that would have limited the use of its cancer drug Avastin to treat wet macular degeneration. Earlier this month, Genentech unveiled plans to ban purchases of Avastin by independent compounding pharmacies to prevent them from creating smaller doses of the drug that can be used by ophthalmologists to treat wet macular degeneration.  By banning sales of Avastin to these pharmacies, Genentech sought to force ophthalmologists to use Lucentis($2,000 per dose) in lieu of Avastin –which is (40 to 50 times lower than a comparable dose of Lucentis–to treat eye disease. Lucentis, which was recently approved to treat wet macular degeneration, and Avastin®, have very similar mechanisms of action.

 

The company acted to reinstate it supply of Avastin to compounding pharmacies after senior Genentech officials met with the American Academy of Ophthalmology and American Society of Retina Specialists. I guess doctors still have some clout over the disingenuous practices of some drug companies.

 

The FDA also weighed in on the dispute and reiterated in a statement that the agency did not previously ask Genentech to stop distributing Avastin to compounding pharmacies and that it has not taken any action to limit the off-label use of Avastin to treat wet macular degeneration.

Don’t you just love it when drug companies try to blame FDA for their failed avaricious plans to increase corporate profits and bolster their stock prices?

 

Until next time…

 

Good Luck and Good Job Hunting  

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Biotech giant Genentech is moving towards restricting the use of its cancer drug Avastin to treat wet age-related macular degeneration (WMD), the most common cause of blindness in the elderly. Currently, many ophthalmologists use Avastin to treat WARMD even though it was not approved by the US Food and Drug Administration (FDA) for that indication. For those of you who may not know, physicians who are licensed to practice medicine in the United States are permitted to use approved medications to treat any disease or condition if they believe that the medication is in the best interests of a patient.

Genentech said it is restricting Avastin use because it recently won approval for a new drug called Lucentis to treat WARMD. Many ophthalmologists started using Avastin (which has the same mechanism as action as Lucentis) before Lucentis won approval from FDA in June 2006. The New York Times reports that Lucentis is being used to treat 55 percent of new patients with WMD and Avastin accounted for most of the rest of the patients — or nearly half the market.

From a medical and regulatory standpoint, Genentech is justified in restricting the use of Avastin to treat WMD because it was not approved for that indication. Further, promoting or encouraging off-label use medications is a big regulatory no-no! Nevertheless, many ophthalmologists suspect that business rather than medical reasons are what is driving Genentech’s decision to restrict the use of Avastin—Lucentis costs about $2,000 per dose whereas Avastin only costs $50 per dose.
The WMD market is a large one with 200,000 new cases of wet macular degeneration diagnosed in the United States each year. Analysts report that sales of Lucentis were $209 million in the second quarter of 2007 which means that using Lucentis instead of Avastin could easily add more than $1 billion a year in annual revenues for Genentech.

Many physicians choose to treat WMD with Avastin rather than Lucentis because the high cost of Lucentis inhibits its use because of drug formulary restrictions and onerous insurance co-pays. This leads me to posit the following questions:

Is it ethically and morally acceptable to block patient access to the best available medical care simply because a company wants to maximize its profits and keep its stock price high?

Or should biotech companies price their products at more affordable levels?

I will let you decide.

Until next time….

Good Luck and Good Job Hunting!!!!!!!!!!!

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