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Drugmaker wins big in Japan as its gamble leads to landmark cancer drug

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Bloomberg

Ten years ago, representatives from Japan’s Ono Pharmaceutical Co. went from hospital to hospital, attempting to convince doctors to test a new product under development: drugs that helped the body’s immune system fight cancer. But nobody would listen.

Immunotherapy was another fad, they were told. The treatment probably offered no bigger benefit than eating mushrooms to fight cancer, one critic opined. Another said he’d shave his head if it worked.

Ono’s Chief Executive Officer Gyo Sagara says he received plenty of apologies when Opdivo, the drug the Japanese company worked on with Bristol-Myers Squibb Co., got the green light from regulators. The drug’s approval in Japan 20 months ago was the first worldwide in a new class of cancer treatments called PD-1 inhibitors.

It is among a string of therapies coming to market in the immuno-oncology category — medicines that help the body combat cancer rather than directly attacking the cancer cells themselves. The influential journal Science called cancer immunotherapy the “breakthrough of the year” in 2013, and the biggest global pharmaceutical companies are rushing into the field.

“They found the treasure of the century,” said Fumiyoshi Sakai, a health care analyst with Credit Suisse, who boosted his target price for the stock to ¥25,000 in mid-February.

The drug is pumping fresh life into Ono, which for years has battled slumping sales, patent expirations and rising competition from cheaper generics. Analysts now forecast that the firm — among the biggest makers of specialty pharmaceuticals in Asia with a market cap of about $23 billion — will more than double annual revenue to about $3 billion by fiscal year end in March 2018.

For the average U.S. patient, Opdivo costs about $12,500 a month, or $150,000 for a year of therapy. Bloomberg Intelligence says consensus analyst estimates suggest that by 2020, Bristol-Myers and Ono’s Opdivo could have global sales of $9.5 billion, and Merck & Co.’s Keytruda could have sales of $5.1 billion.

New drugs

For Ono CEO Sagara, the challenge is now to find new ways to keep his company ahead in this lucrative market. Competition has become fierce since Opdivo’s approval first for melanoma, a type of skin cancer, and later for lung cancer. Opdivo was approved in Japan in July 2014.

By September, Merck’s Keytruda had received the green light from regulators in the U.S., beating Opdivo’s U.S. approval by a few months.

To head off its rivals, Ono is racing to complete clinical studies to see how effective the drug might be in more than 20 other types of cancer, including blood cancer. The priority for the next fiscal year, which ends March 2017, is to get approval for gastric cancer, esophageal cancer and head and neck cancer in Japan, Sagara said in an Osaka interview.

He believes the company would be able to get those within a year, especially because they’re potentially “orphan” drugs, which get quicker approval because they treat rare diseases. Ono will also try and get combination therapies approved in Japan — possibly along the lines of a combo created by partner Bristol-Myers that joins Opdivo with another treatment. Bristol-Myers said in October its combination of two key cancer drugs would carry a list price of $256,000 a year on average.

Ono has hired six times as many sales representatives to promote Opdivo in Japan, Sagara said, bringing the sales staff to 180. There also may be some developments on further partnerships, Sagara said, declining to provide details.

Lucky gamble

Ono is an anomaly among Japanese pharmaceutical companies, most of which have struggled to find brand new medicines. Sagara credits his company’s success with Opdivo to a gamble it took more than a decade ago in working with some university researchers on a little-known course of treatment.

For 10 years, immunology professor Tasuku Honjo and his team at Kyoto University had studied the PD-1 protein that has the ability to weaken the functioning of attack cells within the immune system. PD-1 inhibitor drugs prevent that from happening, essentially triggering the immune system to act against the cancer. Honjo’s mentor had helped Ono bring some products to market and he himself had some collaborations there, and so he approached them.

Although it didn’t fund early research, Ono helped the scientist apply for a patent and the company and researcher were listed as co-inventors. Over the course of a year, Ono approached a long list of potential partners to see if they could co-sponsor a trial. But this was 2002, and no one bit.

That changed when the company agreed to work with Medarex — an American company founded by Dartmouth professors. A multiyear co-development partnership was struck in 2005, one that continued and expanded after Bristol-Myers bought Medarex in 2009.

Roller coaster

Opdivo marked the first time in 12 years that the company was able to get a novel drug approved, and “everyone here is invigorated,” Sagara said. “Surprise. Surprise. We firmly believed we could make it, but then it was proven.”

Ono now derives a portion of its revenue from an agreement with Bristol-Myers Squibb, which has rights to develop and commercialize the drug in North America and most other parts of the world.

The Japanese company gets 4 percent of any Opdivo sales in the U.S. and 15 percent of sales outside North America, excluding Japan, Korea and Taiwan, where Ono has rights to sell the drug.

Honjo, who still works with Ono on various projects, said he’s now negotiating with Ono to sort out the terms of a royalty agreement. Ono declined to comment on any talks.

Ono and Bristol-Myers also have legal issues to work around. In a Sept. 25 complaint filed in a U.S. district court against Ono, Bristol-Myers and Honjo, the Boston-based Dana-Farber Cancer Institute asserted that two U.S. researchers should be added as co-inventors on some patents related to PD-1 treatments. Dana-Farber said it had no further comment. Ono and Honjo referred questions to Bristol-Myers, which said it had no further comment on the complaint at this time.

The Japanese and U.S. partners, in turn, also have pending suits against Merck in the U.S. and other parts of the world alleging that Merck’s PD-1 product, Keytruda, had infringed their patents and claiming compensation for it.

Merck said via email it is confident that it will be able to market Keytruda in any country in which it is approved and that it won’t be prevented from doing so by the Ono or BMS patents or any pending patent.

Sagara faces other pressures at home. Japan has a national health care system and investors worry that the government, which sets drug prices, will continue to push them lower. In Japan, Opdivo costs about ¥1.15 million ($10,200) a month for melanoma, and ¥2.6 million a month for a type of lung cancer. Patients on the national health care plan get a large portion reimbursed through the system, and a patient with an average income might only end up paying about ¥100,000 a month for the lung cancer treatment.

The drug’s price could also come down as sales volumes rise more than expected in the health system.

All that makes continued innovation even more important for Ono. “We need to collaborate with globally top-class academia because what we can do in the lab is limited,” Sagara said. The company has a team to explore new projects with 10 people based in Osaka, four in the U.K. and five in the U.S.

“Challenger spirit. Never give up,” Sagara said, using a Japanese term that signifies perseverance and determination.