Merck (NYSE:MRK) has struck a deal with Samsung Bioepis, a joint venture between electronics giant Samsung and Biogen Idec, to tap a nascent but burgeoning biosimilars market.  The move comes after Merck has had a series of unsuccessful stints in the area on its own while the drug maker is exploring ways to maintain revenue growth amidst patent expirations. Below we take a detailed look at the deal and what it could mean for the drug maker.
Merck lost patent protection of its largest selling drug, Singulair, in August 2012. Revenues from the drug, which clocked more than $5 billion in 2011, have been declining at an accelerating pace since then (Read Singulair Patent Loss Hits Merck’s Earnings But International Growth Helps). Further, Temodar and Propecia, which collectively earn around $1 billion in sales, are set to see generic competition from 2013. This has left Merck looking for alternative sources of revenues to fend off losses as there seems to be no near term solution from its current pipeline. While there are several promising drugs, concerns have been raised around them as Merck decided to delay the most promising Odanacatib till 2014.
- How Much Revenue Can Merck’s Cancer Drug Keytruda Add In 2020?
- Why Merck’s Cancer Drug Keytruda Can Be Key To Its Long Term Growth?
- Considering The EU Launch Of Biosimilar For Remicade, Merck’s 2nd Largest Drug, Does The Company Face Meaningful EPS Decline In 2016?
- How Much Revenues Can Merck’s Phase 3 Pipeline Add By 2020?
- By What Percentage Can Merck’s Revenue Grow Over The Next 3 Years?
- What’s Merck’s Revenue And Earnings Breakdown In Terms Of Therapeutic Areas?
Biosimilar is a generic version of a biologic drug that is made by using a living organism. By 2020, over $50 billion worth of biological drugs are expected to lose patent protection ($23 billion in the EU and $29 billion in the U.S.),  and not much progress has been made in the field due to complex procedure of getting approval as detailed clinical trials are required for their regulatory approvals. Biosimilars require strong development skills to ensure safety and efficacy equivalent to the innovator products. The FDA came up with detailed guidelines on approving biosimilars last year only, after the Affordable Care Act or Obamacare cleared the path for biosimilars.
Sensing the huge opportunity ahead, Merck has been trying to make inroads into the nascent market and announced a huge investment of $1.5 billion to develop biosimilars in 2008.  However, the drug maker has hit various roadblocks in its quest. First, it dropped biosimilar version of Amgen’s Aranesp ( an anemia drug) in 2010, which was followed by the exit of biosimilars program head, Mike Kamarck. Then recently, Merck decided to stop development of biosimilar of popular arthritis drug, Enbrel. 
But, the potential opportunity is too huge to be left midway and this could be good reason that Merck has decided to bank on other players. Any success here, can bring in multi-billion dollars for the drug maker. However, it is easier said than done. Generic erosion for biologics could be much slower and more limited than small molecules. In addition, it is expensive to make biosimilars, thus limiting the pricing advantage over the original biologics.
Terms of The Deal
As per the deal terms, Samsung Bioepis JV (85% Samsung + 15% Biogen) will carry out the early product development, clinical trials, registration and manufacturing while Merck will be responsible for commercialization. Merck will pay some upfront amount in addition to product supply income. The JV will also be eligible for additional payments on certain clinical and regulatory milestones. However, other financial details were not disclosed. Notes:
- Merck and Samsung Bioepis Enter Biosimilars Development and Commercialization Agreement, Merck, Feb 20 2013 [↩]
- US$54 billion worth of biosimilar patents expiring before 2020, GABI Online, Sept 30 2011 [↩]
- Star-crossed Merck reorganizes troubled biosimilars effort around Samsung pact, Fiercepharma, Feb 20 2013 [↩] [↩]
- Merck, Samsung JV team up on biosimilar medicines, BusinessWeek, Feb 20 2013 [↩]