Merck Intensifies Efforts To Tap The Biologics Market With New R&D Head

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A few days back Merck (NYSE:MRK) inked a deal with Samsung Bioepis (Read Merck Partners With Samsung Bioepis To Tap Billion Dollar Biosimilars Market), signaling the drug maker’s renewed focus on biologics and biosimilars (generics of biologics). Now, by naming Roger M. Perlmutter to head its R&D division, [1] it seems that the company has made biologics drugs its top priority. Perlmutter’s work has mostly been focused on biologics in the last decade. The move comes at a critical juncture because Merck has had a series of setbacks in its pipeline amid patent expiries.

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Patent Expiries And Drug Pipeline Setback

Merck lost patent protection for 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. Despite being one off of the largest R&D spenders as evident from the table below, the drug trial successes have dried up significantly and there seems to be no near-term reprieve for Merck.

Pharmaceutical Company Revenues* R&D Expenditure* R&D Expenditure* as % of Revenues
Merck 47,267 8,168 17%
Pfizer 58,986 7,870 13%
Roche Holdings** 51,015 9,113 18%
Johnson & Johnson 67,224 7,665 11%
Abbott Labs 39,873 4,322 11%

*In USD million for year 2012

**Assuming USD / CHF average of 0.93

Recently, its much-awaited cholesterol drug Tredaptive failed to meet primary endpoint in the HSP2-Thrive study and the drug maker decided to dump it depriving Merck of nearly $500 million in potential revenues (Read Merck Faces Setback As Tredaptive Fails In Large Clinical Study). Further, during Q4 earnings, Merck announced some delay in getting approval for its potential blockbuster osteoporosis drug, Odanacatib, pushing its probable launch to early 2014 (Read Singulair Patent Loss Hits Merck’s Earnings But International Growth Helps). Currently, the pipeline has only one promising drug, Suvorexant, which is to be launched this year.

This has led to calls from several investors to let go of its current R&D chief Peter S. Kim despite the fact that the company nabbed approvals for some of its largest selling drugs including diabetes drug Januvia, HIV drug Isentress and HPV vaccine Garadasil, under his guidance. [2]

Roger M. Perlmutter: Track Record Aligns With Merck’s Needs

Perlmutter has had a successful track record of steering Amgen out of troubles. He joined Amgen in 2001 amidst plunging sales due to safety concerns around its key drugs Epogen and Aranesp and helped it expand into new areas. [2] However, what suits Merck the most is his experience with biologics, where Merck has been striving hard to make inroads with no major luck. Most of Amgen’s drugs are biologics, an area where a growing number of drug makers are focusing on these days. Biologics command far higher prices than conventional drugs and involve a costly manufacturing process, creating a barrier for small companies. Further, the generic erosion of biologics could be much slower and more limited than conventional drugs as it is expensive to make biosimilars, thus limiting the pricing advantage over original biologics.

A nascent but burgeoning biosimilars market also presents a significant opportunity ahead as 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 US). [3] Not much progress has been made in the field due to the complex procedures for getting approvals as detailed clinical trials are required for regulatory approvals. The FDA came up with detailed guidelines on approving biosimilars only in 2012 after the Affordable Care Act or Obamacare cleared the path for biosimilars. Biosimilars require strong development skills to ensure safety and efficacy equivalent to the innovator products.

Previously, Merck has hit various roadblocks in its journey to develop biosimilars (Read Merck Partners With Samsung Bioepis To Tap Billion Dollar Biosimilars Market). First, it dropped the biosimilar version of Amgen’s Aranesp (an anemia drug) in 2010, which was followed by the exit of biosimilars program head, Mike Kamarck. More recently, it decided to stop the development of biosimilar of popular arthritis drug, Enbrel. However, with Perlmutter’s considerable expertise, the drug maker will hope to revive its flagging fortunes.

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Notes:
  1. Merck Announces Appointment of Roger M. Perlmutter, M.D., Ph.D., As President of Merck Research Laboratories; Peter S. Kim, Ph.D., to Retire, Merck, March 07 2013 []
  2. Merck veteran named R&D chief, after drug setbacks, Reuters, March 07 2013 [] []
  3. US$54 billion worth of biosimilar patents expiring before 2020, GABI Online, Sept 30 2011 []
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