GSK to Co-Promote Merck's Anti-Depressant

A deal gives GlaxoSmithKline something to bolster its sagging late-stage pipeline, and Merck KgaA gets a partner with strong marketing presence in the US and expertise in CNS.

GlaxoSmithKline PLC is an obvious candidate to have snapped up US marketing rights to Merck KGAA 's Phase II antidepressant, EMD 68843 [See Deal]. The newly combined GSK now has the leading share of the global $12 billion antidepressant market, and is number two behind Eli Lilly & Co. in the wider CNS market. But its biggest drug, paroxetine (Paxil) may face generic competition as early as this summer when Eli Lilly's Prozac, a member of the same class of drug, goes off patent. Given that the drug accounted for nearly 10% of the merged group's sales in 1999 (£1.3 billion), GSK needs something to replace it. Paxil already has label expansions in general anxiety disorder and post traumatic stress disorder and is in Phase III for premenstrual dysphoric disorder, but although these will help, they won't be enough. Nor, likely, will the company's four or five in-house CNS programs, all in Phase I or II.

GSK has of course a wider need to patch up its later stage pipeline, hit by a series of setbacks last year. Its irritable bowel syndrome therapy, alosetron (Lotronex), which had been touted as a potential blockbuster, was pulled off the market because of side effects. Antibiotic grepafloxacin (Raxar) was withdrawn, not long after the same fate befell diabetes drug troglitazone (Romozin) in 1999. Zanamivir (Relenza), for flu, didn't make much of an impact either. Deutsche Bank analysts estimate that these disappointments could have knocked as much as $3.6 billion off GSK's sales projections into 2005. Less serious, but still awkward, GSK's newest antibiotic, fluoroquinolone (Factive), has been delayed at the FDA—the agency wants more information before it approves the drug.

At its long awaited inaugural media meeting in February, GSK announced plans to boost the productivity of its own R&D. One of these is to create six Centres of Excellence for Drug Discovery, effectively small biotechnology companies within GSK, which compete for resources and whose scientists are rewarded on the basis of the drugs they produce.

This and other restructurings will only help in the long term, however. For the next few years, GSK has no alternative but to make itself a very attractive licensing partner. With 8000 sales reps, second only to Pfizer Inc. , and leading market share in five therapeutic areas, this isn't impossible to do. The company has already in-licensed nine clinical-stage products over the last 12 months, including an antidepressant compound from NeuroSearch AS [See Deal]. "Why are people giving us their children?", asked GSK's CEO Jean-Pierre Garnier, answering his own question. "Because many perceive us as a perfect partner."

Perfect, at least, from mid-sized Merck's point of view. For one, Merck's expertise is in metabolic disease and oncology, not in CNS. Second, with no sales presence in the US, it couldn't mass market the drug there itself. So Merck had for some time been looking to partner out the drug, which combines the properties of a selective serotonin reuptaker (SSRI) with those of a partial 5HT (serotonin) agonist. GSK's strong marketing muscle—the SSRI Paxil, one of the top ten pharmaceutical brands, was the most promoted antidepressant in the first half of 2000, according to Scott-Levin's DTC advertising audit, and overtook Eli Lilly's first-in-class fluoxetine (Prozac)—make it an ideal co-promotion candidate for the privately owned German company (which is in fact slowly seeking to build its profile in the US, through listing some of its businesses there).

As for GSK, it gets a compound that should come on to the market in 2005, a year before Paxilgoes off patent. But it's unlikely to protect GSK's antidepressant franchise from generics. The depression market is dominated by SSRIs such as Prozac, Pfizer's sertraline (Zoloft) and Paxil, three of the world's top selling drugs. Generics manufacturers are therefore doing all they can to challenge market exclusivity around SSRIs, and generic versions of one drug are likely to affect sales across the class. Prozac's patent will be the first to go (after pediatric extension), in August this year. (Lilly has just received US approval for its weekly formulation of Prozac but there's no guaranteeing it can shift enough patients on to it). Analysts at ABN Amro say Paxil's growth could start slowing by 2003 to £1.8 billion.

Generics aside, there is no consensus that Merck's compound has the potential to be anywhere near this big. Peak sales forecasts for the new compound range widely, from as low as $150 million (before the GSK deal was announced) to $1 billion (or even $3 billion, according to Merck itself). The question is whether the new compound will be any more effective than existing drugs, particularly with generic Prozacfloating around, at a fraction of the price.

Merck's compound, thought to be the first of its kind to go into clinical development, is hailed as giving faster onset of action and a lower incidence of sexual dysfunction than other treatments for depression. But H. Lundbeck AS 's citalopram (Celexa), sold by Forest Laboratories Inc. in the US [See Deal]; [See Deal], already offers this profile, and in addition to being cheaper than other SSRIs, is said to have little or no effect on the metabolism of other drugs a patient may be on. Forest Labs is awaiting approval to sell American Home Products Corp. 's venlafaxine (Effexor XR) for faster onset of action. GSK's own bupropion (Wellbutrin), whose 2000 sales reached £353 million, also claims a lower incidence of sexual dysfunction (but this drug, too, has exhausted its patent extensions).

There are a total of 16 antidepressants in Phase III trials or awaiting approval. Some, such as Pharmacia Corp. 's reboxetine (Vestra), a selective norepinephrine reuptake inhibitor, offer a completely new therapeutic alternative. Merck & Co. Inc. 's Substance P, in Phase II, also presents a new mechanism of action.

GSK offers Merck's compound an excellent chance in this highly competitive market, where any new entrant, as well as being demonstrably better than existing SSRIs, needs exceptionally strong marketing backup. GSK is, as a result, integrating its global R&D and marketing operations. It will take on global development and commercialization, paying Merck undisclosed up-front payments as well as milestones and royalties on sales (the payment on entry into Phase III trials, due in 2002, is said to be "significant", according to Merck's CEO, professor Bernhard Scheuble). Merck will manufacture the drug and has an option to jointly commercialize it in certain non-US markets such as Germany, France, and the UK. Neither company would comment on whether Merck got a quid from GSK.

For GSK, in exchange for taking on some degree of risk (the compound is only in Phase II, where it has a 40-50% chance of failure), will keep most of the profits arising from the drugs' sales in the US. Milestones will come out of its R&D budget. GSK had to take on the additional risk in order to get this kind of profit generating deal. "We will not see any more Lipitor-type agreements," says Garnier categorically, referring to Pfizer's $200 million co-promotion of Warner-Lambert Co. 's cholesterol-lowering drug atorvastatin in 1996 [See Deal]. This deal gave Pfizer a good chunk of the drug's sales (which reached $5 billion in 2000, making it the second biggest drug in the world) even though the product was nearly ready for market at the time of the deal. Today, asks Garnier, "Who would want to share the profits of a risk-free drug?"

EMD 68843 was somewhat of a mothball product in Merck's cupboard, so the company is probably happy to have the cost, and risk, of development taken off its hands. This also allows it to focus on patching up its own, somewhat threadbare, late-stage pipeline. If it did get a quid from GSK, it would be the second big in-licensed product for Merck in six months—the German company also got a co-promotion in Europe on Novartis AG 's nateglinide (Starlix) for diabetes [See Deal]. Indeed, Merck needs some help: its most important product, metformin, which had sales of over £2 billion in 2000, is about to lose its exclusivity in the US, where Bristol-Myers Squibb Co. turned the in-licensed product into the blockbuster Glucophage [See Deal]. Bristol's once-a-day extended release formulation was launched during the fourth quarter of last year and made sales of $50 million, and the company also last year launched Glucovance, a combination of metformin and glyburide, which made $100 million. But there's no certainty that Bristol will be able to beat back generic competition.