Merck Deal Gives Lundbeck US Foothold

Lundbeck's $270 million deal with Merck & Co. to develop and commercialize the Phase III gaboxadol for sleep disorders in the US finally gives the Danish CNS specialist a foothold in the US market. Gaboxadol provides Merck an entry into the burgeoning insomnia market and the deal—the company's largest-ever single-product pact—is indicative of the Big Pharma's growing flexibility and acceptance of external research.

Big Pharma is waking up to the opportunities of treating insomnia. The market for such drugs is often compared to the depression market of the early 1980s. And if the next-generation insomnia treatments are approved and reach sales figures anywhere near the selective serotonin reuptake inhibitors (SSRIs) that revolutionized the treatment of anxiety and depression over the last two decades, the blockbuster bets placed by Pfizer Inc. and, now, Merck & Co. Inc. , will have paid off handsomely.

In the latest such deal, Merck, hungry for late-stage product candidates after several setbacks last year, in mid February paid generously for US co-development and co-promotion rights to H. Lundbeck AS 's gaboxadol, a direct-acting GABA-A receptor agonist [See Deal]. Lundbeck received $70 million in upfront payments and could see up to $200 million in clinical and regulatory milestones. Analysts estimate that Lundbeck's royalty on gaboxadol sales is about 25%. Most importantly for the Danish CNS specialist, Merck is committed to helping Lundbeck establish a US-based specialty sales force of 250 reps by providing it with co-promotion rights to a marketed CNS product. Lundbeck will seek another local partner in Japan and likely develop and market gaboxadol on its own in Europe. The firms anticipate filing an NDA between late-2006 and mid-2007.

The lack of published clinical data on gaboxadol, a drug that's been around the block—having previously been tested as an antipsychotic by researchers at the Max Planck Society —clearly didn't bother Merck. Neither did its late-comer status: gaboxadol is predicted to hit the market at least two years after Pfizer's indiplon GABA-A receptor agonist and at least three years after Sunovion Pharmaceuticals Inc. 's eszopiclone (Estorra), an isomer of Aventis SA 's now-generic zopiclone (Imovane/Amoban), on which the FDA was due to rule on February 29th 2004. Sanofi-Synthélabo is also developing a longer-acting version of its market-dominating zolpidem (Ambien/Stilnox), which pulled in $1.6 billion in 2003 sales. (See Exhibit 1.)

The deal terms strongly resemble Pfizer's groundbreaking and lucrative December 2002 deal with Neurocrine Biosciences Inc. for indiplon. This world-wide pact comprised $100 million upfront, $300 million in milestones, and support for a 200-rep Neurocrine sales force with permission to co-promote Pfizer's SSRI sertraline (Zoloft) [See Deal]. (Like gaboxadol, indiplon has seen the inside of several companies' laboratories: originally a Wyeth project, it was licensed to Dov Pharmaceutical Inc. which, lacking resources, promptly turned it over to Neurocrine [See Deal].) Each Big Pharma will also pick up the tab for what promise to be comprehensive late-stage development programs, likely designed to create short- and long-acting formulations of the sleep aids. "We are talking about a major clinical program," Lundbeck CEO Claus Braestrup, PhD, assured his audience on a conference call announcing the deal.

Expanding Horizons

In the wake of genericization of Lundbeck's blockbuster SSRI citalopram (Cipramil, sold by Forest Laboratories Inc. in the US as Celexa [See Deal]), which accounted for about 60% of the Danish firm's total 2003 sales, the company has been under pressure to both broaden its pipeline and increase its profile in the US. Efforts to switch European patients to Lundbeck's single-isomer version of the drug, escitalopram (Cipralex/Lexapro), following the drug's approval in 2002 have gone badly awry, intensifying this pressure to diversify its sources of revenue. (See "Lundbeck: Cipralex Falters in Europe," this issue (Also see "Lundbeck: Cipralex Falters in Europe" - In Vivo, 1 Mar, 2004.).)

In 1996, Lundbeck was in a similarly tricky situation. It had shopped Cipramil around to Big Pharma in the US but, as a late entry to the SSRI market where most big players already had contenders, found no takers. Ever the specialist, Lundbeck had no means or desire to enter on its own what was and still is largely a primary care market. Forest seized the opportunity to promote the drug and Lundbeck, happy to find a partner, didn't even push to retain the right to market the drug to specialists. (See "Lundbeck: Switching Engines," In Vivo Europe, June 2002 (Also see "Lundbeck: Switching Engines" - In Vivo, 1 Jun, 2002.).)

For Lundbeck, breaching the US market has been a matter of finding an opportunity that afforded it a low-risk path to entry. "Lundbeck has talked about finding a large co-promotion partner to get a foothold in the US for a long time," says Handelsbanken analyst Astrid Samuelsson, MD, PhD. In gaboxadol it found the leverage it needed. "To establish ourselves in the US has been a pivotal strategic goal for this company for the last year," explains Lundbeck EVP for rest-of-world operations and corporate affairs Stig Løkke Pedersen. "This is a strategic breakthrough for us—by co-promoting a Merck product we're able to build up a sales force without the associated risk exposure."

Co-promotion rights to an on-patent Merck CNS product (observers have speculated that it could be the migraine treatment rizatriptan (Maxalt)) would begin once the companies get a good look at gaboxadol's late-stage trial data and agree to file an NDA, says Pedersen. Proceeds from this product will theoretically pay for Lundbeck to establish a 250-strong specialist sales force to promote gaboxadol and Lundbeck's other CNS products. (See Exhibit 2.) Pedersen also describes the agreement as a platform from which Lundbeck can secure new products; once it begins selling its own specialist products in the US, the firm plans to in-license others'.

For now—and until gaboxadol successfully navigates late-stage clinical development—Lundbeck remains a regional player. But its partnering strategy, a low-risk, stepwise approach, reflects a self-awareness that may yet expand its reach. "We're very much aware of our own limitations size-wise, competence-wise, and we seek from product to product a partner that can either improve our geographical presence and strength in an individual marketplace or provide scientific resources and competencies that will complement our own," says Pedersen. Enter Merck's clinical know-how and marketing muscle.

Merck: New Products, Please

For an historically inward-focused pharmaceutical company, Merck has been busy on the licensing front. While its deal for gaboxadol is the largest and most recent example of Merck's thirst for external products, it certainly isn't an isolated incident. Dealmaking at the Big Pharma—once reliant nearly entirely on internal innovation and plagued by not-invented-here syndrome—is on the rise.

Problematically, Merck saw two drug candidates drop out of Phase III trials in November 2003—lightning struck twice at a company without a thunderstorm for decades. Its blockbuster statin simvastatin (Zocor), with sales of $5 billion in 2003, is due to go off patent in 2006. Pfizer has hobbled Merck in the Cox-2 market and Novartis AG 's valsartan (Diovan) is making matters difficult in the hypertension market. (See "Merck's Vaccines: Why the Company's Down, but Definitely Not Out," IN VIVO, December 2003 (Also see "Merck's Vaccines: Why the Company's Down, but Definitely Not Out" - In Vivo, 1 Dec, 2003.).)

Helping Merck out of this hole is its recently invigorated focus on in-licensing. The deals aren't only becoming more numerous—10 in 1999, 38 in 2002 and 47 in 2003, according to Windhover's Strategic Intelligence Systems databases—they are becoming bigger. In the two months prior to landing gaboxadol the Big Pharma inked several other large deals. A $96 million agreement to develop therapeutics and vaccines to treat Alzheimer's disease with Acumen Pharmaceuticals Inc. was signed in January 2004 [See Deal]. In December 2003 it signed a broad alliance worth up to $272 million with Actelion Pharmaceuticals Ltd. to develop renin inhibitors for cardiovascular and renal diseases [See Deal] and a deal worth up to $160 million with Neurogen Corp. to develop therapies to treat pain [See Deal].

In the Actelion case, in addition to gaining significant milestones and royalties on products, the Swiss biotech also scored co-promotion rights to its choice of projects and a Merck-funded sales force to boot. Given that Merck has historically eschewed co-development and co-promotion arrangements (although there are exceptions, such as its May 2000 alliance with Schering-Plough Corp. to develop the cardiovascular drug ezetemibe (Zetia) and other therapies [See Deal]), to say nothing of providing funding for a sales force, terms of its recent deals depart from the status quo. (See "Merck Opens Up to Europe," In Vivo Europe, February 2003 (Also see "Merck Opens Up to Europe" - In Vivo, 1 Feb, 2004.).) Still, like its renin pact with Actelion, most of Merck's deals have remained early stage. With gaboxadol, observers point out that the company is branching out yet again—into later-stage in-licensing. Merck Research Laboratories' SVP of worldwide licensing and external research, Mervyn Turner, PhD, maintains that Merck's in-licensing deals are not driven by the development stage of the candidate but only "by the quality of the opportunity." It makes sense then that given fewer late-stage available drugs, Merck's opportunities have been few and far between, but also, say executives at biotechs that have made late-stage deals, Merck has not aggressively pursued these deals.

Not Your Father's Sleep Aids

Despite the current and impending insomnia competition, Turner notes that no product on the market or in late-stage trials modulates the same GABA-A receptor subtype as gaboxadol. Merck and Lundbeck believe that by hitting the alpha-4-delta subtype, gaboxadol will be free of many of the side effects that have plagued other treatments for sleep disorders and which inhibit regular use of other insomnia therapies, such as hang over effects, possible interactions with alcohol, and problems associated with tolerance and dependence.

But developers of the newer, non-benzodiazapine insomnia treatments such as Ambien, Sonata, and indiplon, point out that their drugs interact with a subset of the GABA receptor that mediates sleep but lacks the sedative effects and long half-life of benzodiazapines. Importantly, suggests Gary Lyons, CEO of Neurocrine, "these drugs work through a validated mechanism and have shown to be very potent in inducing sleep, and in the case of indiplon, maintaining sleep." The fact that gaboxadol appears to work through a different, non-validated receptor subtype may be a liability, he says.

In partnering with Merck—perhaps by gaining a partner willing and able to fund a large, comprehensive clinical program—Lundbeck has also stretched its timeline to market. "We're a little concerned about the timeline from a Lundbeck perspective," notes Samuelsson. Indeed, a 2008 launch won't help Lundbeck in the near term and by then they'll be entering a generic market (Ambien goes off patent in 2006) with stiff competition from, among others, the world's largest pharmaceutical company. Lundbeck says its use patent on gaboxadol doesn't expire until 2016; in a worst-case scenario the drug would have Waxman-Hatch exclusivity for several years even in the event of a successful patent challenge. Merck's Turner describes the partners' patent position as "secure." Rivals Pfizer and Neurocrine however are arguably in the best shape: by unusually winning a composition-of-matter patent on indiplon when the drug was already in late-stage trials, Neurocrine was able to secure exclusivity until 2020. (See "The Infrastructure Dilemma," IN VIVO, January 2003 (Also see "The Infrastructure Dilemma" - In Vivo, 1 Jan, 2003.).)

Clouding the mix even more is the absence of published reports about gaboxadol. "We've seen very little financial detail and we've seen very little formal data" on gaboxadol, says Handelsbanken's Samuelsson. Lundbeck suggests that Merck's endorsement of the product validates the compound's potential. Adds Nordea Securities analyst Henrik Simonsen: "We're basically relying on old data from clinicians at Max-Planck." But given the market potential for insomnia therapies and Lundbeck's claim about gaboxadol's unique mechanism of action, Simonsen and others had expected a significant deal for the drug at some point in 2004.

The market for insomnia therapies in 2003 was roughly $2 billion and that figure is expected to nearly double by the time Lundbeck and Merck anticipate bringing gaboxadol to market in 2008. Pfizer's presence ought to go a long way toward expanding this market when it launches indiplon with Neurocrine as early as 2006; insomnia patients tend to try a variety of tricks—different types of mattresses, pillows, aromatherapies—and pharmacology is no different. Analysts expect plenty of shopping around and an expanded market may benefit more than just indiplon. (See "Sepracor's Primary Care Ambitions," IN VIVO, September 2003 (Also see "Sepracor's Primary Care Ambitions" - In Vivo, 1 Sep, 2003.).)

--by Christopher Morrison

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