Merck's Head-long Leap into Follow-On Biologics

Merck outlined ambitious and capital-intensive plans for a biosimilars business at its annual investor day in early December. The company aims to leverage its 2006 acquisition of GlycoFi to launch six or more follow-on biologics between 2012 and 2017. The news shifts the Big Pharma in an entirely new direction, one that pharmaceutical companies--with the exception of Novartis AG's Sandoz division--have largely stayed away from.

Typically, Big Pharma analyst days aren’t known for being particularly newsy. But that certainly wasn’t the case at Merck & Co. Inc.’s annual event, held December 9 at the firm’s Whitehouse Station, NJ, research location. The company outlined its ambitious and capital-intensive plans for a biosimilars business, including the creation of a new unit, Merck BioVentures (MBV), which aims to launch six or more follow-on biologics between 2012 and 2017. The news shifts the Big Pharma in an entirely new direction, one that pharmaceutical companies—with the exception of Novartis AG’s Sandoz International GMBH division—have largely stayed away from. Indeed, Merck’s outline for its MBV is one of the most explicit statements to date concerning Big Pharma’s potential role in developing follow-on-biologics.

In an interview, Frank Clyburn, senior VP and general manager of the newly created venture, noted the company plans to spend $1.5 billion in follow-on biologics R&D through 2015 in order to meet its goal of putting at least five candidates into the clinic by the end of 2012."We are going to be a very significant player, obviously, with that type of investment," he said. "We are going to look at developing follow-on biologics in a number of therapeutic areas, a very diverse portfolio."

But although largely a long-term opportunity, Merck already has one FOB in clinical development, a pegylated erythropoietin for anemia similar to Amgen Inc.’s darbepoetin alfa (Aranesp) called MK-2578, which is being developed using a sugar-modification technology the pharma obtained via its 2006 purchase of GlycoFi [See Deal] The company hopes to launch its EPO product in dialysis and pre-dialysis patients with chronic kidney disease in 2012.

Clyburn declined to offer any sales projections for that product or the MBV unit in general, nor would he identify any of the other products or therapeutic areas Merck will attempt to develop. He said MBV will identify product candidates by looking at their value in the marketplace. "We know what biologics account for today – [their sales are] growing in double digits," he said.

The announcement overshadowed broader discussions about Merck’s current and future business activities, including the company’s plans to seek new indications for Gardasil and raltegravir (Isentress), its respective human papilloma virus vaccine and HIV treatment, as well as the expected filings of three new drug applications in 2009.

Like most of its pharma brethren, Merck has struggled with a three-headed monster comprised of increased regulatory scrutiny, declining R&D productivity and rapidly approaching patent expiries. In a conference call December 4th, the company down-graded its 2009 financial guidance, citing flagging sales of ezetimibe (Zetia) and the ezetimibe/simvastatin combination Vytorin.

Not that FOBs will prove easy to push past the regulators. As Congress continues to mull over FOB legislation, it’s increasingly unlikely that legislators will consider an abbreviated approval pathway for these products. Instead, it's going to take significant expertise on a number of fronts--clinical, manufacturing, and regulatory--to meet the case-by-case standards being contemplated. And, since follow-on biologics are unlikely to be therapeutically substitutable, companies will also need significant sales and marketing expertise to actually make money on such products.

Who has the requisite know-how? With the exception of Teva Pharmaceutical Industries Ltd. it isn’t the traditional generic makers. "Other players with vastly superior capabilities and resources may be at least equally—if not better—suited to participate...such as some large-cap pharmaceutical and biotech companies as well as select mid- and small-cap biotech companies," says Ken Cacciatorre, a managing director and senior research analyst with Cowen and Co. (See "Big Pharma May Be A Big Player in Follow-On Biologics Market," The RPM Report, April 2008 (Also see "Big Pharma May Be Big Player in Follow-On Biologics Market" - Pink Sheet, 1 Apr, 2008.).)

And plenty of major pharmaceutical companies besides Merck also have the technology platforms to make it happen. Late to the biologics party, a number of them were extremely busy in 2006 and 2007 gobbling up so-called next-generation antibody start-ups in their bid to build capability, especially in areas with already established intellectual property such as the anti-TNF space. Quickly following Merck's purchase of GlycoFi, for instance, GlaxoSmithKline PLC purchased Domantis Ltd., Bristol-Myers Squibb Co. bought-up Adnexus Therapeutics Inc., Pfizer Inc. snapped up BioRexis Pharmaceutical Corp. and CovX Research LLC, while Wyeth took out Haptogen Ltd. [See Deal] [See Deal] [See Deal] [See Deal] (See "Big Pharma’s Leap Into Biologics: Bridging Both Scientific And Cultural Gaps," IN VIVO, October 2007 (Also see "Big Pharma's Leap into Biologics: Bridging both Scientific and Cultural Gaps" - In Vivo, 1 Oct, 2007.).)

But until recently, pharmaceutical companies have been focused on using these technologies primarily to develop novel molecules rather than follow-on versions of existing products. That mindset started to shift when Teva announced its intention to be a player in the space with its $400 million acquisition of the albumin-fusion player CoGenesys Inc. in January 2008. [See Deal] Soon after, former GSK CEO J.P. Garnier signaled the strategic importance of its $454 million acquisition of Domantis when he said the technology allows GSK to "re-do a moncolonal for everything that is on the market, from Avastin to Rituxan…We can do our own version, without infringing IP. With a product that might even have a twist." At Pfizer’s analyst day in March, meanwhile, chairman and CEO Jeff Kindler indicated that the New York giant was weighing a similar move. In response to a question about whether an abbreviated approval pathway would prompt the company to start developing follow-on biologics, Kindler responded: "I do think that's an opportunity for us."

But if Pfizer and GSK suggested they were willing to dip their toes in the FOB waters, the creation of MBV represents full scale immersion. In the December 9 presentation, Merck’s executives made clear their intent to use the GlycoFi technology to push forward the biological equivalent of the fast follower approach Big Pharma has perfected in the small-molecule arena (See "Pharma’s New Follow-On Strategy," IN VIVO, February 2008 (Also see "Pharma's New Follow-On Strategy" - In Vivo, 1 Feb, 2008.).) Predicting that his company "can become a leading provider of high-quality, competitively priced" FOBs, Richard Clark, Merck’s chairman and CEO said the MBV unit "should further improve the probability of success in our pipeline as well as help us manage our overall development risk." Separately, Ken Frazier, Merck EVP and president of global human health told investors, "We think the economics around this business make absolute sense."

And it’s hard to argue with the numbers. Biologics accounted for an estimated $94 billion in sales in 2007, 16 percent of the $598 billion in total pharmaceutical sales. But by 2014, biologics are projected to take a 23 percent market share, totaling $187 billion in sales. The growth rate for biologics is about 2.5 times that of the pharmaceutical industry as a whole. Moreover, a number of hugely successful molecules are scheduled to come off patent in the coming years.

The regulatory log-jam may soon clear, too: President-elect Barack Obama has indicated he sees FOBs as offering potential for health care cost savings and the Senate made significant progress this year in advancing legislation to create an FDA approval process. Appropriately, however, Merck is going ahead without any expectation of a straight-forward biosimilar process at FDA, according to Peter Kim, PhD, president of Merck Research Laboratories. That means each FOB product developed by MBV will be backed by extensive clinical studies, including complete toxicology studies and Phase III trials, and the unit will file a BLA for each product.

Merck executives did not disclose whether it would structure clinical trials of MK-2578 to show non-inferiority or superiority to Amgen’s Aranesp. "In some cases, we anticipate that we will be able to develop unique composition-of-matter (FOBs) that have a superior profile as compared to the original molecule," Kim said. Regardless of whether or not the glycosylation technology will result in best-in-class protein therapeutics, Merck clearly believes in their market potential."In all cases, the fact that we can produce proteins that are more homogeneous and more amenable to therapeutic characterization will be important to payers, physicians and patients as they choose from available follow-on products for a given indication," Kim told analysts and investors.

Indeed, that’s where the manufacturing advantages associated with GlycoFi’s technology come into play. The next generation technology uses "humanized" yeast cells that can be manipulated to produce highly specific versions of a given antibody that have a better circulatory half-life, targeted tissue distribution and/or increased potency than the originals. Moreover, the yeast-based system is a faster, cheaper, and more tightly controlled production process than the mammalian cell culture method traditionally used to make antibodies and other proteins. (See "The Next-Generation Antibody Players," START-UP, February 2006 (Also see "The Next-Generation Antibody Players " - Scrip, 1 Feb, 2006.).)

Merck's news may spur other Big Pharma down the FOB path. Two days after Merck announced its effort, John Lechleiter, president and CEO of Eli Lilly & Co., gave a highly qualified answer when asked about his company’s own biogenerics strategy at Lilly’s day-long analyst event. "We’re very much considering it. It’s something we’re looking at," he said.

So Amgen and Genentech Inc. watch out: Hours after the news broke, Lazard managing director and senior biotechnology analyst Joel Sendek issued a report urging caution when it comes to Amgen’s share price. In September, the European Union approved follow-on competitors from Teva and ratiopharm Group to Amgen’s white blood cell growth stimulators filgrastim (Neupogen) and its long acting cousin pegfilgrastim (Neulasta). But these molecules have thus far failed to grab market-share from Amgen. According to Sendek, Merck’s biosimilar program is a more serious long-term threat. "In our view, Merck represents a more formidable competitor due to its marquee brand name and marketing expertise," he wrote in his December 9 report.

Ellen Foster Licking and Joseph Haas