Biotech drugs will soon dominate the pharmaceutical industry, according to analyst estimates of what are projected to be the world’s top 10 selling therapies in 2014. Eight of these brands on this list are products of genetic engineering, while only two are traditional oral pills made through chemical synthesis.
One other thing jumps out. Not a single drug on the list compiled by Thomson Reuters is wholly owned by Merck, the company with a longstanding reputation as a bellwether of pharmaceutical industry R&D. Like its competitors, Merck has aging blockbuster drugs losing patent protection, and as it looks to the future, it has come to the same conclusion many of the others have in the past few years.
“We need to have some humility about what biologics have done,” says Merv Turner, Merck’s chief strategy officer, in an interview at the JP Morgan Healthcare Conference in San Francisco earlier this month. “Biologics are going to be important in the future, and we have to get into biologics if we are going to be the world’s leading healthcare company, which is our ambition.”
Getting serious about biotech drugs (proteins, peptides, antibodies) was one of the stated rationales for Merck’s $41 billion acquisition of Schering-Plough in 2009. Before that, Merck, partly through its $400 million acquisition of Lebanon, NH-based GlycoFi in 2006, made noise about entering the biotech market through making so-called “biosimilars”—knock-offs of hit protein drugs sold today, which can’t be copied as easily as conventional small molecules. RNA interference, another therapeutic approach Merck paid $1.1 billion for in 2006, is considered separate from the biotech drug initiative within Merck.
Turner, along with senior vice president Rich Murray, talked with me about how they see Merck piecing together its new biotech capabilities to compete in a time when small-molecule chemical drugs aren’t enough anymore. Murray, the former chief scientist at Redwood City, CA-based PDL Biopharma, joined Merck a little over a year ago to apply his biotech know-how to the more traditional pharmaceutical pipeline. Turner and Murray say they spent a lot of their time thinking about piecing together biotech drugs, alongside conventional drugs, as they’ve sorted through priorities in the company pipeline since the Schering-Plough acquisition closed in November 2009.
I teased these guys right off, telling them that it was my impression that since you’re Merck and have great chemists, it’s sort of like having a hammer, which makes you think every problem is just another nail. They both laughed, but Turner acknowledged that Merck is really only now having serious, regular conversations in-house about whether to pursue interesting new biological targets with a biotech drug, or a conventional small molecule.
“Let’s just say it’s a conversation that’s now being enabled by having some of the infrastructure in place about biologics that we’ve been talking about,” Turner says.
OK, what does Merck really have in terms of biotech infrastructure? It has the GlycoFi facility in Lebanon, NH, which has expertise in modifying the intricate carbohydrate chains that hang on to the 3-D protein structures that are the essence of biotech drugs. Those carbohydrates can be finicky, and when they do unpredictable things, they sometimes alter the properties of the drug itself. So any technology that can control that in an effective and reproducible way could be valuable for manufacturing processes.
Through the Schering-Plough acquisition, Merck got a couple other important assets, Murray says. One is a facility in Palo Alto, CA, formerly known as the DNAX Research Institute, which is a hotbed of innovative work in discovery of new biotech drugs, Murray says. That central node on the West Coast, Murray says, is where Merck has decided to concentrate its efforts on discovery of new protein drugs—small proteins, fusion proteins, antibodies.
“There’s a lot of history there in immunology, in therapeutics, in antibody technologies,” Murray says. “That’s now central to our innovation efforts.”
Besides New Hampshire and Palo Alto, the other key site for Merck’s biotech efforts will be at the former Schering-Plough headquarters campus in Kenilworth, NJ, Murray says. The company is setting up a new “bioprocess” facility where scientists will work on fine-tuning production of small batches of biotech drugs that can be used for early-stage, small-scale trials. This is a different kind of facility than a traditional drug plant, because biotech treatments are made through incubating living cells in carefully controlled environments for days and weeks at a time.
Interestingly, Turner and Murray seemed quite excited about how their biotech capabilities look, even though Merck doesn’t own any massive commercial scale biotech drug factories of its own. Partly because there have been a number of biotech drugs that failed in late testing, and established biotech companies have learned to boost productivity of their processes, there is an abundant capacity available today at existing biotech drug factories, Murray says. That means Merck can do early discovery, key biotech process modifications, and biosimilar production in house, without spending hundreds of millions more on big commercial factories, Murray says. Merck says it can just hire contract manufacturers when it’s ready to ramp up to that scale.
There are also some intriguing new production technologies in the works, including approaches in which companies are essentially incubating biotech drugs in plastic bags, as an alternative to the massive stainless steel fermentation-style tanks and pipes that are required today for biotech manufacturing. I wrote in December 2009 about how Cambridge, MA-based Acceleron Pharma is investing in that method. Murray noted that Merck is watching technologies like that closely, as an alternative to building massive infrastructure.
“It’s a great time not to be choosing to build plants,” Murray says. “You can always choose to do that later, but now is a time in the industry where that’s not necessarily.”
Results, measured in the clinical trial data emerging in Merck’s pipeline, will take time to show up, if they ever do. There are five innovative biotech molecules at the stage of Phase II clinical trials, Murray says. Combining that with work at earlier stages, and Merck should have “a sustainable number of innovative candidates in the future,” Murray says.
Merck’s biosimilars are more likely to reach the market ahead of the innovative biotech drugs, although Turner played those cards close to the vest. He notes that a number of top-selling biotech drugs will lose their patents in coming years, just as Merck’s capability to make biosimilar copies will be ramping up. He didn’t name drug names, or discuss their timetables for arrival, but he did say Merck plans to make a number of these products and offer them to insurers through bulk buying deals. “And they’ll all have the Merck brand on them. It will be a stamp of quality,” Turner says.
(That, of course, is a bold statement in a field where other prominent companies have been tripped up by manufacturing woes—think of J&J’s past problems with Eprex, and Genzyme’s contamination in Allston, MA.)
Adding biotech capabilities certainly carries all kinds of risks, but there are also risks for standing still. I asked these guys whether they felt Merck missed out on some great licensing opportunities with biotech companies because it lacked some of the biotech expertise and manufacturing oomph of its competitors. Neither Murray nor Turner took that one head on, but Murray did say that the enhanced capabilities will help advance the novel form of insulin Merck acquired recently from Cambridge, MA-based SmartCells. Merck plans to optimize that molecule at its GlycoFi facility in New Hampshire.
“When you look at our infrastructure now, we perhaps became a more interesting partner for SmartCells,” Murray says.
By the end of the interview, I was pressing these guys on whether this is really a long-term strategy, or whether Merck will continue to lean on its core strength—small molecule chemicals. Turner says it is a long-term play, and it partly make sense because Merck has potential to make money here, and that when a product hits it big, the success should be long-lasting. Biotech drugs shouldn’t face the extreme price competition here that conventional drugs do when they lose their patents, because the time and expense of development means only a few companies will make knock offs when patents on the original innovative drug expire.
Turner notes that many of the biggest prescription drugs come from biotech, and Merck doesn’t have one of its own. Investing in the infrastructure to do this sort of thing wasn’t taken lightly, he says. “Once you have the capability, you really want to stay in, and maximize it,” Turner says.
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