Tredaptive - Merck

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The developer: Merck
The drug: Tredaptive

The scoop: After Tredaptive proved to be a failure in Phase III, criticism of Merck ($MRK) reached a crescendo--in some circles--and Merck had to begin to come to grips publicly with what had become a glaring reality to many more than a year ago. Its research engine--despite a budget of more than $8 billion a year--had broken down.

The lesson, though, took some time to sink in.

A few years ago CEO Kenneth Frazier had been widely lauded for his refusal to take the Pfizer ($PFE) way out and reorganize and slash costs. Frazier was maintaining a tradition at Merck--a tradition that included a blockbuster rep for major drug development projects. R&D had built a big reputation for effectiveness at Merck; Frazier was there to keep the flame burning. And soothing profiles in the financial press kept the myth alive long after it was clear that the strategy had jumped the tracks.

What did Frazier's loyalty and commitment get him? A sleep drug that regulators are clearly leery of, discounting Merck's claim of improved safety and making the pharma giant go back and ask for an approval at a dose its regulatory team is on record as saying won't work. And the drug--suvorexant--is headed for a shrinking market dominated by generics that payers are likely to prefer or insist on.

The big odanacatib setback had Merck squirming in the hot seat as it refused to say exactly what was delaying the big blockbuster hopeful--once cited as an early success. But just before that, the cholesterol drug Tredaptive had gone down in flames on the failure of Merck's huge Phase III study, reminding everyone that this was once a top prospect at the company, approved in Europe but earning little or nothing to justify the cost of development. And early this year Merck was forced to spell out the adverse events that helped scuttle the effort, raising some significant questions about the use of niacin. Tredaptive set the tone for a very unhappy 2013, despite the arrival of the well-respected R&D chief Roger Perlmutter and the brilliant early success of MK-3475.

By the time Bridion (sugammadex) was rejected last month--the second FDA rejection in 5 years--Merck's R&D reckoning became inevitable. And now it faces the same upheaval that has already hit most other Big Pharmas.

Frazier had tacitly acknowledged the problems--though resisted the conclusions being drawn--when he replaced Peter Kim with Perlmutter as head of R&D. Ever the cautious steward mindful of the greats who came before him, he styled it as a transition, complimenting Kim.

Perlmutter has been carefully critical of R&D, pointing in a muted fashion to a tendency to bureaucracy that needs to be weeded out. Now he'll have to go much, much farther and start opening up to collaborations and acquisitions--something he's very experienced at--while finding a new late-stage set of therapies that can win over analysts and get hustled along by special teams.

Merck execs swear that they have learned important lessons. The company will scrap losers faster, including drugs in Phase III. It will learn how to collaborate nicely with smart partners rather than try to control everything.  

What's still lacking, though, is a clear acknowledgment of its failure at the top and a rejection of the bunker mentality that led to it. In the end, the failure of Tredaptive could be the best thing that ever happened to Merck, though they will probably never say it publicly. And that lack of candor is still a problem.  

On Monday, Merck lost one of its last big defenders when Bernstein's Tim Anderson dissed its long distance turnaround plan for R&D. Winning back Wall Street's support will be a difficult task. 

For more:
Special Report: 10 top drugs in biopharma's late-stage pipeline - MK-3475
Merck R&D hammered by another setback as FDA rejects anesthesia drug (again)
Merck's Tredaptive fiasco blamed on adverse reactions to niacin
Merck execs struggle with growing uncertainty over late-stage R&D
Merck R&D calls for a time-out on osteo blockbuster hopeful