Live from BIO: Merck looks to early-stage deals to feed pipeline

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Early stage discovery deals and academic partnerships are playing a big role in Merck's licensing strategy. That's according to David Nicholson (pictured), Senior Vice President and Head of Worldwide Licensing and Knowledge Management, who sat down with FierceBiotech at the BIO International Convention to discuss his company's approach to dealmaking.

Merck inks several hundred deals a year, with about 50 of them being what Nicholson terms "significant." Recent notable examples include a biosimilar pact with South Korea's Hanwha Chemical; a marketing deal with Roche on the newly-approved hepatitis C drug boceprevir; the buyout of ophthalmology specialist Inspire Pharmaceuticals; and a much-talked-about deal with Massachusetts-based SmartCells, which is developing new insulin technology.

Merck has some interest in new technology, especially if it provides breakthrough drugs, according to Nicholson. For instance, the company has chosen to stick by RNAi--an area of drug development that several of its competitors have abandoned. Nicholson likens RNAi to the early years of monoclonal antibody development in the 1970s. "Monoclonal antibodies took about 20 years to successfully develop," he explains, "and we've been exploring RNAi for less than a decade." Although the risk is high, he thinks it's too soon to walk away from the once highly-hyped field.

But Merck's real focus is on licensing compounds for its pipeline rather than making technology plays. "For me, what will make the difference is the pipeline and the compounds," explains Nicholson, and with that in mind he sets out to bolster the company's pipeline in its key disease areas. Following its acquisition of Schering-Plough, Merck narrowed its focus to 11 disease areas--including cardiovascular disease, immunology, respiratory disease, diabetes, neuroscience, ophthalmology, oncology and infectious disease--where it wanted to spend substantial resources.

"Our sweet spot is early, before proof of concepts. We think that there's more out there. The risk is great, but there's more out there. A lot more." He adds that Merck is very interested in very early stage deals, prior to proof of concept. "We believe that the greatest mutual value for ourselves and partners can be generated by partnering at this stage," he explains. The company is, of course, still interested in later-stage deals if the price and science is right, but Nicholson believes there's simply more opportunity in the early development stages.

"It would be a dark day for pharma to get out of discovery all together," Nicholson says, noting that Big Pharma is increasingly turning to outside resources for early research. "All pharma is reducing the amount of internal efforts in the very early stages of target validation. Certainly Merck is very interested in working academia in that space."

Currently, one-third of Merck's licensing deals are with academia--an area that's increasingly attractive to Big Pharma. Academic deals aren't new, although Nicholson says advancements in the way industry and universities interact have contributed to more attention to Big Pharma. "Industrial/academic interactions have had a checkered past...in terms of delivering in the pipeline. We've all learned from that past." Nicholson says technology transfer offices have stepped up their game in recent years, making them a more attractive choice for industry. "University Transfer Offices are now staffed with more highly skilled scientists, who have a good understanding of Pharma (our needs and our processes) and have developed good communication skills." Both parties are improving the alignment of their scientific goals so there's less miscommunication.

"Merck's experiences with academia has shown a shift toward a more collaborative approach. We are now starting to have a better, more mutual understanding of how to value assets from academic laboratories," Nicholson tells FierceBiotech. "I believe that with the Merck scouting network we are doing a better job in explaining our needs to colleagues in academia."

As with most Big Pharma companies, Merck recognizes that smart licensing is critical to its survival. "Being effective in external world is going to be important to us," Nicholson concludes. "The majority of the science is 'out there,' not in Merck's labs. Our goal is to work in a more symbiotic way with academics and biotechs."