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| Merck R&D chief Roger Perlmutter |
With investors focused almost exclusively on earnings and R&D programs today, Merck ($MRK) quietly managed to slip in news of a setback in its quarterly report, noting that the FDA has rejected its marketing application for the fertility treatment corifollitropin alfa. But with Roger Perlmutter at the helm in R&D, the emphasis at Merck is undergoing a major shift, switching from a focus on cutting research costs to accelerating its spending by hundreds of millions of dollars in the second half as it pushes a slate of promising late-stage efforts and continues its aggressive shopping spree.
In fairness, corifollitropin alfa never warranted much attention at Merck to begin with. So its failure at the FDA--for unexplained reasons--never warranted discussion during the Merck team's conference call with analysts Tuesday morning. That call dealt with Merck's accelerated filing for the PD-1 immuno-oncology star pembrolizumab, plans to hustle ahead with a triplet hep C program combining a promising Merck combo with Gilead's ($GILD) Sovaldi, and the likelihood of more deals like Merck's $3.85 billion buyout of Idenix in June. And CEO Ken Frazier, who always preferred a narrative of growth, innovation and big R&D budgets to the grim retrenching move announced last fall, was clearly enthused to be cheering on his new research chief.
"What's more exciting is the innovative momentum in our pipeline," Frazier instructed analysts today.
During the second quarter, says Merck CFO Rob Davis, the company slashed its research spending by $232 million during a period of continued cost cutting. Merck as a whole now reports that it has a global staff of 73,000, down 8,000 employees from the same period a year ago, and is currently cutting 600 sales reps in Pennsylvania. But for the second half of this year, Davis added, R&D costs are expected to rise by "a few hundred million" with an expanded slate of late-stage studies.
The focus now is on new deals, both licensing in new drugs as well as buying up companies in convenient bolt-on acquisitions, a favorite strategy now among the Big Pharma crowd, which would prefer to avoid repeating Pfizer's ($PFE) disastrous attempt to buy out AstraZeneca ($AZN).
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| Kenneth Frazier |
Frazier noted that the Idenix deal is an "exemplar" of the kind of targeted M&A strategy the company is following. It also fits well with Perlmutter's reputation for biotech deals, which he pursued zealously as head of Amgen's R&D division before getting squeezed out of the Big Biotech.
Perlmutter was quick to zero in on Merck's October 28 PDUFA date for pembrolizumab, which now looms as the first likely regulatory OK in the U.S. for a new crop of immuno-oncology treatments drawing the rapt attention of the market. Merck remains pumped about its prospects for a second try on the sleep drug suvorexant, with a PDUFA date of August 14, even though most analysts appear to have very low expectations for this therapy once it hits the market. But Perlmutter kept analysts' attention with suggestions that a 4-week regimen of the triple hep C cocktail now in the works could well be a winner, with more data on that out later in the year.
This time last year the tone at Merck R&D was set by its flailing efforts to explain away a series of painful setbacks which had forced a years-long drought of blockbuster approvals. Now, in relatively short order, the company has regained control of the narrative, getting analysts to focus on its potential for near-term successes. And that means small setbacks can be easily overlooked.
- here's the release for Q2