4. Merck: The slow giant aims for a fast comeback this year

Roger Perlmutter

2013: $7.50 billion
2012: $8.16 billion
Change: Down 8%
As a % of revenue: 17%
Head of R&D: Roger Perlmutter

Merck ($MRK) has a ways to go before it whittles its R&D budget down to size. The pharma giant has had to account for 7 long years without a major drug approval, and that in turn has forced a complete shakeout on the R&D side. Now Merck has taken the externalization pledge, following a path to drug development that was blazed by rivals who years ago whittled down their own operations as they turned to partners for innovation, set up global deal teams and narrowed their focus.

The giant earned a reputation for having a bad case of the slows under former R&D chief Peter Kim. And the gradual swell of bad news made it inevitable that Merck would take the restructuring approach after claiming for years that its great tradition in R&D would see it to a new wave of products.

The rethink came after regulators rejected sugammadex for the second time, Tredaptive failed at the beginning of 2013 and the crucial odanacatib osteoporosis program was delayed for safety reasons--which are finally becoming public.

Most of the successes at Merck recently have come with a cloud hovering overhead. Vorapaxar was acquired in the Schering-Plough buyout way back in 2009 and recently earned a positive panel vote in its favor. But the prospect of a regulatory approval only came after the company was forced to trim various patient groups out after detecting some significant risk factors. The sleep drug suvorexant was rejected by the FDA and handed back to investigators, with regulators demanding that Merck drop the dosage to a level its team already said doesn't work. V503 looks better than Gardasil in guarding against HPV but the big sales expected will likely come at the expense of its established franchise. And there are a couple of allergy medicines that have been approved, though consensus peak sales estimates reach only about $450 million for the pair.

Merck's shot at near-term redemption was turned upside down. Just days ago Merck and its partner Endocyte ($ECYT) won support from the EMA for conditional approval of the cancer drug vintafolide for ovarian cancer--then had to admit that it failed the late-stage study. Merck R&D turned in positive--though unspecified--results for the treatment for non-small cell lung cancer. But the whole program is under a cloud now.

The big kahuna in R&D, though, lies in its huge and growing program for MK-3475.

Merck is gambling that its rolling submission for the immuno-oncology therapy MK-3475 can not only beat Bristol-Myers Squibb's ($BMY) rival nivolumab to the market, but that it can also regain the company's lost rep for focused development work. The FDA's first approval decision for the immuno-oncology drug is slated for late October, and along with the laggards now at the agency may help push the year's collection of approvals to 6--quite an achievement for a company that until recently kept an address at the R&D dog house,

Somewhere along the line, Merck has to establish a network of deal teams around the world, following Johnson & Johnson's ($JNJ) blueprint. The big research cuts aren't complete, leaving segments of the development arm of the company in disarray as people get to find out who stays and who goes.

The R&D group also has a pair of closely-watch hepatitis C drugs that won a breakthrough drug designation from the FDA. MK-5172 and MK-8742 are on the threshold of a Phase III study, well behind Gilead's ($GILD) Sovaldi and its combo drug, which will be up for an approval this year. AbbVie ($ABBV) and others are racing ahead in the same field, but with payers kicking back hard at Sovaldi's $84,000 price tag, this market seems wide open to new interferon-free therapies--so long as they are priced competitively. And despite the controversy around the BACE strategy in fighting Alzheimer's, Merck is widely viewed as the leader in the clinic. Last December, Merck moved its star beta-secretase program into Phase III, but it remains a wild card.

It may not be pretty and it may be very late in the game, but in R&D a win is a win. And Merck might just be on the verge of some big ones. 

For more:
Special Reports: Biopharma's Top R&D Spenders of 2012 - Merck | 2014's most influential people in biopharma - Roger Perlmutter
Merck R&D hammered by another setback as FDA rejects anesthesia drug (again)
Merck execs struggle with growing uncertainty over late-stage R&D 
Merck's fast and furious MK-3475 immunotherapy team guns for a quick approval

4. Merck: The slow giant aims for a fast comeback this year
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