Merck

R&D chief Roger Perlmutter

Time for a change at the top - Merck

2012: $8.16 billion
2011: $8.46 billion
Change: Down 4%
As a percentage of revenue: 17%
R&D chief: Roger Perlmutter
 

Merck's ($MRK) R&D budget ranking managed to move up the charts by sticking largely to script over the past year. After keeping the budget just north of $8 billion again, the pharma giant moves from the number 4 slot in the 2011 rankings up to third place. But despite the big numbers, Merck managed to dig a much bigger hole for itself with a series of punishing research setbacks.

Then suddenly, as the muttering in the ranks of investors grew louder, everything changed in a snap. Peter Kim, credited with the big Januvia approval in a now distant 2006, was out. Roger Perlmutter, who made his rep on denosumab and brace of billion-dollar biotech deals at Amgen ($AMGN), was in.

The switch at the top of R&D came several years after Merck CEO Ken Frazier took a courageous stand and made it clear that his pharma giant wouldn't be following the same path as Pfizer, which had whipped out its budget ax and begun to start hacking off billions in R&D spending as a simple and effective way to deliver bottom-line profits to investors. Frazier won some industry kudos for that position, taking the big risk associated with drug development and maintaining a research budget that has long hovered around $8 billion.

Even as the numbers at Merck inevitably soured as its big cash cow Singulair lost patent protection, Frazier was still being lauded for maintaining the same position--even though there was little sign of a turnaround in R&D.

"When people question me--'Aren't you putting a lot of money at risk for something that's hard?'--I say, 'Isn't that exactly what the world wants a company like Merck to do?'" Frazier told the AP a few days ago, for what turned out to be a new example of executive hagiography.

Some of those comments deserve a closer look. Frazier in particular was happy to endorse the company's new Phase II/III gamble on a new Alzheimer's drug, even though investigators are including moderate-stage patients now widely considered beyond the help of existing therapeutic strategies. It's also running a serious risk of exposing patients to serious side effects, as seen in a related study. None of that, of course, warrants a hint of doubt in the AP profile. In Alzheimer's, hope of any kind, no matter what the odds of success are, warrants widespread and unquestioned acclaim in the mainstream financial press.

Then there was the AP's selection of Victrelis as the big win in Merck's recent development history. The new therapy for hepatitis C was indeed an advance for patients. Unfortunately for Merck, it was approved almost simultaneously with Vertex's ($VRTX) Incivek, an even better therapy that was tapped as the superior drug from the start. And while Victrelis has suffered by comparison, the two therapies have followed the same basic market arc. Fourth quarter sales for Victrelis ($115 million) slid significantly from the third quarter ($149 million) last year--mirroring a drop for the more successful Incivek as more patients were warehoused in anticipation of a market-changing arrival of new therapies that will dispense with interferon.

Its late-stage pipeline story is also riddled with gaping holes. It's all over for Tredaptive as a prospective heart drug after a host of adverse reactions – evidently triggered by niacin--matched with a failure on efficacy brought the program down. Merck faces a big delay for the osteoporosis drug odanacatib and plenty of analysts are fretting over the future of anacetrapib, a CETP inhibitor following the same path that led to two major failures at Pfizer ($PFE) and Roche ($RHHBY). Then there's Bridion (sugammadex), an anesthesia-reversing treatment originally rejected by regulators 5 years ago, which has lingered as a top prospect in anticipation of new data. Just last week Merck had to announce that the FDA was delaying its final decision on sugammadex,the latest in a long string of disappointments,

Last November, just three months after quietly snuffing its late-stage development program for the cholesterol combo MK-0524B (extended release niacin, now linked to serious adverse events, and Zocor), Merck also quietly doused development efforts on a new cholesterol therapy--MK-0431E--once in line for a 2014 regulatory filing.

Back in June, the FDA also handed back Merck's new drug application for ridaforolimus, saying the pharma giant will need to run additional clinical trials to test its effectiveness on sarcomas before it can issue an approval.

Merck's $1.5 billion biosimilars initiative has gone nowhere, with failed follow-on programs for Aranesp and Enbrel. That venture was essentially deep-sixed and replaced by a marketing pact with a Samsung/Biogen Idec ($BIIB) development initiative. Its sleep drug Suvorexant, meanwhile, is being reviewed by regulators, and likely will be approved. But even so, it will head into a shrinking market dominated by generics.

Perlmutter will have his hands full turning this ship around. Odanacatib has to be put back on track, and new late-stage drugs have to be in-licensed that can add some badly needed excitement to the company's late-stage game plan. But as a Merck vet, Perlmutter should be familiar with the good, the bad and the ugly of Merck's R&D operations. And he's an experienced dealmaker, capable of executing billion-dollar plays for the kind of new technology that excites him.

For now, Merck's rep in R&D will rest heavily on Perlmutter's shoulders.

For more:
Ex-Amgen research czar Perlmutter to helm Merck's struggling R&D ops
Analysts cheer decision to continue Merck's controversial Vytorin study
Merck R&D calls for a time-out on osteo blockbuster hopeful
Merck steers top drug prospect to an NDA, analysts ponder R&D weakness

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