Biotech Values

[jbog]

3rd UPDATE: Merck Launches Biologics Unit, Reviews Pipeline
12:28 PM EST December 9, 2008

By Peter Loftus
Of DOW JONES NEWSWIRES

WHITEHOUSE STATION, N.J. (Dow Jones)--Merck & Co. (MRK) said Tuesday it formed a new division that's developing versions of leading biotechnology drugs, a category seen as a big growth area in coming years.

Merck unveiled the new division at a meeting with analysts and investors at company headquarters, where executives also reviewed the company's pipeline of experimental drugs. Merck disclosed that it plans to file for U.S. regulatory approval of three new drugs in 2009, including a single-pill combination of the cholesterol drug Zetia - which Merck currently co-markets with Schering-Plough Corp. (SGP) - with a generic version of Pfizer Inc.'s (PFE) Lipitor.

Among other plans, Merck said it aims to file in 2009 for regulatory approval of Rolofylline, a treatment for heart failure, and Telcagepant, a treatment for migraines. Merck also disclosed earlier-stage research programs to develop new drugs for respiratory disease and insomnia, as well as a vaccine for staph infections. In addition, it said it was developing a follow-up to cervical-cancer vaccine Gardasil that could offer broader protection against the virus that causes the disease; it expects to file the new vaccine for regulatory approval in 2012.

Merck is trying to overcome a series of challenges, including a slowdown in sales of top products such as the Singulair treatment for asthma and allergies, cervical-cancer vaccine Gardasil, and the cholesterol drugs co-marketed with Schering-Plough. At the same time, Merck has hit setbacks in trying to bring new drugs to market.

Merck shares fell 37 cents to $26.63; the stock is down sharply this year due to the various challenges it has faced.
Analysts and investors said the overview of Merck's pipeline didn't significantly change the short-term outlook for Merck, but the new plan to develop unique versions of leading biotech drugs could have strong long-term potential.

"It's a very positive long-term strategy," said Kris Jenner, analyst with Merck shareholder T. Rowe Price. He said Merck is well-positioned to embark on the new venture because it has shown in the past it can handle complex regulatory and manufacturing issues.

Jenner said the pipeline update may not do much to boost Merck's near-term prospects. But he said he believes the stock's valuation and dividend-yield are attractive, and he's hopeful the stock has hit a bottom.

The new division announced Tuesday is called Merck BioVentures. Merck said it's developing so-called "follow-on biologics," which are loosely equivalent to generic versions of biotech-style drugs. The drugs in development include an anti-anemia drug that would compete with Amgen Inc.'s (AMGN) Aranesp, and which Merck expects to launch in 2012.
Amgen couldn't immediately be reached for comment.

Amgen's Aranesp had $3.6 billion in sales last year. It also sells anemia drug Epogen, a version of which is sold by Johnson & Johnson (JNJ) under the brand Procrit. Sales for the class of drugs took a hit last year after studies revealed safety issues when they were used in certain ways.

Jon LeCroy, an analyst at Natexis Bleichroeder, said Merck's anemia drug had blockbuster potential, assuming clinical studies support its safety and effectiveness. LeCroy has a "hold" rating on Merck shares.

Merck said the follow-on biologics venture would use drug-development technology that Merck acquired through its 2006 purchase of GlycoFi for $400 million. The technology involves the use of yeast cells to develop protein-based drugs, rather than the mammalian cells commonly used to make some other biotech drugs. Merck says the technology allows for more rapid development of biotech drugs, and with greater yields.
Merck noted that several best-selling biologic drugs are due to lose patent protection in coming years, through 2017. In addition to the anti-anemia drug, Merck says it expects to have at least five follow-on biologic drugs in late-stage development by 2012.

"We anticipate we will take a leadership position in follow on biologics," said Peter Kim, head of Merck's research arm.
Follow-on biologics are different from traditional generic versions of so-called small-molecule drugs, such as those now available for Merck's Zocor cholesterol drug. Merck's anti-anemia drug, for example, would be similar to Amgen's Aranesp but not identical. There is currently no clear regulatory approval pathway in the U.S. for companies that wish to sell their own versions of other companies' biotech drugs. As a result, Merck expects to conduct clinical trials for the follow-on biologics.

In contrast, generic versions of traditional, chemical-based drugs can be approved by FDA without the conduct of new human trials, and such drugs are considered virtually identical to the original, branded drug.

It's possible that the incoming Congress and President-elect Barack Obama will try to revamp the regulatory structure to clear the way for follow-on biologics.

Merck said it expects to spend $1.5 billion in research and development for the BioVentures unit by 2015.

In addition to competing with biotech leaders such as Amgen, Merck's new unit could go up against Swiss drug giant Novartis (NVS), which has a generics division that is entering the follow-on biologics field.

Also, Roche Holding AG (RHHBY) has developed its own anti-anemia drug, Mircera, to compete with those made by Amgen. But Amgen blocked Mircera from entering the U.S., with a federal jury finding in its favor last year that Mircera would have violated Amgen's patents. Merck hopes the unique manufacturing process it plans to use for its anemia drug would sidestep certain patent obstacles and allow Merck to launch the drug about two years before similar drugs developed using mammalian cells could enter the market.

Separately, Merck said it was seeking regulatory approval for new uses of existing drugs. These include the use of cervical-cancer vaccine Gardasil in women through age 45 (it's currently approved for females ages 9-26), as well as in males for the prevention of external lesions caused by the same virus that causes cervical cancer. Also, Merck will seek approval for HIV drug Isentress in previously untreated patients; it's currently approved for patients who previously took other HIV drugs. Merck expects FDA action on these applications in 2009.

In total, Merck has nine drugs in late-stage development, 15 in mid-stage studies and 23 in early stage trials.
The slowdown in sales this year for Merck's and Schering-Plough's Vytorin and Zetia cholesterol drugs hasn't stopped its joint venture from proceeding with another combination cholesterol drug. Sales of Vytorin and Zetia have been hurt by new studies that have raised questions about the drugs' safety and effectiveness. Vytorin is a single-pill combination of Zetia and the drug simvastatin, which is the generic name for Zocor.

The new drug would also be a combination, but this time mixing Zetia with Pfizer's Lipitor. Although Merck said it would file for regulatory approval of the combination in 2009, it wouldn't launch the new drug until after Lipitor loses U.S. patent protection in 2011, said Peter Kim, head of Merck's research unit.

Merck said it was on track for $2 billion in emerging market sales by 2010.

-Peter Loftus, Dow Jones Newswires; 215-656-8289; [e-mail]