The race is on. In hopes of capturing a piece of a growing, lucrative market ahead of its competitors, Merck is forging full-speed into a burgeoning new area of drug development: making versions of top-selling biologic medicines.
Like most of its rivals, the Whitehouse Station-based pharmaceutical giant has spent the past few years working to trim costs, streamline operations and map out a strategy to sustain profits in a business known for its ups and downs -- as well as its huge risks. Now, it is betting on the know-how of Glycofi, a tiny biotech company it acquired in 2006, to equip it with the manufacturing muscle to produce -- and reap the profits from -- its own versions of potent and pricey medicines.
Biologics are medicines made from living organisms, such as proteins and antibodies. They can range from protective vaccines to powerful drugs intended to treat cancer and arthritis.
Making new versions of existing biologic medicines is more complicated than copying traditional small-molecule drugs, and that's reflected in the industry's jargon. Instead of generics, the drugs are known as follow-on biologics and biosimilars.
"The industry, right now, is really looking at what is the model and how do you win in the future in the pharmaceutical business," said Frank Clyburn, senior vice president and general manager of Merck BioVentures. The division is focused on gaining Merck entry into the new market.
"As we look at the follow-on biologics business, it helps to de-risk some of Merck's overall risk profile. We will still be very much focused on new and novel mechanisms. That is who we are," Clyburn said. "We see this as a part of our overall strategy around science-based diversification."
Earlier this week, Merck stepped up its efforts by acquiring Insmed, a small biopharmaceutical company already working on a couple of protein-based drug candidates. The most advanced is a synthetic version of a glycoprotein that helps stave off infections in cancer patients receiving chemotherapy and bone marrow transplants.
Wall Street expects Merck to face big challenges as it goes after a market that could reach $10 billion in 2017, according to the analysts at Decision Resources. The market for biosimilars is only a portion of the more lucrative biologics market. In 2007, the worldwide market for biologics, which includes some of the most potent cancer medicines, had total sales of $75 billion, according to Decision Resources.
"The prospects are pretty good, but it's not going to be easy," said Jon LeCroy, a pharmaceutical analyst with Natixis Bleichroeder in New York. "It's going to be fraught with challenges."
Manufacturing may be one of the biggest barriers to entry for drugmakers -- Pfizer and the generic manufacturers Teva and Sandoz may be Merck's most formidable rivals at the moment -- and unlike the more conventional generic drugs, companies making biosimilars are going to be required to carry out comprehensive clinical trials.
LeCroy said federal drug regulators are likely to scrutinize second versions of some of the drugs Merck intends to tackle first.
"They're going after drugs that have had issues in the past," he said. "The Food and Drug Administration has to be comfortable approving a new version even if there is an old one."
Another hurdle may be the lack of legislation providing standards for companies to follow as they push new medicines onto the marketplace. Federal lawmakers are still trying to agree on pertinent details, including how long manufacturers of novel biologics should be given protection from competition to recoup their investment.
James Greenwood, chief executive of the Biotechnology Industry Organization, said a period of exclusivity is critical.
"The companies have to know that if they take the risk of developing these medicines, that they will get their money back," he said.
The precise amount of time is a sticking point for lawmakers. "We pushed hard for (the legislation) to get passed last session, but it didn't happen," Greenwood said. "I think you'll see something later this year -- or early next year."
Merck intends to be ready when the law goes into effect. "We have made the decision to move very aggressively forward in building a pipeline and getting everything in place," Clyburn said.
Merck's ability to produce mass quantities of biologic medicines for the market is based on Glycofi's technology. Scientists in Glycofi's labs developed a way of making proteins using yeast instead of mammal cells, and the process makes medicines that are more precise and produces huge quantities more rapidly than traditional methods.
The company plans to launch its follow-on biologics business with a version of Amgen's Aranesp, which is used to treat cancer patients who become anemic. The drug is a synthetic form of erythropoietin, a hormone that is produced by the kidney and increases red blood-cell production.
"We have the chance with the technology from Glycofi to not only make a product that has a somewhat similar profile, but a product we can improve," Clyburn said. "We have the unique ability to change, potentially, the potency of the product, the immunogenicity and other attributes."
Wall Street remains wary. While the prospects of making big profits exists, the work is still unproven.
"Merck is a formidable company," said Anthony Butler of Barclay Capital in New York City. "But it's a strategy. We don't have evidence yet of it working in the marketplace."
The way Clyburn sees it, follow-on biologics may only be the foundation for more ambitious goals.
"Obviously, the focus is on follow-on biologics, but we are also building our capabilities" for new biologics, as well, he said. "A lot of our investments will help Merck be a leader in new biologic targets."
Clyburn, 44, spent most of his career in sales, marketing and management at Sanofi, now Sanofi-Aventis, before landing at Merck last year.
"I've worked in everything from anti-infectives to oncology to general medicine and cardiovascular," he said. "I've had a great opportunity to see a lot of different therapeutic areas."
Peter Kim, president of Merck's research, described Clyburn as a "natural collaborator," with broad experience across commercial and research and development operations.
"It was easy," Kim said in a written response to questions, "for Merck to envision him leading our new group."
Clyburn is relying on Merck's strengths in manufacturing and clinical trials to help.
"I look at this as a chance for Merck, which is well-known in the vaccine area and a well-known leader in small molecules, to really be a leader in follow-on biologics and, ultimately, be a leader in biologics," he said. "We're looking to build on all of our capabilities to get to that point."
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