Magazine
#6 Merck & Co.
One Merck Dr.
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Tel: (908) 423-1000
www.merck.com
| Headcount | 61,500 | |
| Year Established | 1981 | |
| Pharma Revenues* | $21,874 |
-1% |
| Total Revenues* | $23,207 | -1% |
| Net Income | $4,631 | -20% |
| R&D Budget | $3,848 | -4% |
| * Includes $1.2 billion in 2005 revenues for Vytorin sales, which derive from a joint venture with Schering-Plough | ||
| Drugs Approved/Launched | |
| Drug | Indication |
| fosamax plus d | osteoporosis |
| proquad | pediatric vaccine |
| rotateq | rotavirus gastroenteritis |
| gardasil | HPV, cervical cancer, genital warts |
| emend | prevention of nausea and vomiting associated with chemotherapy |
| Drugs Pending Approval | |
| Drug | Indication |
| zostavax | shingles |
| januvia | diabetes |
| arcoxia | arthritis/pain |
| zolinza | advanced cutaneous T-cell-lymphoma (CTCL) |
| Drugs in Phase IIb and Beyond | |
| Drug | Indication |
| mk-0431a | diabetes |
| mk-0517 | CINV |
| mk-0524a | atherosclerosis |
| mk-0524b | atherosclerosis |
| mk-0518 | AIDS |
| mk-0686 | arthritis |
| vorinostat | cancer |
| mk-0677 | endocrine |
| HIV vaccine | HIV |
| HPV vaccine | HPV |
| mk-0736 | hypertension |
| mk-0364 | obesity |
| mk-0493 | obesity |
| mk-0822 | osteoporosis |
| mk-0686 | pain |
| mk-0759 | pain |
| mk-0974 | pain |
| mk-0364 | psychiatric disease |
| lurasidone | psychiatric disease |
| ono 2506 | stroke |
| mk-0634 | urinary incontinence |
| mk-0594 | urinary incontinence |
| Early Research Projects | |
| Drug | Indication |
| mk-0974 | endocrine |
| mk-0987 | glaucoma |
| mk-0994 | glaucoma |
| mk-0454 | hypertension |
| mk-0454 | insomnia |
| pyy3-36 | obesity |
| mk-0773 | osteoporosis |
| mk-0686 | pain |
| mk-0249 | psychiatric disease |
| mk-0633 | respiratory disease |
| s. aureus vaccine | s. aureus |
| Drugs Coming Off Patent | |
| Drug | Indication |
| proscar | benign prostate enlargement |
| fosamax* | osteoporosis |
| zocor | cholesterol |
| * non-U.S. territories | |
| Top Selling Drugs | |||
| Drug | Indication | Sales | (+/- %) |
| zocor | cholesterol | $4,382 | -16% |
| fosamax | postmenopausal osteoporosis | $3,191 | 1% |
| cozaar/hyzaar | blood pressure | $3,037 | 8% |
| singulair | asthma | $2,975 | 13% |
| vasotec | hypertension | $623 | -13% |
| primaxin | antibiotic | $740 | 15% |
| trusopt | ophthalmic | $617 | 10% |
| proscar | benign prostatic hyperplasia | $741 | 1% |
| cancidas | antifungal | $570 | 33% |
Account for 77% of total pharma sales, up from 76% in 2004.
(note: 2004 included $1.5 billion in Vioxx revenue)
PROFILE
| THE LOWE DOWN What can you say about Merck that hasn’t recently been said? We’re watching a very slow disaster unfold, and it’s still too hard to tell how bad it might be. What’s for sure (and I’m surprised at how much it pains me to say it) is that the company isn’t going to ever be Merck again, not the way we’ve known it. Perhaps that’s been part of the problem. The company has existed (well, tried to exist) on a different plane from the rest of the industry, which may have made it harder to realize what had happened and how bad it would be. Zocor’s patent expiration is really the cherry on top of the whipped cream. Merck (and Schering-Plough) have been making huge efforts to show that their Zetia combination can beat Pfizer’s Lipitor. Now Merck has to deal with competition from its own drug. The company has been doing a lot of deals the past few years, and some of the quick fixes haven’t worked out too well (like the BMS deal for their new antidiabetic compound, which will never be seen again). Maybe they could do a collaboration with an observatory to watch for incoming meteors. —Derek Lowe |
Unfortunately, that’s not going so well. Merck slipped out of the Top 5 this year, with stagnant revenues. The loss of Vioxx ($1.5 billion in a shortened 2004) and the generic erosion of Zocor and Fosamax have whittled away several big sellers. Of its blockbusters, only Singulair posted significant growth (14% in 2005, to $3.0 billion, and 9% to $801 million in 1Q2006).
The company did receive a $1.2 billion boost this year, as I changed my methodology to recognize sales of Vytorin (which Merck markets in a joint venture with Schering-Plough) as part of Pharma Revenues. That franchise, which both account for as “equity income from a joint venture,” reached $2.4 billion last year, making it a major success for a pair of beleaguered companies. Even with this boost, drug sales were flat, as were 1Q2006 revenues.
With blockbuster patent expirations looming — Zocor in 2006, Fosamax in 2008, Cozaar/Hyzaar in 2010 and Singulair in 2012 — Vytorin’s development is critical to Merck’s health. Top seller Zocor already faced generic competition outside the U.S., and lost patent protection in the U.S. in June 2006. In 2005, Zocor sales dropped 16% to $4.4 billion, and were down 4% to $1.0 billion in 1Q2006. Vytorin, which combines Zocor and Zetia in a single pill, represents the best hope to staunch the bleeding. Global sales of the Zetia and Vytorin combined for $793 million in 1Q2006; Vytorin had $378 million of that.
In addition to the cholesterol franchise, Merck has received some good news from its vaccine pipeline. Gardasil, a cervical cancer vaccine, received FDA approval in June 2006, after trials demonstrated that it is capable of wiping out a particularly common cause of cervical cancer. Analysts project a billion-dollar market for Gardasil, but there have been controversies about the vaccine, since its key benefit is that women will be less likely to die from cervical cancer because of a sexually transmitted disease.
| Acquisitions Target: GlycoFi, Inc. Price: $400 million Announced: May 2006 What they said: “Our acquisition of GlycoFi’s scientific expertise, patent estate and robust technology platform is a significant step toward enabling Merck to discover, optimize and develop novel biologic drugs to serve the needs of patients worldwide. GlycoFi’s technology also complements our own industry-leading capabilities in yeast expression technology [. . .] GlycoFi’s technology combined with Merck’s yeast expression capabilities could lead to a more effective platform for the manufacture of therapeutic proteins and vaccines.” -- Peter S. Kim, Ph.D., president, Merck Research Laboratories Target: Abmaxis, Inc. Price: $80 million Announced: May 2006 What they said: “Our acquisition of Abmaxis provides Merck with the opportunity to optimize and humanize antibodies, as well as to discover new antibodies. This, coupled with Merck’s own . . . capabilities in yeast expression technology and our acquisition of GlycoFi and its complementary technologies, positions us to become a significant player in the important and growing field of biologic drugs.” -- Peter S. Kim, Ph.D. |
Merck dealt with a diabetes disappointment last year, as it walked away from a development deal with Bristol-Myers Squibb in October 2005 for diabetes drug Pargluva. The FDA gave the product an “approvable” letter, but its request for additional data appeared too costly. BMS eventually gave up on the drug in May 2006, after safety issues arose. Merck spent between $100 and $200 million on Pargluva.
The experience hasn’t soured Merck to partnering. Since mid-2005, the company has signed development agreements with Agensys (cancer), FoxHollow Technologies (atherosclerosis biomarkers), Metabasis (metabolic disorders), NicOx (antihypertensives), Neuromed (pain and neurological disorders), Paratek (antibiotic), Sumitomo (antipsychotic).
Plan To Win
Merck finished a round of 5,100 layoffs in 2004, and fired another 900 in 2005 as part of a cost-reduction strategy, but the company’s new circumstances led it to announce a global restructuring program in November 2005. The three-year plan covers the implementation of a new supply strategy projected to yield approximately $3.5–$4.0 billion in total savings by 2010. Half of that sum will come from the new supply strategy, but it looks like the other half will be the result of firing 7,000 people from manufacturing positions. By the end of 2005, 1,100 were fired. The plan entails closing or selling five of its 31 manufacturing sites (Ponders End, UK; Okazaki, Japan; Kirkland, Canada; Albany, GA; and Danville, PA) and reducing operations at several others. Merck also plans to close one basic research site (Terlings Park, UK) and two preclinical development sites (Okazaki and Menuma, Japan).
A few weeks after the manufacturing announcement, Merck presented its vision for the other side of the equation: R&D. “Merck will remain a research-driven pharmaceutical company, but we need to change our approach to virtually every aspect of our business, and we must act with a sense of urgency,” said president and chief executive officer Richard T. Clark at the R&D presentation.
The new R&D model focuses on nine therapeutic areas: Alzheimer’s disease, atherosclerosis, cardiovascular disease, diabetes, vaccines, obesity, oncology, pain and sleep disorders. In addition, the company will “make focused investments to pursue specific mechanisms in the following selected disease areas: antibiotics, antifungals, antivirals (hepatitis C virus, human immunodeficiency virus), asthma, chronic obstructive pulmonary disease, neurodegeneration, ophthalmology, osteoporosis, schizophrenia and stroke,” according to a statement.
After addressing manufacturing and R&D, Merck turned its attention to marketing. In April 2006, Peter Loescher was appointed to a new position atop the marketing and sales operations. Mr. Loescher was named president, Global Human Health and was given direct responsibility for Merck’s four marketing and sales divisions: U.S. Human Health, Human Health Asia Pacific, Human Health Intercontinental (Europe, Middle East, Africa, Canada and Latin America), and Merck Vaccines.
“One of the key elements of Merck’s strategy . . . is the creation of a new sales and marketing model that is leaner, more nimble, more information- and value-driven, and much more cost-effective,” said Mr. Clark. “We created this position to refine our global strategies, strengthen our approach to launching, marketing and selling our products worldwide and, as a result, generate greater efficiencies and effectiveness.” Mr. Clark contended that Merck’s new sales strategy will cut spending per brand by 15-20% by 2010, “while maximizing sales performance.” The company redeployed 1,500 sales reps away from major drug products and over to new vaccines.
Creative Destruction
I think Merck is actually in a unique position to create a new model for a large Pharma company. Its problems are dire enough that the company simply can’t limp along in the second-tier. It needs to radically rethink the way it does business in all three of its major segments: manufacturing, R&D and marketing. The “easy” solution is to start cutting costs, but it seems that Merck is thinking more strategically.
One of those strategies involves outsourcing. In January 2006, Merck entered into a five-year master supply agreement with Patheon, the Toronto-based CMO. “As Merck implements its new supply strategy, we look forward to working with top-tier manufacturers, such as Patheon, to more effectively leverage external manufacturing across a broad spectrum of capabilities,” noted Willie A. Deese, president, of Merck’s Manufac-turing Division, in a statement issued by Patheon.
The agreement involves three new projects: a late-stage development product for Patheon’s Caguas, PR facility, another at Patheon’s Cincinnati, OH facility and a third at the Toronto Regional Operations in Mississauga, Canada.
It’ll be interesting to see how Merck’s strategy evolves and what role outsourcing will play in this new model. The new president and chief executive officer’s history comes from the manufacturing side of the company, so I’m curious as to how encompassing the company’s outsourcing strategy will be.
I’m hoping that this new Merck will be able to make use of an integrated CMO network to re-engineer how a large drug company works.
That said, I’m afraid there might still be a bit of a stigma when it comes to large drug companies talking about outsourcing. It’s telling that a search for “Patheon” through Merck’s website yields “No results were found for your search.” Plus ça change, plus c'est la même chose.
