In Follow On Biologics We Trust

Typically, Big Pharma business briefing days aren't known for being newsy events. Another year, another ho-hum pipeline update--complete with the requisite hyperbolic biodollar citations for clinical candidates to appease investors. But in the case of yesterday's annual Merck confab, that certainly wasn't the case.

At its day long event, the Big Pharma revealed the creation of Merck BioVentures, an ambitious new business unit with a heavy emphasis on follow-on biologics that aims to launch at least six such products in the 2012 - 2017 time period. The group will rely heavily on proprietary technology obtained when Merck bought the glyco-engineering biotech GlycoFi back in 2006 for $400 million.

In an interview with "The Pink Sheet" DAILY, Frank Clyburn, the newly appointed senior VP and general manager of MBV, noted that Merck plans to spend $1.5 billion over the next seven years in the hopes of putting at least five follow-on biologic candidates in the clinic by the end of 2012. "We are going to look at developing follow-on biologics in a number of therapeutic areas, a very diverse portfolio," Clyburn said.

The company is already 20% there. The only FOB Merck was willing to discuss specifically was its pegylated erythropoietin for anemia, a molecule called MK2578 designed to compete with Amgen's Aranesp currently in clinical trials that could launch as soon as 2012.

In comments to analysts and the press, CEO Richard Clark also played up the importance of FOBs to Merck's future growth strategy. Admitting that "2009 will be an important year of transformation and execution for us," Clark noted that "follow-on biologics represents a significant market opportunity due to the extensive patent expiries of leading biologics in 2017."

It is so nice to be right.

One of our favorite themes here at IN VIVO Blog--in addition to the potential benefits to biopharma of risk mitigation strategies--is that Big Pharma has a huge opportunity to become a leader in FOBs.

Think about it: as Congress continues to mull over FOB legislation, its increasingly unlikely that they will consider an abbreviated pathway to approval for these products. Indeed, it's going to take significant expertise on a number of fronts--clinical, manufacturing, and regulatory--to meet the case-by-case standards being contemplated by legislators for follow-on approvals. And, since the products are unlikely to be therapeutically substitutable, companies will also need significant sales and marketing expertise to actually make money on such products.

Who has the requisite know-how? With the exception of Teva Pharmaceuticals, it ain't the traditional generic makers. "Other players with vastly superior capabilities and resources may be at least equally—if not better—suited to participate...such as some large-cap pharmaceutical and biotech companies as well as select mid- and small-cap biotech companies," said Ken Cacciatorre, an analyst with Cowen and Co. in this April RPM feature by Kate Rawson.

A majority of Big Pharma even have the technology platforms to make it happen. Late to the biologics party, a number of Big Pharmas were extremely busy in 2006 and 2007 gobbling up so-called next generation antibody companies in their bid to build capability, especially in areas with already established intellectual property such as the anti-TNF space. In addition to Merck's purchase of GlycoFi, other biopharmas inking deals around next-generation players include GSK (Domantis), BMS (Adnexus), Pfizer (Biorexis), and Wyeth (Haptogen).

But until 2008, when Teva announced it was buying albumin-fusion play CoGenesys, the corporate spin has been about the opportunities to develop novel biologics. Teva's willingness to commit $400 million to its own FOB program seemed to jolt the thought-processes of other biopharma execs. In a matter of months, former GSK CEO JP Garnier was publicly signaling the strategic importance of Domantis' technology because it allowed the pharma to"re-do a monoclonal for everything that is on the market, from Avastin to Rituxan...without infringing IP. With a product that might even have a twist."

At Pfizer's analyst day in March, meanwhile, CEO Jeff Kindler indicated that the New York giant was also considering how to position itself in terms of FOBs. In response to a question about whether an abbreviated approval pathway would prompt the company to start developing follow-on biologics, Kindler responded: "I do think that's an opportunity for us."

But if Pfizer and GSK suggested they were willing to dip their toes in the FOB waters, Merck's news should be taken as a full-scale immersion. And it's really not that surprising. Anyone listening to Merck's financial guidance call last week knows the dire shape the pharma company is in thanks to slumping Zetia and Vytorin sales.

The company needs to do something to jump start its R&D. And using GlycoFi's technology to gain a chunk of the follow-on biologics market, poised to take off under the auspices of a new Democratic administration, is a logical place to start.

Thanks to heavily engineered yeast, Merck can develop specific protein versions that are "best-in-class" with "a better circulatory half-life, targeted tissue distribution and/or increased potency," according to Peter Kim, President of Merck Research Laboratories.

And that is the biological equivalent of the fast follower strategy Big Pharma has perfected so successfully for small molecules. At a time of increasing regulatory risk, what better way to gain a grasp on a new therapeutic modality than to create me-better versions of already well studied and hugely successful molecules such as Rituxan or Enbrel and then market the hell out of them?

It will be interesting to see if Merck's news spurs other Big Pharma down the FOB path. Certainly biotechs, such as Amgen and Genentech need to think carefully about life-cycle management strategies for their own products. Hours after the news broke, Lazard analyst Joel Sendek issued a report urging caution when it comes to Amgen:

"We view Merck’s biosimilar program as a serious long-term threat to Amgen’s anemia franchise. Neupogen follow-on biologics currently marketed in the EU have failed to acquire a very significant share of the market or dent usage of Amgen’s dominant products; however, in our view, Merck represents a more formidable competitor due to its marquee brand name and marketing expertise."

hang-glider dollar bill by flickr user J0nB0n used under a creative commons license.