Headcount: 72,000
Revenues: $60,115 (+1%)
Pharma Reveneus: $53,583 (+3%)
Net Income: $365 (-97%)
R&D: $30,531 (+126%)

Running neck and neck with Abbvie and Johnson & Johnson for pharmaceutical sales, Merck’s oncology portfolio and vaccines continue to drive growth for the company. Pharmaceutical sales were up 3% to $53.6 billion thanks to flagship Keytruda, and Gardasil and Vaxneuvance sales, which helped to offset declines for Covid-19 drug Lagevrio, and Januvia due to generic competition.

Meanwhile, earnings took a hit related to costs for the collaboration with Daiichi Sankyo, reflecting a $5.5 billion charge, and higher development costs on clinical programs, including newly acquired programs, as well as charges of $11.4 billion for the acquisitions of Prometheus Biosciences and Imago BioSciences.

This past year, Merck gained multiple FDA approvals across its oncology portfolio and initiated more than 20 Phase 3 studies, including advancing eight assets into Phase 3. Merck also bolstered its pipeline with the acquisitions of Prometheus and Imago, and more recently Harpoon and EyeBio, as well as through collaborations with Daiichi Sankyo and Kelun-Biotech.

Acquisitions

Targeting immunology with the $10.8 billion acquisition of Prometheus in April 2023, Merck scored five clinical and preclinical candidates for inflammatory bowel and immune-mediated diseases. Prometheus’ investigational monoclonal antibody, PRA023, which is in late-stage development for ulcerative colitis and Crohn’s disease, targets and inhibits the action of tumor necrosis factor (TNF)-like ligand 1A (TL1A), a key immune factor that plays a role in both inflammation and fibrosis in intestinal immune-mediated disease.

Merck also acquired Imago for approximately $1.35 billion. Imago is a clinical stage biopharmaceutical company developing medicines for the treatment of myeloproliferative neoplasms (MPNs) and other bone marrow diseases. Imago’s lead candidate bomedemstat (IMG-7289), an investigational orally available lysine-specific demethylase 1 (LSD1) inhibitor, is currently being evaluated in multiple Phase 2 trials for the treatment of essential thrombocythemia, myelofibrosis, and polycythemia vera, in addition to other indications.

Additionally, in January 2024, Merck entered an agreement to acquire Harpoon Therapeutics, Inc. for an approximate total equity value of $680 million, further diversifying its oncology pipeline. Harpoon has a portfolio of novel T-cell engagers that employ the company’s Tri-specific T cell Activating Construct (TriTAC) platform, an engineered protein technology designed to direct a patient’s own immune cells to kill tumor cells, and ProTriTAC platform, applying a prodrug concept to its TriTAC platform to create a therapeutic T-cell engager that’s designed to remain inactive until it reaches the tumor.

Harpoon’s lead candidate, HPN328, is a T-cell engager targeting delta-like ligand 3 (DLL3), an inhibitory canonical Notch ligand that’s expressed at high levels in small cell lung cancer (SCLC) and neuroendocrine tumors. HPN328 is currently being evaluated in a Phase 1/2 trial as a monotherapy in advanced cancers associated with expression of DLL3. The study is also evaluating HPN328 in combination with atezolizumab in SCLC.

Most recently, Merck entered an agreement to acquire Eyebiotech Ltd., an ophthalmology-focused biotechnology company, for up to $3 billion. EyeBio’s lead candidate, Restoret, is an investigational, potentially first-in-class tetravalent, tri-specific antibody that acts as an agonist of the Wingless-related integration site signaling pathway. Based on positive results from the Phase 1b/2a AMARONE study in diabetic macular edema (DME) and neovascular age-related macular degeneration (NVAMD), Restoret is anticipated to advance into a pivotal Phase 2b/3 trial to investigate the treatment of patients with DME in the second half of 2024.

Collaborations

Prominent alliances with Daiichi Sankyo and Kelun-Biotech represent significant additional investments this past year. With a potential value of $22 billion, the global antibody-drug conjugate (ADC) alliance with Daiichi Sankyo aims to jointly develop and commercialize three of Daiichi’s DXd ADC candidates for the treatment of multiple solid tumors. The DXd ADC candidates include patritumab deruxtecan (HER3-DXd), ifinatamab deruxtecan (I-DXd) and raludotatug deruxtecan (R-DXd).

All three potentially first-in-class DXd ADCs are in various stages of clinical development for the treatment of multiple solid tumors both as monotherapy and/or in combination with other treatments. Patritumab deruxtecan was granted Breakthrough Therapy Designation by the FDA for the treatment of EGFR-mutated locally advanced or metastatic non-small cell lung cancer with disease progression. The biologics license application (BLA) for patritumab deruxtecan is currently underway.

Meanwhile, ifinatamab deruxtecan is currently being evaluated as monotherapy in a Phase 2 trial in patients with previously treated extensive-stage small cell lung cancer, and raludotatug deruxtecan is in Phase 1 development in advanced ovarian cancer. Each ADC leverages Daiichi’s DXd ADC technology to target and deliver a cytotoxic payload inside cancer cells that express a specific cell surface antigen.

Under the alliance with Kelun-Biotech, Merck was granted global, exclusive rights to develop, manufacture and commercialize an investigational ADC for solid tumors, for $35 million upfront and future development, and commercial milestones totaling up to $901 million.

Merck had previously exercised an option for worldwide rights, except for the Greater China region, to SKB-264, an investigational TROP2 targeting ADC, which is being evaluated in a Phase 3 trial for the treatment of metastatic triple-negative breast cancer and in Phase 2 trials for non-small cell lung cancer and advanced solid tumors. The companies are collaborating on certain early clinical development plans, including evaluating the potential of SKB-264 as a monotherapy and in combination with Keytruda for advanced solid tumors.

Approvals

Late last year, the FDA approved Welireg, an oral hypoxia-inducible factor-2 alpha inhibitor, for the treatment of advanced renal cell carcinoma based on results from LITESPARK-005, a trial in advanced RCC specifically evaluating patients who have progressed following a PD-1 or PD-L1 inhibitor and a VEGF-TKI. In the trial, Welireg demonstrated reduced risk of disease progression or death by 25% versus everolimus, with a median progression-free survival of 5.6 months.

Additionally, Keytruda picked up several approvals in oncology, including an expanded indication with Padcev as first-line treatment for locally advanced or metastatic urothelial cancer. Keytruda plus chemotherapy gained approval as first-line treatment for locally advanced unresectable or metastatic HER2-negative gastric or gastroesophageal junction (GEJ) adenocarcinoma.

Lastly, marking the sixth indication for Keytruda in gastrointestinal cancers, the FDA approved Keytruda plus Gemcitabine and Cisplatin in biliary tract cancer. The drug combo demonstrated a statistically significant improvement in overall survival (OS), reducing the risk of death by 17% compared to chemotherapy alone.

Headcount: 69,000
Revenues: $59,283 (+22%)
Net Income: $14,519 (+18)
R&D: $13,548 (+11%)

Driving growth in 2022 and moving Merck up from six into the number two spot, was COVID-19 treatment, Lagevrio (molnupiravir) and flagship products Keytruda and Gardasil. Bringing in $5.7 billion, Lagevrio sales were up from $952 million in 2021. Also, picking up several new oncology indications, Keytruda sales grew 22% to $20.9 billion and Gardasil sales grew 22% to $6.9 billion. Meanwhile, former top seller Januvia and Janumet declined 15% to $4.5 billion due to generic competition in certain markets, and lower demand.

Merck’s pharmaceutical segment includes human health pharmaceutical and vaccine products. In 2022, Merck augmented its pipeline with the strategic acquisition of Imago Biosciences, strengthening its presence in the growing field of hematology, and key agreements with Moderna, Orna, Orion and Kelun-Biotech.

In November, Merck entered a definitive agreement to acquire Imago Biosciences for approximately $1.35 billion. Imago is a clinical stage biopharmaceutical company developing medicines for the treatment of myeloproliferative neoplasms and other bone marrow diseases. Imago’s lead candidate bomedemstat, an investigational orally available lysine-specific demethylase 1 (LSD1) inhibitor, is currently being evaluated in multiple Phase 2 trials for the treatment of essential thrombocythemia, myelofibrosis, and polycythemia vera, as well as other indications.

Taking over the reins, Merck’s board of directors elected Robert M. Davis to serve as chairman, as of December 1, 2022. He succeeds Kenneth C. Frazier, who retired on November 30, 2022. Frazier led the company for 10 years as president and chief executive officer, from 2011 through 2021. Davis, who currently serves as president and chief executive officer, became Merck’s president in April 2021 and was named Merck’s chief executive officer and a member of its board in July 2021.

Key approvals

Granted Emergency Use Authorization by the FDA in December 2021, Lagevrio is an oral antiviral drug to treat COVID-19 in adults 18 years and older who are at high risk for progressing to severe Merck is developing molnupiravir with Ridgeback Biotherapeutics and it has been authorized for use in more than 10 countries. However, with dwindling demand for COVID treatments, Merck expects a significant decline in Lagevrio sales, which are expected to be approximately $1.0 billion in 2023.

Gaining a 34th indication in the U.S., Merck’s flagship Keytruda, an anti-PD-1 therapy, was approved by the FDA as a single agent for adjuvant treatment following surgical resection and platinum-based chemotherapy for adults with stage IB, II, or IIIA non-small cell lung cancer (NSCLC).

Keytruda in combination with Padcev, was approved by the FDA for the treatment of locally advanced or metastatic urothelial cancer for those not eligible for cisplatin-containing chemotherapy. This indication was approved under accelerated approval based on tumor response rate and durability of response.

Meanwhile, Keytruda received four new approvals in Japan for HER2-negative breast cancer at high risk of recurrence, renal cell carcinoma, advanced or recurrent cervical cancer, and stage IIB or IIC melanoma. Keytruda is now approved for 23 uses in 13 different types of cancer in Japan.

Additionally, the European Commission approved Keytruda as monotherapy for the adjuvant treatment stage IIB or IIC melanoma. The EC also approved expanded indications for Keytruda in advanced melanoma and stage III melanoma to include patients aged 12 years and older.

AstraZeneca and Merck received approval for LYNPARZA in the EU in combination with abiraterone and prednisone or prednisolone for the treatment of metastatic castration-resistant prostate cancer (mCRPC). This represents the first PARP inhibitor and new hormonal agent combination approved for these patients in Europe.

Lastly, Merck’s VAXNEUVANCE (Pneumococcal 15-valent Conjugate Vaccine) received expanded indications in the U.S. and EU to include children 6 weeks through 17 years of age for active immunization for the prevention of invasive disease caused by Streptococcus pneumoniae. With this expanded indication, VAXNEUVANCE is the first pneumococcal conjugate vaccine approved in almost a decade to help protect pediatric populations against invasive pneumococcal disease.

Alliances

Merck has partnered with several companies to develop oncology assets leveraging advanced technologies. Under an exclusive license and collaboration agreement with Kelun-Biotech, the companies aim to develop seven investigational antibody-drug conjugates (ADCs) for the treatment of cancer. Merck has exclusive global licenses to develop, manufacture, and commercialize multiple investigational ADC therapies and exclusive options to obtain additional licenses to ADC candidates, while Kelun-Biotech retains rights to certain licensed and option ADCs for mainland China, Hong Kong and Macau.

Under its alliance with Moderna, Merck has exercised its option to jointly develop and commercialize personalized cancer vaccine mRNA-4157/V940, which is currently being evaluated in combination with Keytruda as adjuvant treatment in high-risk melanoma in a Phase 2 trial being conducted by Moderna. Merck will pay Moderna $250 million to exercise its option, which includes mRNA-4157/V940, and the companies will collaborate on development and commercialization.

An alliance with Orna Therapeutics, a biotechnology company pioneering a new investigational class of engineered circular RNA (oRNA) therapies, aims to discover, develop, and commercialize multiple programs, including vaccines and therapeutics in the areas of infectious disease and oncology. Merck paid $150 million upfront and Orna is eligible to receive up to $3.5 billion in development, regulatory, and sales milestones, as well as royalties on approved products.

Orna’s oRNA technology has been shown to have greater stability in vivo than linear mRNA and have the potential to produce larger quantities of therapeutic proteins inside the body. Preclinical data have shown the potential of oRNA expression and delivery as an approach for further development in multiple areas, including vaccines and oncology therapeutics.

Furthermore, Merck entered a global development and commercialization agreement for Orion Corp.’s investigational candidate ODM-208 and other drugs targeting cytochrome P450 11A1 (CYP11A1), an enzyme important in steroid production. ODM-208 is an oral, non-steroidal inhibitor of CYP11A1 currently being evaluated in a Phase 2 trial for the treatment of metastatic castration-resistant prostate cancer (mCRPC). Merck paid Orion $290 million upfront, and the companies will co-develop and commercialize ODM-208.

Headcount: 68,000
Revenues: $48,704 (+17%)
Net Income: $12,345 (+173)
R&D: $12,245 (-9%)

TOP SELLING DRUGS  

The Emergency Use Authorization for oral antiviral COVID-19 treatment molnupiravir and the delivery of initial shipments, several key pipeline advances and the completed acquisition of Acceleron Pharma Inc. round out Merck’s highlights for the year.

To-date, molnupiravir has received numerous authorizations and approvals worldwide, with additional applications under review. Merck has shipped more than four million courses of the drug to more than 25 countries, including approximately three million to the U.S. Government as part of its procurement agreement. Molnupiravir revenues from the fourth quarter of 2021 were a staggering $952 million. Other key performance drivers include top seller Keytruda with sales of $17.2 billion, up 20% and Gardasil with $5.7 billion in sales, up 44%.

Earnings for the year primarily reflect lower acquisition- and divestiture-related costs, as well as an impairment charge related to Zerbaxa following a product recall and the suspension of sales in the fourth quarter of 2020 due to failed sterility tests in seven batches. Zerbaxa (ceftolozane and tazobactam) for injection, is a combination cephalosporin antibacterial and beta-lactamase inhibitor for the treatment of certain bacterial infections. A phased resupply of the drug was initiated in the fourth quarter of 2021, which the company expects to continue in 2022.

Of note, Merck completed its acquisition of Acceleron, enhancing its cardiovascular pipeline with Acceleron’s lead therapeutic candidate, sotatercept, a potentially first-in-class therapy for the treatment of pulmonary arterial hypertension (PAH). Sotatercept is in Phase 3 trials as an add-on to current standard of care for the treatment of PAH.

Merck continued to advance development programs across its oncology portfolio, and anticipates more than 90 potential new indications by 2028, including notable progress for Keytruda, the company’s anti-PD-1 therapy; Lynparza (olaparib), a PARP inhibitor being co-developed with AstraZeneca; Lenvima (lenvatinib mesylate), an orally available tyrosine kinase inhibitor being co-developed with Eisai Co., Ltd.; and Welireg (belzutifan), an oral hypoxia-inducible factor-2 alpha inhibitor (HIF-2a).

With the $11.5 billion acquisition of Acceleron Pharma, Merck aims to drive sustainable growth and bolster and balance its pipeline leveraging breakthrough science. Acceleron is focused on harnessing the power of the transforming growth factor (TGF)-beta superfamily of proteins that is known to play a central role in the regulation of cell growth, differentiation and repair. In addition to sotatercept, Acceleron’s portfolio includes Reblozyl (luspatercept-aamt), a first-in-class erythroid maturation recombinant fusion protein approved in the U.S., Europe, Canada and Australia for the treatment of anemia in certain rare blood disorders. Reblozyl is being developed and commercialized through a global collaboration with Bristol Myers Squibb.

Advancing R&D assets and approvals

Key among regulatory filings, in December, Merck and partner Ridgeback Biotherapeutics were granted Emergency Use Authorization from the FDA for molnupiravir, an investigational oral antiviral (MK-4482, EIDD-2801), to treat mild to moderate COVID-19, and those at high risk for progression to severe COVID-19. At the interim analysis, treatment with molnupiravir reduced hospitalizations and death through Day 29. Of patients in the placebo group 14.1% (53/377) were hospitalized or died, compared to 7.3% (28/385) of patients who received molnupiravir. The absolute risk reduction between the molnupiravir and the placebo arm was 6.8 percentage points. Merck has an agreement with the U.S. Government to supply approximately 3.1 million courses of molnupiravir, and has advance purchase and supply agreements for molnupiravir with the governments of over 30 countries, pending regulatory authorizations.

Also significant for Merck, Keytruda picked up several approvals and is now approved in the U.S. for 30 indications, including the adjuvant treatment of adult and pediatric (12 years and older) patients with stage IIB or IIC melanoma following complete resection. Additionally, the FDA expanded the indication as adjuvant treatment for stage III melanoma following complete resection to include pediatric patients. The approval in stage IIB and IIC melanoma is based on data showing a statistically significant improvement in recurrence-free survival (RFS), reducing the risk of disease recurrence or death by 35% compared to placebo.

Also, the combination of Keytruda plus Lenvima, the orally available multiple receptor tyrosine kinase inhibitor discovered by Eisai, was approved for the first-line treatment of adults with advanced kidney cancer. The approval is based on results demonstrating statistically significant improvements versus sunitinib in the efficacy outcome measures of progression-free survival, overall survival and confirmed objective response rate.

Keytruda was also approved in patients with high-risk early-stage triple-negative breast cancer in combination with chemotherapy and then continued as a single agent as adjuvant treatment after surgery. The Phase 3 KEYNOTE-522 trial showed that Keytruda in combination with chemotherapy prolonged event-free survival versus chemotherapy alone. There was a 37% reduction in the risk of disease progression that precluded definitive surgery, a local/distant recurrence, a second primary cancer, or death from any cause.

In another oncology win, the FDA approved Welireg, an oral hypoxia-inducible factor-2 alpha (HIF-2a) inhibitor for the treatment of von Hippel-Lindau (VHL) disease requiring therapy for associated kidney cancer, central nervous system (CNS) hemangioblastomas, or pancreatic neuroendocrine tumors. The approval is based on results where the major efficacy endpoint was overall response rate (ORR) in patients with VHL-associated kidney cancer.

Welireg, is the first HIF-2a inhibitor therapy approved in the U.S. As an inhibitor of HIF-2a, Welireg, reduces transcription and expression of HIF-2a target genes associated with cellular proliferation, angiogenesis and tumor growth. In patients with VHL-associated RCC, Welireg showed an ORR of 49%. In VHL-associated CNS hemangioblastomas Welireg showed an ORR of 63%, and in patients with VHL-associated pNET, an ORR of 83%.

Vaccines highlights for Merck include the FDA approval of Vaxneuvance (Pneumococcal 15-valent Conjugate Vaccine) for active immunization for the prevention of invasive disease caused by 15 Streptococcus pneumoniae serotypes in adults 18 years and older.

Of Merck’s late-stage assets, V116, an investigational 21-valent pneumococcal conjugate vaccine in Phase 3 development, received Breakthrough Therapy Designation from the U.S. FDA for the prevention of invasive pneumococcal disease (IPD) and pneumococcal pneumonia caused by numerous Streptococcus pneumoniae serotypes. The decision was based on data from a Phase 1/2 study that assessed the safety, tolerability, and immunogenicity of a single dose of V116 in pneumococcal vaccine-naïve adults.

The FDA also recently accepted Merck’s supplemental Biologics License Application seeking approval for Keytruda for the adjuvant treatment of patients with stage IB, II or IIIA non-small cell lung cancer (NSCLC) following complete surgical resection. The sBLA is based on data from the Phase 3 KEYNOTE-091 trial and the FDA has a target action date of January 29, 2023. In addition to KEYNOTE-091, six other trials evaluating a Keytruda-based regimen in patients with earlier stages of cancer met their primary endpoint(s), in stage IIB and IIC and stage III melanoma, renal cell carcinoma, triple-negative breast cancer, cutaneous squamous cell carcinoma, and non-muscle invasive bladder cancer.

Finally, the European Commission granted marketing authorization for Verquvo (vericiguat) for the treatment of symptomatic chronic heart failure in adults with reduced ejection fraction. The drug was previously approved in the U.S. and is being jointly developed with Bayer AG. Merck has the commercial rights to Verquvo in the U.S.

Headcount: 74,000
Pharma Revenues: $47,994 (+2%)
Net Income: $7,067 (-28%)
R&D: $13,558 (+37%)

TOP SELLING DRUGS

Worldwide sales grew to $47.9 billion for Merck in 2020. The slight 2% increase from the previous year was driven by higher cancer drug sales, particularly the strong growth of Keytruda, as well as increased alliance revenue from Lynparza and Lenvima. Also contributing to revenue growth, Merck reported higher sales of certain vaccines, including Gardasil/Gardasil 9 and Pneumovax 23, as well as increased sales of certain hospital acute care products, including Prevymis and Bridion.

Global sales of Keytruda grew nearly 30% to $14.4 billion in 2020 driven by higher demand as the company continued to launch the immuno-oncology blockbuster with multiple new indications around the world. Despite Keytruda’s strong performance, the COVID-19 pandemic had a dampening effect overall on the company’s performance.

The estimated negative impact of the COVID-19 pandemic to Merck’s sales in 2020 was about $2.5 billion. Roughly two-thirds of its pharmaceutical segment revenue is comprised of physician-administered products, and despite strong underlying demand, COVID-19 resulted in fewer well visits, delays in elective surgeries and the prioritization of COVID-19 patients at health care providers.

COVID efforts
Merck’s early efforts in the fight against COVID-19 were focused on finding ways to treat people who were sick as well as developing vaccine candidates.

First, in May 2020, Merck and the International AIDS Vaccine Initiative, Inc. (IAVI), formed a collaboration to develop V590, an investigational vaccine against SARS-CoV-2. The following month, in June 2020, Merck paid $366 million to acquire privately held Themis Bioscience, a company focused on vaccines—including a COVID-19 vaccine candidate V591—and immune-modulation therapies for infectious diseases and cancer.

However, in January 2021, the company announced the discontinuation of the development programs for both COVID-19 vaccine candidates, V590 and V591, following Merck’s review of findings from Phase 1 clinical studies for the vaccines. In these studies, both V590 and V591 were generally well tolerated, but the immune responses were inferior to those seen following natural infection and those reported for other SARS-CoV-2/COVID-19 vaccines.

Merck continued to focus on its drug candidates for treating COVID-19, including an antiviral medication, MK-7110, being investigated for the treatment of hospitalized patients with COVID-19. Merck acquired MK-7110 in December 2020 through its $423 million acquisition of OncoImmune, however, announced in April 2021 the discontinuation of its development, citing feedback from the U.S. FDA that additional data, beyond a study conducted by OncoImmune, would be needed to support a potential Emergency Use Authorization (EUA) application. Based on the additional research that would be required—new clinical trials as well as research related to manufacturing at scale—MK-7110 would not be expected to become available until the first half of 2022. Given this timeline and these technical, clinical and regulatory uncertainties, Merck decided to discontinue development and focus its pandemic efforts on advancing molnupiravir and on producing Johnson & Johnson’s COVID-19 vaccine.

In July 2020, Merck and Ridgeback Bio closed a collaboration agreement to develop molnupiravir, an orally available antiviral candidate in clinical development for the treatment of patients with COVID-19. In June 2021, Merck entered into a procurement agreement with the U.S. government for molnupiravir, which is currently being evaluated in a Phase 3 clinical trial, the MOVe-OUT study, for the treatment of non-hospitalized patients with laboratory-confirmed COVID-19 and at least one risk factor associated with poor disease outcomes.

Cancer collaborations and acquisitions
Merck continued to bolster its oncology pipeline during the year through several major collaborations and acquisition deals. At the beginning of 2020, in January, Merck acquired ArQule, a publicly traded biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases, for $2.7 billion. ArQule’s lead investigational candidate, MK-1026 (formerly ARQ 531), is a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently being evaluated for the treatment of B-cell malignancies.

Also at the start of the year, Merck entered an exclusive worldwide research collaboration and license agreement with Taiho Pharmaceutical and Astex Pharmaceuticals (UK), a subsidiary of Otsuka Pharmaceutical, to develop small molecule inhibitors against several drug targets, including the KRAS oncogene, currently being investigated for the treatment of cancer. KRAS is among the most frequently mutated oncogenes in cancer. It’s estimated to occur in more than 90% of pancreatic cancers and approximately 20% of non-small cell lung cancers (NSCLC) and is associated with poorer outcomes.

Merck, Taiho and Astex will combine preclinical candidates and data with knowledge and from their respective research programs. Merck has an exclusive global license to their small molecule inhibitor candidates, and Taiho and Astex receives an aggregate upfront payment of $50 million and will be eligible to receive approximately $2.5 billion based on development, regulatory and sales milestones, as well as royalties. Merck is funding research and development and will be responsible for commercialization of products globally. Taiho has retained co-commercialization rights in Japan and an option to promote in specific areas of South East Asia.

In September, Merck and Seagen formed an oncology collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational antibody-drug conjugate targeting LIV-1 for breast cancer and other solid tumors. The collaboration will pursue a broad joint development program evaluating ladiratuzumab vedotin as monotherapy and in combination with Keytruda in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Merck made an upfront payment of $600 million and Seagen is also eligible to receive future contingent milestone payments of up to $2.6 billion.

In addition, Seagen granted Merck an exclusive license to commercialize Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe.

In another deal, Merck paid $2.75 billion in November 2020 for VelosBio, a privately held clinical-stage biopharmaceutical company developing first-in-class cancer therapies targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1). VelosBio’s lead investigational candidate is VLS-101, an antibody-drug conjugate (ADC) targeting ROR1 that is being evaluated in a Phase 1 and a Phase 2 clinical trial for the treatment of patients with hematologic malignancies and solid tumors, respectively.

Additionally, in September 2020, Merck acquired a biologics manufacturing facility located in Dunboyne, Ireland from Takeda Pharmaceutical Co. for $302 million.

Headcount: 71,000
Pharma Revenues: $41,751 (+11%)
Net Income: $9,843 (+58%)
R&D: $9,872 (+1%)

TOP SELLING DRUGS

Merck’s 2019 pharmaceutical sales increased 11% to $41.8 billion. Sales were driven primarily by the oncology franchise reflecting strong growth of the star of its portfolio, Keytruda, as well as increased revenue related to Lynparza and Lenvima. Also contributing to revenue growth were higher sales of vaccines, including Gardasil/Gardasil 9, Varivax, ProQuad and M‑M‑R II.

During 2019, Merck received numerous regulatory approvals and progressed many pipeline candidates through clinical development. Within oncology, Keytruda received multiple additional approvals in the U.S., EU, China and Japan as monotherapy in the therapeutic areas of non-small-cell lung cancer, small-cell lung cancer, esophageal cancer and in combination with axitinib for the treatment of renal cell carcinoma, in combination with chemotherapy for head and neck squamous cell carcinoma, and in combination with Lenvima for endometrial carcinoma.

Lynparza, which is being developed in collaboration with AstraZeneca, received U.S. FDA approval for the treatment of appropriate patients with pancreatic cancer and European Commission (EC) approval for use in certain patients with advanced ovarian cancer and advanced or metastatic breast cancer.

Investing in its biopharma future
In the middle of the year Merck announced the restructuring of its manufacturing operations. The plan called for pouring more dollars into biologics manufacturing while closing several older facilities along with a workforce reduction.

The restructuring of its manufacturing and supply network is expected to be completed by the end of 2023 with estimated costs between $800 million and $1.2 billion, and charges of approximately $500 million in 2019. About half of these costs will relate to the closure of facilities and employee severance, the company said.

As part of this effort, Merck unveiled plans during the year to invest more than $650 million and create more than 400 jobs in North Carolina, building a new production facility at its Maurice R. Hilleman Center for Vaccine Manufacturing in Durham and expanding its packaging operations in Wilson. This project will enable Merck to meet growing demand for Gardasil and Gardasil 9 recombinant human papillomavirus (HPV) vaccine, which is used to prevent several cancers associated with HPV.

Merck’s Gardasil 9 vaccine helps prevent nine strains of HPV, including two HPV types that cause an estimated 70% of cervical cancers. Merck’s project to expand its North Carolina facilities includes plans to design, build, and win qualification from the FDA for a new 225,000 square foot manufacturing facility to produce active ingredient for the vaccine. The new facility will be located at Merck’s current manufacturing center in Durham.

In October 2018, the company announced plans to invest $122 billion in new projects through 2022 to increase manufacturing capacity across its key businesses. Part of this includes a new biologics plant at its Swords site near Dublin, Ireland to manufacture Keytruda, which is expected to open by 2021.

As part of its restructuring efforts, in February 2020, Merck announced its intention to spin-off products from its women’s health, legacy brands and biosimilars businesses into a new, yet-to-be-named, independent company.

Bolstering oncology and vaccine pipelines
At the end of the year, Merck diversified its oncology pipeline with expansion into targeted therapies that treat hematological malignancies. It acquired the cancer drug company ArQule for $2.7 billion. ArQule is a biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases. ArQule’s lead investigational candidate, ARQ 531, is a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently in a Phase 2 dose expansion study for the treatment of B-cell malignancies.

To expand its oncology presence further, Merck bought Peloton Therapeutics in a $2.2 billion deal. Peloton is a clinical-stage biotech focused on the development of novel small molecule therapeutic candidates targeting hypoxia-inducible factor-2α (HIF-2α) for the treatment of patients with cancer and other non-oncology diseases. Peloton’s lead candidate is PT2977, a novel oral HIF-2α inhibitor in late-stage development for renal cell carcinoma (RCC).

In a smaller deal, mid-year Merck paid $773 million for the biotech Tilos Therapeutics and its compelling portfolio of investigational antibodies modulating transforming growth factor beta (TGFβ). Tilos is developing therapeutics targeting the latent TGFβ complex for the treatment of cancer, fibrosis and autoimmune diseases. Tilos was founded by Boehringer Ingelheim Venture Fund and Partners Innovation Fund, based on discoveries by the laboratory of Dr. Howard Weiner at Brigham and Women’s Hospital and Harvard Medical School.

In other oncology news, Merck established a collaboration with Taiho Pharmaceutical and Astex Pharmaceuticals, a subsidiary of Otsuka. The partnership will focus on the development of small molecule inhibitors against several drug targets, including the KRAS oncogene, which are currently being investigated for the treatment of cancer. The deal is potentially worth up to $2.5 billion.

On the vaccines front, Merck bolstered its capabilities in vaccine development for infectious diseases and cancer when it acquired Immune Design for $300 million. Immune Design is a late-stage immunotherapy company employing next-generation in vivo approaches to enable the body’s immune system to fight disease. The company’s proprietary technologies, GLAAS and ZVex, are engineered to activate the immune system’s natural ability to generate and/or expand antigen-specific cytotoxic immune cells to fight cancer and other chronic diseases.

Headcount: 69,000
Revenues: $42,294 (+5%)
Pharma Revenues: $37,689 (+6%)
Net Income: $6,220 (>100%)
R&D: $9,752 (-6%)

TOP SELLING DRUGS  

Merck’s worldwide pharma sales were $37.7 billion in 2018, an increase of 6% compared with 2017. Growth was driven primarily by higher oncology drug sales, particularly from star pupil Keytruda—sales skyrocketed 88% from the year before to reach $7.2 billion. Revenue related to Lynparza and Lenvima also helped bottom line growth. Other revenue generators included higher sales of vaccines, driven primarily by human papillomavirus (HPV) vaccine Gardasil/Gardasil 9, as well as higher sales in the hospital acute care franchise, attributable to Bridion and Noxafil.

Growth in 2018 was hindered by declines in the virology franchise, including lower sales of hepatitis C virus treatment Zepatier, as well as lower sales of shingles vaccine Zostavax. Generic and biosimilar competition for cardiovascular drugs Zetia and Vytorin, and immunology product Remicade, also hurt growth.

During the year, Merck continued to build its oncology  portfolio through acquisition and collaboration. In February it bought virus-based cancer drug firm Viralytics for $394 million. The deal gave Merck full rights to Cavatak, Viralytics’ investigational oncolytic immunotherapy that is based on the company’s proprietary formulation of an oncolytic virus that has been shown to preferentially infect and kill cancer cells. Cavatak is currently being evaluated in multiple Phase 1 and 2 trials, with Keytruda—the two companies formed a partnership back in 2015 to study the use of the Cavatak and Keytruda combination in melanoma, prostate, lung and bladder cancers.

With Dragonfly Therapeutics, Merck entered a deal to discover immunotherapies for solid tumor cancers, under which Merck has the option to license exclusive worldwide rights to products developed using Dragonfly’s TriNKET technology platform for a number of solid-tumor programs.

Moderna Therapeutics and Merck expanded their 2016 collaboration to develop and commercialize personalized messenger RNA (mRNA) cancer vaccines to now include shared antigen mRNA cancer vaccines including mRNA-5671, Moderna’s mRNA KRAS cancer vaccine.  The two companies will now advance jointly mRNA-5671 in human studies, and plan to conduct combination studies with additional immuno-oncology therapies.

Evelo Biosciences entered into a clinical trial collaboration with Merck to evaluate EDP1503 in combination with Keytruda in multiple cancer indications; Rexahn Pharmaceuticals also entered into a clinical trial agreement to evaluate the combination of its RX-5902 and Keytruda in a Phase 2 breast cancer trial; Immutep and Merck are evaluating the combination of Immutep’s lead immunotherapy product candidate eftilagimod alpha with Keytruda; and with Eisai, Merck partnered for the worldwide co-development and co-commercialization of cancer drug Lenvima—the companies will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Keytruda.

Regulatory milestones and clinical progress
Keytruda continued to spread its wings during the year with multiple new indications across several tumor types, including approval from FDA for the treatment of cervical cancer, a type of non-Hodgkin lymphoma, hepatocellular carcinoma, Merkel cell carcinoma, and in combination with chemotherapy for the treatment of a type of lung cancer. It also received approvals from the European Commission, as well as Chinese and Japanese regulators.

Lynparza, which is being developed in a collaboration with AstraZeneca, received FDA approval for use in breast cancer and ovarian cancer. Additionally, Lenvima was approved in the U.S., EU, Japan and China for the treatment of hepatocellular carcinoma. The FDA and EC also approved two new HIV-1 medicines: Delstrigo, a once-daily fixed dose combination tablet of doravirine, lamivudine and tenofovir disoproxil fumarate; and Pifeltro (doravirine), a new non-nucleoside reverse transcriptase inhibitor to be administered in combination with other antiretroviral medicines.

In addition to the recent approvals, Merck has continued to advance its late-stage pipeline with several regulatory submissions. Keytruda is under review in the U.S. in combination with axitinib for renal cell carcinoma and has been granted Priority Review by the FDA.

The company’s Phase 3 oncology programs includes Keytruda in the therapeutic areas of breast, cervical, colorectal, esophageal, gastric, hepatocellular, mesothelioma, nasopharyngeal, ovarian, renal and small-cell lung cancers; Lynparza for pancreatic and prostate cancer; and Lenvima in combination with Keytruda for endometrial cancer.

Additionally, the company has candidates in Phase 3 clinical development in several other therapeutic areas, including V114, a vaccine for pneumococcal disease that received Breakthrough Therapy designation; MK-7264, gefapixant, a selective, non-narcotic, orally-administered P2X3-receptor agonist being developed for the treatment of refractory, chronic cough; and MK-1242, vericiguat, an investigational treatment for heart failure.

On the drug discovery front, Merck and IRBM formed a new agreement in the peptide therapeutics area, continuing their long-standing history of collaboration that began in 2010.
According to the companies, there has been increasing interest in peptide research over the last 15 years. The pharma industry continues to make significant preclinical and clinical investments in peptide-based therapeutics for different areas, including metabolic diseases, oncology and cardiovascular disease. Over the last decade there have been numerous technological advancements in this field. Now characteristics that were previously considered a liability for peptides, such as screening systems for lead identification, half-life, stability, solubility, formulation and delivery routes, are no longer considered insurmountable obstacles.

IRBM has built broad expertise in peptide drug development, from initial target identification to the development of a clinical candidate with the required properties in terms of specificity, potency, pharmacokinetics, metabolism and toxicology. For this project, IRBM will be applying its expertise in phage display peptide library design and screening and in chemical peptide synthesis and optimization, to identify potential peptide leads for a specific Merck target.

Headcount:  69,000
Revenues: $40,122  (+1%)
Pharma Revenues:  $35,390  (+1%)
Net Income:  $2,592  (-34%)
R&D:  $9,982  (-1%)

TOP SELLING DRUGS  

Merck’s worldwide pharma sales were $35.4 billion in 2017. It marks just a 1% increase compared with 2016 driven primarily by the launches of Keytruda, Zepatier and Bridion. In addition, revenue in 2017 benefited from the sale of vaccines in the markets that were previously part of the now-terminated vaccines joint venture with Sanofi Pasteur. Growth in these areas was largely offset by the effects of generic and biosimilar competition that resulted in sales declines for products including Zetia, Vytorin, Cubicin and Remicade.

Strengthening its position in oncology, during the year Merck teamed up with Astrazeneca in a $8.5 billion global oncology pact to co-develop and co-commercialize AstraZeneca’s Lynparza for multiple cancer types. Lynparza is an innovative, first-in-class oral poly ADP ribose polymerase (PARP) inhibitor currently approved for BRCA-mutated ovarian cancer in multiple lines of treatment.

Lynparza’s pipeline has grown significantly in the last few years, with 14 indications currently being developed across several tumor types, including breast, prostate and pancreatic cancers. The strategic collaboration is expected to further increase the number of treatment options available to patients.

The companies will develop and commercialize Lynparza jointly, both as monotherapy and in combination trials with other potential medicines. Independently, the companies will develop and commercialize Lynparza in combinations with their respective PD-L1 and PD-1 medicines, Imfinzi and Keytruda.

The companies will also jointly develop and commercialize AstraZeneca’s selumetinib, an oral, potent, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, currently being developed for multiple indications including thyroid cancer.

Merck is paying AstraZeneca $1.6 billion upfront, $750 million for certain license options and up to an additional $6.15 billion in milestones.

More Keytruda collaborations

In addition to the oncology alliance with Astrazeneca, Merck has a number of ongoing research collaborations related to its top selling cancer drug Keytruda. A clinical collaboration with Aduro Biotech is investigating the combination of CRS-207, Aduro’s LADD (live, attenuated double-deleted) based immunotherapy, with Keytruda for the treatment of gastric cancer.

Also, Eli Lilly and Co. expanded its immuno-oncology collaboration with Merck to add a new study of Lilly’s Lartruvo with Keytruda in patients with previously treated advanced or metastatic soft tissue sarcoma. Lilly will conduct the Phase I study, which began mid-2017.

Atara Biotherapeutics entered into a clinical trial collaboration agreement with Merck to evaluate Atara’s allogeneic Epstein-Barr virus (EBV)-specific cytotoxic T lymphocytes (CTL), or ATA129, in combination with Keytruda, in patients with platinum resistant or recurrent EBV-associated NPC. The Phase 1/2 trial will evaluate the safety, pharmacokinetics, pharmacodynamics, and preliminary efficacy of the combination.

PDS Biotechnology, a clinical stage biopharma company developing immunotherapies, teamed up with a subsidiary of Merck to evaluate the combination of PDS’ lead Versamune-based immunotherapy, PDS0101, with Keytruda in a Phase II trial. The trial will evaluate the safety and efficacy of the combination in patients with recurrent or metastatic head and neck cancer and high-risk human papillomavirus-16 (HPV16) infection after failure with platinum-based chemotherapy. Further details were not disclosed.

Sellas Life Sciences Group, a development-stage biopharma company focused on cancer immunotherapies, entered a clinical trial collaboration and supply agreement with Merck for the conduct of a combination clinical trial targeting multiple cancers. Sellas’ Wilms tumor-1 (WT1)-targeting peptide immunotherapeutic agent, galinpepimut-S, will be administered in combination with Keytruda in a Phase 1/2 trial enrolling patients in five cancer indications, including both hematologic malignancies and solid tumors.

Lastly, Aeglea BioTherapeutics, a biotechnology company developing enzyme-based therapeutics to treat rare genetic diseases and cancer, entered into a clinical collaboration agreement with Merck to evaluate the combination of Aeglea’s AEB1102 with Keytruda for the treatment of patients with small cell lung cancer.

While 2017 wasn’t a big year on the M&A front for Merck, it did bolster its cancer pipeline with the purchase of Rigontec, a biotechnology company developing cancer immunotherapies, for €115 million upfront and as much as €349 million in milestone payments. Rigontec’s lead candidate, RGT100, is currently in Phase I development for the treatment of various tumors.

Approvals and pipeline progress

As Merck continues to expand its focus in oncology by further advancing the development program for Keytruda specifically, it received positive news from various studies and regulatory authorities in 2017.

It announced the pivotal Phase III Keynote-189 trial investigating Keytruda in combination with pemetrexed (Alimta) and cisplatin or carboplatin, for the first-line treatment of patients with metastatic non-squamous non-small cell lung cancer (NSCLC), met its dual primary endpoints of overall survival and progression-free survival.

Merck and The European Organization for Research and Treatment of Cancer (EORTC) revealed the Phase III EORTC1325/Keynote-054 trial investigating Keytruda as monotherapy for surgically resected high-risk melanoma met the primary endpoint of recurrence-free survival and, based on an interim analysis and following review by the Independent Data Monitoring Committee, resulted in significantly longer recurrence-free survival than placebo.

The U.S. FDA accepted for review the supplemental Biologics License Application (sBLA) for Keytruda for the treatment of adult and pediatric patients with refractory primary mediastinal B-cell lymphoma, or who have relapsed after two or more prior lines of therapy. The FDA granted Priority Review status with a PDUFA date of April 3, 2018, and previously granted Breakthrough Therapy Designation to Keytruda in January 2017 for this indication.

The FDA also granted Breakthrough Therapy Designation for Keytruda in combination with Eisai’s multiple receptor tyrosine kinase inhibitor Lenvima for the potential treatment of patients with advanced and/or metastatic renal cell carcinoma, which is being jointly developed as part of a collaboration between Merck and Esai. This marks the 12th Breakthrough Therapy Designation granted to Keytruda.

In terms of approvals, the FDA gave the ok to Lynparza for use in patients with germline BRCA-mutated, HER2-negative metastatic breast cancer who have been previously treated with chemotherapy either in the neoadjuvant, adjuvant or metastatic settings. Lynparza is the first PARP inhibitor approved for breast cancer. A supplemental New Drug Application (NDA) was submitted to Japan’s Pharmaceuticals and Medical Devices Agency for the same use.

The Japanese Ministry of Health, Labor and Welfare approved Lynparza for use as a maintenance therapy for patients with platinum-sensitive relapsed ovarian cancer, regardless of their BRCA mutation status, who responded to their last platinum-based chemotherapy. Lynparza is also the first PARP inhibitor approved in Japan.

Together with Pfizer, Merck announced during the year that the FDA approved Steglatro tablets, an oral sodium-glucose cotransporter 2 (SGLT2) inhibitor, the fixed-dose combination Steglujan and the fixed-dose combination Segluromet to help improve glycemic control in adults with type 2 diabetes. Additionally, the Committee for Medicinal Products for Human Use of the European Medicines Agency adopted a positive opinion for these medicines.

Additionally, the FDA and European Commission approved Prevymis, once-daily tablets for oral use and injection for intravenous infusion, indicated for prevention of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant.

Lastly, the FDA approved Isentress, the company’s integrase inhibitor, for use in combination with other antiretroviral agents for the treatment of HIV-1 in newborn patients from birth to four weeks of age weighing at least 2 kg.

Headcount: 68,000
Revenues: $39,807 (+1%)
Pharma Revenues: $35,151 (+1%)
Net Income: $5,712 (+28%)
R&D: $7,194 (+7%)

TOP SELLING DRUGS

Headquartered in Whitehouse Station, NJ, Merck climbed a spot to number three with 2016 revenue of $39.8 billion. The company operates in over 100 countries, and 55% of its total revenue comes from sales outside U.S. markets. The global human health segment, or pharmaceuticals, is the highest revenue-generating segment at the company and contributed nearly 88% of total revenues. This segment includes various franchises like oncology, vaccines, hospital acute care, diabetes, and women’s health.

Blockbusters lead the way

Merck’s pharmaceuticals segment has several blockbuster drugs with a yearly contribution of over $1 billion each. Keytruda is part of Merck’s immuno-oncology franchise and used to treat non-small cell lung cancer as well as melanoma, a type of skin cancer. Merck launched Keytruda in the fourth quarter of 2014. Last year it Keytruda’s global sales were $1.4 billion, a nearly 150% growth in revenues as compared to $566 million in 2015.

Januvia and Janumet are two of Merck’s blockbuster drugs in the diabetes franchise. These drugs are used to lower blood sugar levels in patients with type two diabetes and combined sales for these drugs were $6 billion.

Remicade, a top-selling drug for the treatment of inflammatory disorders, is losing its market share due to the entry of generic competitors and biosimilars following the loss of exclusivity in European markets. Revenues fell 29% to $1.3 billion.

Simponi is another drug in the immunology franchise that saw revenues rise 11% to $766 million while the combined revenues of cardiovascular drugs Zetia and Vytorin fell to $3.7 billion due to the loss of exclusivity of Vytorin in the U.S.

The Gardasil franchise is Merck’s leading vaccines franchise for the prevention of certain strains of human papillomavirus (HPV). Total sales of the Gardasil franchise in 2016 were $2.2 billion, an increase of 14%.

Cancer collaborations

Merck entered a $280 million cancer collaboration with Complix, a biopharmaceutical company developing a pipeline of protein therapeutics called alphabodies for the treatment of cancer and severe autoimmune diseases. The strategic drug discovery collaboration through Merck’s subsidiary, Merck Sharp & Dohme Corp. (MSD), will focus on developing cell-penetrating alphabodies (CPABs) for the treatment of cancer. Complix will use its proprietary Alphabody platform to deliver CPABs against up to two intracellular cancer targets. MSD will fund related research activities and has an option to the exclusive, worldwide rights for any of the resulting compounds.

Adimab entered into an agreement with Merck to transfer its antibody technology to Merck Research Labs for the discovery and optimization of monoclonal and bispecific therapeutic antibody candidates. This technology transfer expands an ongoing collaboration initiated in 2009 that has resulted in several undisclosed therapeutic candidates for Merck. Adimab will transfer and license its antibody discovery and optimization platform to Merck. Merck will receive a custom human antibody library and will obtain a license to the Adimab platform for use in all therapeutic areas and targets. Merck has also secured an option to receive continued improvements to the Adimab platform, including access to new antibody libraries.

AbCellera has entered a collaboration with Merck to generate antibodies against an undisclosed disease target. AbCellera will apply its high-throughput antibody discovery platform to identify antibodies that specifically modulate target function. Merck has the option to develop antibody candidates identified through the collaboration for specified therapeutic applications.

In another cancer pact, ImmunoGen and Merck joined forces to evaluate an ovarian cancer drug combo. The clinical research collaboration was set up to assess ImmunoGen’s mirvetuximab soravtansine in combination with Merck’s anti-PD-1 therapy, Keytruda (pembrolizumab), for the treatment of patients with FRα-positive ovarian cancer. ImmunoGen is conducting a Phase Ib/II trial evaluating mirvetuximab soravtansine for FRα-positive ovarian cancer used in combination with other anticancer agents. The assessment of mirvetuximab soravtansine with Keytruda will be added to this trial, with Merck supplying the Keytruda. The agreement may be expanded to include a subsequent Phase III clinical trial.

Merck and Moderna Therapeutics formed a $200 million strategic collaboration and license agreement to develop and commercialize novel messenger RNA (mRNA)-based personalized cancer vaccines. The collaboration will combine Merck’s established leadership in immuno-oncology with Moderna’s pioneering mRNA vaccine technology and GMP manufacturing capabilities to advance individually tailored cancer vaccines for patients across a spectrum of cancers.

Moderna and Merck will develop personalized cancer vaccines that utilize Moderna’s mRNA vaccine technology to encode a patient’s specific neoantigens, unique mutations present in that specific patient’s tumor. When injected into a patient, the vaccine will be designed to elicit a specific immune response that will recognize and destroy cancer cells. The companies believe that the mRNA-based personalized cancer vaccines’ ability to specifically activate an individual patient’s immune system has the potential to be synergistic with checkpoint inhibitor therapies, including Merck’s anti-PD-1 therapy, Keytruda (pembrolizumab). In addition, Moderna has developed a rapid cycle time, small-batch manufacturing technique that will uniquely allow the company to supply vaccines tailored to individual patients within weeks.

The development program will entail multiple studies in several types of cancer and include the evaluation of mRNA-based personalized cancer vaccines in combination with Merck’s Keytruda (pembrolizumab). Moderna will also utilize the upfront payment to fund a portion of the build-out of a GMP manufacturing facility in suburban Boston for the purpose of personalized cancer vaccine manufacturing.

Key acquisitions

In June 2016 Merck bought the clinical-stage biotech Afferent Pharmaceuticals in a deal worth up to $1.25 billion. The move gave Merck access to Afferent’s lead investigational candidate AF-219 for chronic cough treatment. Merck purchased all outstanding shares of Afferent for an upfront fee of $500 million, and could pay an extra $750 million linked to certain clinical development and commercial milestones.

AF-219 is a selective, non-narcotic, orally-administered P2X3 antagonist currently being evaluated in a Phase IIb clinical trial for the treatment of refractory, chronic cough, as well as in a Phase II clinical trial in idiopathic pulmonary fibrosis (IPF) with cough.

P2X3 receptors are believed to play a key role in the sensitization of certain sensory nerves, which become activated under pathological conditions mediated by a common cellular signal, ATP, when it is released in high concentrations due to cellular distress following injury or infection. Afferent’s compounds are designed to selectively block ATP activation of P2X3 channels, potentially reducing a range of sensory signs and symptoms.

Merck also acquired IOmet Pharma, bolstering its preclinical immuno-oncology pipeline. The UK-based drug discovery company is focused on cancer immunotherapy and cancer metabolism. Merck gained its preclinical pipeline of IDO (indoleamine-2,3-dioxygenase 1), TDO (tryptophan-2,3-dioxygenase), and dual-acting IDO/TDO inhibitors. IOmet became a wholly owned subsidiary of Merck.

Also of note, in March 2016, after 20 years, Merck and Sanofi Pasteur ended their joint vaccines operations in Europe. After concluding their joint venture, both companies said the plan was to integrate their respective European vaccine businesses into their operations, independently manage their product portfolios and pursue separate growth strategies in Europe.

The joint venture Sanofi Pasteur MSD, owned on a 50/50 basis, was created in 1994 to develop and commercialize vaccines from both companies’ pipelines in 19 European countries. Numerous vaccines from Sanofi and MSD’s development pipelines were launched, addressing key unmet medical needs. While the joint venture was successful over the past two decades from a public health and commercial perspective, the companies said that after considering their individual strategic priorities, alongside the economic and regulatory environments for vaccine operations in the EU, it was best to manage their respective vaccine product portfolios independently.

Headcount: 68,000
Revenues: $39,498 (-6%)
Pharma Revenues: $34,782 (-3%)
Net Income: $4,442 (-63%)
R&D: $6,704 (-7%)

TOP SELLING DRUGS  

Due to the ongoing impacts of the loss of market exclusivity for several products, worldwide sales for Merck dropped 6% to $39.5 billion in 2015. However, the company reported that these unfavorable impacts were partially offset by volume growth in oncology, diabetes, women’s health and vaccine products.

Sales in the U.S. were $17.5 billion, an increase of 3%, driven primarily by the acquisition of Cubist Pharmaceuticals, as well as higher sales of the company’s lung cancer treatment Keytruda, Gardasil/Gardasil 9, Januvia/Janumet, Zetia, a cholesterol modifying medicine, and higher third-party manufacturing sales.

International sales declined 13% to $22 billion in 2015 due mostly to unfavorable foreign exchange across all regions. Lower sales in the pharmaceutical segment reflected declines in Europe and Japan, partially offset by growth in the emerging markets. Sales in Europe declined 19% to $7.7 billion because of bad foreign exchange and lower sales of Remicade, as well as lower sales of products for the treatment of HCV and from product divestitures and ongoing generic erosion. Sales in Japan declined 23% to $2.6 billion. Again aside from foreign exchange, the sales decline was largely driven by product divestitures and the ongoing impacts of the loss of market exclusivity for several products, including Cozaar and Hyzaar, treatments for hypertension, as well as lower sales of PegIntron and Januvia.

Emerging market revenue also dropped but not as sharply as Europe and Japan. Sales were $7.3 billion, a decline of 6%. Total international sales for Merck represented 56% of total sales in 2015.

On the M&A front

At the tail end of 2014 Merck struck a major deal when it acquired Cubist Pharmaceuticals for $9.5 billion. Cubist develops therapies to treat infections caused by a broad range of increasingly drug-resistant bacteria. Its antibiotic Cubicin is the only approved once-a-day therapy for both S. aureus bacteremia and complicated skin and skin structure infections (cSSSI). In addition, Cubist has a late-stage pipeline of anti-infective medicines, including Zerbaxa, which at the time of the deal was pending FDA approval. Merck said the deal added more than $1 billion of revenue to its 2015 base.

In another transaction, Merck acquired cCAM Biotherapeutics, a privately held biopharmaceutical company focused on the discovery and development of novel cancer immunotherapies. Merck made an upfront payment of $95 million, with an additional $510 million to be paid when certain clinical development, regulatory and commercial milestones are met.

The acquisition provides Merck with several early immunotherapy candidates including cCAM Biotherapeutics’ lead pipeline candidate, CM-24—a novel monoclonal antibody (mAb) targeting the immune checkpoint protein CEACAM1 that is currently being evaluated in a Phase I study for the treatment of advanced or recurrent malignancies, including melanoma, non-small-cell lung, bladder, gastric, colorectal, and ovarian cancers. Based on the transaction, cCAM Biotherapeutics, headquartered in Israel, will become a wholly owned subsidiary of Merck and continue to advance the development of CM-24 in its ongoing Phase I clinical trial. cCam was originally established under the Israeli Office of Chief Scientist’s incubators program.

At the very beginning of 2016 Merck acquired IOmet Pharma, a drug discovery company focused on the development of medicines for the treatment of cancer, with a particular emphasis on the fields of cancer immunotherapy and cancer metabolism.

Bio focused

During the year Merck entered into a multi-year collaboration with NGM Biopharmaceuticals to research, discover, develop and commercialize novel biologic therapies across a wide range of therapeutic areas. The collaboration includes multiple drug candidates currently in preclinical development at NGM, including NP201 being evaluated for the treatment of diabetes, obesity and nonalcoholic steatohepatitis (NASH). NGM will lead R&D for existing preclinical candidates and pursue other discovery stage programs. Merck will have the option to license any resulting NGM programs following human proof of concept trials for global product development and commercialization.

NGM received $94 million upfront and Merck purchased a 15% equity stake in NGM for $106 million. Merck said it will commit as much as $250 million to fund NGM’s efforts under the initial five-year term of the collaboration, with the potential for additional funding.

Prior to Merck initiating a Phase III study for a licensed program, NGM may elect to receive milestone and royalty payments or to participate in a global cost and revenue share arrangement of as much as 50%. NGM also has the option to participate in the co-promotion of any co-funded program in the U.S. NGM’s lead program, NGM282, currently in clinical development for primary biliary cirrhosis (PBC) and NASH, are not subject to the option under the Merck collaboration.

Advancing the pipeline

During 2015, Merck continued to execute its research and development focused-strategy, advancing its pipeline and commercial portfolio.

Merck is focusing its research efforts on the therapeutic areas that it believes can make the most impact on addressing critical areas of unmet medical need, such as cancer, hepatitis C, cardiometabolic disease, resistant microbial infection and Alzheimer’s disease.

During 2015, the company continued to make strides in its late-stage pipeline. MK-6072, bezlotoxumab, is an investigational antitoxin for the prevention of Clostridium difficile (C. difficile) infection recurrence that is currently under review with the FDA and the European Medicines Agency (EMA). MK-1293, an insulin glargine candidate for the treatment of patients with type 1 and type 2 diabetes being developed in a collaboration, is also under review in the EU, as is Zepatier. Keytruda is under review in the EU for the treatment of NSCLC.

In addition to Phase III programs for Keytruda in the therapeutic areas of bladder, breast, colorectal, gastric, head and neck, multiple myeloma, and esophageal cancers, the Company also has more than 10 candidates in Phase III clinical development in its core therapeutic areas, as well as other areas with significant potential, including MK-3102, omarigliptin, an investigational once-weekly dipeptidyl peptidase-4 (DPP-4) inhibitor in development for the treatment of adults with type 2 diabetes; MK-0822, odanacatib, an oral, once-weekly investigational treatment for patients with osteoporosis; MK-8835, ertugliflozin, an investigational oral sodium glucose cotransporter-2 (SGLT2) inhibitor being evaluated alone and in combination with Januvia (sitagliptin) and metformin for the treatment of type 2 diabetes; and MK-8237, an investigational allergy immunotherapy tablet for house dust mite allergy. Merck expects to submit applications for regulatory approval in the United States for each of these candidates, as well as MK-1293 described above, in 2016.

As a result of continued portfolio prioritization, the company is out-licensing or discontinuing selected late-stage clinical development assets. During 2015, the company out-licensed MK-1602 and MK-8031, investigational small molecule oral calcitonin gene-related peptide (CGRP) receptor antagonists, which are being developed for the treatment and prevention of migraine.

Keytruda leads the way

In terms of product approvals, Merck received several in 2015 that include expanded indications for Keytruda, which was initially approved by the FDA in September 2014 for the treatment of advanced melanoma in patients with disease progression after other therapies. Merck announced during the year that the lung cancer treatment is launching in more than 40 markets, including in the EU.

In 2015, Merck achieved multiple additional regulatory milestones for Keytruda including accelerated approval from the FDA for the treatment of patients with metastatic NSCLC whose tumors express PD-L1 as determined by an FDA-approved test, and who have disease progression on or after platinum-containing chemotherapy. In addition, the FDA approved an expanded indication for Keytruda to include the first-line treatment of patients with unresectable or metastatic melanoma.

Additionally, in 2015, the European Commission approved Keytruda for the treatment of advanced (unresectable or metastatic) melanoma in adults. The Keytruda clinical trials program currently includes more than 30 tumor types in more than 200 clinical trials, including over 100 trials that combine Keytruda with other cancer treatments.

The company is also launching Zepatier and Bridion in the United States, as well as U.S. FDA approval for Bridion (sugammadex) Injection, a medication for the reversal of two types of neuromuscular blocking agents used during surgery. CP

Headcount: 70,000
Revenues: $42,237 (-4%)
Pharma Revenues: $36,042 (-4%)
Net Income: $11,934 (+164%)
R&D: $7,180 (-4%)

TOP SELLING DRUGS 

Merck’s 2014 pharmaceutical sales declined 4% to $36.0 billion, including a 2% negative impact from foreign exchange and a 3% negative impact from patent expiries and product divestitures. The decline reflects lower revenue resulting from the ongoing impacts of the loss of market exclusivity for several products, including Temodar, a treatment for certain types of brain tumors, Singulair, a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis, and Cozaar and Hyzaar, treatments for hypertension.

The revenue decline was also due to lower sales of Victrelis and PegIntron, medicines for the treatment of chronic HCV, Nasonex, an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, and Vytorin, a cholesterol modifying product. These declines were partially offset by growth in Remicade and Simponi, treatments for inflammatory diseases, the diabetes franchise of Januvia/Janumet, Dulera Inhalation Aerosol, a combination medicine for the treatment of asthma, Implanon/Nexplanon, a single-rod subdermal contraceptive implant, as well as higher sales from acute care and animal health products. In addition, the company recognized revenue of $232 million in 2014 in connection with the sale of the U.S. marketing rights to Saphris.

Sales in the U.S. were $17.1 billion in 2014, a decline of 6% compared with $18.2 billion in 2013. The sales decrease was primarily due to the termination of the company’s relationship with AZLP, the divestiture of MCC and the ongoing impact of product divestitures. In addition, the decline reflects lower sales of Temodar, Victrelis, Vytorin and Nasonex, partially offset by higher sales of Dulera Inhalation Aerosol, the Januvia/Janumet franchise and Implanon/Nexplanon, as well as by the revenue recognized in connection with the sale of the U.S. marketing rights to Saphris.

International sales were $25.2 billion in 2014, a decline of 2% compared with $25.8 billion in 2013. Foreign exchange unfavorably affected international sales performance by 2% in 2014. The sales decrease reflects the divestiture of MCC. The decline was also driven by lower sales in the Pharmaceutical segment, reflecting declines in Japan, Europe and Canada. Sales in Japan declined 14% in 2014, to $3.4 billion, of which 8% was due to the unfavorable effect of foreign exchange. The sales decline was largely driven by the biennial price reductions and repricings that occurred in 2014, product divestitures and the ongoing impacts of the loss of the market exclusivity for several products, including Cozaar and Hyzaar, as well as lower sales of Gardasil, a vaccine to help prevent certain diseases caused by four types of HPV, reflecting the Japanese government’s decision in 2013 to suspend proactive recommendation of HPV vaccines, partially offset by higher sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease. Sales in Europe and Canada declined 2% in 2014, to $10.4 billion, including a 1% favorable effect from foreign exchange reflecting lower sales of Singulair, Nasonex and Victrelis, as well as from product divestitures and ongoing generic erosion and fiscal austerity measures in this region, partially offset by growth in Simponi, Remicade, Janumet and Januvia. Sales in the emerging markets were $7.8 billion in 2014, essentially flat compared with 2013, including a 5% unfavorable effect from foreign exchange, reflecting higher sales of vaccine, acute care, and diabetes products, offset by lower sales of HCV products, as well from product divestitures. Total international sales represented 60% and 59% of total sales in 2014 and 2013, respectively.

Pipeline Progress

The company continued to make steady progress in advancing its late-stage pipeline, and received U.S. approval for six new products that are launching in 2015, including novel medicine Keytruda (pembrolizumab) for the treatment of advanced melanoma in patients whose disease has progressed after other therapies. Keytruda is the first FDA-approved anti-PD-1 therapy. An estimated 2,000 patients were receiving treatment with Keytruda in December 2014 and it received Breakthrough Therapy Designation from the FDA for advanced non-small cell lung cancer (NSCLC).

The company said it expects to submit a supplemental Biologics License Application in mid-year 2015 to the FDA for Keytruda for the treatment of patients with epidermal growth factor receptor (EGFR) mutation-negative and Anaplastic Lymphoma Kinase (ALK) rearrangement-negative NSCLC whose disease has progressed on or following platinum-containing chemotherapy. Keytruda continues to be studied in more than 30 cancers and in 20 combination settings, and Merck has presented data in a number of different tumor types.

In addition, the FDA approved Belsomra for the treatment of adults with insomnia who have difficulty falling asleep and/or staying asleep, Gardasil 9, a nine-valent HPV vaccine, and Zontivity, a protease-activated receptor-1 (PAR-1) antagonist for the reduction of thrombotic cardiovascular events in patients with a history of myocardial infarction or with peripheral arterial disease.

Additionally, Merck currently has candidates under review with the FDA: MK-8616, Bridion (sugammadex) Injection, a medication for the reversal of two types of neuromuscular blocking agents used during surgery; and V419, an investigational pediatric hexavalent vaccine that the Company is developing in partnership with Sanofi Pasteur designed to help protect against six important diseases – diphtheria, tetanus, pertussis (whooping cough), polio (poliovirus types 1, 2, and 3), invasive disease caused by Haemophilus influenzae type b (Hib), and hepatitis B. Zerbaxa is also under review in the EU.

As a result of prioritizing its research efforts, Merck is focused on the therapeutic areas that it believes can make the most impact on addressing critical areas of unmet medical need, such as cancer, hepatitis C, cardiometabolic disease, resistant microbial infection and Alzheimer’s disease. In 2014, Merck accelerated several of its key clinical programs, positioning the company for long-term growth. Merck now has more than 10 candidates in Phase III development in its core therapeutic areas, as well as other areas with significant potential. MK-5172A, an all oral combination regimen consisting of MK-5172, grazoprevir, an investigational HCV NS3/4A protease inhibitor, and MK-8742, elbasvir, an investigational HCV NS5A replication complex inhibitor, is currently in Phase III development.

The company expects to file a New Drug Application (NDA) with the FDA in the first half of 2015 for MK-5172A. As a result of portfolio prioritization, the company is out-licensing or discontinuing selected late-stage clinical development assets and reducing its focus on platform technologies. During 2014, the company out-licensed MK-3222 (tildrakizumab), an investigational treatment for chronic plaque psoriasis, and divested its Sirna Therapeutics, Inc. subsidiary and related RNAi technology assets.

On the M&A front

Merck also enhanced its pipeline with external innovation, during the year. It enhanced its hepatitis pipeline by acquiring Idenix Pharmaceuticals, biopharma company engaged in the discovery and development of next generation treatments for hepatitis C virus (HCV). Merck purchased Idenix for approximately $3.9 billion. Idenix, has three HCV drug candidates in development: two nucleotide prodrugs (IDX21437 and IDX21459) and a NS5A inhibitor (samatasvir). These candidates are being evaluated for potential pan-genotypic fixed-dose combination regimens.

Merck also boosted its oncology pipeline when it acquired OncoEthix, a privately held biotechnology company specializing in oncology drug development. Merck paid $153 million, which included an upfront cash payment of $110 million and future additional milestone payments of as much as $265 million that are contingent upon certain clinical and regulatory milestones being achieved. Through the acquisition, Merck has gained an investigational, novel oral BET (bromodomain) inhibitor, OTX015, which is currently in Phase Ib studies for the treatment of hematological malignancies and advanced solid tumors.

In addition, Merck strengthened its antibiotics portfolio by acquiring Cubist Pharmaceuticals, Inc. in a transaction valued at approximately $9.5 billion. Cubist develops and supplies antibiotics to treat serious and potentially life-threatening infections caused by a broad range of increasingly drug-resistant bacteria. Cubist’s antibiotic CUBICIN is the only approved once-a-day therapy for both S. aureus bacteremia and complicated skin and skin structure infections (cSSSI).

Cubist has a late-stage pipeline of anti-infective medicines, and as part of its acquisition Merck acquired Zerbaxa (ceftolozane/tazobactam), an antibiotic approved by the FDA in December 2014 to treat Gram-negative bacteria, a key cause of in-hospital infections. ZERBAXA, which is pending FDA approval. Merck expects the acquisition to add more than $1 billion of revenue to its 2015 base.

During the year Merck sold its Consumer Care business to Bayer AG for $14.2 billion. Bayer AG acquired Merck’s existing OTC business, including the global trademark and prescription rights for Claritin and Afrin.

The companies also entered a clinical development collaboration to market and develop a portfolio of soluble guanylate cyclase (sGC) modulators, including Bayer’s Adempas (riociguat), which is approved to treat pulmonary arterial hypertension (PAH) and patients with chronic thromboembolic pulmonary hypertension (CTEPH). Adempas is currently marketed in the U.S., Europe and Japan. The companies will share costs and profits from the collaboration and implement a joint development and commercialization strategy.

The collaboration also includes development of vericiguat (BAY102), which is currently in Phase II trials for worsening heart failure, as well as opt-in rights for other early-stage sGC compounds in development at Bayer. In turn, Merck will make available its early-stage sGC compounds under similar terms. Bayer will receive $1 billion up-front with the potential for additional success-based milestone payments.

Merck signed three separate clinical collaboration agreements, through subsidiaries, with Amgen, Incyte Corp. and Pfizer to evaluate novel combination regimens with MK-3475, Merck’s investigational anti-PD-1 immunotherapy.

Merck and Samsung Bioepis Co., Ltd., expanded their collaboration with an agreement to develop, manufacture and commercialize MK-1293, an insulin glargine candidate for the treatment of patients with type 1 and type 2 diabetes. Phase III studies in type 1 and type 2 diabetes will begin soon. Merck and Samsung Bioepis have expanded their biosimilars collaboration to develop, manufacture and commercialize MK-1293, an insulin glargine candidate currently in Phase III development for the treatment of type 1 and type 2 diabetes.

Merck and Samsung Bioepis will collaborate on clinical development, regulatory filings and manufacturing. If approved, Merck will be responsible for commercialization. The initial collaboration established in February 2013 was to develop and commercialize multiple biosimilar candidates. Insulin glargine is currently marketed by Sanofi as Lantus. Lilly and Boehringer Ingelheim recently filed a biosimilar of insulin glargine for review with FDA, but Sanofi filed a patent infringement suit against the companies at the end of January, which could trigger a 30-month delay at the FDA.

Headcount: 76,000
Pharma Revenues: $37,437 (-8%)
Total Revenues: $44,033 (-7%)
Net Income: $4,517 (-29%)
R&D Budget: $7,503 (-9%)

TOP SELLING DRUGS  

Like the other leading Big Pharma companies, Merck has struggled with the patent cliff.  This year, sales of its diabetes blockbuster Januvia (sitagliptin) one of the world’s top 20 drugs, fell 2% while the market for the asthma treatment Singulair dropped by 38%.

To weather shifting conditions, the company has been focusing on core operations, and cutting costs. Over the past few years, Merck has eliminated $2.5 billion in operating expenses by downsizing and closing or selling manufacturing plants. These efforts began in 2009, when it acquired Schering-Plough, and have continued, reducing headcount by 35,000 over the past nine years.

Last year, Merck sold its Colorado biologics plant to KBI Biopharma, which will do some contract development work for the company. Previously, the company sold its biomanufacturing network and plants in North Carolina and the UK to Fujifilm for $490 million, and it also sold some API capacity in the U.S. and Holland to Aspen Pharma.

Cost Cutting Results to be Visible Next Year

Company management reportedly expects to see more growth and positive results from its cost-cutting efforts starting in 2015.

This year, Merck sold its consumer care division, including over-the-counter Claritin and Afrin businesses, to Germany’s Bayer AG for $14.2  billion.

The company has continued to focus on diabetes, but has been investing heavily in oncology drugs, particularly those based on immunotherapy. The company has been working with Amgen, Pfizer and Incyte, to maximize the potential for breakthrough melanoma treatments.

At this year’s American Society of Clinical Oncologists (ASCO) meeting in May, in Chicago, the company released extremely promising results of one of its experimental drugs. Merck’s MK-3475 (pembrolizumab), which targets the programmed cell death receptor 1 (PD-1). It was originally discovered  by researchers at Organon, which became part of Merck when the company bought Schering-Plough.

In clinical studies, the drug was found to shrink tumors in 11 of 56 patients with head-and-neck cancer.  The company has filed for approval of the drug in the U.S. and the EU, where it is being evaluated both as a single treatment and combined with other drugs and for treating 30 different types of cancer. FDA has designated it a breakthrough therapy for melanoma, meriting fast-track review.

To develop the companion diagnostics to streamline these and other oncology research efforts, Merck recently teamed up with Dako, a division of Agilent that focuses on cancer diagnostics.  The goal is a companion diagnostic test for the analysis of PD-L1.

The companion diagnostic test coming out of this collaboration will be evaluated as part of the clinical development program for Merck’s cancer treatment program.

Merck’s drug Emend, designed to prevent nausea and vomiting in patients receiving chemotherapy, reportedly did well in a Phase III study, and the company plans to submit a new drug application for pediatric formulations.

To extend its foothold in diabetes, led by Januvia, the company plans to develop a biosimilar version of Sanofi’s Lantus (insulin Glargine) in a collaboration with Samsung. Merck recently established a patient directory, similar to what Lilly did for Type 1 diabetes, for Type 2 diabetes patients.

To advance patient-focused research, and the development of better therapies, the registry will gather data from 20,000 patients from 900 clinics, health care centers and other sites in the U.S., Germany, France and Japan, to provide real-world evidence to advance therapies.

Following shortly after controversy over pricing for Gilead’s Hepatitis  C treatment, Merck will buy Idenix Pharmaceuticals for nearly $4 billion, to expand its pipeline for hepatitis treatments. The goal would be a daily oral dosage form without ribavirin’s side effects. So far, clinical results for Merck’s once-a-day hepatitis C pill, a combination product, suggested that the drug had positive effects in 98% of newly treated patients.

In Alzheimer’s research, Merck has teamed up with Australia’s Bionomics in work centering around BNC375, which has shown potential in treating cognitive damage in animal testing. This alliance would also look into treatments for schizophrenia, ADHD and Parkinson’s Disease.  Merck paid $20 million and will fund up to $506 million once the efforts have achieved certain predefined benchmarks.

Last year, Merck managers announced a reorganization of its R&D departments into global “hubs” near Boston, San Francisco, London and Shanghai, an approach that is becoming more common in Big Pharma. The company had previously begun to streamline its R&D to allow scientists more autonomy in selecting projects, and to encourage more positive risk-taking.

In a 2013 interview with Forbes columnist Matthew Herper,  Merck’s head of R&D, Roger Perlmutter, was quoted as saying, “If you’re not prepared to bet your job, why are you here? Because if all you’re going to do is manage in the traditional way, I don’t really need you here. I need people who are prepared to change the world.”

Headcount:83,000
Pharma Revenues: $40,601 (-2%)
Total Revenues: $47,267 (-2%)
Net Income: $6,661 (6%)
R&D Budget: $8,168 (-4%)

Top Selling Drugs

Account for 72% of total pharma sales, same as in 2011

Merck and Sanofi swapped spots again in our Top 20 ranks, with Sanofi’s currency problems trumping Merck’s major patent expiration. But, boy, was that expiration a doozy. Singulair, previously Merck’s top seller, lost patent protection in August 2012 in the U.S., and sales for the year fell by $1.6 billion. Singulair revenues dropped another $1.0 billion in 1Q13, and will post at least that big a drop in 2Q13, leaving Merck with a $2.0 billion hole to climb out of, just to stay even with 2012.

Further, as a result of ceding territories in its legal settlement with J&J, Merck’s revenues for Remicade took a $600 million hit in 2012. Good thing Merck has Januvia and its 23% growth rate to keep it going!

Well, until 2013, that is. Merck’s runaway best-selling diabetes treatment posted a 4% sales drop in 1Q13. The company contends that this was a result of wholesaler inventory drawdowns, and that sales would grow at mid-single-digits in the U.S. for the rest of the year and low double-digits everywhere else. In comparison, sales of Janumet, a combo of Januvia and metformin, grew 4% in 1Q13 to $409 million.

The bigger worry for Merck is that Januvia will turn out to be tied to an increased risk of pancreatitis and pancreatic cancer in users. An animal study conducted in 2008 seemed to show a risk for that extremely lethal cancer, and in March 2013, the FDA and EMA both began investigations into whether GLP-1 therapies like Januvia increase that risk in patients. The company contends that it has mountains of evidence from its clinical trials and patient records demonstrating the safety of Januvia, but if there’s one thing we’ve learned from diabetes treatments, it’s that you never know what will crop up over long timelines and large patient bases.

With Januvia slowing down, and patent expirations coming for Temodar and Maxalt — and their combined sales of $1.6 billion in 2012 — Merck needs a boost from its pipeline.

Two years ago, chief executive officer Ken Frazier declared that Merck wouldn’t cut its R&D budget in order to goose earnings. It was an admirable mission statement, showing that Merck is out to develop useful therapies, not cater to short-term shareholders. In March of this year, he took another big R&D step, replacing research chief Peter Kim with Roger Perlmutter. Dr. Perlmutter had left Merck in 2000, moving over to Amgen where he oversaw R&D operations and helped get approval for nearly a dozen drugs, including Prolia/ Xgeva, Sensipar, and Nplate. Shortly before we went to press, Dr. Perlmutter removed Merck’s “franchise head” management layer, resulting in some senior-level layoffs. More reductions in R&D are planned in the months ahead.

Outside observers considered Dr. Perlmutter’s hiring a reproof to Dr. Kim’s 10-year tenure, but Mr. Frazier was very careful not to lay the company’s R&D problems at Dr. Kim’s feet. Merck did have some high-profile development issues in recent years. The company tried for years to market a combination of extended-release niacin and laropiprant, to get niacin’s cholesterol-lowering benefits without the facial-flushing side effects. The drug was approved by the EMA in 2008, but shot down by the FDA in the same year. Turns out, the FDA’s caution was warranted. In December 2012, a massive clinical trial revealed that the combo not only had no beneficial effects compared to statins, but that it also increased adverse effects, including diabetic complications. Merck withdrew the drug from all markets.

In February 2013, Merck announced that it was delaying filing its new osteoporosis treatment, odanacatib, for approval until 2014, rather than the first half of 2013, as originally planned. The company noted that it needed to examine the efficacy and safety results of an ongoing extension trial. The data-monitoring committee flagged a side effect from the trial, but Merck hasn’t disclosed what it is. All they’ve told the public is that “we continue to believe in the potential of odanacatib to address unmet medical needs for patients with osteoporosis and look forward to filing in 2014.”

Merck is still pushing forward with vorapaxar, the antiplatelet drug it picked up when it bought Schering-Plough. One Phase III failure led the company to write off $1.7 billion in R&D costs, but it’s pushing forward with the drug for prevention of cardiovascular events in patients with a history of myocardial infarction but no history of stroke or transient ischemic attack (TIA). In February 2013, vorapaxar failed in a trial to prevent a secondary stroke in patients who’ve had strokes or TIA, and it boosted the rate of intracranial bleeding, to boot.

Even Merck’s successes haven’t been game-changers. We wrote last year about its first-in-class HCV treatment, Victrelis, which posted $500 million in revenues in its first full year, but got destroyed by Vertex’s competitor. Victrelis revenues were flat at $110 million in 1Q13, and more competition is coming.

Merck also gained approval for a drug that’s brought on condemnation among industry-watchers. In May 2013, FDA approved Liptruzet, a combination of Merck’s Zetia and atorvastatin (generic Lipitor), to lower LDL cholesterol. In a press statement about the approval, the company noted, “No incremental benefit of Liptruzet on cardiovascular morbidity and mortality over and above that demonstrated for atorvastatin has been established.” To paraphrase, “This branded drug does not appear to be any better at preventing heart attacks than generic Lipitor.” Given the controversy surrounding Merck’s treatment of its previous Zetia combo, Vytorin, it’s surprising that the FDA approved the drug before a large outcomes trial, due to finish in 2014, was assessed.

On the plus side, Zostavax sales recovered after years of shortages due to manufacturing problems. Those gains were more than offset by the ongoing generic erosion of Cozaar/Hyzaar, but at least the shingles treatment is well on its way to reaching blockbuster status for Merck.

R&D failures and ongoing patent expirations have given Merck executives a lot of sleepless nights, but the company may have a cure for that! In May 2013, Merck’s got a favorable FDA advisory panel result for first-in-class insomnia treatment suvorexant. As we went to press, Merck received a complete response letter for surovexant, calling for a lower starting dose of the drug than Merck had been planning. No to new trials, but yes to new CMC.

Merck’s also optimistic about its PD-1-targeting melanoma treatment, lambrolizumab, but that candidate only recently began Phase II trials. In June 2013, Merck announced plans to conduct a trials in advanced melanoma and NSCLC later in the year. The FDA gave lambrolizumab Breakthrough Therapy designation in April 2013, so it could conceivably reach market quickly (albeit behind BMS’ PD-1 candidate, nivolumab). If the NSCLC trial works out, Merck could have a mega-blockbuster.

It’s a big bet, but Merck’s R&D shortfall in years past means the company has to swing for the fences to stay competitive in its post-Singulair years.

China Pivot
In April 2013, Merck opened a new manufacturing facility in Hangzhou, China. The site will provide drugs for China and the Asia-Pac region. The $120 million, 75,000-m2 facility can hold 16 high speed packaging lines for tablets and sterile medicines. The company estimated the site’s annual capacity as more than 300 million, and noted that it will package products for both clinical trials and commercial operations.

Pharma Bedfellows
In a sign of how weird the pharma landscape has become, Merck and Pfizer entered a collaboration pact to develop an SGLT2 inhibitor for diabetes. In April 2013 Merck bought in with a $60 million upfront payment and will pay further milestones, in exchange for a 60% share of revenues (as well as “certain costs”). The companies will collaborate on the development of Pfizer’s ertugliflozin and a combination of that compound with Janumet.

That same month, Merck began collaborating with Bristol-Myers Squibb in hepatitis C. The companies are in a non-exclusive deal to conduct Phase II trials of a once-daily oral combo of their experimental HCV drugs. Merck will conduct the trials; financial details weren’t disclosed, and further development isn’t covered under the pact.

Lowe Down
The return of Roger Perlmutter is all you need as evidence that Merck thinks that something has been going wrong in their R&D. So far, he seems to have been given a pretty free hand to shake things up, but the problem with shaking things up at that early stage is that you don’t see the results for years, assuming that you ever do at all. That’s a general problem with the industry and its timelines: you grab the steering wheel and give it a good twist, and the front wheels don’t respond for another 10 miles. And by the time the vehicle turns, there may well be another driver entirely.

There’s quite a bit later down the pipeline, but some of what’s there is worrisome. The bigger the potential market for the compounds, the more questions seem to be sticking to them. Odanacatib is coming along slower than expected for osteoporosis, and might be landing in a crowded market if it finally makes it. Anacetrapib, the CETP inhibitor, could be a gigantic drug, but that mechanism has given every company that’s worked on it cause to regret their decision. Merck deserves points for bravery on that one, but bravery (while necessary) is not sufficient.

—Derek Lowe

Headcount: 94,000

Pharma Revenues: $39,811 (58%)

Total Revenues: $45,987 (68%)

Net Income: $861 (-93%)

R&D Budget: $10,991 (88%)

Top-Selling Drugs in 2010

Account for 70% of total pharma sales, down from 77% in 2009.

* inaccurate comparison with two months’ worth of Schering-Plough revenues in 2009

PROFILE

Merck made the biggest jump in this year’s list, going from #6 to #3 after integrating a full year of Schering-Plough revenues. Merck’s legacy products were down compared to 2009, but the influx of Schering-Plough sales propelled the company. (Yes, this mirrors Pfizer’s results. As we’ll see, there are a lot of compare-and-contrast opportunities for these two companies.)

Merck’s top seller, Singulair, loses U.S. patent protection in August 2012, and the company expects to lose “substantially all” U.S. sales of the drug ($3.2 billion in 2010) within two years of the first generic. Meanwhile, the generic erosion of Cozaar/Hyzaar left a $1.4 billion hole in 2010 revenues. So it made business sense to buy a steady portfolio like Schering-Plough’s, if only to reduce the percentage loss that would come with a major patent expiration. Pharma revenues were only up 2% in 1Q11, with the biggest gains coming from Januvia/Janumet (+47% to $1.0 billion) and Singulair (+14% to $1.3 billion).

In April 2011, Merck and J&J settled their dispute about the marketing rights for Remicade and Simponi. J&J had contended that the Merck/SP merger had triggered a change-of-control provision in its agreement with SP, and the case went to court. Before a ruling could come down, the sides agreed to a settlement: Merck paid $500 million upfront, will reduce its profit split by 2014 from 58/42 to 50/50, and retained its exclusive marketing rights in 70% of the regions it previously held, giving up rights in Canada, Central and South America, the Middle East, Africa and Asia-Pacific, as of July 1. (I was hoping that the case would finish in arbitration, and the arbitrator would determine that the loser in the case had to take on J&J’s consumer health unit.)

With that huge cloud of uncertainty cleared, Merck can start navigating its future. In November 2010, Kenneth C. Frazier was named chief executive officer of Merck, with Richard Clark moving up to the chairman seat as of Jan. 1, 2011. The transition was more orderly than the sudden resignation of Pfizer’s CEO a week later. Mr. Frazier came from the legal side of the company; he helped fight Vioxx lawsuits and negotiate the long-term settlement for that product.

Merck made headlines when it declared that it would refrain from slashing its R&D budget and would cancel its earnings guidance for investors through 2013. The move stood in stark contrast to Pfizer’s contemporaneous announcement that it would pare back its R&D below pre-Wyeth levels to reduce costs as it prepares to lose a large portion of its Lipitor revenues.

It makes sense to contrast Merck and Pfizer, at least in terms of how their new chief executives are pushing strategy. Merck appears to be taking a long-term (well, multi-year) perspective, ending earnings guidances because of uncertainty in R&D and the necessity of major investments for that and other initiatives. Pfizer under Ian Read talks in terms of managing investor expectations (besides the R&d cuts, those rumors about Pfizer devolving into five separate companies didn’t come from the ether).

In respect of the R&D strategy, Mr. Frazier remarked, “Investing in our growth is in the best long-term interest of the company.” Still, it’s not as though he’s not trying to placate shareholders. Just like Pfizer, Merck did announce a $5.0 billion share repurchase program recently. In Merck’s case, it happened a few weeks after settling the J&J lawsuit.

So which company is right? The one that develops the biggest portfolio of new drugs, of course! For Merck, that portfolio was supposed to be anchored by vorapaxar, a blood thinner that had sales estimates of $3.0 to $5.0 billion. “Had,” as in, “major trial cancelled in January 2011 because of bleeding.” There was talk that the drug could still be salvaged, but Merck took a $1.7 billion R&D writeoff related to the project, so I think we can assume that it’s off the board. Vorapaxar came over from Schering-Plough, and I wonder how much its potential revenue factored into the $41.0 billion acquisition price.

In March, Merck bailed on betrixaban, a blood-thinner it was co-developing with Portola Pharmaceuticals. Merck spent $50 million to buy into the compound in 2009.

Those cardiovascular cancellations haven’t stopped Merck from pursuing the holy grail of CV drugs. The company is still developing anacetrapib, its raise-the-HDL,-lower-the-LDL cholesterol treatment. The drug received good results in a 1,600-person Phase III trial for efficacy and tolerability, so Merck plans to move forward with a large-scale (and expensive) outcomes trial. Provisionally, an NDA could be filed by 2015. Some analysts contend anacetrapib could be the next Lipitor, hitting $10 billion in peak annual revenues.

Of course, that’s what they were saying about Pfizer’s torcetrapib, and the Phase III failure of the drug has shaken the entire industry.

In May 2011, Merck got FDA approval for Victrelis, its oral treatment for hepatitis C. Market estimates are around $1.0 billion for the new drug, although Vertex’s Incivek, which was approved two weeks after Victrelis, has sales forecasts three times as high, due to efficacy data. Still, Merck can be proud of getting approval for the first new hepatitis C treatment in 20 years.

Merck has several other prospects under consideration at the FDA and EMA, including a combo of Zetia and diabetes blockbuster Januvia, but the company is continuing its expansion efforts in other fields, too.

In January 2011, it expanded its biosimilars efforts by making an alliance with Parexel (see Outsourcing News), and in June, Merck signed a pact with Hanwha Chemical, a Seoul-based company, to develop a biosimilar of Enbrel, with Merck getting commercialization rights outside Korea and Turkey. Merck didn’t disclose terms, but Hanwha reported that the deal is for $720 million, plus milestones and royalties, for the rights and technology to market biosimilars through 2024.

The company is also continuing to expand emerging market operations. In April 2011, Merck formed a joint venture with Sun Pharma to develop new formulations and combinations of branded generics in emerging markets. In July 2010, Merck signed a “statement of mutual intent” with Sinopharm to cooperate on vaccines in China, starting with Gardasil.

I give Merck’s new CEO credit for declaring that he’d rather take a short-term earnings hit than cripple his company’s long-term R&D prospects. “Doubling-down on R&D” is a great phrase to use, because it reminds us how much of a gamble it is.  —GYR

OUTSOURCING NEWS

In January 2011, Merck signed a strategic alliance with Parexel to get clinical support for biosimilar development services. Financial terms weren’t disclosed, and Parexel chief executive officer Josef von Rickenbach was tight-lipped about the specifics when I interviewed him for a biosimilars article a month after the announcement. In that conversation, he remarked, “We have agreement with Merck with an exclusivity element. In certain parts of the biosimilars space, we work with Merck only. We’re ring-fencing an operating unit for this effort with Merck BioVentures.”

On the flipside of the outsourcing equation, Merck decided in February 2011 to sell its Merck Bio-Manufacturing Network just a year after putting the group together. MBN included MSD Biologics, Diosynth (acquired with Schering-Plough) and Avecia, which was acquired in December 2009. The bio-CMO group made several contract wins during its brief life, but was sold to Fujifilm for a 1Q11 gain of $134 million. (One report has the price at $490 million, but does not give a source for it; we’re going with Merck’s 10-K filing with the SEC.)

DEVELOPMENT WOES

Drug development is a crapshoot. Even decades of market approval isn’t enough to be sure of a product. In June 2011, the FDA told doctors to stop prescribing the 80mg dose of simvastatin, the now-generic statin marketed by Merck as Zocor and as a component in Vytorin, due to potentially fatal muscle injury and kidney failure. Simvastatin first hit the market in 1991, and more than two million people have used that dosage level (including my dad). We’ll see how this ban affects Vytorin prescriptions, which had been trending flat since a trial came to light showing it to be potentially ineffective.

THE LOWE DOWN

So now Merck has pretty much pythoned Schering-Plough. What do they have to show for it? A hepatitis C therapy, for sure, but as of this writing it’s too early to say how it’s going to perform. An advanced thrombin inhibitor program that seems to have imploded. A biologics deal with J&J that ended up being exhaustively renegotiated (even though, at the time of the takeover, Merck’s management didn’t seem to want to admit that this was a possibility). And then there’s, well . . . hmm, seems like there was more to this deal, but it escapes me at the moment.

No, in the end, it just seems now like one more thing that Merck “doesn’t do” is now something that Merck will do. If they decide to buy someone else in a couple of years, that won’t be as big a deal as it was the first time they did it. Same as if they have to withdraw a big drug under a rattling hailstorm of lawsuits — hey, they know all about it. Time, the great leveler, has leveled out the U.S. pharmaceutical business but good.  —Derek Lowe

ACQUISITION NEWS

Target: SmartCells

Price: December 2010

Announced: Upfront terms not disclosed; total value with milestones could reach $500 million

What they said: “Through the acquisition of SmartCells we have obtained innovative technology that may enable us to develop glucose-responsive insulins. If this investigational technology is ultimately approved for use with patients, it could provide an important new therapy for the treatment of diabetes. This holds the potential to significantly impact the treatment of this disease.”

—Nancy Thornberry, senior vice president and head,

diabetes and obesity franchise, Merck Research Laboratories

Target: Inspire Pharmaceuticals

Price: $430 million

Announced: April 2011

What they said: “As one of the world’s leading healthcare companies, Merck is the ideal partner to enhance the long-term potential of Inspire’s portfolio of ophthalmic assets.”

—Adrian Adams, president and CEO, Inspire

Previous Profile: Novartis // Next Profile: Sanofi

Headcount:95,000
Pharma Revenues: $26,929 (+4%)
Total Revenues: $29,121 (+11%)
Net Income: $12,899 (+65%)
R&D Budget: $5,845 (+22%)

Account for 77% of total pharma sales, down from 78% in 2008.

* 2009 Pharma revenues include $1.7 billion in Zetia and Vytorin sales. Prior to the merger, this derived from a joint venture with Schering-Plough and is not officially counted as drug revenues by Merck. I have reported half of Vytorin/Zetia pre-merger sales as Merck revenues to give a clearer idea of Merck’s pharma performance.

PROFILE

It’s a brand-new Merck! On November 3, 2009, the $41 billion merger of Merck and Schering-Plough was completed, creating a new behemoth. As with the Pfizer/Wyeth tie-up, only SP’s post-merger revenues are counted toward Merck’s numbers in 2009. With projected annual revenues around $46 billion, Merck could be neck-and-neck with Sanofi-Aventis by the end of 2010, depending on exchange rates.

Those companies are competing for the #2 slot in our rankings, but they’re also collaborating in another field: animal health. Sanofi-Aventis exercised its option to combine Merial with Intervet/Schering-Plough in a joint venture. This follows Sanofi’s purchase of Merial from Merck for $4 billion in September 2009, the sale of which was a condition for the Merck/SP merger. The transaction, expected to close in 1Q11, will result in a new #1 in animal health, passing Pfizer’s division.

In addition to animal health, the new Merck is pursuing several of the same growth strategies as its competitors: vaccines, branded generics, consumer products, and emerging markets. Merck’s rationale is pretty similar to the others’: Fosamax went generic in 2008 and dropped from $3 billion in 2007 sales to $1.1 billion in 2009. Cozaar and Hyzaar, which combined for $3.5 billion in sales, face generic competition this year, while top-seller Singulair will be under attack in the U.S. in 2012. Other non-blockbusters — Maxalt (2012), Cancidas (2013) — are also near the end of their patent life.

Some of those losses are being offset by strong growth by Januvia/Janumet, Isentress and Remicade (they hope), but many of Merck’s top sellers are either in decline or just near their peak. The company is pushing into emerging markets for growth; it estimates that those markets will comprise 25% of pharma and vaccine revenues by 2013.

As part of its transformation, Merck has been rolling out its New Commercial Model (first mentioned in 2005, I believe, which means “new” is getting a little old) in multiple markets. The company reports that this customer-centric system has boosted Singulair’s results by 14% in the UK while promotional support for the drug was cut by 40%. One of the developers of this model, Kenneth C. Frazier, was named president of the company in April 2010.

In addition to revenue-growing plans, Merck has also been engaged in cost-cutting restructurings for years, and it’s going through another round with the SP acquisition. This time, the company plans to cut 15% of its total workforce, which comes out to 15,000 employees, while also letting 2,500 vacant positions remain unfilled. The moves are intended to save $2.6 to $3.0 billion in annual costs, but will cost somewhere between $2.6 and $3.3 billion to implement. In its annual report filing with the SEC, Merck repeatedly refers to this as the “first phase” of the restructuring: “The Company expects that additional savings will be generated by subsequent phases of the Merger Restructuring Program that will be announced later this year [2010].” The company shed 5,000 jobs between the end of 2009 and the end of 1Q10.

There’s a bigger question about post-merger Merck than “Who’ll be left standing?” That Big Unresolved is: What happens to Remicade and Simponi? Those RA MAbs were distributed by SP and Johnson & Johnson under a 1998 agreement with Centocor. J&J asserts that the merger triggered a “change of control” clause that allows it to terminate the deal and take over 100% of the sales. While the merger was constructed so as to legally make SP the buyer, J&J argues that the move constitutes a Merck takeover, and is taking the case to arbitration.

It sounds like a “letter of the law vs. spirit of the law” game, with huge risks; Remicade posted more than $6.6 billion in 2009 revenues, with $2.3 billion coming from Schering-Plough and Merck. (Remicade posted $674 million in 1Q10 sales for Merck.) If Merck loses the case in front of the panel, the value of the merger drops significantly. Merck can also be held liable for damages, but that’s small potatoes compared to losing future Remicade and Simponi sales. Barring a settlement between the parties, the case will be heard in September 2010.

The SP acquisition wasn’t just about Remicade, of course. It also helped boost Merck’s pipeline, bringing in late-stage (or delayed) drugs like Saphris (schizophrenia/bipolar disorder) and Bridion (reversal of surgery-related muscle relaxants). In a May 2010 pipeline report, the company noted that 55% of its Phase III pipeline was from the Merck side, and 45% came in with SP. In all, the company has four NDAs under review, with plans for several more filings in major markets in 2010, including combo products.

In the same announcement, the company noted that it has five novel biologics in development and, more interestingly, a pair of biosimilars (not including its PEGylated erythropoietin, which was discontinued). The company “anticipates access to an accelerated development pathway for biosimilar candidates that employ the same biologic expression platform used for manufacturing the originator molecule,” according to the report. In December 2009, Merck licensed the Pfenex Expression Technology for a vaccine candidate in a deal worth $52 million in upfront and milestone payments, as well as royalties.

So where’s Merck headed? They blew up in scale with this acquisition, buying themselves time to deal with some gnarly patent expirations. However, one of the the new realities of deals like this is that, just as the pipeline swells with new products, R&D budgets get cut as part of cost synergies. Merck has begun an out-licensing program, according to reports from an Elsevier conference, to deal with assets it doesn’t have the resources to develop.

The company has positioned itself to grow geographically, to generate cash with consumer products, and to push into wild blue yonder of biosimilars. While some of those moves help reduce the reliance on R&D, they don’t eliminate it entirely. It’s pretty clear that a few significant regulatory delays or a bad ruling in the J&J case could leave Merck struggling to hold onto its place near the top of our charts.

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Headcount: 55,200
Pharma Revenues*: $25,901 (-2%)
Total Revenues*:$26,131 (-2%)
Net Income: $7,808 (+138%)
R&D Budget: $4,805 (-2%)

* See note about revenues after Top Selling Drugs below

Account for 76% of total pharma sales, down from 78% in 2007.

* 2008 Pharma revenues include $2.3 billion in Zetia and Vytorin sales. This derives from a joint venture with Schering-Plough and are not counted as drug revenues by Merck. I have reported half of Vytorin/Zetia sales as Merck revenues to give a clearer idea of Merck’s pharma performance.

PROFILE

In all the years we’ve been publishing this report, Merck has always been the champione of smaller, ‘bolt-on’ acquisitions, eschewing the mega-mergers that have built some of its peers up to titanic, unwieldy scale. Who knew that this strategy would backfire? Who could imagine that Merck, holding firm to its small-acquisition strategy, would become a target for a merger itself? I tell you, it was a sad day when I learned that Merck was just another victim, snapped up by apharma company just looking to sneak past its patent cliff and —

— What?! You mean Merck is actually buying Schering-Plough? But it says right here in the announcement that SP is doing the acquiring, even though the combined company will have the name “Merck” and all of SP’s top executives plan to leave once the deal is complete!

Okay, so the M&A deal is a bit convoluted, in order to get around the “change of control” provision that would send SP’s rights to Remicade and Simponi back to J&J. (I’m waiting to hear about the convolutions that will allow SP’s execs to take giant payouts, even though there explicitly is no change of control, which is the standard trigger in those contracts.) The upshot is, after years of decrying mega-mergers, Merck proved desperate enough to pull the trigger on a $41 billion deal for Schering-Plough. That’s what a series of high-profile failures will do.

Last year, I wrote about how Merck was rocked by the FDA’s “not approvable” letter for Tredaptive, the niacin-laropiprant cholesterol treatment that was projected to be a multi-billion dollar product. Merck plans to launch it in international markets in 3Q09, but the FDA suggests Merck hold off on refiling it in the U.S. until data from a new trial is complete, in 2013.

The bad news kept coming in the past year, with a new migraine med getting delayed indefinitely (way beyond its expected 2009 filing), another heart treatment failing in Phase III, an attempt to broaden the patient base for its HPV vaccine getting rejected, its shingles vaccine suffering production delays, and its experimental obesity treatment falling into the same black hole as Sanofi’s Acomplia.

Meanwhile, Fosamax’s patent expiration led to a $1.5 billion shortfall in 2008 revenues (and its sales are down 44% in 1Q09), while Merck’s top two-products, Singulair and Cozaar, seem to have peaked (and face generic competition in 2012 and 2013, respectively). Except for GlaxoSmithKline, Merck posted the largest drop in sales of any of our Top 20 this year. And GSK’s shortfall was tied into the decline of its currency. Ouch. (Please note that Merck’s revenues for the purpose of this report include part of the Zetia/Vytorin franchise; in its own financial statements, those revenues are not reported as sales, but as equity income from a joint venture. I’ll be very happy when this merger goes through, so I can stop double-counting those dollars.)

Looking over the company’s top sellers, the lone bright spot is Januvia, the DPP-IV type 2 diabetes treatment. It more than doubled its sales in 2008, blowing up into blockbuster status, and 1Q09 revenues were up 51%. AZ and BMS seem to be closest to getting a competitor on the market, but the FDA’s risk aversion is slowing down that process, giving Januvia (and Janumet, its combo with metformin) time to lock up market share.

Meanwhile, one-time up-and-comer Gardasil dropped 5% in 2008 sales and 33% in 1Q09, which highlights part one of the problems with vaccines; once your main patient base has been vaccinated, you need to come up with more patients. Vytorin/Zetia sales fell by 12% in 2008 and 23% in 1Q09. Presumably, that’s going to bottom out soon, so at least Merck will have some idea of the value of that franchise once it’s the sole owner of it.

As with other companies in our ranks, Merck is targeting emerging markets and generics as part of its new identity. The pre-merger company expected to garner $2 billion from sales in emerging markets by the end of next year, but SP is already pulling in that amount in those regions, so we’ll see how much more Merck focuses on that area. And Merck’s February 2009 acquisition of Insmed’s bio-portfolio puts the company in position to get into follow-on biologics, once their U.S. pathway is clarified.

Along with those initiatives,Merck followed up its 2005 “Plan To Win” restructuring program with a new, unnamed cost-saving plan in October 2008. This new initiative involves 7,200 job losses by 2011, while promises savings of $3.8 to $4.2 billion by 2013. The Plan To Win included 10,000 job cuts. Between the two programs, Merck dropped 5,800 positions during 2008. Merck spent $1.3 billion on the new initiative in 2008 and the company estimates another $400 to $600 million will be incurred in 2009.

The new restructuring includes shutdowns of Merck’s basic research sites in Japan, Italy and Seattle. Also, a quarter of the layoffs will take place among senior and mid-level execs, and 40% of the total losses will be in the U.S. In its SEC filing, the company mentions that it will “make greater use of outside technology re-sources, centralize common sales and marketing activities, and consolidate and streamline its operations. Merck’s manufacturing division will further focus its capabilities on core products and outsource non-core manufacturing. Also, Merck is expanding its access to worldwide external science through a basic research global operating strategy, which is designed to provide a sustainable pipeline and is focused on translating basic research productivity into late-stage clinical success.”

Merck and SP haven’t made an official announcement of post-merger job cuts. At the time of the merger announcement in March, Merck indicated that its restructuring expenditure numbers are still valid, while Mr. Clark mentioned a 15% reduction in the overall workforce, which would mean that we’ll see 16,000 layoffs and eliminations.

That said, Merck chief executive officer Dick Clark mentioned in his annual letter to shareholders that “in a major pilot of our U.S. model, we achieved comparable sales performance with 20% fewer professional representatives.” Fewer reps, similar sales? Well, at least that’ll bring cost base down, I guess.

Last year, I wrote that I couldn’t tell if Merck was half full or half empty. Looks like I have my answer.

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Headcount: 59,800
Pharma Revenues*: $26,543 (+10%)
Total Revenues*: $26,791 (+9%)
Net Income: $3,275 (-26%)
R&D Budget:$4,883 (+2%)

* See note about revenues after Top Selling Drugs below

Account for 76% of total pharma sales, up from 74% in 2006.

* Pharma revenues include $2.6 billion in Zetia and Vytorin sales. This derives from a joint venture with Schering-Plough and are not counted as drug revenues by Merck. I have reported half of Vytorin/Zetia sales as Merck revenues to give a clearer idea of Merck’s pharma performance.
I also include $3.8 billion in vaccines, which Merck does not count in its pharma unit.

PROFILE

Half full or half empty? I keep looking over Merck’s numbers and news, and still can’t figure it out. On the one hand, the company looks like it’s shrewdly navigated the self-laid minefield of Vioxx liability, striking a $4.85 billion settlement that should take care of a vast majority of claims.

On the other hand, the company found itself facing a congressional investigation earlier this year in relation to Zetia and Vytorin, which it co-markets with Schering-Plough. If you haven’t been following the story, the skinny is that a clinical study (ENHANCE) showed that Vytorin had no benefit in keeping arterial plaque from forming, but the companies didn’t release the information for quite a while. Oh, and they maybesorta tried to change the endpoint of the trial without informing the lead investigator.

All things considered, Merck has weathered the ENHANCE storm better than SP has. That’s because the two-year delay in reporting the trial results has raised some questions about share sales by SP executives, with the implication that the execs there knew bad results were coming and sold stock before the share price suffered. None of that was proved, but it still makes for a more salacious story than Merck’s side of it.

Up or Down?

Half full or half empty? On the one hand, the company’s seeing great success from new products. DPP-4 inhibitor Januvia has run away with its new diabetes market, posting $668 million in first-full-year sales and putting up $272 million in 1Q08 sales while competitors have yet to receive FDA approval to enter the market. HPV vaccine Gardasil posted $1.4 billion in first-full-year sales (up from $235 million in partial-2006), while GSK’s competitor Cervarix must wait for U.S. approval until at least mid-2009. Vaccine Rotateq may have dramatically reduced incidences of rotavirus gastroenteritis in children, according to the CDC. New HIV drug Isentress is a first-in-class integrase inhibitor and may receive first-line treatment status soon.

On the other hand, projected $2.0 billion heart drug Cordaptive received a “not approvable” notice from the FDA and won’t reach the market till at least 2013, if ever. A Claritin/Singulair combo product with Schering-Plough received the same status from the agency, leading to the withdrawal of its NDA. Gardasil was just rejected for treating its biggest patient group, women between 27 and 45. Another major project is pursuing the same path as Sanofi-Aventis’ Acomplia, which the FDA wanted no part of.

Top-seller Singulair saw a 19% rise in 2007 sales, and a 10% increase in 1Q08, but Fosamax sales are crashing through the floor now that a U.S. generic is on the market (Feb. 08). Merck’s Vytorin/Zetia revenues are poised to drop $700 million in 2008, according to a company statement. I always take pains to disclose that Vytorin/Zetia sales  are not counted as drug revenues by either Merck or SP but as equity income from a joint venture. So that $700 million will not be missing from the company’s reported revenues, but it will be missing from the bottom line.

The ineffectiveness of Zetia in preventing arterial plaque — even though it is proven to reduce LDL levels — throws into doubt Merck’s plans for a combo of Zetia and generic Lipitor (atorvastatin), which could’ve been marketed like Vytorin on steroids.

The Cordaptive delay led the company to drop around 1,200 sales reps, but at least Merck hasn’t executed a new massive restructuring in the past year. Instead, the company is sticking with its multi-year Plan To Win effort, which is supposed to save Merck between $1.9 and $2.2 billion annually, by the end of this year. Restructuring costs from Plan To Win dropped in 2007 from $935.5 million to $810.2 million, if I’m reading Merck’s financial statements correctly. In the three years since it was implemented, the Plan To Win has reduced Merck’s network by five manufacturing sites and two preclinical sites and led to 7,200 firings by the beginning of 2008.

(Honestly, I think “Plan To Win” is a silly name for any corporate initiative, much less one that involves shutting down plants and laying off workers. I always thought the point of capitalism is that you never “win,” but have to keep striving to stay ahead. I suppose Plan To Win it’s better than “Plan Not To Get Demolished,” but not by much.)

A Small Hole in the [Redacted]

Merck’s vaccines R&D has been productive, but there have been some bumps in the road for operations. In April 2008, the FDA issued a warning letter to Merck’s big vaccine facility in West Point, PA, after the company failed to satisfy the agency’s concerns from an earlier Form 483. The site produces Liquid PedvaxHIB, Recombivax HB, ProQuad, Gardasil, Vaqta, and Comvax.

According to a Philadelphia Inquirer story by Karl Stark, John T. McCubbins, head of Global Vaccine Manufacturing and West Point Operations for Merck, contended that no contaminated vaccines were found and that Merck is addressing all of the FDA’s issues. The agency hasn’t threatened to shut down the plant nor has it called for any product recalls.

The text of the nine-page warning letter is available at http://www. fda.gov/foi/warning_letters/s6756c.htm and it can be pretty scary. Its best line may be, “Your investigation into leaks discovered in the [redacted] during [redacted] recharge for lot [redacted] concluded that the leaks resulted from a small hole in the [redacted].”

On top of this, Merck announced in June 2008 that it would delay shipment of its shingles vaccine, Zostavax, after problems arose with a bulk ingredient lot in 2007. The company chose to focus on maintaining the supply of its pediatric chicken pox vaccine, which employs the same ingredient.

On the plus side, Merck is expanding its investment in a new vaccine facility in Durham, NC. Slated to manufacture Zostavax and several of its pediatric vaccines, the facility is a $700 million investment for Merck and may employ more than 400 people when its final phase is complete in 2011.

A Sieve?

Januvia has been an instant success for Merck, but the bulk of its growth is currently coming from vaccines, which have a tendency to stabilize, once they achieve market penetration. Meanwhile, the patent clock is running on its top two sellers, Cozaar/Hyzaar (2010) and Singulair (2012). With Zetia/Vytorin in precipitous decline, and Cordaptive off the table, can Merck withstand those losses until its next round of Phase IIIs gains a foothold in the market?

Which gets us back to my original question: Is Merck’s glass half full? Half empty? Or is it a sieve under a faulty faucet?

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