Considering co-funding

In light of R&D refocus, Merck looks into private equity for trial funding

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As many industry analysts conjecture that the era of the blockbuster drug may be over, companies are adjusting to more focused pipelines and risk mitigation. Among them is Darmstadt, Germany-based Merck KGaA, which is looking to the potential of private equity and risk-sharing deals for clinical trials.
Stefan Oschmann, head of Merck’s pharmaceutical and consumer health divisions, told the Financial Times that the company is speaking with private equity firms and external investors to seek out those who might be interested in co-funding some of its clinical trials. In addition, Oschmann said the company will be investigating the prospects of risk-sharing deals in which Merck would receive a fee tied to product success.
Late-stage trials for drugs in oncology can cost between approximately $202.9 million and $541.1 million, noted Oschmann, with costs for something like a multiple sclerosis drug hovering around roughly $811.7 million. Deutsche Bank analysts estimate that trials in the third and last phase of testing for marketing approval make up more than 35 percent of a company’s research and development spending on average. Add that to the fact that late-stage trials are when most drugs fail—often due to unforeseen toxicity issues or adverse side effects that didn’t show up in earlier trials—and it’s clear that a risk-sharing model such as this would be a boon for most pharmaceutical or biotech companies.
“Merck’s new global initiative to sharpen its commercial and R&D focus will center on products that provide unambiguous, promotable advantages to patients and payers,” Merck noted in a company statement. “We plan to focus our resources toward priority candidates, including MK-3475, an anti-PD-1 antibody for multiple cancers; MK-8931, a BACE inhibitor for Alzheimer’s Disease; V503, a nine-valent vaccine for HPV-related cancers; and our next-generation HCV programs. Candidate opportunities will be pursued independent of therapeutic area or modality. We will focus resources toward candidates with the highest potential while de-prioritizing others. Out-licensing may be explored for those candidates that are no longer a focus of our development plans. We are confident that the revised pipeline will better position Merck to drive innovation, execute our strategy and deliver new medicines and vaccines to the people who need them.”
This new tack comes as Merck has announced a host of other changes as it seeks to restructure and streamline its business in light of several late-stage pipeline failures. Merck forecasts its global initiative will result in approximately $2.5 billion in annual net cost savings by the end of 2015, with $1 billion of that amount to be realized by the end of next year.
The company announced in a recent statement that the other aspects of its new operating model will include investing in “new licensing and business development activities to acquire external innovation and commercial opportunities to strengthen the pipeline” and maintaining “a high level of cash returned to shareholders through both the dividend and the company’s stock repurchase program.”
Merck is taking the idea of new cost-sharing models for a spin in some of its recent partnerships. Back in May, Merck Serono—known as EMD Serono in the United States and Canada to avoid confusion with U.S.-based Merck & Co.—announced a five-year clinical development agreement with Quintiles in which the companies will collaborate on development and clinical trial execution. Merck Serono will lead its clinical development programs while Quintiles leads clinical trial planning and execution and contributes to future clinical trial design activities. Leaders from Quintiles will also collaborate in decision-making processes that affect the Merck Serono portfolio. In addition, Quintiles will be the sole primary provider of outsourced clinical development services for Merck Serono’s global clinical programs, from Phase I through post-marketing approvals.
Merck isn’t the only company exploring the potential of risk- and cost-sharing partnerships. Galapagos NV and AbbVie recently announced a global alliance for cystic fibrosis compounds, in which they will be collaborating on Phase I studies and sharing co-promotion rights. AbbVie announced a similar agreement with Ablynx in September for the development and commercialization of a compound for inflammatory diseases, which has Ablynx fielding Phase II clinical development, after which AbbVie will (upon the achievement of certain success criteria) exercise its right to in-license the compound and handle Phase III clinical development and commercialization.

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