Merck acquires Insmed for $130 million

Deal will allow Merck to pursue follow-on biologics

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WHITEHOUSE STATION, N.J.—In an effort to make a push into biotechnology, Merck & Co. will pay $130 million to acquire follow-on biologic therapeutic candidates and a commercial manufacturing plant in Boulder, Colo. from Insmed Inc. The deal comes after Merck announced in December its plans to break into the business, a strategic shift marked by the push into the development of follow-on biologics.

"Insmed's pipeline of follow-on biologic candidates presents the opportunity to expedite Merck's entry into the biologics marketplace, as well as providing unique manufacturing resources and an experienced team of protein experts," Frank K. Clyburn, senior vice president and general manager of Merck BioVentures, said in a statement. "This agreement represents a strong strategic fit for Merck as we aggressively expand and advance our portfolio of developmental follow-on biologics."

For Richmond, Va.-based Insmed, the sale of the follow-on biologics arm of its business—an expensive proposition—was almost sealed from the onset.

"We only embarked on the follow-on biologics program two years ago," Insmed President and CEO Geoffrey Allan said in a conference call to investors. "We were able to develop a research and development program that has developed several drugs now in the clinic. It was clear to us from the time that we initiated the program that a larger entity would be needed to move the program forward."

So the company began to look for a suitable partner, and Merck—which just last year formed Merck BioVentures—expressed a strong interest in Insmed's property.

"Quite honestly, we've got 70 people out there; we were very concerned about the stability of the company and our ability to keep it moving forward," Allan says, adding the deal with Merck is a "win-win."

Merck is acquiring a program with a portfolio that currently includes INS-19, an investigational recombinant granulocyte-colony stimulating factor (G-CSF) that will be evaluated in Phase III clinical trials for its ability to prevent infections in patients with cancer receiving chemotherapy and INS-20, a pegylated recombinant G-CSF designed to allow for less frequent dosing, that is currently in Phase I clinical trials.

Terms of the agreement provide for initial payments of up to $10 million for INS-19 and INS-20. Merck will pay Insmed the remaining balance upon closing of the transaction, without any further milestone or royalty obligations.

"Merck's purchase of our follow-on biologics assets is indicative of the aggressive nature in which they are positioning themselves within this emerging segment," adds Allan.

In acquiring Insmed's Boulder, Colo. facilities, Merck will retain scores of Insmed employees and researchers from the plant to continue their work under Merck ownership.

"I strongly believe that Merck has an extraordinary vision for their future initiatives for the future of follow-on biologics," Allan points out. "Our employees will play a key role in helping them realize this vision."

According to Allan, the deal also will boost Insmed's cash position and support the continued development of Iplex. The company also will evaluate other options, which could include the distribution of a portion of the cash to shareholders.

"This transaction will transform and strengthen our balance sheet in a completely non-dilutive fashion, and provides us with substantial financial flexibility in a market where cash, especially for small biotech companies, is scarce," Allan says.

Amid the acquisition, Merck in its quarterly earnings report indicated that it expects some choppy seas in 2009.

Merck declined to issue financial guidance for 2009, saying in its statement that the worldwide economic status is without precedent, making "it impossible for Merck to give any quantitative forecasts, or even qualitative statements concerning trends."
Richard Clark, chairman, president and CEO of Merck, said the quarterly and yearly results reflect the challenges the company faced in 2008 and the benefit of its broad product portfolio.

"By focusing on our core strengths, the new Merck we are building will maximize the value of our current product portfolio and our pipeline," he said in a statement. "That will enable us to pursue growth initiatives such as Merck BioVentures and emerging markets as well as the right strategic opportunities."

In December, Merck announced that it planned to have at least five follow-on biologics in late stages of testing within three years. But while biogenerics currently receive wider approval in Europe, they face a greater battle for regulatory approval in the United States.

Because biotech drugs are made from living cell cultures, generics wouldn't be exact copies of the original the way generic chemical drugs can be copies of the initial compound. For many biogenerics to reach the U.S. market, Congress and the Food and Drug Administration would first have to pass laws and adopt regulations that evaluate these drugs and allow companies to market them in the United States.

As a result, "there's an expectation that such a (legal) pathway will be put in place in 2009 or 2010" in the United States, Allan says.

Insmed had been among the highest-profile proponents of the federal government creating a regulatory process under which follow-on biologics can be approved for sale in the U.S.

"We have long maintained that our follow-on biologics assets hold substantial value, and this agreement with Merck is a testament to that value," Allan adds.

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