Assessing the achievements of any pharmaceutical R&D chief is framed with challenges. Take departing president of Merck Research Laboratories (MRL) Peter Kim; during his tenure (2003-2013) Merck & Co. launched more than 20 products onto the market.
These include the diabetes treatment Januvia, expected to become one of the industry’s biggest selling products of all time, and the breakthrough HPV vaccine Gardasil. Indeed, according to the InnoThink Centre for Research in BioMedical Innovation, between 1997 and 2011, Merck delivered 16 new chemical entities to the market; only Novartis achieved more new drug approvals over the same period.
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Nevertheless, reaction to Kim’s announced retirement has broadly been positive, shaped by a sense that Merck & Co. has lost much needed R&D momentum at a time when many of its peers are rediscovering theirs. Furthermore, the success of any pharma R&D chief’s reign is not only defined by the number or 'quality' of products approved, but by their departing legacy in terms of promising pipeline compounds (by the same token it is difficult to ascertain Kim’s influence on certain product launches during his tenure).
Leerink Swann analyst Seamus Fernandez described the departure of Kim – and his replacement by Roger Perlmutter (former head of R&D at Amgen) – as "a first important step toward rejuvenating the perception of Merck’s pipeline."
One lingering concern for investors, note analysts at Sanford C. Bernstein, is that Merck’s current late-stage pipeline feels a little "old school," a description which reflects the focus on small molecule, primary care drugs that will have to overcome a compelling competitive threat from entrenched genericised therapies once launched.
The mid-stage pipeline, suggest analysts at Bernstein, looks more interesting. This includes an anti-PD1 cancer therapy (lead indication Melanoma) and a BACE inhibitor (Alzheimer’s disease) which could act as key transitional products for the incoming Perlmutter before he is able to stamp his own authority on the pipeline. The anti-PD1 product provides an opportunity for Merck to expand its limited presence in the oncology market, while the BACE inhibitor has the potential to drive "transformational change" at the company, add analysts; although clearly Alzheimer’s disease remains a high risk, high reward disease segment.
Nevertheless, things may get worse before they get better. In a note to investors, Citi analyst Andrew Baum suggests that Kim’s departure will "further undermine investor confidence in Merck’s pipeline," building on a succession of late stage setbacks in recent years (the most recent being the market withdrawal of cardiovascular treatment Tredaptive and delay to planned regulatory filing for the osteoporosis treatment odanacatib. See ViewPoints: Investors looking elsewhere as odanacatib setback blunts R&D momentum at Merck & Co.
This may work in Perlmutter’s favour, insofar as investor expectations have been further dampened. Interestingly, analyst reaction to his appointment has been somewhat muted, with Perlmutter described as having a "pretty good track record," by UBS’s Marc Goodman. Similarly, his 10 year stint at Amgen was labelled "constructive" by Fernandez.
Perlmutter’s biggest draw as the incoming head of R&D could be his previous four years spent at Merck between 1997 and 2001 as senior vice president of R&D. "This is a big deal at Merck", wrote Baum, "a place that changes its head of R&D very infrequently." From a strategic perspective analysts agree that his appointment is likely to see Merck sharpen its focus on biologics and oncology; two high growth segments where the US drugmaker has made smaller inroads than many investors would have hoped.
Development of Merck’s late stage pipeline over the next few years may ultimately redefine how successful Kim’s tenure at Merck is perceived. Initial assessment of Perlmutter’s performance will likely be shaped by how quickly and effectively he can advance promising mid-stage products – while simultaneously keeping tabs on Merck’s R&D expenditure.
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