The Friday Five – Five of the past week's stories you can't afford to ignore...

Merck & Co. cuts costs – can it bolster its R&D pipeline externally?

One story has dominated pharmaceutical headlines this week – Merck & Co.'s announcement on Tuesday that it will cut 8500 jobs across its commercial and R&D operations in order to drive annual cost savings of around $2.5 billion by the end of 2015.

Many analysts view the restructuring as being long overdue and have applauded a move to what they perceive to be more rational levels of expenditure on internal R&D. Most have also noted, however, that Merck's requirement to spend on external R&D opportunities may prove challenging given both the recent run in biotech valuations and a high level of competition among top-tier pharma players.

Merck may have to spend aggressively to capture attractive assets, wrote Morgan Stanley analyst David Risinger in a note to investors earlier this week. Assuming this is the case, Merck's R&D productivity – and the performance of research head Roger Perlmutter – will remain under scrutiny.

Bolstering the mid-to-late stage pipeline now appears to be a critical exercise for Perlmutter. Merck's PD-1 inhibitor MK-3475 is clearly the jewel in the crown (although some may feel that pipeline expectations have become too heavily leveraged on this asset), with the BACE inhibitor MK-8931 (Alzheimer's disease), the company's next-generation hepatitis C treatment and V503, a nine-valent human papillomavirus vaccine highlighted as the key compounds in its late-stage pipeline.

These drugs are not without their risks – both in terms of historical R&D success rates (Alzheimer's disease) and competitive positioning (Merck remains someway behind Gilead Sciences and AbbVie in the race to commercialise an oral, interferon-free hepatitis C therapy).

Bernard Munos – founder of the InnoThink Centre for Research in BioMedical Innovation and a leading commentator on R&D productivity – told FirstWord "I see the Merck announcement as an overdue correction to a long series of missteps spanning several CEOs. It will cause a lot of grief, but Roger Perlmutter deserves credit, not criticism for tackling the mess. The sad part is that many talented scientists will lose their jobs for having done what they were asked to do. Unfortunately, there is no painless or elegant way to deal with such situation."

See also Spotlight On: The data behind the job cuts – 5 reasons why Merck & Co. was forced to wield the axe.

Roche open to deals – even with Novartis?

Roche CEO Severin Schwan provided a healthy dose of intrigue for industry observers earlier this week when he told the Financial Times that the company would be open to collaborations with its cross town rival Novartis.

Roche moved quickly to play down suggestions of any merger between the two companies (this having been mooted by a Novartis board member in recent weeks), but the general feeling is that the recent departure of both company's chairmen (Roche's Franz Humer and Novartis' Daniel Vasella) provides the opportunity for relations between the two parties to improve considerably. The key unanswered question is what Novartis chooses to do with its 33-percent stake in Roche; a strategic move overseen by Vasella, who was open to the idea of a merger in the early 2000s (and a reason for the animosity between Humer and Vasella).

If Roche was to partner or collaborate with Novartis, analysts believe it would be part of wider efforts to bolster its presence in non-oncology markets; a potential driver also for the company's recent rumoured interest in acquiring Alexion Pharmaceuticals and BioMarin Pharmaceutical, both of which operate in the orphan drug space.

Speaking at an R&D open day on Tuesday, Roche's head of investor relations Karl Mahler made a point of focusing on the expansion of its non-oncology late-stage pipeline since 2009, while head of global development Hal Barron indicated that the in-licensing and product acquisition strategy at Roche was not shaped by therapy or disease focus, but via the underlying science of the drug in question.

SeeSpotlight On: Roche's R&D day – The key takeaways.

Peerless in oncology development

Although Roche has struggled somewhat developing new metabolic and cardiovascular products in recent years, analysts reiterated that the company remains peerless in oncology drug development, following the R&D update on Tuesday.

Three key themes dominate: Roche has long been closely associated with the concept of personalised medicine and gave further demonstration of its abilities to identify biomarkers that offer the potential to both accelerate clinical development and enrich the efficacy of new products. In addition, there is little doubt that a combinational approach to treating cancer (by targeting multiple pathways with multiple products) and the identification of surrogate endpoints to both enhance and accelerate the drug development and approval processes are now integral to the discovery and development thesis at Roche.

The drugmaker recently used pCR (pathological complete response) to support its regulatory application for Perjeta in neoadjuvant HER2-positive breast cancer. The drug received approval from the FDA in record time earlier this week.

See also In Focus: The cancer immunotherapy race - Will Roche's breadth of portfolio prove decisive as Merck & Co. takes on a more streamlined approach to R&D?

AdComs to continue despite US government shutdown

Despite some initial uncertainty as to how the FDA was to operate in the wake of the US government shutdown, it was confirmed earlier this week that activities funded by the Prescription Drug User Fee Act (PDUFA) are among those that will continue over the next few months.

Bloomberg Industries analysts confirmed that planned advisory committee meetings will go ahead "in some way," including high-profile AdCom's for Amarin's Vascepa (October 16) and Gilead Sciences' sofosbuvir (October 25). Analysts at Wells Fargo reported "activities funded by the carryover user fee balances such as product approvals should proceed, which suggests drugs currently under review should not be significantly affected".

It is reported, however, that as long as the shut down continues the FDA will not be accepting new drug applications (NDAs) or supplemental new drug applications (sNDA), despite approximately 55 percent of its workforce remaining in place.

Life after statins

One notable consequence of Merck's planned reorganisation is the company's decision to effectively exit the cardiovascular market in terms of new research projects; a landmark decision given the historical role of high-profile cardiovascular medications at the drugmaker – most recently via the statin therapy Zocor.

Thus Merck appears to have ruled itself out of the market for what appears to be the most promising class of post-statin dyslipidaemia therapy – the PCSK9 inhibitors (many would naturally view the company as a marketing partner of choice).

With eagerly anticipated Phase III data set to be published next year, the PCSK9 inhibitors are poised to play a key role in the industry narrative of 2014.

Despite the success, entrenchment and availability of cheap statin therapy, such has been the efficacy demonstrated by PCSK9s developed by Sanofi/Regeneron Pharmaceuticals and Amgen when administered in combination with this established class in Phase II studies, blockbuster potential is on the horizon.

Results from this week's Physician Views poll demonstrate anticipated penetration rates among key patient population groups that would appear to support such an outlook. For further analysis seePhysician Views Poll Results – Awareness of PCSK9 inhibitors could be higher, but physicians ready to prescribe in hard-to-treat cardiovascular patients.

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