If You Can’t Beat ’em, Join ’em

December 18th, 2008 | Sources: Wall Street Journal

Just before Halloween, Merck CEO Richard Clark announced the pharmaceutical giant’s Q3 net income dropped 28% and it would cut 7,200 more jobs over 3 years.

“New business models have to be put in place for our industry to survive,” he said at the time.

Merck has now selected its costume for next year. It’s dressing up as a biotech generics manufacturer. That ought to scare people!

Like the folks at Amgen for example. Merck claims that out of the box it intends to come after Aranesp, Amgen’s anemia drug that currently does $3.6 billion in annual sales.

Merck wants to release a version in 2012, and have 5 other biotech generics on the market by 2017.

Merck intends to produce follow-on biologics which are similar to, but not identical to the original compound. They would be manufactured using yeast cells rather than mammalian cells which should enable the company to escape claims of patent infringement.

Merck acquired this capability by purchasing GlycoFi a few years ago.

Analysts had mixed feelings about the idea. Some liked the large market potential and Merck’s ability to fund the enterprise. Others worried that a confused regulatory-approval path for follow-on biologics might cause problems.

And there were questions about Merck’s business model. “What are the real returns on this?” Les Funtleyder of Miller Tabak wondered for the Wall Street Journal. “Are you going to become an early-stage biotech and burn through lots of cash before you get returns?”

Meanwhile Amgen said it supports efforts to regulate follow-on biologics and that it will dress up as a Zocor pill next Halloween.


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