Pharma Strategies

STRUGGLING to reinvigorate its business, Merck & Co. has embarked on what CEO Richard T. Clark calls a "science-based diversification strategy." At its annual investors meeting last week, the company unveiled a new unit devoted to making "follow-on" biologic drugs.

Merck has fought to stay above water in recent years as it dealt with the withdrawal of its arthritis drug Vioxx, generic competition for the cholesterol drug Zocor, and unexpected challenges to newer products. Since 2005, it has slashed thousands of jobs, reorganized its manufacturing network, and streamlined its research organization.

Now, Merck is taking a cue from generic competitors by expanding into biosimilars—therapeutically equivalent versions of currently marketed biologics. To manufacture these follow-ons, the firm will tap the expertise of GlycoFi, a biotech firm it acquired in 2006 that uses genetically modified yeast, rather than mammalian cells, to create human proteins decorated with complex sugar structures.

Merck says its first follow-on will be MK-2578, a modified erythropoietin that is similar to Amgen's anemia treatment Aranesp, which had $3.6 billion in worldwide sales last year. MK-2578 is in Phase I trials and is expected to hit the market in 2012.

Unlike copycats of small-molecule drugs, biosimilars will be similar, but not identical, to the originals. At the moment there is no clear regulatory path to market for such products in the U.S., but Congress is expected to develop one under the Obama Administration. Merck's new unit "has the potential to position Merck as a leader in the eventual establishment of a U.S. biosimilars market," says Seamus Fernandez, a stock analyst at Leerink Swann.