Merck Chairman and CEO Highlights Progress on Strategic Initiatives to Sharpen Commercial and R&D Focus

Kenneth Frazier, chairman and CEO of Merck & Co. Inc., along with other senior executives from the company, updated the progress the company has made in advancing its pipeline and late-stage drug candidates, the rationale for divesting its consumer care business, and the strategy for its animal-health business.

Kenneth Frazier, chairman and CEO of Merck & Co. Inc., along with the senior management team from Merck, updated the progress the company has made on its multiyear, strategic initiative to sharpen its commercial and R&D focus, bolster its innovative pipeline, and accelerate efforts to redesign its operating model and reduce its cost base, at an investor briefing held last week at the company’s research facility in Boston. They discussed the rationale for the proposed sale of the company’s consumer care business to Bayer Healthcare for $14.2 billion, the strategy for the company’s animal-health business, and the progress made toward prioritizing the company’s R&D portfolio, including advances in the company’s late-stage pipeline and plans for expanding its clinical programs to advance its drug candidates in hepatitis C, HIV, diabetes, and immuno-oncology.

“..[I]n this complex and dynamic environment, it is imperative that Merck has the right strategy as well as the right scientific and technical capabilities to continue bringing life-saving innovations to the patients who desperately need them,” said Frazier in his comments at the briefing. “We believe that Merck does have the right strategy to drive growth and productivity because we are focusing on our best opportunities for growth while divesting non-core assets. We are also leveraging a suite of near-term opportunities to take advantage of our scientific expertise, as well as our established global presence to accelerate growth. And most importantly, we are delivering on the benefits of breakthrough research and development to patients and their families right here, right now, today.”

Kenneth C. Frazier
Chairman and CEO
Merck & Co. Inc.

To drive what Frazier call “disciplined profitable growth,” he said the company has adopted an operating model as part of a strategic initiative, announced last fall, to further sharpen the company’s R&D and commercial focus and also to improve its growth rate “by investing in the right programs, the right in-line products, and the right markets.” That initiative seeks to improve productivity while at the same time reducing the company’s cost base by an additional $2.5 billion over and above the $3.5 billion in merger synergies achieved previously.

It further involves evaluating the company’s businesses as part of a strategic review. Merck announced in January 2014 that it was evaluating strategic options for all areas of the business, including consumer care and animal health, to determine whether or not they are core to its strategy. As a result, Merck announced last week the sale of its consumer care business to Bayer AG for $14.2 billion and entered into a worldwide collaboration with Bayer to market and develop a portfolio of soluble guanylate cyclase (sGC) modulators for the treatment of pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension. As part of the sGC collaboration, Bayer will receive a $1 billion up-front payment with the potential for additional milestone payments upon the achievement of agreed-upon sales goals.

“Bayer provides a great platform for Merck Consumer Care (MCC), for the products and the people, because of its global presence and capabilities. We are very strong in the US; they are very strong outside the US,” said Frazier. “What is also exciting is that we entered into a worldwide collaboration to develop novel cardiovascular assets. So the deal unlocks value in MCC while at the same time strengthening our product portfolio and enhancing our pipeline.”

Merck said it will continue to evaluate its animal-health business. “With respect to Animal Health, we continue to evaluate strategic options for augmenting this business,” said Frazier. “As we have said before, Animal Health has global scale. It already is an industry leader, and we believe it can help us generate long-term shareholder value based on the macroeconomic outlook, the growth profile of Animal Health, and the pipeline of innovative products that are coming.”

The Merck executives also discussed progress made toward prioritizing the company’s R&D portfolio and provided updates on advances in the company’s late-stage pipeline and plans for expanding its clinical programs to advance its candidates in hepatitis C, HIV, diabetes, and immuno-oncology.

Merck said it anticipates several regulatory actions and potential product launches in 2014, including launches for Grastek (Timothy grass pollen allergen extract), a sublingual allergen immunotherapy tablet for grass pollen-induced allergic rhinitis, and Ragwitek (short ragweed pollen allergen extract), a sublingual allergen immunotherapy tablet for ragweed pollen-induced allergic rhinitis. Also, last week, Merck received FDA approval for the anti-platelet agent Zontivity (vorapaxar), a protease-activated receptor-1 (PAR-1) antagonist for reduction of atherothrombotic events in patients with a prior heart attack or with peripheral arterial disease and no history of stroke or transient ischemic attack. It is designed to decrease the tendency of platelets to clump together to form a blood clot. By decreasing the formation of blood clots, Zontivity decreases the risk of heart attack and stroke.

Merck also provided an update of other drugs under review. It has two other drug candidates under FDA review: MK-3475, an investigational anti-PD-1 antibody for treating advanced melanoma, and suvorexant, an investigational orexin inhibitor for the treatment of insomnia. Vaniprevir, an investigational protease inhibitor for the treatment of hepatitis C, is under review in Japan. And V503, an investigational 9-valent HPV vaccine, is under FDA review.

FDA accepted for review the biologics license application (BLA) for MK-3475 earlier this month. FDA granted priority review designation with a PDUFA date of October 28, 2014, and the MK-3475 BLA will be reviewed under FDA’s Accelerated Approval program. FDA previously granted MK-3475 Breakthrough Therapy designation for advanced melanoma. If approved by FDA, MK-3475 has the potential to be the first anti-PD-1 antibody in a new class of immune checkpoint modulators. Merck also announced it plans to file a marketing authorization application for MK-3475 in Europe for advanced melanoma by the end of 2014. FDA accepted a new drug application (NDA) for suvorexant in October 2012 and accepted the resubmission of the NDA in April 2014. FDA accepted a BLA for V503 in February 2014.

The company also said it plans regulatory filings for two-late stage candidates: sugammadex, an investigational medicine for the reversal of neuromuscular blockade, and odanacatib, an investigational, novel cathespin K inhibitor for the treatment of osteoporosis. The company confirmed plans to submit a NDA for odanacatib in the second half of 2014.

Merck also discussed other additional late-stage pipeline opportunities. In hepatitis C, the company has initiated Phase III trials for MK-5172/MK-8742, its all-oral combination regimen, and also plans to initiate studies in combination with sofosbuvir for evaluating shorter durations of therapy. In HIV, the company plans to commence a Phase III trial in the fourth quarter of 2014 for its non-nucleoside reverse transcriptase inhibitor, doravirine (MK-1439), and for raltegravir once-daily, a new formulation of its integrase inhibitor Isentress. In diabetes, the company plans to file omarigliptin, a once-weekly dipeptidyl peptidase 4 (DPP-4 inhibitor), in Japan by the end of 2014. In addition, in collaboration with Pfizer, Merck continues to evaluate ertugliflozin, an investigational oral sodium glucose cotransporter (SGLT2) inhibitor, in Phase III trials.

The company said it has a key focus in diabetes, vaccines, acute care in the hospital setting, and oncology, which represent about 40% of its business currently and which is expected to be growth areas going forward as well.

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