Finding the right formula for growth

A review panel this week decided that a revolutionary new treatment for insomnia should be approved for use – but only at the lower of two doses that its developer had hoped to market.

The problem? Although the drug was seen as effective in addressing insomnia, a condition affecting up to one in three adults, there is concern at potentially severe side effects at higher doses. Among these was the possibility of users being so drowsy the following day that they could be impaired while driving. There was also concern about its propensity to trigger suicidal thoughts.

The outcome illustrates the challenge for the pharmaceuticals sector. The drug, suvorexant, is one of a handful that US drug giant Merck has awaiting approval. The company is placing a big bet on the success of its late-stage pipeline. Forbes noted recently that, though it has launched more new medicines than any other company over the past 60 years, Merck ranks only fifth in new drug approvals over the past decade. It has recently replaced its long-time head of R&D.

Merck, known in Ireland and elsewhere outside North America as MSD (formerly Merck Sharp & Dohme), was bullish in its reaction to the FDA panel vote on suvorexant.

“We are excited about the potential of suvorexant,” said Darryle Schoepp, the head of Merck’s neuroscience and ophthalmology research. “Today’s votes and discussion bring us one step closer to providing physicians with another option to help patients struggling with insomnia.”

The US regulator, the Food and Drug Administration, will rule on licensing the drug in the next few months. While not bound to follow the advisory panel’s vote, it generally does so. If approved, analysts project sales of around $526 million annually by 2017.

For a company that has just had to lower its forecasts for this year’s likely profit outcome, that would be a welcome boost.

Brian Longstreet has a strong vested interest in the success of suvorexant and other pipeline drugs at Merck. Recently appointed managing director of MSD's human health operations in Ireland, he oversees a 2,200-strong workforce for a company that has been a stalwart of the Irish pharma sector since the mid-1970s and still has five manufacturing plants here.

The effects of the $41 billion global merger between Merck and Schering Plough in 2009, which saw Longstreet join the company, are still being felt in Ireland where both groups had extensive operations. Earlier this year, the company announced the closure of its Rathdrum plant in Wicklow by the end of 2015 with the loss of 280 jobs.

But it’s not all one-way traffic. MSD Ireland remains a key location for the global group, with 12 of the company’s top 20 medicines produced here.

“We are very committed to Ireland. Our Brinny facility produces biologics, our Swords facility is important for our women’s health franchise. Ballydine is one of our key manufacturing plants,” says Longstreet. “So each of the facilities here in Ireland has purpose within the network. That is not to say that we, as an organisation, will not continue to look at our network as a whole, but Ireland is a key piece of our manufacturing portfolio.

“So, although we are still going through some rationalisation, we feel we have a very robust network here.”

Longstreet is particularly proud of MSD Ireland’s new vaccines plant in Carlow, the group’s first outside North America.

“We have spent €200 million on that [plant] which hopefully will be coming on stream later this year,” he says. That will be the culmination of a six-year investment plan, illustrating the long-term nature of planning in the sector and the importance of pipeline.

Apart from becoming a key player in the group’s global vaccine business, Carlow will also be involved in some of MSD’s biologics business.

One of the criticisms of MSD globally is that it has been slow to adapt to the growing trend for biopharmaceuticals, but Longstreet argues that the group has made a deliberate decision to persevere with a broader product base.

Commercial advantages
"At MSD we like to balance our portfolio of products. We have some of the biologics . . . but also we still consider ourselves a primary care company. So we have products for diabetes, cardiovascular, respiratory disease, and we are also getting into oncology, infectious disease, vaccines."

MSD also has a strong animal health business and a consumer division, featuring brands such as Coppertone, Dr Scholl’s and Claritin.

However, with his marketing background, he is not unaware of some of the commercial advantages of biologics which “have been somewhat immune to some of the pricing pressures [in the market] and things of that nature”.

But can a company such as MSD continue to deliver across such a broad product range?

“I think we can. On the human health side, diabetes is a very important area for us and for the industry, asthma [where Merck’s blockbuster Singulair recently came off patent] is still very important . . . So we think we can compete in a variety of key therapeutic areas and also get involved in some of the more up and coming areas, like oncology.

“The challenge is we traditionally have not been an oncology company. We have a pretty good pipeline, but then you also go out and look to acquire products. In the oncology space, in particular, this is very, very expensive and it is not without tremendous risk.”

Longstreet argues that MSD’s continued focus and investment in R&D also sets it apart from a lot of its peers. “We are sort of bucking the trend in terms of the industry, where we are putting more money into R&D.”

He says the group is still looking at the best balance between in-house and outsourced research efforts, noting that MSD does not see itself following the example of some companies which are pulling back from in-house investment but is also wary of “putting all their eggs into one or two baskets”.

“I think the challenge you see with our industry is that you had all these blockbuster products 10 or 15 years ago and it’s hard to find blockbuster products these days.”

But that’s not to say MSD is giving up on the “next big thing”. Longstreet notes that the group is heavily invested in pursuing therapies for Alzheimer’s disease, which he sees as “a key frontier for our industry”.

“But even areas like hepatitis C, that’s an area that we at Schering Plough and now Merck pioneered, and we are almost to the point where you could call it a cure for that disease, which is very challenging . HIV is another area that we’re into.”

With Hepatitis C product manufactured at Brinny and Isentress for HIV at Ballydine, Ireland plays a central role in both areas.

“So we’re going to continue to look at where we have our strengths from an R&D perspective and continue to invest, and then look for other areas like Alzheimer’s that are important. But we think we can do that,” says Longstreet.

“I think it is placing our bets strategically. You are not going to find the Singulairs, or the Zocors, or the Claritins as much as you found in the past. So you need to really take a look at specific disease states and where you can bring innovation and better patient outcomes at the end of the day. And then place a couple of large bets but a lot of small bets, if you will, over time.”

And what about the recent change at the top of the R&D operation which saw Merck alumnus Roger Perlmutter return from biopharma group Amgen?

“I think we have built a strong foundation but we are going to infuse some new thinking and look at some ways to be more innovative and to bring medicines to market more quickly and, if outsourcing is a way to do that, it is something we are going to continue to pursue. The key is to introduce more flexibility than you saw traditionally in the R&D side.”

There has been an emphasis in Ireland recently to move our foreign direct investment up the value chain, including incentivising R&D activities, in large part to avoid an exodus of jobs that would follow the relocation of more basic pharma operations to lower-cost economies when current plants reach the end of their life cycle. So, in a month that has seen further job losses announced in the sector, is the State doing enough in this regard?

“I think they are,” says Longstreet. “The IDA is an organisation we work very closely with and they are very active in attracting new innovative approaches from an R&D perspective.

“The industry is continuing to change our approach and bring facilities like Carlow here. The thing that is attractive about Ireland is the education level. The talent base that we have here is very unique and that is something I think will be very attractive for years to come for pharma.

“We have maybe three or four hubs of global manufacturing in the world. The US is one, Ireland is one; Singapore is another. Ireland is, within our manufacturing organisation, one of the crown jewels, so we feel that the talent level is here and the resources are here to really make our manufacturing state of the art, so it is something we feel strongly about.”

Not surprisingly, he also points to the Irish tax environment – an area that has come in for some pointed criticism in both Washington and London in the past fortnight.

“The R&D tax credit situation, and the tax situation in general, is very important to our organisation and, as long as that does not change dramatically, I think Ireland will continue to be a very attractive place for manufacturing and R&D for us.”

MSD is one of the State’s major exporters, though precise figures are not broken out by the parent group – not uncommonly in the multinational pharmaceuticals sector, most of the Irish business is held through unlimited companies that are, in turn, owned by entities in the Netherlands, Switzerland and Bermuda.

With growing competition on tax regimes and costs from other jurisdictions, and a growing focus by Merck on the Asia Pacific region, what are the longer term prospects?

Patented drugs
"There are certain economies of scale that you get in environments like that [Singapore] but, coming back to the real technical side of manufacturing and where it is going, I think that is an area that Ireland has a leg-up on other parts of the world.

“I mean, if everything was about costs, that is one issue, but it is more about technology, more about talent, more about processes and that is where Ireland has a different approach and a leg-up on the rest of the world. That is why we are bringing the one and only vaccines manufacturing plant outside the US [to Carlow].”

A running sore for the sector in recent years has been pricing and Merck was among the companies that had drugs blocked for reimbursement by the HSE despite meeting the necessary regulatory standards.

The major pharma companies have argued that cutting prices of patented drugs will prove counterproductive for a state such as Ireland whose economy relies heavily on the employment and economic activity the sector provides. So should Irish patients be paying a premium for new medicines compared to other European countries?

“I don’t know about a premium. At the end of the day it needs to be good value for money,” Longstreet says. “If we bring out innovative medications, there should be a fair price charged.

“Now in the off-patent space, my personal opinion is that the pricing is too high and you need to see that part of the market get down to an equilibrium that is reasonable, and I’m not sure that equilibrium has been reached yet. So I think there are savings on that side.

“Regardless of our manufacturing footprint within Ireland, it is matter of good value for money for innovation and that is where our industry needs to be focused, in my opinion.”