Merck & Co. Inc.’s R&D day Nov. 10 started with a gift to investors – a long-delayed dividend hike of 10.5% – and a pitch by CEO and president Kenneth Frazier to focus on the company’s long-term commitment to innovation as a path to creating shareholder value.

The company is balancing its short- and long-term prospects, as it faces the patent expiration next August of one of its key drugs, Singulair (montelukast) for allergies and asthma, said Frazier. While revenues for 2012 are therefore expected to be flat compared to 2011, “we’re not talking about a trough here,” he said.

With its growth faster than the market in most of its key territories, notably in the all-important emerging markets and Japan, a new cost reduction program, which it announced in July, and a commitment to avoiding disproportionate cuts in R&D spend, the company has a “strong operating structure,” from which investors should expect long-term consistency, he said.

“In the short-term, not every year will be strong, but underneath, the numbers we are producing are strong…with a future based on R&D,” Frazier added later, during a follow up question and answer session with analysts.

Some analysts questioned seeming contradictions in Frazier’s commitment to R&D, based on some of his previous comments, which Wall Street widely interpreted as critical of current industry trends toward R&D budget slashing, and Merck’s subsequent projections of lower R&D spend in 2011. Merck’s R&D spend will vary in given years, depending on its portfolio mix, but I have a clear aversion to disproportionate cuts in R&D spend,” Frazier told analysts.

The company plans to submit eight new filings in the U.S. in 2012 and 2013. It categorized these as five new drugs: Tredaptive (extended release niacin/laropiprant) for atherosclerosis, an insomnia drug suvorexant, odanacatib for osteoporosis, a cervical cancer vaccine, V503, and the muscle relaxant reverser Bridion (sugammadex). These follow five product launches in 2011 in various countries worldwide: Victrelis (boceprevir), Cubicin (daptomycin injection), Juvisync (sitagliptin/simvastatin), Sylatron (peginterferon alfa-2b), a once-weekly injectable formulation of a melanoma drug, and Zoely (Nomac/E2), a long-acting oral contraceptive Also see "Merck Makes Hepatitis C A Priority" - Pink Sheet, 11 November, 2011..

While the volume of new launches and drugs nearing regulatory review seems impressive, not all are completely new to market, and none are likely to provide a big near-term boost, a situation that has resonated at previous Merck R&D days Also see "Merck R&D: A Jam-Packed Pipeline, But Much Of It Is Wait-And-See" - Pink Sheet, 1 May, 2010.. Some, such as Tredaptive and Bridion have run into regulatory setbacks in the U.S., although they are available in other countries; Nomac/E2, coincidentally, which is on the market in Europe, received a “Complete Response” Letter from FDA on Nov. 4. Others, such as Juvisync, which FDA approved in October, are fixed dose combinations of existing drugs.

Still, a few are less encumbered: suvorexant and odanacatib are novel compounds aimed at big markets, and Merck can capitalize on its expertise in women’s health and osteoporosis in particular, given its ultra-success with Fosamax (alendronate).

Furthermore, executives at the R&D day only glossed over two CRLs, which were disclosed in brief notes in an SEC filing on Nov. 9: for Nomac/E2 and for a glaucoma drug, Saflutan (tafluprost), which FDA issued on Nov. 7. The company didn’t say much about reasons for the rejections or what its next steps would be in the U.S. But both of these drugs are on the market overseas and for now, that will be where their best prospects are.

Down the road, but among the programs that could be “transformative” for Merck – and, executives were quick to point out, for patients – are its closely watched cardiovascular drug, anacetrapib, now in Phase III, and two programs that Merck progressed under the radar until now: a BACE inhibitor with potential to slow progression of Alzheimer’s disease, MK-8931, and a “smart” insulin, which is designing based on technology from the start up SmartCells, which Merck acquired in 2010 Also see "Merck Adds To Diabetes Franchise With SmartCells Acquisition" - Pink Sheet, 2 December, 2010..

MK-8931 is slated to start Phase II clinical trials in 2012, following positive responses in a small ongoing Phase I trial, said Darryle Schoepp, SVP, and head of neuroscience research. The “smart” insulin program substantially lowers the risk of hyperglycemia and hypoglycemia and is “an early-stage program that could be a game changer,” said Nancy Thornberry, SVP and research head, diabetes and endocrinology.

Updates on CETP Inhibitor, New Commercial Structure

These three programs are Merck’s most exciting, said Peter Kim, president of Merck Research Laboratories, in a follow up meeting with journalists. In the past decade, many groups of scientists have worked on BACE-1 (b-site APP-cleaving enzyme) inhibitors of amyloidogenic AB production, with little success, because of the structure of the target, which is difficult to bind to. Merck’s scientists, using structural biology modeling, were able to build out the molecule successfully and get it to cross the blood brain barrier. “If this pans out, it could alter the course of the disease,” said Kim, who noted that he personally is overseeing the program.

Merck provided some updates on anacetrapib, a reversible inhibitor of CETP, which increases HDL, or “good” cholesterol. It started REVEAL, a 30,000-patient outcomes trial of the drug, in June 2011, with interim readouts slated for 2.5, 3 and 3.5 years and, depending on results, regulatory filings expected after 2015.

To support its current and future portfolio, Merck this year reorganized its commercial operating model into what it calls customer business lines, which focus on four customer groups: primary care and women’s health; hospital and specialty products; diversified products; and vaccines. These lines emphasize different facets of the selling process, with, for example, the primary care and women’s health group relying most heavily on traditional sales reps, who call on thousands of physicians, while the hospital and specialty group is more science oriented, populated by scientifically trained reps who can talk to specialists as well as scientific thought leaders.

At the same time, said Adam Schechter, EVP and president, Global Human Health, “We’re moving Merck from a franchise focus to a customer focus and from a company that launches products well to one that is also extremely good at maximizing products throughout the lifecycle.”

Merck Enters The Alzheimer’s Disease Race, Plans Filings For Five New Drugs

More from Archive

More from Pink Sheet