Can Merck’s R&D restructuring enable it to improve its productivity?

By |2018-09-12T21:41:45+00:00January 9, 2014|Drug Development, Drug Discovery, Strategy and Consulting|
Simvastatin (Merck's Zocor)

Simvastatin (Merck’s Zocor)

On December 27th, 2013 the Wall Street Journal published an article by staff reporters Peter Loftus and Jonathan Rockoff about Merck’s new R&D restructuring. Fierce Biotech’s John Carroll also discussed the WSJ article in his own analysis dated December 28th, 2013.

According to these articles, Merck is in the process of cutting its internal R&D operations. This will include selling off dozens of pipeline compounds that have been under development in its labs. Merck also plans to cut its workforce by 20% over the next two years, as it had announced in October 2013. This will include reductions in its internal R&D staff.

At the same time, Merck will create new innovation hubs in Boston, the San Francisco Bay area, London and Shanghai.  The company has identified these geographic areas as having a critical mass of academic and commercial life science R&D. Merck intends to use its hubs as bases to scout for promising research that the company might license or acquire.

The overall plan is to reduce reliance on Merck’s internal R&D operations and to increase reliance on external R&D in academia and in biotech companies.

This is a similar strategy to that being followed by other Big Pharma companies, especially Johnson & Johnson and GlaxoSmithKline. All three of these companies are targeting some of the same geographic areas, especially Boston, California, London, and China.

Why are pharmaceutical companies struggling to develop new drugs?

The unveiling of Merck’s restructuring plans has triggered a wave of articles commenting on the wider implications of the move. David Shaywitz, M.D., Ph.D. (Director, Strategic and Commercial Planning at Theravance in South San Francisco, CA) writes in Forbes (12/29/2013) that pharma companies’ restructuring plans may save neither the companies carrying them out nor the pharmaceutical industry.

The reason that Merck and other pharma companies are carrying out these restructurings is that the companies are struggling to develop new drugs, and their internal labs are not producing them. The hope is that shifting from–as Dr. Shaywitz puts it–research and development to [external] search and development will produce more and better developable drugs. However, it may not do so. Outside partners may not necessarily know more about drug discovery than Merck Research Laboratories does.

The basic question then becomes why pharma companies are struggling to produce new products in the first place. One highly cited possibility is that Big Pharma companies are too bureaucratic, and thus inhibit their own ability to innovate. However, the underlying problem may well be that our understanding of biology–in health and disease–is limited.

The new President of Merck Research Laboratories, Roger M. Perlmutter, M.D., Ph.D. said, as quoted in another Forbes article:

“…if we’re discovering drugs, the problem is that we just don’t know enough. We really understand very little about human physiology. We don’t know how the machine works, so it’s not a surprise that when it’s broken, we don’t know how to fix it. The fact that we ever make a drug that gives favorable effects is a bloody miracle because it’s very difficult to understand what went wrong.”

Dr. Perlmutter then goes on to cite the example of statin drugs such as Merck’s Zocor (simvastatin) and Pfizer’s LIpitor (atorvastatin). Beginning in Merck’s own laboratories, under the company’s legendary R&D leader and CEO Roy Vagelos, statins were designed to lower blood cholesterol levels by inhibiting the enzyme HMG-CoA reductase. However, statins also appear to prevent atherosclerosis by a variety of other mechanisms (e.g., modulating inflammation). Thus their true mechanisms of action are not well understood.

How can companies carry out biology-driven R&D?

Despite the fact that our knowledge of biology is limited, we and others have noted that the most successful drug discovery and development strategy in the last two decades or so has been biology-driven R&D. For example, this is the basis of the entire R&D program of such companies as Novartis and Genentech. How is it possible to conduct reasonably successful biology-driven R&D if our knowledge of human biology is so limited?

We have discussed reasons for the success of biology-driven R&D in our book-length report Approaches to Reducing Phase II Attrition, and in our published article in Genetic Engineering and Biotechnology News “Overcoming Phase II Attrition Problem”.

Briefly, biology-driven drug discovery has often utilized academic research into pathways, disease models, and other biological systems, which have been conducted over a period of years or of decades. Targets and pathways derived from this research are usually relatively well understood and validated, with respect to their physiological functions and their roles in disease.  Examples of drugs derived from such research include most approved biologics (e.g., Genentech’s Herceptin and Biogen Idec/Genentech’s Rituxan), as well as the numerous protein kinase inhibitors for treatment of cancers. It was the successful development of the kinase inhibitor imatinib (Gleevec/Glivec) that led Novartis to adopt its pathway-based strategy in the first place.

A more recent example is the work on discovery and development of monoclonal antibody (MAb)-based immunotherapies for cancer, which we highlighted in our January 3, 2014 blog article on Science’s Breakthrough of the Year. These drugs include the approved CTLA4-targeting agent ipilimumab (Bristol-Myers Squibb’s Yervoy), and several other agents that target the PD-1/PD-L1 checkpoint pathway, including Merck’s own anti-PD-1 agent lambrolizumab.

The development of these agents was made possible by a line of academic research on T cells that was begun in the 1980s by James P Allison, Ph.D. Even after Dr. Allison’s research demonstrated in 1996 that an antibody that targeted CTLA-4 had anti-tumor activity in mice, no pharmaceutical company would agree to work on this system. However, the MAb specialist company Medarex licensed the antibody in 1999. Bristol-Myers Squibb acquired Medarex in 2009, and Yervoy was approved in 2011.

The above examples show that although we do not understand human physiology in health and decease in general, we do understand pieces of biology that are actionable for drug discovery and development. This understanding often comes after decades of effort. One strategy for a scout in a Big Pharma innovation hub might be to look for such actionable pieces of biology, and to contract with the academic lab or biotech company that developed them for licenses or partnerships. However, the case of Yervoy shows that pharmaceutical companies may not recognize these actionable areas, or may be slow to do so.

Moreover, for many diseases of great interest to physicians and patients, academic researchers, and/or companies, we may not have an actionable piece of biology that is backed by decades of research. We may only have interesting (and perhaps breakthrough) research that has been carried out over only a few years. In these cases (and even in cases based on deeper understand based on decades of research), companies will need to develop a set of “fail fast and fail cheaply” strategies. Such strategies usually reside in small biotechs rather than in Big Pharmas. Moreover, these strategies remain a work in progress.


As the producers of this blog, and as consultants to the biotechnology and pharmaceutical industry, Haberman Associates would like to hear from you. If you are in a biotech or pharmaceutical company, and would like a 15-20-minute, no-obligation telephone discussion of issues raised by this or other blog articles, or of other issues that are important to  your company, please contact us by phone or e-mail. We also welcome your comments on this or any other article on this blog.

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