Blockbuster Hopes

Merck’s potential miracle medicine

  • Why it matters

    Why it matters

    The new drug owned by Merck Group and Pfizer could generate billions of euros in annual revenue, finally giving Merck a new blockbuster medicine after two decades of failed products.

  • Facts

    Facts

    • Merck’s new cancer drug is based on immunotherapy, which strengthens the body’s own powers of defense against cancer cells.
    • Darmstadt-based Merck Group, founded in 1668, once owned the American firm Merck & Co, although the two have been completely separate since 1917.
    • President Donald Trump has said he will end non-negotiated drug prices in the United States, a highly profitable market for pharma firms.
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    Audio

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main 80229226 source Hero Images Getty Images – Female cancer survivor with shaved head looking at remote rural view
The new medicine gives hope to thousands of people as well as Merck's shareholders. Source: Hero Images / Getty Images

Even rather esoteric knowledge can lead to a major breakthrough. Stefan Oschmann, formerly head of the biopharma division at German group Merck and now its CEO, understands only a smattering of Farsi, Iran’s national language. He made use of it once while visiting the company’s research center in Boston.

Chatting with an Iranian researcher, she explained she was working on an immune therapy that strengthens the body’s own powers of defense against cancer cells. A promising project – except that unfortunately no one was interested in it. Mr. Oschmann was. Spontaneously, according to the legend at Merck, the Persian-speaking CEO agreed to a couple million euros and a good dozen people to work on it.

Today, six years later, this small investment is starting to pay off for the German firm, which should not be confused with U.S. pharmaceutical giant Merck & Co. Darmstadt-based Merck Group once owned the American firm of the same name, although the two have been completely separate since 1917.

After decades in which Merck’s research pipeline was at best dribbling, Mr. Oschmann is looking to revolutionize cancer treatment with the drug called Bavencio and finally make some real money with pharmaceuticals. Mr. Oschmann himself is speaking of a “historically important event.” Analysts are expecting billions of revenue thanks the drug, which costs $13,000 a month in the US and has been developed together with Pfizer since November 2014. The US peer is entitled to half the turnover generated by the new medicine.

Investors drove up Merck’s stock last month when the company gained the first approval for Bavencio in the US.

One thing is clear for Merck, one of Germany’s top-three drug makers, the future of its biopharma business hinges on Bavencio, since long-time sources of revenue like Rebif, against multiple sclerosis, and the cancer drug Erbitux have seen better days. Investors drove up Merck’s stock last month when the company gained the first approval for Bavencio in the US.

Perhaps the jubilation was a bit premature, because the drug won’t sell itself. For one thing, Merck’s rivals aren’t sleeping. US companies Bristol-Myers and Merck & Co. are already making billions with immunity-boosting drugs, while Swiss-based Roche is also already on the market in the US with a drug against cancer of the bladder and lungs.

Another obstacle lies in politics. In the US, President Donald Trump is fighting against excessive drug prices, Obamacare or no Obamacare. And in Germany, as well, politicians want to prevent drug giants from making money unabashedly, and without restraint, when it comes to tumor treatments.

There is big money to be made on the market. Cancer is on the rise in all industrialized nations. In Germany alone, there are half a million new cases of cancer each year, about 200,000 people die annually from it. Such immunity-boosting drugs make the body’s own defense systems recognize the tumor as an invader and attack it, promising healing or at least a longer life. There are initial successes. “Many patients with rapidly progressing cancer are suddenly stabile and have for months, some for years, not suffered any relapses,” said Bernhard Wörmann, cancer specialist at Charité in Berlin.

For that reason, the US authorities at the Food and Drug Administration, approved the first treatments using Bavencio last month based on clinical trials. European approval is expected to follow later in the year. US doctors are now able to use the drug for a very rare, aggressive form of skin cancer. Only around 5,000 patients suffer from metastatic Merkel cell carcinoma (MCC) in Europe and the US. Analysts therefore cautiously reckon at the most with yearly peak sales of €300 million.

The advantage of this modesty is that a drug used only for a rare disease automatically ensures the good will of the authorities. They then don’t demand such expensive and elaborate trials as for a widely-applicable drug, and they offer financial incentives and a fast-track approval. Being supported in this way, drugs for rare diseases have now become popular with big pharma. The business is likely to grow swiftly in the coming years.

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At Merck, researchers are working on a variety of applications for considerably more common diseases such as lung cancer, gastric cancer, renal cancer, and ovarian cancer. Mr. Oschmann has himself to blame for the pressure he is under. When he took over the helm of the corporation a year ago, he promised to bring at least one new drug or application onto the market every year.

Truly revolutionary, considering that for the last two decades, one flop followed the other at Merck. Not a single drug made it out of the laboratory onto the market. Planned drugs, such as a cancer vaccine, failed, mostly due to mistakes Merck made itself. There were hardly any critical tests, and clinical trials were poorly prepared. Rebif and Erbitux may have made a good amount of money, but Merck had bought them, not developed them itself.

The Merck family, which own a majority share of the corporation, was probably only able to hold onto its biopharma division because of hefty profits from its specialty chemicals division. Above all the liquid crystal for smartphones and TVs produced in Specialty Chemicals delivered fabulous returns of 50 percent – and thus was a lifeline for the whole company.

Mr. Oschmann isn’t satisfied with just that. The 59-year-old, who occasionally appears without a tie, rarely without a breast pocket handkerchief, and never without his hair combed back, earned a degree in veterinary medicine, was politically involved with the Jusos, the youth organization of Germany’s Social Democrats, and did research for the UN in Africa, before he finally found his way into the pharma industry. Today he votes for the pro-business Free Democrats and goes to horse races in his free time. But the restlessness that marked his early life has remained.

He displayed that directly after taking office as the CEO of the Biopharma Division at Merck six years ago. First of all, he fired most of the executives and replaced them with managers from international rivals including Paris-based Sanofi, Switzerland’s Novartis, and Bristol-Myers. He cancelled quite a number of research projects, such as one on diabetes, and promoted cancer immune therapies. To push that forward, he also took Pfizer on board in 2014, which paid $850 million upfront and could pay up to $2 billion additionally, depending on the success of the new cancer medicine Bavencio, also known as Avelumab.

The drug industry defends itself against copying accusations by pointing to the high costs of research that can at times reach a billion euro per drug.

The fact that Pfizer took the bait and joined in says something about the potential of the Merck immune-boosting drug. The people in Darmstadt are a step ahead of their German rivals, Bayer and Boehringer, although admittedly lag some of their US and Swiss rivals.

Mr. Oschmann indicates Merck’s position doesn’t matter. After all, the company, which roots date back to 1668 and owns US laboratory supplier Sigma-Aldrich, is now able to learn from the experience of its rivals. For example, Bristol-Myers’ lung preparation failed to get approval because it offered no advantages to chemotherapy. Merck subsequently reworked its clinical trials, so there are likely to be fewer problems in getting approval.

Analysts estimate that in a few years the new applications could add up to €3 billion in annual revenue to Merck’s turnover of €15 billion last year. But this will only be true if tumor drugs continue to be expensive. In the US, they usually cost more than $100,000 a year, and Mr. Oschmann, himself, considers $150,000 for his skin cancer drug to be realistic.

President Trump most likely takes a different view. Although his plans for a healthcare reform have failed for the time being, the president wants to force down prices, which have skyrocketed in the US by 150 percent in the last seven years. Cancers drugs are among the most significant price drivers. The government insurance companies are supposed to be tougher in negotiations with the producers. That could then cost the drug companies billions.

The subject is also likely to gain momentum in Germany, which will hold general elections on September 24. Social Democrat politician Karl Lauterbach is already demanding lower prices for cancer drugs and a universal European reimbursement price. The German health insurance firms spend more than €5 billion annually for cancer medicine. The cost increases of numerous new therapies are in the double-digit range, according to data collected by market researchers Quintiles IMS.

“The high prices for cancer drugs are not based on benefit,” condemns Wolf-Dieter Ludwig, senior physician at hospital Helios Klinikum in Berlin-Buch. “To enable patients living three months longer the drug companies often demand more than €100,000.”

The new immune therapies are also not beyond question. So far, no benefit has been verifiable in more than half of the patients, according to medical experts.

The drug industry defends itself against copying accusations by pointing to the high costs of research that can at times reach a billion euro per drug. Merck CEO Mr. Oschmann, himself, only sighs when he hears the arguments of the critics. He was chairman of the European pharmaceutical association for a long time and has had that discussion already a hundred times.

“What surprises me is that 99 percent of the discussions about affordability in health care are only about medicine,” Mr. Oschmann said. Pharmaceuticals have never been as successful as they are today, he said, but then real innovations must certainly also be paid a fair price.

 

This article first appeared in German business weekly WirtschaftsWoche, a sister publication of Handelsblatt. To contact the authors: juergen.salz@wiwo.de and jacqueline.goebel@wiwo.de

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