Merck bets on generic biotech in strategic shift

By Ransdell Pierson and Lewis Krauskopf Ransdell Pierson And Lewis Krauskopf

WHITEHOUSE STATION, New Jersey (Reuters) – Merck & Co (MRK.N) plans to break into biotechnology medicine, including a major push into the developing market for generic biotech, as it confronts challenges to its product line.

The move into generic biologics, announced on Tuesday at Merck's annual business day, marks a significant shift for the drugmaker into territory primarily targeted by generic companies, and underscores the growth hurdles Merck faces.

"Next year will continue to be a period of fundamental transformation that establishes Merck as a different competitor for the next decade," Merck CEO Richard Clark told analysts and investors at the meeting held at its New Jersey headquarters to review its business operations.
Merck shares have fallen more sharply than rival drugmakers this year as it has seen demand falter for its Singulair asthma drug, Gardasil cervical cancer vaccine and its cholesterol fighters, Vytorin and Zetia.

The drugmaker, whose shares fell 1.7 percent on Tuesday, last week forecast 2009 earnings below Wall Street's targets, citing sluggish sales for key medicines and negative foreign currency trends. It repeated that forecast on Tuesday.

Merck, which faces looming patent expirations, is also cutting 7,200 jobs on top of an earlier restructuring.

Mike Krensavage, principal at Krensavage Asset Management, said the generic biotech move was "a rather significant departure for a company that was so focused on once-daily pills."
"If a company was able to produce enough novel pills, it wouldn't need to go into biologics," Krensavage said. "To copy other people's biologics may admit that the company was overly optimistic about its pills."

Several other analysts and money managers interviewed at the meeting said there was not a great deal of major news, outside of the biotech effort.

Merck is moving to diversify its portfolio by creating a new division, Merck BioVentures, which leverages a platform for both new biologics and so-called "follow-on" biologics -- or generic biotech medicines.

Many drugmakers are investing more into the lucrative area of biologics, which treat conditions such as cancer, multiple sclerosis and rheumatoid arthritis and are derived from living cells as opposed to synthetic chemicals. There were $94 billion in 2007 global biologics sales, according to Merck.

Merck has no such biologics on the market now, and will leverage its 2006 purchase of GlycoFi to break into the area.

By pushing into generic biotech medicines, Merck will be competing with generic drugmakers such as Teva Pharmaceuticals Industries (TEVA.O) and Novartis' (NOVN.VX) Sandoz unit.
The company said its first follow-on biologics program, MK-2578 for anemia, is in clinical development and it plans to launch it in 2012. Merck expects to have at least five follow-on biologics in late-stage development by 2012.

Now, however, generic biotech is an uncertain market.

No U.S. pathway exists for approval of lower-cost generic versions of biotech medicines, which are generally more complex to manufacture than pills and capsules and could be tougher to duplicate. The topic is likely to take on new urgency under President-elect Barack Obama, as lawmakers seek to cut health-care costs.

"Novartis and Teva are further along," Michael Levesque, an analyst at Moody's, said at the meeting. "Merck has vast financial resources to try to catch up despite the pressure on its earnings."

Natixis Bleichroeder analyst Jon LeCroy said the anemia product could be a big drug "if they get it through," but noted the lack of a U.S. regulatory pathway. Merck's involvement with generic biologics "could definitely make things move" with the regulatory process, LeCroy said.
Merck research chief Peter Kim said it was unlikely regulators would allow direct generic substitution without extensive study. Merck plans the full range of clinical trials required for new drugs to support the products.

Merck's development technology could enable the company to launch the anemia drug two years ahead of competitors that are developing similar products, Kim said.

Merck also said it is on track to reach $2 billion in emerging market sales by 2010 and is making significant investments in key markets, including China and India.

Its research pipeline has nine total medicines in late-stage development.

Among its experimental medicines, Merck touted an asthma medicine that could move into late-stage development next year, and a vaccine that targets staph infections that the company expects to seek approval for in 2011. Merck also said it was significantly investing in Alzheimer's disease research.

Merck shares were down 47 cents at $26.53 in afternoon trading on the New York Stock Exchange.
(Editing by Dave Zimmerman and Gunna Dickson)

From Yahoo News

Scary Statistics for Biotech Industry

Biotechnology Industry Statistics: December 2008

• By comparison with 2007 through the first 11 months of the year, funds raised from IPOs have fallen 97% and follow-on/secondary offerings have fallen 56%. Through November 30, 2008, total capital raised by the industry has fallen by 56% (source: BioCentury).

• 120 companies (30%) are now trading with less than 6 months of cash on hand. This represents a jump of 90% more companies that have less than 6 months cash on hand vs. 2007. (source: BIO) 180 companies (45%) have less than 1 year of cash remaining” This represents a jump of 65% more companies that have less than 1 year cash on hand vs. 2007. (source: BIO) Only 10% of the 370 public US biotech companies have positive income. (source: BIO)

Stock Performance In 2008 Through 11/24/08:
• All US biotech stock performance: Mean - 51%, Median -62% ;
• Small US biotech stock performance: Mean - 53%, Median -64;
• Large US biotech stock performance: Mean - 33%, Median -42%
• 90% of US biotech stocks have dropped in 2008 as of 11/24/08
• 35% of the 270 biotech companies under $1 Billion in market cap are trading below their cash value. That is, they have more cash on hand per share than the market value of their companies. This level has gone up by 5x as compares with the average over the 5 prior years. (source: BIO).

• 24 small, public biotechs have laid-off workers in the past eight weeks alone (10/1/08-12/5/08.) (source: BIO)

• In the past three months (9/1/08-12/1/08), many promising drug development programs have been shelved in a number of therapeutic areas including: Alzheimer’s, Multiple Sclerosis, diabetes and various cancers (source: BioCentury)

• The biosciences sector pays, on average, 68% higher salaries than the average private-sector job. The average annual wage of the bioscience worker is approximately $71,000 as compared with an average annual wage of $42,000 for the total private sector. (source: Battelle)

• The total employment in the biosciences in the U.S. reached 1.3 million in 2006, up from 1.2 million in 2004, with bioscience workers found in all 50 states and Puerto Rico. (source: Battelle)

• The U.S. biotechnology industry is very R&D-intensive with $30 billion in 2007 invested in research for new therapies and cures. There are currently more than 400 biotech drug products and vaccines currently in clinical trials targeting more than 200 diseases including various cancers, Alzheimer’s disease, heart disease, diabetes, multiple sclerosis, AIDS and arthritis. (source: E&Y)

The data were compiled by BIO for their lobbying effort on Capitol Hill for the NOL Stimulus Proposal.

EntreMed Eliminates 60% of Jobs, Cuts CEO & CFO

EntreMed, Inc. , a clinical-stage pharmaceutical company announced today plans to focus the Company's resources on its most promising near-term product candidate, ENMD-2076, an Aurora/angiogenesis kinase inhibitor, as part of the Company's overall plan to lower operating costs and preserve capital. The plan calls for acceleration of the Company's 2009 clinical objectives for ENMD-2076, effectively transitioning the Company into a clinically-focused operation.

ENMD-2076 is a unique small molecule kinase inhibitor which, in preclinical studies, has displayed an excellent activity profile and is currently in Phase 1 clinical trials for solid tumors and multiple myeloma. The Company expects to have available clinical data in mid-2009. While the Company's other product candidates, including MKC-1, ENMD-1198 and Panzem(R) in rheumatoid arthritis, continue to be promising, the Company will consider further clinical development only if additional financial resources are available. As a result, the Company expects to reduce all research activities to the minimal level necessary to continue its efforts to realize their potential value through arrangements with third parties. The Company's plan for these programs is not expected to affect ongoing trials and current patients.

Carolyn F. Sidor, M.D., M.B.A., Vice President, and Chief Medical Officer, will continue to lead the clinical development of ENMD-2076. Mark R. Bray, Ph.D, Vice President Research, will lead the research support for the Company's clinical activities. These research activities will concentrate primarily on those actions that will generate critical data to support and enhance the understanding of the mechanism of action and potential clinical utility of ENMD-2076. Focus on these activities will allow the Company to restructure and reduce its current workforce by approximately 60% across all areas of the business. The Company expects to substantially implement this restructuring plan by December 31, 2008.

As part of the restructuring and in order to further reduce costs, President and Chief Executive Officer, James S. Burns, will be leaving the Company and resigning from the Board of Directors. In addition, Chief Financial Officer, Dane Saglio; Senior Vice President, Research & Development, Kenneth W. Bair Ph.D.; and Senior Vice President, Corporate & Business Development, Thomas H. Bliss, will be leaving the Company.

The senior management team going forward will include: Carolyn F. Sidor, M.D., Vice President & Chief Medical Officer; Mark R. Bray, Ph.D., Vice President, Research; Cynthia W. Hu, Vice President, General Counsel & Secretary who has been appointed Chief Operating Officer; and Kathy Wehmeir-Davis, Controller who has been appointed Principal Accounting Officer.

This senior management team will report to a newly formed Executive Committee of the Board comprised of three independent directors: Michael M. Tarnow, Dwight L. Bush and Jennie Hunter-Cevera, Ph.D.

"In addressing the near- to mid-term strategy for the Company, the Board concluded that focusing our human and financial resources on our most promising program and its upcoming clinical milestones is the best course for providing shareholder value," said Chairman of the Board, Michael M. Tarnow. "EntreMed is indebted to Jim Burns under whose leadership ENMD-2076 was acquired and, along with our other compounds, was readied for, and submitted to, clinical evaluation. Jim, together with CFO, Dane Saglio, worked tirelessly in difficult market conditions to assure that adequate funding would be available to advance our portfolio. This is a difficult period for many similar stage companies and while we are committed to adjusting and focusing our assets, we recognize and appreciate the efforts of our departing officers and the many men and women who have dedicated their professional efforts to EntreMed."

James S. Burns, President & CEO commented, "These are difficult economic times for biotech companies. EntreMed has made the transition to a clinical organization, so a smaller focused organization will allow us to preserve cash and concentrate on ENMD-2076. I would like to thank all of my colleagues who have contributed the best of their time and talents to building our cancer pipeline."

Link to release.

BayBio Leads Charge for Biotech Stimulus...

Matt Gardner of BayBio out front on Bloomberg's version of the biotech aid bill story...

Biotechnology Companies Pitch for U.S. Taxpayer Aid
By David Olmos and Justin Blum

Dec. 10 (Bloomberg) -- U.S. biotechnology executives are lobbying Congress to change a tax law and provide millions of dollars in government money to small, cash-starved drugmakers.

The companies want to be able to claim a tax rebate upfront in exchange for giving up a portion of the deductions for net operating losses that they are eligible to take once they begin to make a profit, said Matt Gardner, president and chief executive of BayBio, an industry group in South San Francisco, California, in a telephone interview yesterday.

Although its troubles aren’t as high profile as those of carmakers and banks, the biotechnology industry faces one of its worst cash shortages in years. The crisis is being felt most severely by smaller companies, which require big infusions of money for costly drug research though they often have no sales. New drugs require hundreds of millions of dollars and more than a decade to develop.

“Most of these companies have not yet had their first product approved” by regulators, Gardner said. “They don’t have any revenue, and they are accumulating these operating losses. This change would allow them to convert some of these losses back into future research spending, which is a very good thing for the economy.”

The effort in Congress is being led by the Biotechnology Industry Organization, or BIO, a Washington, D.C.-based trade group. According to the group’s figures, 120 of the 370 publicly traded U.S. biotechnology companies have less than six months of cash on hand. The industry also has been hit by hundreds of layoffs and some bankruptcies.

Meeting Lawmakers

Executives from 10 small biotechnology companies are meeting with lawmakers and their staff on Capitol Hill today to press for assistance, said Ellen Dadisman, a spokeswoman for BIO, in a telephone interview. Among them are officials from Acorda Therapeutics Inc. of Hawthorne, New York, and CombinatoRx Inc. of Cambridge, Massachusetts, she said.

The executives, who want the measure included in economic stimulus legislation, are meeting with both Democrats and Republicans, including leaders of the House Ways and Means Committee and Senate Finance Committee, Dadisman said. Lobbying has just begun and it’s too soon to say which lawmakers support the measure, Dadisman said.

“I have not seen an environment this terrifying in the 22 years I have been raising money to help develop novel drugs,” said Ron Cohen, president and chief executive officer of Acorda, in a telephone interview. “Almost nobody can raise money. That’s what’s scary. Companies are beginning to go out of business right and left.”

Without assistance, biotechnology companies will fail and their drugs won’t be developed, he said.

A company with $100 million in net operating losses would be entitled to $35 million in lower federal taxes when it becomes profitable, according to BIO. Such a company may receive $20 million upfront to pay for U.S.-based research, under the proposal, according to the group.

Luna Lays Off 20 Employees...

A month after reporting the company's research and development was not being adversely affected by the souring economy, Luna Innovations Inc. has laid off about 20 employees.

The Roanoke-based technology company that develops and manufactures health care, telecommunications, energy and defense market products attributed the layoffs to the national economy.

"Like many U.S. companies, Luna has been affected by the current economic environment," said Luna Chairman and CEO Kent Murphy in an statement e-mailed to The Roanoke Times. "We are taking the necessary actions to ensure our future success. These proactive steps include downsizing our workforce by approximately 20 positions spread across our various locations and business units."

In addition to Roanoke, Luna has offices in Blacksburg, Charlottesville, Hampton and Danville.

During a Nov. 5 conference call with analysts and investors, Murphy said, "At the moment we're not seeing any slowdown, any measurable slowdown, at all."

But with the recession deepening in November as U.S. companies shed jobs at the fastest rate since 1974, Luna has felt the impact.

"Arrival at this decision was difficult," Murphy's statement said. "Luna truly values its employees and those impacted by this realignment are deserving of our gratitude for the contributions they have made in our success.

"With this workforce adjustment we are further streamlining our company just as other businesses across the nation are doing. And, we will continue to provide our stakeholders with the quality of products and services we are known for."

Luna had been hiring for most of 2008, and currently has five open positions.

"These positions relate to development work under existing contracts and require very specialized skill sets that we felt could not reasonably have been filled by the individuals who were laid off," Luna spokeswoman Karin Clark said in an e-mail. "The other previously posted openings have been placed on hold."

In October Luna employed 239 people. As of Friday ,company-wide employment was 218, Clark said.

Since its initial public offering at $6 in 2006, Luna has struggled to become profitable and at times attract investors.

Luna's shares have plummeted 80 percent in a year. By Dec. 27, Luna's stock price was on the verge of breaking $10 a share, but by March it had fallen below $5 dollars a share and by October it was trading below $3 a share.

Luna shares closed down 3 cents to $2.23 Friday, but reached its 52-week low of $2 in early trading.

Carilion Clinic, which owns the development that houses Luna's corporate offices, is the second-largest shareholder, with a 20.5 percent stake, according to an April federal government filing. Carilion's Chief Executive Officer Ed Murphy votes those shares by proxy. Only Luna's CEO has a higher stake, controlling 25.3 percent of the company's shares.

At the time of the public offering, Luna was touted as the first step in what was to become Roanoke's new economy centered around biotechnology. The entire development project, which has been supported by the city, was billed as an economic springboard that would bring more high-skilled jobs and attract more health care businesses.

Since then, the development area, located at the corner of South Jefferson Street and Reserve Avenue, has morphed into a complex that will house the future Virginia Tech Carilion School of Medicine and Research Institute and physician offices for Carilion's burgeoning health care system.

Luna has managed to increase its revenues and reported $10.7 million for the third quarter that ended Sept. 30. That was the first time quarterly revenues surpassed $10 million.

In November, Luna reported a net loss of $473,985, or 4 cents a share, in the third quarter, compared with a net loss of $1.8 million, or 18 cents a share, for the same period a year earlier.

Kent Murphy has continued to say that Luna is on its way to becoming profitable.

To see more of The Roanoke Times, or to subscribe to the newspaper, go to http://www.roanoke.com/.

Biotech industry group spent $1.9M lobbying in 3Q

Biotech industry group spent $1.9M lobbying in 3Q
Associated Press, 12.08.08, 12:48 PM EST

The Biotechnology Industry Organization, a lobbying and advocacy group for the biotech industry, spent more than $1.9 million lobbying the federal government in the third quarter, according to a recent disclosure form.

The group lobbied on a range of agricultural issues, including marketing and regulatory programs and risk assessment for cloned products, as well as on patent reform, biofuels, stem cells, and government reimbursement rates.

The group also has been at the forefront in the now stalled efforts to allow generic drug companies to make cheaper versions of biotech drugs. Currently, the Food and Drug Administration only has a system in place for approving generic versions of chemical-based drugs. Biotech drugs are made using living cells and are more complex.

Both generic drug developers and biotech companies are at odds over how a new system would work, with the length of patent protection for biotech drugs a key sticking point.

The trade group's members include some of the largest names in biotech, such as Genentech Inc. (nyse: DNA - news - people ) and Amgen Inc. (nasdaq: AMGN - news - people )

Besides Congress, the group lobbied the Department of Agriculture, FDA, Federal Trade Commission, and Centers for Medicare and Medicaid Services, among other agencies, according to a form posted online Oct. 20 by the House clerk's office.

Those lobbying on behalf of the organization included: Patrick Carroll, a former legislative assistant to Rep. Ray LaHood, R-Ill.; Tooshar Swain, who was a legislative correspondent to former Sen. Rick Santorum, R-Pa.; and Bill Olson, who used to work as a legislative assistant to Rep. John Shimkus, R-Ill.