Thursday, February 12, 2009

Merck Bulks Up With Insmed FOB Acquisition

Just about one year ago, Insmed scientists went on a viral marketing campaign exhorting the virtues of follow-on biologics with a YouTube video entitled "Follow-On Biologics--Tell your Story." If you ever wondered how much that video was worth to Insmed's bottom-line, you can stop wondering. The answer is $130 million.

That's how much Merck agreed to pay for all the assets related to Insmed's follow-on biologics platform.

The deal, announced on February 12, extends Merck's biologics capacities tremendously, giving its Merck Bioventures unit two additional clinical stage programs--a Neupogen follow-on called INS-19 currently in Phase III, and a Neulasta follow-on in Phase I known as INS-20--as well as preclinical versions of Epogen and an interferon-beta 1b molecule.

"Insmed's pipeline of follow-on biologic candidates presents the opportunity to expedite Merck's entry in the biologics marketplace," said Frank Clyburn, SVP and general manager of Merck Bioventures in a press release announcing the news.

But this deal was also very much about adding manufacturing capacity--50,000 square-feet based in Boulder, Colorado to be exact. In addition to a pipeline of products, Merck gets a state-of-the -art "biologics process development analytical laboratory," manufacturing facilities, and 70 protein experts to run it. A pretty good deal when you reckon that bioprocessing plants can cost half a billion or more to build from scratch.

Even better, apparently the Boulder plant offers yeast-fermentation capabilities essential to the glycosylation process Merck is already using via its next-generation GlycoFi technology. The site’s production capacity, along with the expertise of the existing staff “gives [Merck] in my view an accelerated head start on developing these products,” Geoffrey Allan, President and CEO of Insmed, asserted in an interview with "The Pink Sheet" DAILY.

And apparently Merck wanted the assets--both the products and the capacity--enough that they were willing to purchase them outright from Insmed. None of this staggered deal-making via CVRs that we've seen so much of lately. Indeed, the agreement provides initial payments of up to $10 million for INS-19 and INS-20, with the remaining $120 million due at the close of the transaction, which is expected to occur by March 31.

When Clyburn, Clark and the rest of the Merck gang announced the creation of the Merck BioVentures unit in December, they unveiled an ambitious plan: the launch of at least six FOBs in the 2012-2017 time period based on an R&D spend of $1.5 billion over the next seven years. Relying heavily on the proprietary glyco-engineering technology housed in GlycoFi, the company already had one clinical candidate--a pegylated erythropoietin for anemia called MK2578 in Phase II development that is designed to compete with Amgen's Aranesp.

But even with GlycoFi's technology in house, Merck clearly felt the need to add additional capabilities--and quickly--to reach its product launch goals. The Neupogen and Neulasta follow-ons give the unit much greater heft even as it ponders the vastly different economic model associated with FOBs. (To date, Merck has been mum about future pricing strategies for products like MK2578 or INS-19.)

If Merck's creation of its BioVentures group got our industry talking about pharma's role in FOBs, you can expect the clamor to grow even louder now. The company's willingness to fork over $130 million for Insmed's full capabilities shows that it is playing offense when it comes to FOB capacity. Indeed, Merck and Teva have emerged as the preeminent players in pharma's race to develop FOBs.

Recall that Teva, through its acquisition of Barr last year gained a G-CSF biosimilar, TevaGrastim, which is currently marketed in Europe. Its 2008 acquisition of CoGenesys, like Merck's 2006 purchase of glycoengineering play GlycoFi, means it also has the next-generation technology necessary to be a big FOB contender. Moreover, just last month, Teva itself made sure it wasn't limited in terms of its own bioprocessing capacity by inking a deal with the Swiss contract manufacturer Lonza to develop, manufacture and market generic equivalents of selected biological products.

In early January at the Goldman Sachs Healthcare CEOs Unplugged conference, Teva's Bill Marth indicated just why his company has been so active in lining up FOB capabilities: "You don't have to own them all...but you're going to have to have all the capabilities within your sphere of influence in order to get to market," he said at the time.

Merck is clearly following that same mantra with its Insmed deal--and probably isn't finished wheeling and dealing yet. "We are looking at additional partnerships," Clyburn told IVB one month ago in an interview at the J.P. Morgan Healthcare Conference.

(Image courtesy of flickr user Mysterytune through a creative commons license.)

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