R&D chief's spring-cleaning sweeps through Merck labs

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When rumors started swirling late last week that Roger Perlmutter, newly appointed Merck research chief, had started cleaning house, industry observers saw it as the proverbial shoe dropping. Perlmutter, brought over from Amgen to shake up R&D productivity and processes, had begun carrying out that well-publicized objective. And while the company has so far been light on specifics, it's become apparent just who's borne the brunt.

The story started when blogger Derek Lowe, citing multiple anonymous sources, said in a post last week that the ax had fallen unevenly on management overseeing the drug maker's research arm.

Merck would not comment on the structural changes specifically or offer a timeline for doing so. Caroline Lapetito, Merck director of global media relations, told MM&M that “these changes are part of our existing strategy and ongoing commitment to streamline our operating model and aggressively manage our cost structure.”

According to The Wall Street Journal, Perlmutter eliminated franchise-head positions: senior managers who oversaw teams working on new drugs. Management in the lab had already been dealing with a smaller R&D budget, after the company reduced it to $7.8 billion for 2012, down 1.3% year-over-year.

As to the wisdom of Perlmutter's opening move, the consensus on Wall Street is that any shake-up in R&D will be seen as a victory. ISI Group analyst Mark Schoenebaum told MM&M, “I believe Friday's announcement represents the second step toward MRK admitting its R&D strategy needs ‘fixing'. The first step was hiring Roger Perlmutter. At this point, any change is good. Investors want to see Merck admit that their R&D productivity has been poor over the last few years.”

Lapetito also shared that “[Merck Research Laboratories'] organizational structure has been altered to simplify governance,” in an effort to “advance therapeutic and vaccine candidates more efficiently and focus resources on its most promising programs. The new design has been established to ensure that MRL leaders have the authority to take appropriate actions to facilitate rapid pipeline progress.”

That's a pipeline which, by the way, hasn't produced a lot of winners lately, and thus hasn't generated much excitement. Merck recently halted development of its Parkinson's disease drug, preladenant. Another hold-over from former R&D head Peter Kim, sleep drug suvorexant is awaiting FDA approval, and has been endorsed by an FDA panel.

But Perlmutter has some irons in the fire. Analysts have their eyes on two standouts, an anti-PD1 cancer therapy with a lead indication in melanoma and a BACE inhibitor for Alzheimer's disease.

And Merck's V503 could help to corner the HPV vaccine market, if approved. The vaccine candidate protects against five cancer-causing genotypes—Merck's own Gardasil and GlaxoSmithKline's Cervarix immunize against two of the most common—and could stand to generate demand in developing countries. L-BLP25, too, could prove another silver lining. The treatment for non-small cell lung cancer (formerly known as Stimuvax) showed positive data at the recent American Society for Clinical Oncology conference, where it extended median survival by 30.8 months vs. 20 with placebo.

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