Mid-level Player In A Big-league Market; Merck KGAA Plots A US Strategy Beyond Bavencio

Mid-size biopharma companies are industry’s “stealth” players, occupying a small but important space in the race for new innovative therapies. In Vivo explores the growth prospects of one of the more prominent entrants in this space, Merck KGAA, whose fortunes depend heavily on building a strong oncology and immunology franchise in the US market.

• Merck KGAA has staked its biopharmaceutical future on finding niche treatments for hard to treat advanced-stage cancers in the increasingly crowded field of immuno-oncologics.
• In addition to a three-year-old groundbreaking partnership with Pfizer, built around its multi-indication PDL1 monoclonal antibody avelumab, the company is exploring another, less crowded pathway to cancer treatment: DNA damage and repair.
• So what? Whether the company succeeds on both fronts will depend on how well it navigates a tricky – and highly competitive – US market, where the big pharmas consume much of the marketing oxygen. Continuation of the Pfizer oncology tie-in will likely prove decisive, a recent miss on an avelumab trial for a new indication in gastric cancer notwithstanding.

In the following interview, Gary Zieziula, president and managing director of Merck KGAA's EMD Serono Inc. pharmaceutical business, talks about pipeline strategy, avoiding commoditization in specialty biologics, and synergies between a long-established franchise in multiple sclerosis and new opportunities in immunology. In an accompanying sidebar, In Vivo examines the company’s less prominent – but potentially lucrative – foray into the emerging science of DNA damage and repair as a pathway to tumor regression. Merck KGAA’s head of Translational Innovation Platform Oncology, Andree Blaukat, PhD, weighs in on next steps against potential key competitors AstraZeneca PLC and Bayer AG.

In Vivo: Three decades in this industry has put you at the front line of change in the biopharma business. In rapid progression, you moved from sales in primary care medicine to the networked managed care platform of the 1990s, then to overseeing the launch of a new specialty business for Roche and subsequent geographic exposure as its country manager in Greece, one of the most reputationally challenged markets in Europe. Today, as president and managing director of EMD Serono, the US and Canada pharmaceutical business of Merck KGAA, based in Darmstadt, Germany, you run a €1.6 billion ($1.88 billion) enterprise – and the global health care division’s single largest market. What learnings from these varied exposures are you applying to your current role here in the US?

Gary Zieziula: I joined the industry right out of college, as a sales rep for Merck & Co. [Merck & Co. Inc.] based in New Jersey. At the time, it was still possible to interact extensively with physicians at the practice level. The visits gave me insights on how to present information concisely and keep prescribers engaged. I applied these learnings to future roles in marketing and management that led me to my current position. My first big assignment was leading Merck & Co.’s marketing campaigns for its line of injectable antibiotics. This led to a position in managed care at Merck & Co. precisely at the time when it acquired the earliest pharmacy benefit manager (PBM), Medco. This gave me invaluable exposure to one of today’s key challenges: obtaining a favorable listing on the drug formulary, particularly in hotly contested primary care therapeutics like hypertension and coronary heart disease.

From that point, I entered the then-emerging field of specialty medicine, as sales and marketing lead for the Merck & Co. vaccines business. Next, I moved over to BMS [Bristol-Myers Squibb Co.] as vice-president of the managed health care division, where I supervised some 300 people and realigned the group to improve our contracting and formulary placement management. In late 2001, I left BMS to join Roche [Roche], ultimately with an assignment as head of commercial operations for its new specialty medicine segment, where my principal achievements were the launch of Pegasys (peginterferon alfa-2A), an initial treatment for hepatitis C; and Fuzeon (enfuvirtide), a drug used to treat later-stage HIV patients.

I had a mentor in the chief operating officer of Roche, who was based at HQ in Basel but noticed my work in the US, running what had grown to be the biggest business in the company. His advice: fill the most notable gap in my resume, which was the lack of any international experience. He got me that assignment, which turned out to be country manager for Roche in Greece, a unique challenge given the government’s financial crisis at the time. It turned into a huge combined business and reputational challenge due to the refusal of the public health system to pay for the medicines it purchased from multinational companies like Roche.

I worked to defend the Roche business in Greece for more than three years, by cultivating local contacts to stay abreast of the latest information and, as a leading producer of oncology medicines, making sure that unpaid invoices would not create barriers to access for the sickest patients purely on financial grounds. The experience in Greece taught me how important this industry is from a societal standpoint – we have an important responsibility to the patient.

Do you believe that thinking remains appropriate in the context of today’s affordability and access challenges in the US, particularly in the high-price oncology space?

No company is in a good position when it gets tagged as being more interested in increasing margins than building access to patients likely to benefit from the drug. At EMD Serono, patient support programs for oncology products are extensive and patient access considerations are closely integrated to our market launch plans. Bavencio (avelumab), approved by the FDA in March for patients with metastatic Merkel cell carcinoma, a rare form of skin cancer, is a case in point. Provision for patient assistance in obtaining the drug if it was clinically indicated was included in our access strategy from the start. It is paramount that we work directly with the Centers for Medicare and Medicaid Services, as well as the leading commercial payers, to find innovative approaches to providing coverage and reimbursement for oncology products and to help ensure patients have access.

We also have more than 15 years of experience working with patient groups and payers in the US to build awareness of reimbursement options. For example, our MS Lifelines program is a patient support service that provides education, treatment information and financial assistance to address their concerns about their access, treatment and adherence. MS is a complex space and yet we have developed a comprehensive understanding of the needs of this community. We work to apply that deep knowledge to all of our therapies.

EMD Serono has positioned itself as a specialty care company. How has the market for specialty products changed since you took on the assignment to build the Roche specialty business two decades ago? Certainly, the market is much more competitive, with many products vying for share, and patents for those early biologics are expiring.

The big difference is that specialty is now the dominant segment in the biopharma business, with revenues of more than $115 billion in the US last year. FDA approvals are a useful metric; well over half of the novel drugs approved in 2016 were classified as specialty and the same trend is apparent this year.

In terms of competition, its real – and growing. EMD Serono has been active in MS for more than 20 years. When we started, there were very few companies competing with us and the options for patients were limited. Today, we compete against 15 other compounds designed to manage this chronic, debilitating condition. More choice is important for patients because MS is a heterogenous condition. The precise course the disease will take in an individual patient, and how that patient will respond to treatment, is a challenge to predict. Our first offering for relapsing forms of MS, Rebif (interferon beta-1a), has a well-established safety profile, supported by more than 20 years of accrued clinical trial and patient experience. It's now well positioned as a platform medication.

We are excited about our latest prospect in MS, Cladribine Tablets, marketed as Mavenclad in the EU andCanada. We plan additional filings for regulatory approval of Cladribine Tablets in other countries, including the US, building on its successful launch in Europe and the recent approval by Health Canada. Because of its unique dosing schedule, Cladribine Tablets, if approved by the FDA, may potentially offer MS patients in the US an important new option, advancing the state of care in a way we believe payers will see as valuable.

How do you avoid being mired in what appears to be a slow commoditization of the specialty channel? Does it require more investments in extensive support services to stand out today? How do you establish that vital element of clinical differentiation?

The most productive path – especially in oncology – is a solid evidence base that is compelling to the prescribing oncologist. The evidence must apply to the selection process that the oncologist follows with each individual patient. If the data support that one therapy is better than another for that patient, the physician will respond. Further, you must focus on service offerings at each stage of the patient journey, through service hubs and other investments that help ensure patients stay on therapy as prescribed. In addition, competitors must stay active on the disease awareness and marketing front. Customer education – and basic blocking and tackling by our field sales force – is still a very important factor driving market success in 2017.

What is EMD Serono doing to keep the sales force fit for purpose? For most companies, it’s the second largest expenditure after R&D.

We have moved away from hiring generalists. We look for people with expertise and experience in specific therapeutic areas so that interactions with physicians and payers carry value that they can associate with the EMD Serono brand. Cancer treatment has already evolved toward a highly personalized approach, relying on biomarkers and other diagnostics. It’s important that physicians have confidence that a targeted therapy will deliver the highest prospect of success to their patients.

Looking to the future, our efforts are going to focus on combining strong data with an equally strong commitment to meeting the needs of individual stakeholders in the health system. Data are critical in helping target our message to the stakeholders, especially the prescribing demographics behind each physician practice and how that might shape the selection process for our medicines. Finally, our sales reps work to put the patient perspective front and center. The message is to never make a sale if it fails to deliver tangible benefits to the patient.

As managing director for EMD Serono in the US, what can you say about the current state of market and policy conditions and their implications for the long-term sustainability of your business?

Overall, business conditions are good but the competitive dynamic is very challenging. I do follow with some concern legislative and policy developments. For example, proposals have been considered in some states to impose new restrictions on our ability to communicate and collaborate with physicians. These measures could deter or prevent activities that are beneficial to patient care and to development of new medicines.

In addition, mandates around transparency raise concerns in terms of whether they are really the right solution to the affordability issue. States are seeking more disclosure of a wide range of data points, from net prices to R&D investment to marketing plans. Our view is that these measures won’t improve drug affordability to patients or provide patients and physicians with meaningful information to guide treatment choices. And there is good reason to believe that many of the proposals would actually undermine the market dynamics that currently exist by requiring disclosure of commercially sensitive information.

Policy makers have also tended to discount the broader dynamics in the drug supply chain, and the role that intermediaries play in what drugs ultimately cost the patient. We pay substantial rebates and discounts to PBMs, but we don’t know if any of these savings filter down to their member companies’ patients. Focusing on wholesale prices of drugs provides an incomplete picture of the complex supply chain and diverts attention away from a meaningful dialogue on how to improve affordability that involves all stakeholders.

The concern I have is that we keep a level playing field for business, so that biopharma companies aren’t singled out for negative treatment by the governments and other stakeholders we need to succeed. Health care in general is a collaborative enterprise. Developing new medicines is an extremely difficult and risky endeavor. It’s vital we be considered as full partners in the policy discussion and in the collaborations that help people fight disease.

What is your assessment of the state of the company’s pharmaceutical pipeline?

Four years ago, the new leadership team at HQ took the difficult step to review the entire pipeline with an eye to reducing our therapeutic footprint to a few key priority areas. The paring down was extensive and led to a decision to focus on three pillars: (1) immuno-oncology; (2) oncology; and (3) immunology, the latter reaffirming our historical franchise on MS. We think this is a very robust and balanced pipeline that represents good news for patients.

The key achievement for the business this year is FDA approval and launch of Bavencio, the first outcome of the groundbreaking oncology partnership we signed with Pfizer [Pfizer Inc.] in 2014. [See Deal] It’s a deal of co-equals with an extensive clinical development program. We think the Bavencio project is progressing in line with expectations, a position recently reaffirmed by Pfizer as well.

In fact, I’ve been pleasantly surprised by the collaborative tone of this relationship. It was speculated at the time that Pfizer’s size and scale would hamper our ability to shape the research program. There is a steering committee with executives from the two companies to manage day to day issues. I personally feel my voice has had an impact on Pfizer’s own perspective on program priorities. Both companies did a good job in structuring the way decisions are taken; there is a balance that tends to foster consensus. There is total alignment on the principle that any disagreements will not fester but be kicked up to Pfizer CEO Ian Read and Belen Garijo (MD, Merck KGAA's CEO of health care), to work out directly. To date, however, these procedures have been unnecessary; outstanding issues have been resolved quickly at the steering committee level.

Going forward, our company’s plan is to launch either a new indication or product every year through 2022. In addition to the metastatic Merkel cell carcinoma indication for avelumab, the FDA gave accelerated approval in May to an additional indication for avelumab, covering a specific group of urothelial cancer. We are studying avelumab for many other tumors, including non-small cell lung cancer and gastric cancer, and beyond that, for ovarian, renal cell and head and neck cancers. Overall, we believe avelumab will carry a big imprint across a broad range of tumor types, to be used in combination with other immuno-oncologics. Combination therapy plays a key role in our agenda for cancer.

In addition to better understanding immunology as a treatment for cancer, we are pursuing a separate exciting area of research: DNA damage and repair. This research is examining how damages over time in the composition of an individual’s DNA – often linked to aging – leads to gene mutations that can induce cancerous tumor growth. New drugs to deactivate the DNA triggers that cause cancerous cells to proliferate in solid tumors is behind an agreement we signed in January with Vertex [Vertex Pharmaceuticals Inc.]. Under that agreement, we licensed worldwide development and commercialization rights to four clinical and preclinical-stage compounds targeting DNA damage and repair. Of the four, two are clinical-stage programs that promise to be first-in-class in using this novel genetic pathway to fight different types of cancers (see sidebar –Merck KGAA’s Big Second Bet On Cancer).

I highlight this work on DNA damage and repair because it represents an area that is still wide open in the research space. In contrast to the multiple layers of industry engagement around immuno-oncology, which is the focus of our work with Pfizer, only two other companies are active in DNA damage and repair as a treatment model for cancer. It’s a wide-open field, and we intend to claim that turf.

What is your assessment regarding the failure of the anticipated Phase III JAVELIN GASTRIC 300 trial to meet its primary endpoint of superior overall survival, compared with chemotherapy? Any next steps?

JAVELIN GASTRIC 300 set a high bar for success. Gastric cancer is a hard to treat and heterogenous disease in the third-line setting. It was the first trial conducted with a checkpoint inhibitor compared with an active chemotherapy comparator rather than placebo in a global patient population, regardless of PD-L1 expression. Although it is true the primary endpoint was not met, we believe there are valuable insights to uncover and we look forward to a further deeper evaluation of the results. This analysis will be publicly presented at an upcoming 2018 medical congress as soon as we complete it.

In addition, we are reaffirming our commitment to continue the ongoing gastric cancer program with avelumab, including the JAVELIN Gastric 100 study in the first-line switch maintenance setting. The gastric cohorts from the Phase I JAVELIN Solid Tumor and Solid Tumor Japan studies remain ongoing as well. Hence there is no plan to exit this very important therapy space for patients.

Exhibit 1

Key Compounds In Development

Drug	Study Title	Condition(s)	Phase	Completion Date
Sprifermin	Safety and effectiveness of different doses of Sprifermin (AS902330) in patients with osteoarthritis of the knee	Osteoarthritis knee	Phase II	May 2019
Evobrutinib	Safety and efficacy of Evobrutinib in subjects with relapsing and remitting MS	Relapsing-remitting multiple sclerosis (MS)	Phase II	February 2019
Evobrutinib	Phase II(b) study of evobrutinib in patients with rheumatoid arthritis (RA)	Rheumatoid arthritis (RA)	Phase II	April 2021
Evobrutinib	Study of evobrutinib in systemic lupus erythematosus (SLE)	Systemic lupus erythematosus (SLF)	Phase II	Fourth-quarter 2019
Atacicept	Study of long-term safety and tolerability of atacicept	Systemic lupus erythematosus (SLF)	Phase II	February 2018
Avelumab	Avelumab in first-line maintenance of gastric cancer – JAVELIN GASTRIC 100	Unselectable, locally advanced or metastatic adenocarcinoma of the stomach or gastro-esophageal junction	Phase III	March 2024
Avelumab	Safety, efficacy, pharmacokinetics and pharmacodynamics of avelumab in combination with crizotinib and lorlatinib in patients with NSCLC (JAVELIN LUNG 101)	Non-small cell lung cancer (NSCLC)	Phase II	August 2020
Avelumab	Avelumab in previously untreated patients with epithelial ovarian cancer (JAVELIN OVARIAN 100)	Ovarian cancer	Phase III	December 2021
Avelumab	Avelumab alone or in combination with pegylated liposonal doxorubicin alone in patients with platinum resistant refractory ovarian cancer (JAVELIN OVARIAN 200)	Ovarian cancer	Phase III	March 2018
Avelumab	Safety, pharmaco-kinetics and preliminary clinical activity of defactinib in combination with avelumab in epithelial ovarian cancer	Ovarian cancer	Phase I	December 2018

SOURCES: EMD Serono; clinical trials.gov; TrialTrove | Pharma Intelligence, 2017

Outside of oncology, what else in the R&D pipeline promises to be a gamechanger for patients?

I am excited by our BTK inhibitor, evobrutinib, which is being studied at the Phase II stage for a variety of applications in immunology, including rheumatoid arthritis, systemic lupus erythematosus (SLE) and MS. Psoriasis is another application of this therapy as well as hematologic disorders. We are at the early stage of framing out a full development plan for evobrutinib, but the drug has properties that distinguish it from others in the BTK inhibitor class, including those in development by other companies. Of course, all this must be proven out at the clinical phase, but our research team is confident about our development efforts for evobrutinib in multiple, hard to treat conditions.

Two other immunology pipeline candidates in areas of unmet medical need are presently at the Phase II trial stage. The first, atacicept, is an anti-blys/anti-APRIL fusion protein being studied for treatment of systemic lupus disease. This is a tough, difficult condition for which there has been remarkably few options for patients over the last two decades. If the trials play out positively, we will witness a real advance in the standard of care. The second, sprifermin, is a fibroblast growth factor to treat osteoarthritis, a major factor in disability among the elderly. It’s way up there in the burden of disease projections for the next decade. Sprifermin is also in Phase II testing.

For years, MS has held a pivotal position in Merck KGAA’s pharmaceutical portfolio. Any new developments in the pipeline to give investors confidence your competitive lead will continue in this therapeutic area?

Rebif continues as the mainstay in the prescriber arsenal against relapsing MS. We continue to build on the real-world evidence to demonstrate the drug’s safety and tolerability among patients and its cost-effectiveness to payers. Over the last several years, we have negotiated with payers three outcomes-based contracting arrangements that demonstrate how Rebif creates value for the health system. This work is a real confidence builder in the relations with our customers.

As noted, we are studying the potential evobrutinib may have in treating different stages of MS. In addition, we are capitalizing on the completion of a lengthy series of multi-year studies to assess the efficacy and safety profile of Cladribine Tablets, known as Mavenclad in the EU and Canada, where it was recently approved for marketing. As noted, we intend to make additional approval filings for Maveclad in other countries, including the US.

Another area that signifies our continuing commitment to MS is the work we are doing to inform policy makers and the public about the toll the disease takes on people and society. In May, as part of World MS Day, we announced a new collaboration with the International Alliance of Career Organizations to commission a comprehensive MS care partner survey to identify unmet needs related to MS. The survey will be based on preliminary research that confirmed the 18- to 34-year-old cohort is the largest component of MS care partners. The impact of having to care for a loved one with MS during these key formative years is poorly understood. Problems experienced among these caregivers include anxiety, depression, insomnia and pain, along with the impact of individual finances. Addressing this is critical because this age group of caretakers has a strong impact on any country’s prospects for growth and productivity.

Why we invest in this kind of work is precisely to show that progress in drug treatment – and an eventual cure – has much more than a clinical or quality of life impact. It’s transformative from a socio-economic and budgetary perspective as well.

Identify the metrics by which your performance will be evaluated at the beginning of the next decade – three years from now.

My guideposts for success are, first and foremost, to deliver on our financial commitments to the company – and to provide real value to patients and other stakeholders like physicians and payers, not to mention the family caregivers. A strong steady performance in the US is critical to the continued future success of Merck KGAA as a global business. In pursuit of this objective, I intend to advance the commitment to innovative oncology treatments that address significant unmet medical needs. That includes being recognized as a partner of choice in oncology research and a key resource support for patients with cancer.

Do you believe you have the necessary size and scale to compete in the increasingly expensive oncology space? The cancer business is not for the faint of heart.

I agree that the price tag for being competitive in this space is soaring. But we are positioned to be a player, even if we lack the size and reach of a big pharma company. We spend roughly 20% of annual revenues on R&D. With that level of commitment, and the partnerships with Pfizer and major institutions like MD Anderson [MD Anderson Cancer Center], I can say we have the resources to compete effectively. We just have to be smart about how and where we place our bets.

Might there also be an advantage from the fact that you are part of a larger organization with a big footprint in life sciences products and platforms – few other biopharma companies have that adjacency.

Yes. MilliporeSigma [MilliporeSigma] is an integral part of the Merck KGAA family, as our dedicated life sciences business. We are working to determine the best ways that our two businesses can collaborate. We both see an overlap in our customer base, and discussions are underway on the value MilliporeSigma can provide to our biopharma business, and vice versa. At the very least, there is room for cooperation around mobilizing software tools and logistics expertise to improve health outcomes.

Is there a disruptive trend that could impact your plans to grow the US business and raise the company profile as a leader in immunology and cancer?

My big concern is the US maintaining a policy and regulatory climate that is conducive to investment in high-risk areas of innovation like drug development. This is especially true for difficult to treat diseases. We monitor very carefully the work that our trade associations, PhRMA and BIO, do on our behalf with regulators and legislators in government. Another – more positive – source of disruption is big data. It is going to provide the industry with the ability to identify the right therapy for the right patient. Certainly, this trend will affect the manner in which drug companies relate to providers, patients and payers – our customers. There won’t be as much time for us to consider and react to competitive challenges – seamless execution on strategy rises in importance. There will be fewer second chances to get it right.