The Pharmafocus Interview: Elmar Schnee
pharmafile | January 6, 2009 | Feature | Sales and Marketing |Â Â EU, Germany, IQWIG, Merck Serono, cost-effectivenessÂ
Germany's Merck has the kind of business model that investors warm to during times of recession.
The company is the world's oldest pharmaceutical company, stretching all the way back to 1688, and has been built on the solid conservative German approach to business which reassures investors when some more volatile risk-taking Anglo-Saxon companies hit hard times.
But Merck's own exposure to investors and the sometimes volatile markets is limited, with just 30% of the company's total capital publicly traded, while the remaining 70% is held privately by the company's family-controlled board.
Yet it would be wrong to paint Merck has a stuffy, low-growth business, as it is currently enjoying strong growth on the back of multiple sclerosis blockbuster Rebif, and the ascendant cancer treatment Erbitux.
Investors also value diverse business models during economic downturns, and in addition to its prescription medicines business, Merck also has a consumer health division, a liquid crystals business and a performance and life sciences chemicals arm.
Merck Serono
In 2006, Merck bought a majority stake in Serono for 16.6 billion Swiss francs (10.5 billion euros, $13.3 billion), and overnight became one of Europe's biggest players in the biotech field, based on Serono's heritage in fertility treatment and its top-selling MS treatment Rebif.
This made a good fit with Erbitux, the biotech cancer treatment developed by ImClone to which Merck had gained the European licensing rights in the late 90s. Launched by Merck in Europe in 2004 as a second or third line treatment for colorectal cancer, Merck's Erbitux sales are set to exceed 500 million euros by the end of 2008.
The drug is set for even greater growth in 2009 following a rapid expansion approval in December for its use as a first line treatment for head and neck cancer in combination with chemotherapy.
Confident of the long-term future for Erbitux, Merck Serono have invested 200 million euros to expand its biological manufacturing site in Corsier-sur-Vevey, Switzerland to manufacture the drug and other future biotech products.
Head of Merck's pharmaceutical operations Elmar Schnee spoke to Pharmafocus Europe to mark the opening of the centre and look ahead to 2009.
Asked about the security afforded by the company's privately-controlled status, Schnee says there is definitely less pressure to deliver short-term returns.
"Time lines have a different connotation for us compared to a quarter results driven company, it's true," he says.
"The share price for us is not at the forefront of our consideration, but over the long-term we will enjoy a good performance."
In terms of his company's prospects in a recession, Schnee echoed the sentiments of others in pharma sector by saying it depends on the length and severity of the downturn.
"If there is a deep recession, I think Merck will feel it too. That may be mainly in the chemical business – our liquid crystals [used in TV and monitor displays] would be affected if people buy fewer TVs and computers. Pigments, which are used in high end cars, there you might also see an impact."
He concedes that "patients become ill regardless of whether there is a financial crisis or not" but says government will inevitably turn to more aggressive price controls in their healthcare systems if the recession persists.
'Germany's IQWIG is a disaster'
As with all pharma leaders in Europe, access to new medicines and pricing and reimbursement is a major concern for Schnee.
He is careful to praise the UK's cost effectiveness body NICE for its rigorous evaluation methods and standards but insists that the body must take a more holistic approach to cost effectiveness.
"You don't want to just take the 'micro' view – you have to take an holistic approach, and take into consideration all costs, like unemployment, care giving and disability and hospital treatment costs," he insists, saying that NICE's QALY measure is too restrictive.
NICE has rejected Erbitux for use on the national health service, and Schnee says this is indefensible. "I went to previously communist countries like Bulgaria and Poland and Erbitux was fully reimbursed. But in the UK it is not, and for me, that's unacceptable."
But he reserves his greatest criticism for Germany's equivalent to NICE, the Institute for Quality and Efficiency in Health Care (IQWIG).
"It's a complete disaster," he asserts. "I am greatly concerned about IQWIG, because it is just not professional, what they do. They have the wrong standards, and there is a total lack of transparency. Nobody knows what their agenda is, they have their own experts, and there is absolutely no forum to have interaction with them."
He says IQWIG's guidance – recommending diuretics as the choice of drugs for hypertension, for instance – is anti-innovation and could damage Europe's industry.
Schnee says the agency is not only lacking transparency, but claims it has overstepped its authority in trying to dictate reimbursement levels to Germany's health insurers.
Looking ahead
As Merck had been prepared to raise the equivalent of $13.3 billion to buy Serono in 2006, Pharmafocus asks Schnee if the company had considered stepping into this year's bidding war for ImClone, the company which discovered Erbitux and co-owns the US marketing rights to the drug with BMS.
Lilly eventually bought ImClone for $6.5 billion, beating BMS's offer.
Schnee declines a direct response but says: "Yes, there are always these kinds of considerations. But there was no compelling reason for us to do so, because whatever happens to ImClone, our rights are secure."
A key drug for Merck's future is a new MS treatment, cladribine, one of several rival oral drugs in development which could supercede the injection-based beta interferon treatments such as Rebif. Two crucial phase III trials of the drug are due to report in early 2009, while another drug safinimide, will also see phase III results released on its combination with levodopa for Parkinson's disease.
Schnee remains assured about the immediate future, and confident despite its fortunes still resting heavily on the performance of Rebif.
The brand is easily Merck Seono's biggest selling product, and in theory should be vulnerable to generic competitors. But its status as a biological means that launching a new 'biosimilar' rival against it and other established beta interferon drugs will prove difficult. "Biosimilars are similar, they are not copies," says Schnee. "I think Rebif has quite a lot of growth left.
"And we have recently changed the formulation, so it now offers better efficacy, so I think we are in a good position to face any biosimilar competition."
MERCK BACKGROUNDER
* Merck is the world's oldest pharmaceutical and chemical company, it traces its roots back to 1668 when Friedrich Jacob Merck acquires the Angel Pharmacy ("Engel-Apotheke").
The company is often confused with its US namesake, and indeed the company's were once one and the same. The US subsidiary Merck Inc. was expropriated by the US government during the First World War and has been an independent company ever since.
* Merck employs around 32,000 people in more than 61 countries around the world, and earned revenues of approximately 7.1 billion euros in 2007.
* After missing out on acquiring fellow German pharma company Schering (bought by Bayer) Merck acquire Swiss biopharmaceutical company Serono in 2006.
The company has four divisions: ethical pharmaceuticals, consumer healthcare, liquid crystals and performance and life science chemicals.
Merck Serono accounts for approximately 65% of the company's total revenues and the business is managed under the umbrella of Merck KGaA headquartered in Darmstadt, Germany.
Around 30% of the company's total capital is publicly traded, while the Merck family owns an interest of about 70%.
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