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Merck drops investment in biopharma unit

18-Nov-2003

Germany's Merck KGaA has pulled back from an earlier plan to invest in a new production plant for biopharmaceuticals at its Jena site.

The company said that late-stage product failures have freed up contract manufacturing capacity for protein-based drugs, making this route a more attractive option. The company's move suggests that the often-repeated assertion that there is a shortfall in biomanufacturing capacity may be unfounded, at least in the near-term.

Merck has also levelled the blame for its decision on Germany's controversial health reforms , which are bringing in mandatory rebates for non-reference price medicines and removing the freedom of companies to set their own prices for medicines.

The company first unveiled its plans to build the plant in May. Under the original plan, the company had planned to invest €254 million in the plant, helped by a 30 per cent grant from the German government, and to create 280 jobs. By the time the latest announcement had come out, the budget for the project had swelled to €300 million.

A spokeswoman for the company stressed that the decision had no bearing on the approval prospects for Merck's Erbitux (cetuximab), a drug for advanced colorectal cancer that has had a troubled development path, at least in the US.

Erbitux was originated by US firm ImClone Systems and was rejected for approval by the US Food and Drug Administration (FDA) in December 2001. The agency cited poor trial design as the reason for the decision, and there was a predictable fall-out in ImClone shares and those of its US partner, Bristol-Myers Squibb.

Controversy ensued, however, when the chief executive of ImClone, Sam Waksal, was accused of knowingly selling shares ahead of the share price fall - and advising members of his family to do likewise - before the FDA's verdict became public. Waksal has since been tried and convicted for insider trading and has started a jail sentence.

These matters overshadowed Erbitux' development, even in Europe where Merck was responsible for conducting the registration trials. However, last week company was informed by the authorities in Switzerland that Erbitux had been recommended for approval, suggesting it could be on the market there before the end of the year.

The spokeswoman said that initial manufacturing agreements with ImClone and Boehringer Ingelheim would cope with the initial commercialisation of Erbitux. The Jena facility had also been expected to manufacture an Erbitux follow-up, known as EMD 72000, but this too will be produced by contract manufacturing, at least in the medium term. EMD 72000 is currently in Phase II trials and is not expected to be approved before 2007 at the earliest.

"Merck has determined that adequate biological production capacity willexist to meet our mid-term requirements," Merck chief executive Bernhard Scheuble said. "Therefore, it appears that in order to remain flexible, our best option for the time being is to use contract manufacturing rather than tying up capital in a new, expensive plant," he added.

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