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Merck Reorganization Raises Questions over Company's RNAi Programs

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Merck this week announced a broad restructuring that will include the elimination of roughly 8,500 jobs and a reduction in the company's annual operating expenses by $2.5 billion by the end of 2015.

Notably, the move will also include a reduction in Merck's focus on platform technologies, of which RNAi is one, raising questions about the future of the gene-silencing technology at one of the few remaining big pharmas that continues to embrace it.

According to Merck, this "multi-year initiative" will allow it to "better target its resources behind those opportunities that have the potential to deliver the greatest return on investment, including bolstering its pipeline and implementing a more agile operating model, with a significantly reduced, more flexible cost structure."

“These actions will make Merck a more competitive company, better positioned to drive innovation and to more effectively commercialize medicines and vaccines for the people who need them,” Chairman and CEO Kenneth Frazier said in a statement.

Company officials did not return a request for comment, but reorganization could threaten the company's efforts with RNAi, which began in the very earliest days of the technology.

As reported by Gene Silencing News, Merck was the first pharmaceutical industry player to dip its toes in the RNAi waters when it began working with Alnylam Pharmaceuticals in 2003 (GSN 9/12/2003).

Though that relationship ultimately soured, Merck's interest in RNAi persisted, and in 2006 the company made a successful bid to acquire Alnylam rival Sirna Therapeutics for $1.1 billion — a figure that remains the largest for any deal in the space (GSN 11/2/2006).

Since that time, Merck has remained tightlipped on its RNAi programs, and even publicly raised questions about the technology's promise as a drug modality. For instance, in 2008 Alan Sachs, then vice president of Merck Research Laboratories, gave a presentation at an industry event in which he cautioned against over-enthusiasm about RNAi's therapeutic potential, citing the persistence many of the key hurdles including ones related to delivery (GSN 10/3/2008).

However, Merck continued to push forward with RNAi, both as a drug-discovery tool and drug in and of itself, as evidenced by the number of papers from company researchers that appeared in the literature — including publications related to the use of siRNAs to combat diabetes, polymer conjugates for siRNA drug delivery, and chemical modifications to enhance siRNA activity in vivo, to name a few recent ones.

In fact, in late 2011, Jeremy Caldwell, Merck's vice president of RNA Therapeutics, exclusively told Gene Silencing News that the company anticipated advancing an siRNA-based drug into human trials as early as 2013 (GSN 12/8/2011).

But with this week's announcement, Merck has raised concerns that its former commitment to RNAi may have waned amid pressures on its balance sheet.

The company said that with the restructuring, it will "better allocate resources … to those areas that present the highest-potential growth opportunities," such as its phase III anti-PD-1 cancer immunotherapy lambrolizumab. At the same time, it will "out-license or discontinue selected late-stage clinical development assets and reduce its focus on platform technologies," without naming any specifically.

Well-trodden path

If it does drop its in-house RNAi research and development programs, Merck will follow in the footsteps of two other major biopharmaceutical firms that started off strongly committed to the technology but ultimately pulled back to focus on others initiatives.

In late 2010, Roche sent shockwaves through the RNAi industry when it announced that it was ending its RNAi research activities as part of a corporate shakeup that saw the elimination of 6 percent of its workforce (GSN 11/18/2010).

The news was particularly surprising given Roche's heavy investment in gene silencing up to that point. In 2007, the company paid $274 million to gain non-exclusive access to Alnylam's RNAi technology and intellectual property, and another $15 million to buy the RNAi shop's German subsidiary (GSN 7/12/2007).

The next year, Roche shelled out $125 million to buy Mirus Bio and its polymer-based dynamic polyconjugate delivery technology (GSN 7/24/2008). And in 2009, Roche forged a drug-development collaboration with Tekmira Pharmaceuticals that cost it $18.4 million in research funding (GSN 5/14/2009).

Around the same time that Roche backed away from RNAi, Pfizer announced that it was shuttering its oligonucleotide drugs unit, also as part of a broader restructuring (GSN 10/27/2011).

Because the deal required no upfront cash payment from Arrowhead, the company, which had been struggling to advance its own RNAi technology through phase I, was able to afford Roche's highly promising dynamic polyconjugate delivery vehicles and a hepatitis B program that was nearly ready for the clinic.

Arrowhead moved that drug, called ARC-520, into phase I this summer (GSN 7/25/2013).

Meanwhile, Pfizer handed back TT-034 to Tacere when it stopped working internally on oligo drugs, opening the door for Australia's Benitec Biopharma — the agent's original developer — to buy Tacere for just $1.5 million in stock and regain access to a program it had previously sold off amid previous financial struggles (GSN 10/11/2012).

A phase I/II trial of TT-034 is slated to begin before the end of the year.

The restructuring

According to Merck, its planned changes will create $2.5 billion in annual net cost savings by the end of 2015, with $1 billion of the saving to be realized by the end of 2014. A "substantial" portion of the savings will come from marketing and administrative expenses, as well as R&D spending.

The planned elimination of 8,500 jobs, combined with previously announced cuts of about 7,500 positions, will trim about 20 percent of Merck's overall workforce of 81,000 employees.

Total pre-tax costs for the new restructuring program are estimated to range between $2.5 billion and $3.0 billion. Merck said it estimates that approximately two-thirds of these costs will result in cash outlays, primarily related to separation expense, and approximately one-third are non-cash, primarily related to accelerated depreciation of facilities to be closed or divested.

The company also said that it is transferring its headquarters from Whitehouse Station, NJ, to existing facilities is Kenilworth, NJ. This transition is expected to begin next year and be completed by 2015.

“While these actions are essential to ensure that Merck can continue to fulfill its mission into the future, they are nevertheless difficult decisions because they affect our dedicated and talented colleagues, Frazier said.

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